[Federal Register Volume 86, Number 67 (Friday, April 9, 2021)]
[Rules and Regulations]
[Pages 18596-18838]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28370]



[[Page 18595]]

Vol. 86

Friday,

No. 67

April 9, 2021

Part II





 Securities and Exchange Commission





-----------------------------------------------------------------------





17 CFR Parts 240, 242, and 249





 Market Data Infrastructure; Final Rule

Federal Register / Vol. 86, No. 67 / Friday, April 9, 2021 / Rules 
and Regulations

[[Page 18596]]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240, 242, and 249

[Release No. 34-90610, File No. S7-03-20]
RIN 3235-AM61


Market Data Infrastructure

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'' or 
``SEC'') is amending Regulation National Market System (``Regulation 
NMS'') under the Securities Exchange Act of 1934 (``Exchange Act'') to 
modernize the national market system for the collection, consolidation, 
and dissemination of information with respect to quotations for and 
transactions in national market system (``NMS'') stocks (``NMS 
information''). Specifically, the Commission is expanding the content 
of NMS information that is required to be collected, consolidated, and 
disseminated as part of the national market system under Regulation NMS 
and is amending the method by which such NMS information is collected, 
calculated, and disseminated by fostering a competitive environment for 
the dissemination of NMS information via a decentralized consolidation 
model with competing consolidators.

DATES: Effective date: The final rules are effective June 8, 2021.
    Compliance dates: The applicable compliance dates are discussed in 
Section III.H, titled ``Transition Period and Compliance Dates.''

FOR FURTHER INFORMATION CONTACT: Kelly Riley, Senior Special Counsel, 
at (202) 551-6772; Ted Uliassi, Senior Special Counsel, at (202) 551-
6095; Elizabeth C. Badawy, Senior Accountant, at (202) 551-5612; Leigh 
Duffy, Special Counsel, at (202) 551-5928; Yvonne Fraticelli, Special 
Counsel, at (202) 551-5654; Steve Kuan, Special Counsel, at (202) 551-
5624; or Joshua Nimmo, Attorney-Advisor, at (202) 551-5452, Division of 
Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549. 
For further information on Regulation SCI: Heidi Pilpel, Senior Special 
Counsel at (202) 551-5666; David Liu, Special Counsel at (312) 353-6265 
or Sara Hawkins, Special Counsel, at (202) 551-5523, Division of 
Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is adopting 17 CFR 242.614 
(new Rule 614) under the Exchange Act, Form CC to require registration 
of competing consolidators, and a requirement that the participants to 
the effective national market system plan(s) for NMS stocks amend such 
plan(s) to reflect the new role and functions of the plan(s). The 
Commission is also adopting amendments to the following rules:

------------------------------------------------------------------------
          Commission reference                CFR citation (17 CFR)
------------------------------------------------------------------------
Exchange Act:
    Rule 3a51-1........................  Sec.   240.3a51-1.
    Rule 13h-1.........................  Sec.   240.13h-1.
Regulation NMS:........................  Sec.  Sec.   242.600 through
                                          242.613.
    Rule 600(b)(2).....................  Sec.   242.600(b)(2).
    Rule 600(b)(5).....................  Sec.   242.600(b)(5).
    Rule 600(b)(16)....................  Sec.   242.600(b)(16).
    Rule 600(b)(19)....................  Sec.   242.600(b)(19).
    Rule 600(b)(20)....................  Sec.   242.600(b)(20).
    Rule 600(b)(21)....................  Sec.   242.600(b)(21).
    Rule 600(b)(26)....................  Sec.   242.600(b)(26).
    Rule 600(b)(50)....................  Sec.   242.600(b)(50).
    Rule 600(b)(59)....................  Sec.   242.600(b)(59).
    Rule 600(b)(68)....................  Sec.   242.600(b)(68).
    Rule 600(b)(70)....................  Sec.   242.600(b)(70).
    Rule 600(b)(78)....................  Sec.   242.600(b)(78).
    Rule 600(b)(82)....................  Sec.   242.600(b)(82).
    Rule 600(b)(83)....................  Sec.   242.600(b)(83).
    Rule 600(b)(85)....................  Sec.   242.600(b)(85).
    Rule 602...........................  Sec.   242.602.
    Rule 603...........................  Sec.   242.603.
    Rule 611...........................  Sec.   242.611.
Regulation SCI:........................  Sec.  Sec.   242.1000 through
                                          242.1007.
    Rule 1000..........................  Sec.   242.1000.
Forms, Exchange Act:...................  Part 249.
    Form CC............................  Sec.   249.1002.
    Form SCI...........................  Sec.   249.1900.
------------------------------------------------------------------------

    Finally, the Commission is adopting conforming changes and updates 
to cross-references in:

------------------------------------------------------------------------
          Commission reference                CFR citation (17 CFR)
------------------------------------------------------------------------
Exchange Act:
    Rule 105(b)(1)(i)(C)...............  Sec.   242.105(b)(1)(i)(C).
    Rule 105(b)(1)(ii).................  Sec.   242.105(b)(1)(ii).
    Rule 201(a)(1).....................  Sec.   242.201(a)(1).
    Rule 201(a)(2).....................  Sec.   242.201(a)(2).

[[Page 18597]]

 
    Rule 201(a)(3).....................  Sec.   242.201(a)(3).
    Rule 201(a)(4).....................  Sec.   242.201(a)(4).
    Rule 201(a)(5).....................  Sec.   242.201(a)(5).
    Rule 201(a)(6).....................  Sec.   242.201(a)(6).
    Rule 201(a)(7).....................  Sec.   242.201(a)(7).
    Rule 201(a)(9).....................  Sec.   242.201(a)(9).
    Rule 201(b)(1)(ii).................  Sec.   242.201(b)(1)(ii).
    Rule 201(b)(3).....................  Sec.   242.201(b)(3).
    Rule 204(g)(2).....................  Sec.   242.204(g)(2).
    Rule 600...........................  Sec.   242.600.
    Rule 602...........................  Sec.   242.602.
    Rule 611(c)........................  Sec.   242.611(c).
------------------------------------------------------------------------

Table of Contents

I. Introduction and Background
    A. Current Market Data Content and Dissemination Model Under 
Regulation NMS
    B. National Market System Initiatives and the Market Data 
Infrastructure Proposing Release
    C. Enhancements to the Content of NMS Information
    D. Enhancements to the Provision of Consolidated Market Data
    E. Implications for Best Execution
II. Enhancements to NMS Information
    A. Introduction
    B. Definition of ``Consolidated Market Data'' Under Rule 
600(b)(19)
    1. Proposal
    2. Final Rule and Response to Comments
    3. The Fifth Amendment's Takings Clause
    C. Definition of ``Core Data'' Under Rule 600(b)(21)
    1. Proposal
    2. Final Rule and Response to Comments
    D. Definition of ``Round Lot'' Under Rule 600(b)(82)
    1. Proposal
    2. Final Rule and Response to Comments
    E. Definition of ``Protected Bid or Protected Offer'' Under Rule 
600(b)(70)
    1. Proposal
    2. Final Rule and Response to Comments
    F. Definition of ``Depth of Book Data'' Under Rule 600(b)(26)
    1. Proposal
    2. Final Rule and Response to Comments
    G. Definition of ``Auction Information'' Under Rule 600(b)(5)
    1. Proposal
    2. Final Rule and Response to Comments
    H. Definition of ``Regulatory Data'' Under Rule 600(b)(78)
    1. Proposal
    2. Final Rule and Response to Comments
    I. Regulation SHO: Conforming Amendments to Rule 201
    1. Proposal
    2. Final Rule and Response to Comments
    J. Definition of ``Administrative Data'' Under Rule 600(b)(2)
    1. Proposal
    2. Final Rule and Response to Comments
    K. Definition of ``Self-Regulatory Organization-Specific Program 
Data'' Under Rule 600(b)(85)
    1. Proposal
    2. Final Rule and Response to Comments
III. Enhancements to the Provision of Consolidated Market Data
    A. Introduction
    B. Proposed Decentralized Consolidation Model
    1. Comments on the Decentralized Consolidation Model
    2. Comments on the Effectiveness of the Proposal
    3. Comments on the Viability of the Decentralized Consolidation 
Model
    4. Comments on Conflicts of Interest
    5. Comments on Latency
    6. Comments on the Potential Impact on Costs for Consolidated 
Market Data
    7. Comments on Complexity of the Decentralized Consolidation 
Model
    8. Comments on Surveillance and Regulation in the Decentralized 
Consolidation Model
    9. Access to Data: Rule 603(b)
    10. Calculation of the National Best Bid and National Best Offer 
Under Rule 600(b)(50)
    C. Competing Consolidators
    1. Definition of ``Competing Consolidator'' Under Rule 
600(b)(16)
    2. Comments on Resiliency
    3. Comments on Data Quality
    4. Comments on Competing Consolidator Products
    5. Comments on Selection of a Competing Consolidator
    6. Comments on a Standardized Consolidation Process
    7. Registration and Responsibilities of Competing Consolidators: 
Rule 614
    8. Responsibilities of a Competing Consolidator
    D. Self-Aggregators
    1. Proposal
    2. Final Rule and Response to Comments
    E. Amendment to the Effective National Market System Plan(s) for 
NMS Stocks Under Rule 614(e)
    1. Proposal
    2. Final Rule and Response to Comments
    F. Systems Capability: Amendment to Rule 1000 of Regulation SCI 
To Expand ``SCI Entities'' Definition To Include ``SCI Competing 
Consolidator''; Adoption of Rule 614(d)(9): Systems Integrity
    G. Effects on the National Market System Plan Governing the 
Consolidated Audit Trail
    H. Transition Period and Compliance Dates
    1. Proposal
    2. Final Rule and Response to Comments
    I. Alternatives to the Centralized Consolidation Model
    1. Distributed SIP Alternative
    2. Single SIP Alternative
    3. Other Alternatives
IV. Paperwork Reduction Act
    A. Summary of Collection of Information
    1. Registration Requirements and Form CC
    2. Competing Consolidators' Public Posting of Form CC
    3. Competing Consolidator Duties and Data Collection
    4. Recordkeeping
    5. Reports and Reviews
    6. Amendment to the Effective National Market System Plan(s) for 
NMS Stocks
    7. Collection and Dissemination of Information by National 
Securities Exchanges and National Securities Associations
    B. Proposed Use of Information
    1. Registration Requirements and Form CC
    2. Competing Consolidators' Public Posting of Form CC
    3. Competing Consolidator Duties and Data Collection
    4. Recordkeeping
    5. Reports and Reviews
    6. Amendment to the Effective National Market System Plan(s) for 
NMS Stocks
    7. Collection and Dissemination of Information by National 
Securities Exchanges and National Securities Associations
    C. Respondents
    1. Initial Estimate
    D. Total Initial and Annual Reporting and Recordkeeping Burden
    1. Registration Requirements and Form CC
    2. Competing Consolidators' Public Posting of Form CC
    3. Competing Consolidator Duties and Data Collection
    4. Recordkeeping
    5. Reports and Reviews
    6. Amendment to the Effective National Market System Plan(s) for 
NMS Stocks
    7. Collection and Dissemination of Information by National 
Securities Exchanges and National Securities Associations
    E. Collection of Information Is Mandatory
    F. Confidentiality
    1. Registration Requirements and Form CC
    2. Competing Consolidator Duties and Data Collection and 
Maintenance
    3. Competing Consolidators' Public Posting of Form CC
    4. Recordkeeping

[[Page 18598]]

    5. Reports and Reviews
    6. Amendment to the Effective National Market System Plan(s) for 
NMS Stocks
    7. Collection and Dissemination of Information by National 
Securities Exchanges and National Securities Associations
    G. Revisions to Current Regulation SCI Burden Estimates and 
Adoption of Rule 614(d)(9)
    1. Proposed Estimates--Burden and Costs
    2. Comments/Responses on Burden and Costs
    3. Adopted Estimates--Burden and Costs
V. Economic Analysis
    A. Introduction and Market Failures
    1. Introduction
    2. Market Failures
    B. Baseline
    1. Current Regulatory Process for Equity Data Plans and SIP Data
    2. Current Process for Collecting, Consolidating, and 
Disseminating Market Data
    3. Competition Baseline
    C. Economic Effects of the Rule
    1. Consolidated Market Data
    2. Decentralized Consolidation Model
    3. Economic Effects of Form CC
    4. Economic Effects from the Interaction of Changes to Core Data 
and the Decentralized Consolidation Model
    D. Impact on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    E. Alternatives
    1. Introduce Decentralized Consolidation Model With Addition of 
Full Depth of Book to Core Data Definition
    2. Introduce Changes in Core Data and Introduce a Distributed 
SIP Model
    3. Require Competing Consolidators' Fees be Subject to the 
Commission's Approval
    4. Do Not Extend Regulation SCI To Include Competing 
Consolidators
    5. Require Competing Consolidators To Submit Form CC in the 
EDGAR System Using the Inline XBRL Format
    6. Require Competing Consolidators To Submit Monthly Disclosures 
in the EDGAR System Using the Inline XBRL Format
    7. Prescribing the Format of NMS Information
VI. Regulatory Flexibility Certification
VII. Other Matters
VIII. Statutory Authority

I. Introduction and Background

    The widespread availability of timely NMS information is critical 
to the ability of market participants to participate effectively in the 
U.S. securities markets. NMS information is made widely available to 
investors through the national market system, a system set forth by 
Congress in Section 11A of the Exchange Act \1\ and facilitated by the 
Commission in Regulation NMS. The current national market system for 
NMS information was developed in the late 1970s, and the Commission is 
adopting changes that will modernize the national market system for NMS 
information for the benefit of investors.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78k-1.
---------------------------------------------------------------------------

    Section 11A of the Exchange Act directs the Commission to 
facilitate the establishment of a national market system for the 
trading of securities in accordance with the Congressional findings and 
objectives set forth in Section 11A(a)(1) of the Exchange Act.\2\ Among 
the findings and objectives of Section 11A(a)(1) are that new data 
processing and communications techniques create the opportunity for 
more efficient and effective market operations,\3\ and that it is in 
the public interest and appropriate for the protection of investors and 
the maintenance of fair and orderly markets to ensure the availability 
to brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.\4\ Section 11A of the 
Exchange Act also authorizes the Commission to prescribe rules to 
ensure the ``prompt, accurate, reliable, and fair collection, 
processing, distribution, and publication of information with respect 
to quotations for and transactions in such securities and the fairness 
and usefulness of the form and content of such information.'' \5\ In 
furtherance of these purposes, the Commission has sought through its 
rules and regulations to help ensure that certain ``core data'' \6\ is 
widely available for reasonable fees.\7\ The Commission has recognized 
that investors must have certain core data ``to participate in the U.S. 
equity markets.'' \8\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78k-1(a)(1).
    \3\ See 15 U.S.C. 78k-1(a)(1)(B). See also S. Rep. No. 94-75, 
94th Cong., 1st Sess. (1975) (noting that the systems for collecting 
and distributing consolidated market data would ``form the heart of 
the national market system'').
    \4\ See 15 U.S.C. 78k-1(a)(1)(C).
    \5\ 15 U.S.C. 78k-1(c)(1)(B).
    \6\ See infra note 17 and accompanying text (defining ``core 
data'').
    \7\ See Rule 603 of Regulation NMS; see also, e.g., Securities 
Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37560 
(June 29, 2005) (``Regulation NMS Adopting Release'') (``In the 
Proposing Release, the Commission emphasized that one of its primary 
goals with respect to market data is to assure reasonable fees that 
promote the wide public availability of consolidated market 
data.'').
    \8\ Regulation NMS Adopting Release, supra note 7, at 37560.
---------------------------------------------------------------------------

    On February 14, 2020, the Commission proposed to amend Regulation 
NMS to better achieve the goal of Section 11A of the Exchange Act of 
assuring ``the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities'' that is prompt, accurate, reliable, and fair.\9\ The 
amendments as adopted endeavor to fulfill this goal of Section 11A of 
the Exchange Act by updating the content of ``core data'' and the 
manner in which it is provided to investors in the national market 
system.
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release No. 88216 (Feb. 14, 
2020), 85 FR 16726, 27 (Mar. 24, 2020) (``Market Data Infrastructure 
Proposing Release'' or ``Proposing Release'').
---------------------------------------------------------------------------

A. Current Market Data Content and Dissemination Model Under Regulation 
NMS

    The Commission established many of the current requirements of the 
national market system under Regulation NMS and approved the three 
effective national market system plans shortly after Congress enacted 
Section 11A in the 1975 amendments to the Exchange Act (``1975 
Amendments'').\10\ Under Regulation NMS and the Equity Data Plans,\11\ 
the self-regulatory organizations (``SROs'') are required to provide 
certain quotation\12\ and transaction information\13\ for each NMS 
stock to an exclusive plan processor (``exclusive SIP''),\14\ which 
consolidates

[[Page 18599]]

this information and makes it available to market participants on the 
consolidated tapes.\15\ For each NMS stock, the Equity Data Plans 
currently provide for the dissemination of top-of-book (``TOB'') data 
and transaction information, generally defining consolidated market 
information (or ``core data'') as consisting of: (1) The price, size, 
and exchange of the last sale; (2) each exchange's current highest bid 
and lowest offer and the shares available at those prices; and (3) the 
national best bid and national best offer (``NBBO'') \16\ (i.e., the 
highest bid and lowest offer currently available on any exchange).\17\ 
In addition to disseminating core data, the exclusive SIPs collect, 
calculate, and disseminate certain regulatory data--including 
information required by the National Market System Plan to Address 
Extraordinary Market Volatility (``LULD Plan''),\18\ information 
relating to regulatory halts and market-wide circuit breakers, and 
information regarding the short-sale price test pursuant to Rule 201 of 
Regulation SHO.\19\ They also collect and disseminate other NMS 
information and disseminate certain administrative messages.\20\ 
Together with core data, the Commission refers to this broader set of 
data for purposes of this release as ``SIP data.''
---------------------------------------------------------------------------

    \10\ The three effective national market system plans that 
govern the collection, consolidation, processing, and dissemination 
of certain NMS information are: (1) The Consolidated Tape 
Association Plan (``CTA Plan''); (2) the Consolidated Quotation Plan 
(``CQ Plan''); and (3) the Joint Self-Regulatory Organization Plan 
Governing the Collection, Consolidation, and Dissemination of 
Quotation and Transaction Information for Nasdaq-Listed Securities 
Traded on Exchanges on an Unlisted Trading Privileges Basis (``UTP 
Plan'') (together, the ``Equity Data Plans''). Each of the Equity 
Data Plans is an effective national market system plan under 17 CFR 
242.608 (Rule 608) of Regulation NMS. See also Securities Exchange 
Act Release Nos. 10787 (May 10, 1974), 39 FR 17799 (order approving 
CTA Plan); 15009 (July 28, 1978), 43 FR 34851 (Aug. 7, 1978) (order 
temporarily approving CQ Plan); 16518 (Jan. 22, 1980), 45 FR 6521 
(Jan. 28, 1980) (order permanently approving CQ Plan); 28146 (June 
26, 1990), 55 FR 27917 (July 6, 1990) (order approving UTP Plan). 
The options exchanges are participants in the Limited Liability 
Company Agreement of Options Price Reporting Authority, LLC (``OPRA 
Plan''), a plan under Rule 608 of Regulation NMS, which governs the 
collection, consolidation, processing, and dissemination of last 
sale and quotation information for listed options. See Securities 
Exchange Act Release Nos. 17638 (Mar. 18, 1981), 22 SEC. Docket 484 
(Mar. 31, 1981); 61367 (Jan. 15, 2010), 75 FR 3765 (Jan. 22, 2010).
    \11\ Rule 603(b) of Regulation NMS, 17 CFR 242.603(b), requires 
that every national securities exchange on which an NMS stock is 
traded and national securities association act jointly pursuant to 
one or more effective national market system plans to disseminate 
consolidated information on quotations for and transactions in NMS 
stocks, and that such plan or plans provide for the dissemination of 
all consolidated information for an individual NMS stock through a 
single plan processor.
    \12\ See Rule 602 of Regulation NMS.
    \13\ See 17 CFR 242.601 (Rule 601 of Regulation NMS).
    \14\ See Rule 600(b)(67) of Regulation NMS, 17 CFR 
242.600(b)(67) (defining plan processor). See also Section 
3(a)(22)(B) of the Exchange Act, 15 U.S.C. 78c(22)(B) (defining 
exclusive processor).
    \15\ The Equity Data Plans disseminate SIP data over three 
separate networks: (1) Tape A for securities listed on the New York 
Stock Exchange (``NYSE''); (2) Tape B for securities listed on 
exchanges other than NYSE and Nasdaq; and (3) Tape C for securities 
listed on Nasdaq. These tapes are referred to as the ``consolidated 
tapes.'' The CTA Plan governs the collection, consolidation, 
processing, and dissemination of last sale information for Tape A 
and Tape B securities. The CQ Plan governs the collection, 
consolidation, processing, and dissemination of quotation 
information for Tape A and Tape B securities. Finally, the UTP Plan 
governs the collection, consolidation, processing, and dissemination 
of last sale and quotation information for Tape C securities.
    \16\ See Rule 600(b)(50) of Regulation NMS for the definition of 
NBBO.
    \17\ See Bloomberg Order, infra note 22, at 3; see also 
Rescission of Effective-Upon-Filing Procedures for NMS Plan Fee 
Amendments, Securities Exchange Act Release No. 89618 (Aug. 19, 
2020), 85 FR 65470 (Oct. 15, 2020) (``Effective-Upon-Filing Adopting 
Release'').
    \18\ See Limit Up Limit Down Plan, available at http://www.luldplan.com (last accessed Sept. 24, 2020).
    \19\ Rule 201(b)(3).
    \20\ For example, messages regarding cancelled and erroneous 
trades are included in the data disseminated by the exclusive SIPs. 
See, e.g., Consolidated Tape System, Multicast Output Binary 
Specification, 36, 47 (October 2, 2020), available at https://www.ctaplan.com/publicdocs/ctaplan/CTS_Pillar_Output_Specification.pdf.
---------------------------------------------------------------------------

    The purpose of the Equity Data Plans, approved under Regulation 
NMS, is to facilitate the collection and dissemination of SIP data so 
that the public has ready access to a ``comprehensive, accurate, and 
reliable source of information for the prices and volume of any NMS 
stock at any time during the trading day.''\21\ Widespread availability 
of timely market information promotes fair and efficient markets and 
facilitates the ability of brokers and dealers to provide best 
execution to their customers.\22\ Many of the requirements under 
Regulation NMS and the Equity Data Plans that establish the national 
market system have not been updated since their adoption despite 
dramatic changes in the operation of the market and market 
participants' information needs.\23\
---------------------------------------------------------------------------

    \21\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21, 
2010).
    \22\ See In the Matter of the Application of Bloomberg L.P., 
Securities Exchange Act Release No. 83755 at 3 (July 31, 2018), 
available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf (``Bloomberg Order''); SEC Concept Release: Regulation of 
Market Information Fees and Revenues, Securities Exchange Act 
Release No. 42208 (Dec. 9, 1999), 64 FR 70613, 70615 (Dec. 17, 1999) 
(``Market Information Concept Release'') (stating that the 
distribution of core data ``is the principal tool for enhancing the 
transparency of the buying and selling interest in a security, for 
addressing the fragmentation of buying and selling interest among 
different market centers, and for facilitating the best execution of 
customers' orders by their broker-dealers'').
    \23\ See Proposing Release, 85 FR at 16728, n. 13 and 
accompanying text.
---------------------------------------------------------------------------

    In addition to the SIP data provided via the Equity Data Plans, 
most exchanges have developed many proprietary TOB products that 
contain the quotation and transaction data that they provide to the 
exclusive SIPs as well as proprietary depth-of-book (``DOB'') products 
that contain more extensive information that is not provided by the 
exclusive SIPs, such as complete order-by-order information, full depth 
of book information, auction information, and odd-lot quotation 
information.\24\ The exchanges provide individual exchange proprietary 
data products directly to market participants and sometimes consolidate 
them with their affiliated exchanges' proprietary data feeds. The 
exchanges make these proprietary data products available with different 
connectivity and transmission options, many of which are faster than 
those available for the consolidated tapes. Market participants that 
purchase proprietary DOB data feeds directly generally aggregate the 
information in a decentralized manner in an effort to create a 
consolidated view of the market that is both more timely and more 
complete than the exclusive SIP data feeds provided by the Equity Data 
Plans.
---------------------------------------------------------------------------

    \24\ While the pre-Regulation NMS rules permitted the 
independent distribution of quotes by individual SROs, Rule 603(a) 
of Regulation NMS, 17 CFR 242.603(a), was adopted to impose 
``uniform standards'' on such distribution (i.e., the ``fair and 
reasonable'' and ``not unreasonably discriminatory'' standards). See 
Regulation NMS Adopting Release, supra note 7, at 37569. Prior to 
Regulation NMS, however, SROs and their members were prohibited from 
disseminating their trade reports independently. Id. at 37589.
---------------------------------------------------------------------------

    As discussed further below, Regulation NMS and the Equity Data 
Plans have not kept pace with the business demands of market 
participants.\25\ While the exchanges have developed individual 
proprietary data products to meet the needs of some market 
participants, the Commission believes that there should be improvement 
to, and modernization of, the national market system to fulfill the 
goals of Section 11A of the Exchange Act and to meet the current core 
data demands of market participants.\26\ Over

[[Page 18600]]

the last 15 years, the exchanges have moved from largely manual, floor-
based models to predominantly electronic trading systems and market 
participants have likewise largely incorporated sophisticated, latency-
sensitive, and data dependent electronic trading technologies for their 
trading needs. This has contributed to some market participants stating 
that they require additional, and more timely, information for their 
best execution analysis.\27\ The Commission agrees that more 
comprehensive and latency-sensitive NMS information can be 
significantly beneficial in facilitating informed trading decisions, 
and the Commission believes that such information should be more widely 
distributed and more readily accessible. Further, while the proprietary 
DOB products provided by exchanges contain the data elements included 
within expanded core data, commenters have stated that the cost of 
these proprietary market data products inhibits the purchase of, and 
the widespread dissemination of, this data to market participants that 
may need it to participate effectively in the markets.\28\ The 
Commission is concerned that the two different methods of data 
dissemination--SIP data provided pursuant to Regulation NMS and the 
Equity Data Plans and proprietary data products provided by the 
exchanges--have contributed to the development of a two-tiered data 
market that raises fundamental concerns about the ability of the 
national market system to continue to ensure that the goals of Section 
11A of the Exchange Act are being met, including: (i) Fair competition 
among brokers and dealers; \29\ (ii) the availability to brokers, 
dealers, and investors of NMS information; \30\ and (iii) the 
practicability of brokers executing investors' orders at the best 
available prices.\31\ Section 11A of the Exchange Act directs the 
Commission to facilitate the establishment of a national market system 
in accordance with these, and other, Congressional findings. Therefore, 
the Commission believes that Regulation NMS should be amended to update 
the national market system in accordance with the findings and to carry 
out the objectives set forth in Section 11A and to ``assure the prompt, 
accurate, reliable, and fair collection, processing, distribution, and 
publication'' of NMS information and ``the fairness and usefulness of 
the form and content of such information.'' \32\
---------------------------------------------------------------------------

    \25\ See infra Section III.A.
    \26\ Commenters generally expressed concern that SIP data 
provided by the Equity Data Plans was not sufficient for some market 
participants. See, e.g., letters to Vanessa Countryman, Secretary, 
Commission, from Mehmet Kinak, Vice President and Global Head of 
Systematic Trading and Market Structure, and Jonathan D. Siegel, 
Vice President and Senior Legal Counsel, Legislative and Regulatory 
Affairs, T. Rowe Price, dated June 3, 2020, (``T. Rowe Price 
Letter'') at 1 (``Unfortunately, as the SIPs have not kept pace with 
the dramatic technological and market developments over the past 
decade, they are no longer satisfying the needs of a broad cross-
section of market participants. Due to its limited content and 
higher latency, the usage of SIP data is adequate only for investors 
that visually consume NMS information (e.g., humans looking at 
quotes on a screen''); Thomas M. Merritt, Deputy General Counsel, 
Virtu Financial, Inc., dated May 26, 2020, (``Virtu Letter'') at 2 
(``the `core data' offered through the SIPs is no longer sufficient 
for most market participants to trade competitively in today's 
market place.''), 5; Michael Blasi, Vice President, Enterprise 
Infrastructure, and Krista Ryan, Vice President and Associate 
General Counsel, Fidelity Investments, dated May 26, 2020, 
(``Fidelity Letter'') at 2 (``the SIPs have not kept pace with the 
U.S. equity markets which, through technological and market 
developments, now offer more products, faster, and at a lower 
cost.''); Joseph J. Barry, Senior Vice President and Global Head of 
Regulatory, Industry, and Government Affairs, State Street 
Corporation, dated May 26, 2020, (``State Street Letter'') at 2 (``. 
. . regulatory obligations and customer expectations related to best 
execution, transaction cost analysis, transparency and market 
competition generated further need for data that is unavailable on 
the SIPs. As a result, market participants have become increasingly 
dependent on proprietary data feeds marketed by the exchanges 
outside of the SIPs.''); Hubert De Jesus, Managing Director, Global 
Head of Market Structure and Electronic Trading, and Samantha DeZur, 
Director, Global Public Policy, BlackRock, Inc., dated May 26, 2020, 
(``BlackRock Letter'') at 1 (``However, the current model for and 
content of NMS market data has not kept pace with the evolution in 
equity markets and correspondingly the quality of the Securities 
Information Processors (``SIPs'') has declined, lowering public 
confidence in the market.''); Jennifer W. Han, Associate General 
Counsel, Managed Funds Association, dated May 29, 2020, (``MFA 
Letter'') at 2 (``Today, the current exclusive SIP model and content 
of core data does not serve the needs of investors, many of whom 
must subscribe to the exchanges' proprietary market data feeds at 
considerable additional cost to trade effectively, while others are 
forced to rely on inferior information and outdated technology.''); 
Peter D. Stutsman, Global Equity Trading Manager, The Capital Group 
Companies, Inc., dated June 2, 2020, (``Capital Group Letter'') at 2 
(``Over the last 15 years, the discrepancy in data elements and 
latency between proprietary feeds and the consolidated tape has 
expanded such that the SIP is no longer a realistic tool for 
institutional investors or broker-dealers in meeting their 
respective best execution obligations when routing orders.''); Makan 
Delrahim, Assistant Attorney General, U.S. Department of Justice, 
Antitrust Division, Rene L. Augustine, Deputy Assistant Attorney 
General, Michael F. Murray, Deputy Assistant Attorney General, David 
B. Lawrence, Chief, Karina B. Lubell, Assistant Chief, Charles J. 
Ramsey, Attorney, Antitrust Division Competition Policy and Advocacy 
Section, and Ihan Kim, Attorney, Technology and Financial Services 
Section, dated May 26, 2020, (``DOJ Letter''); Mark Garabedian, 
Manager, Trading Data and Analytics, and Lisa Mahon Lynch, Associate 
Director, Global Trading, Wellington Management Company LLP, dated 
May 27, 2020, (``Wellington Letter'').
    \27\ See, e.g., letters to Vanessa Countryman, Secretary, 
Commission, from Lev Bagramian, Senior Securities Policy Advisor, 
Better Markets, Inc., dated May 26, 2020, (``Better Markets 
Letter'') at 1-2; Joe Wald and Ray Ross, Managing Directors, BMO 
Capital Markets Group and Co-Heads of Electronic Trading, Clearpool, 
dated June 2, 2020, (``Clearpool Letter'') at 1, 11; John Ramsay, 
Chief Market Policy Officer, Investors Exchange LLC, dated May 28, 
2020, (``IEX Letter'') at 5; Jim Considine, Chief Financial Officer, 
McKay Brothers LLC, dated May 31, 2020, (``McKay Letter'') at 1; 
Rich Steiner, Head of Client Advocacy and Market Innovation, RBC 
Capital Markets, LLC, dated May 27, 2020, (``RBC Letter'') at 4; 
Ellen Greene, Managing Director, Equity and Options Market 
Structure, SIFMA, dated May 26, 2020, (``SIFMA Letter'') at 3-4; 
Capital Group Letter at 2; DOJ Letter at 2, 4; State Street Letter 
at 2; T. Rowe Price Letter at 1; Virtu Letter at 2.
    \28\ See, e.g., Virtu Letter at 5 (``[I]ncluding depth of book 
information in the SIP will allow investors who cannot afford to pay 
for costly Exchange proprietary feeds to trade more competitively in 
the marketplace . . . .''); SIFMA Letter at 2 (``[W]e do not believe 
that the SIPs currently provide the necessary data to market 
participants at the requisite speed to efficiently trade in today's 
high speed and automated marketplace. As a result, many broker-
dealers, asset managers and other market participants are forced to 
purchase proprietary data feeds from individual exchanges to create 
a consolidated and robust view of the market, while additionally 
bearing the economic burden of having to purchase consolidated data 
from the SIPs. This results in an enormous cost burden on the 
marketplace and creates a two-tiered market for market data by 
limiting access to critical market data at the fastest speeds to 
those who can afford to pay the exorbitant fees charged for it by 
the exchanges.''); MFA Letter at 2 (``Today, the current exclusive 
SIP model and content of core data does not serve the needs of 
investors, many of whom must subscribe to the exchanges' proprietary 
market data feeds at considerable additional cost to trade 
effectively, while others are forced to rely on inferior information 
and outdated technology.''); Clearpool Letter at 2 (``As we have 
stated on a number of previous occasions, of all the issues relating 
to the costs of trading, the trend toward higher market data fees 
has had the most negative impact on the securities markets. It 
remains increasingly difficult for many broker-dealers to compete in 
the current market environment due, in part, to issues related to 
the costs associated with trading.''); Dorothy Donohue, Deputy 
General Counsel, Securities Regulation, Investment Company 
Institute, dated May 26, 2020, (``ICI Letter'') at 9-10 (``Including 
auction information in the consolidated feed would enhance 
transparency into market activity. Doing so also would eliminate 
proprietary data costs as a barrier to auction trading and encourage 
a broader range of market participants to submit trading 
interest.'').
    \29\ Section 11A(a)(1)(C)(ii) of the Exchange Act, 15 U.S.C. 
78k-1(a)(1)(C)(ii).
    \30\ Section 11A(a)(1)(C)(iii) of the Exchange Act, 15 U.S.C. 
78k-1(a)(1)(C)(iii).
    \31\ Section 11A(a)(1)(C)(iv) of the Exchange Act, 15 U.S.C. 
78k-1(a)(1)(C)(iv).
    \32\ Section 11A(c)(1)(B) of the Exchange Act, 15 U.S.C. 78k-
1(c)(1)(B).
---------------------------------------------------------------------------

B. National Market System Initiatives and the Market Data 
Infrastructure Proposing Release

    The Commission has monitored the national market system and its 
operation in light of changes in the markets and, over the years, has 
observed increased concerns about the usefulness, fairness, and 
promptness of the consolidated tapes. The Division of Trading and 
Markets held a Roundtable on Market Data in October of 2018,\33\ at 
which some market participants discussed their views about the 
shortcomings of the existing centralized consolidation model and the 
need for updates to the national market system to reflect the now 
widespread use of electronic trading and the need for more, faster NMS 
information.\34\
---------------------------------------------------------------------------

    \33\ See Equity Market Structure Roundtables, Oct. 25-26, 2018: 
Roundtable on Market Data and Market Access, SEC, available at 
https://www.sec.gov/spotlight/equity-market-structure-roundtables 
(``Market Data Roundtable'').
    \34\ See Proposing Release, 85 FR at 16765, n. 393 and 
accompanying text.
---------------------------------------------------------------------------

    Further, the Commission has considered how the provision of the 
current consolidated tapes and proprietary data feeds has affected 
investors' access to NMS information. The Commission understands that 
different types of investors have different information needs. However, 
as stated above, the Commission is concerned that a two-tiered system 
has developed in which certain market participants who are able to 
afford, and choose to pay for, the exchanges' proprietary DOB data 
feeds and associated connectivity and transmission offerings receive 
more content-rich data faster than those who do not receive these data 
feeds, such as market participants that face higher barriers to entry 
from data and other exchange fees.\35\ Market participants that do not 
receive proprietary DOB feeds may be affected in their efforts to seek 
best execution and otherwise effectively compete with market 
participants that receive proprietary DOB data feeds because they do 
not obtain access to the additional content

[[Page 18601]]

and may be receiving data in a slower manner.
---------------------------------------------------------------------------

    \35\ See Proposing Release, 85 FR at 16768. See also infra 
Section V.B.3(b). Proprietary data fees have increased over the last 
decade, and are generally more expensive relative to SIP data fees, 
and there are indicia that exchanges may not be subject to robust 
competition with respect to market data. See infra notes 1780-1788 
and accompanying text.
---------------------------------------------------------------------------

    On the other hand, the exchanges' proprietary TOB products, which 
are typically cheaper than the SIP data, may be purchased instead of 
SIP data for certain use cases in certain market segments (e.g., retail 
investors).\36\ These proprietary TOB products have decreased many 
market participants' utilization of SIP data even though they do not 
contain all ``core data'' and do not reflect TOB quotations and 
transactions from all markets and, therefore, do not display the NBBO. 
Market participants that solely use proprietary TOB products do not see 
all quotations in the market, including at times superior quotations, 
or all executed transactions and instead see only a subset of 
consolidated data.\37\
---------------------------------------------------------------------------

    \36\ See supra note 17 and accompanying text.
    \37\ The Commission notes that the number of Professional 
subscribers to the SIP feeds decreased 23.5 percent between the 
first quarter of 2010, which is the first quarter for which 
Professional subscriber data for the SIP Plans was available after 
the introduction of the first proprietary TOB product in 2009, and 
the end of 2019. See CTA Plan, Metrics, available at https://www.ctaplan.com/sip-metrics (last accessed Nov. 20, 2020); UTP Plan, 
Metrics, available at http://www.utpplan.com/metrics (last accessed 
Nov. 25, 2020). For context, the number of registered 
representatives reported by FINRA during this time period decreased 
by only 1.0 percent. See FINRA, Statistics, available at https://www.finra.org/newsroom/statistics (last accessed Nov. 19, 2020).
---------------------------------------------------------------------------

    Accordingly, the Commission has undertaken three initiatives 
related to the provision of NMS information in the national market 
system. These initiatives work together to address specific, 
significant, separate but overlapping, issues in the national market 
system and are aimed at improving discrete areas in the national market 
system. First, the Commission amended the process so that, instead of 
becoming effective upon filing, changes to fees proposed by the Equity 
Data Plans would be published for public comment and approved by the 
Commission.\38\ These procedures enhance the efficiency and 
transparency of the process of assessing new NMS plan fees. Second, the 
Commission ordered the participants to the Equity Data Plans to submit 
a new, single effective national market system plan, i.e., the New 
Consolidated Data Plan, for Commission consideration under Rule 608 of 
Regulation NMS.\39\ The New Consolidated Data Plan includes specific 
governance provisions that the Commission believes will help to address 
concerns that have been raised about the existing Equity Data Plans, 
including conflicts of interest stemming from the sale of competing 
proprietary data products by the exchanges that currently have majority 
voting power on the Operating Committee(s) of the Equity Data 
Plans.\40\ These committees are, among other things, responsible for 
proposing fees for SIP data. Finally, in this release, the Commission 
is adopting amendments to update and modernize the infrastructure of 
the national market system by adding data content to NMS information as 
defined under Regulation NMS and by amending the manner in which such 
NMS information is collected, consolidated, and disseminated.
---------------------------------------------------------------------------

    \38\ See Effective-Upon-Filing Adopting Release, supra note 17.
    \39\ 17 CFR 242.608.
    \40\ See Joint Industry Plan; Notice of Filing of a National 
Market System Plan Regarding Consolidated Equity Market Data, 
Securities Exchange Act Release No. 34-90096 (Oct. 6, 2020), 85 FR 
64565 (Oct. 13, 2020) (``New Consolidated Data Plan Notice''). See 
also infra Section III.E for a discussion on the Governance Order.
---------------------------------------------------------------------------

    The Commission published the Proposing Release on its website on 
February 14, 2020. The comment period of 60 days from Federal Register 
publication ended on May 26, 2020. Many commenters asked the Commission 
to extend the comment period,\41\ particularly in light of the COVID-19 
pandemic.
---------------------------------------------------------------------------

    \41\ See, e.g., letter from John A. Zecca, Executive Vice 
President, Chief Legal Officer, and Chief Regulatory Officer, 
Nasdaq, to Jay Clayton, Chairman, Commission, dated Apr. 7, 2020 
(``Nasdaq Letter II''); letters to Vanessa Countryman, Secretary, 
Commission, from Elizabeth K. King, Chief Regulatory Officer, ICE, 
and General Counsel and Corporate Secretary, NYSE, dated May 15, 
2020 (``NYSE Letter I''); Linda Moore, President and Chief Executive 
Officer, TechNet, dated Apr. 29, 2020 (``TechNet Letter I''); 
Christopher A. Iacovella, Chief Executive Officer, American 
Securities Association, dated Apr. 23, 2020; Kimberly Unger, Chief 
Executive Officer and Executive Director, Securities Traders 
Association of New York, Inc. (``STANY''), dated May 14, 2020 
(``STANY Letter I''); Institutional Traders Advisory Council to 
Nasdaq, dated May 15, 2020; Gary A. LaBranche, President and Chief 
Executive Officer, National Investor Relations Institute, dated May 
22, 2020; R T Leuchtkafer, dated May 20, 2020; Patrick J. Healy, 
Founder and CEO, Issuer Network, dated May 20, 2020 (going further 
by suggesting the Commission ``table this proposal'').
---------------------------------------------------------------------------

    The Commission has considered all comment letters received to date, 
including comments that were submitted after the comment deadline had 
passed. The last comment letter was received on October 13, 2020. 
Accordingly, the Commission believes that the time during which 
comments have been accepted is reasonable.

C. Enhancements to the Content of NMS Information

    The Commission is adopting amendments to increase the content of 
NMS information that is required to be made available under Regulation 
NMS and to introduce a competitive decentralized consolidation model to 
disseminate the information. The content of NMS information that is 
made available under the rules of the national market system has not 
been adequately updated to reflect the needs of market participants 
trading in the U.S. market. As the U.S. market has evolved, market 
participants' information needs have changed; many market participants 
need additional information to trade efficiently and competitively. 
Today, the only means for market participants to receive a wider array 
of information than what is provided under the national market system 
is through proprietary data offerings from exchanges (and their 
affiliates). The Commission is concerned that the national market 
system, including the content of SIP data and the way such data is 
disseminated, significantly lags behind these proprietary data 
offerings and delivery methods established by the exchanges and their 
affiliates. Therefore, as discussed further below, the Commission 
believes that the content of NMS information under the rules of the 
national market system needs to be enhanced to address the needs of 
market participants. The adopted definitions will expand and modernize 
the content of NMS information that is made available in the U.S. 
market in a manner that the Commission believes will better facilitate 
competition; help to ensure the prompt, accurate, reliable, and fair 
collection of such information; and help to ensure the usefulness of 
NMS information. The Commission is adopting a new model for the 
provision of consolidated market data as discussed in Section III 
below, but the Commission believes that market participants and 
investors will benefit from enhanced NMS information regardless of the 
method by which they receive it. In particular, as a result of the new 
round lot definition and the inclusion of odd-lot quotations in core 
data, retail investors will be able to see, and more readily access, 
better-priced quotations. Further, through the addition of depth of 
book data and auction information in core data, the scope of NMS 
information will, to a greater extent, allow some market participants 
to trade in a more informed, competitive, and efficient manner. The 
Commission believes that even investors that do not consume that data 
directly will benefit because their brokers will be able to use the 
enhanced NMS information to trade more efficiently

[[Page 18602]]

and competitively and to achieve best execution for their customer 
orders.\42\
---------------------------------------------------------------------------

    \42\ See infra Section II.C.2(a).
---------------------------------------------------------------------------

    To expand and enhance the data that is required to be made 
available for collection, consolidation, and dissemination under 
Regulation NMS, the Commission is adopting several new defined terms in 
Rule 600 of Regulation NMS, including ``consolidated market data,'' 
``consolidated market data product,'' ``core data,'' ``round lot,'' 
``auction information,'' ``depth-of-book data,'' ``odd-lot 
information,'' ``regulatory data,'' ``administrative data,'' and 
``self-regulatory organization-specific program data.'' Two of the new 
definitions in Regulation NMS--consolidated market data \43\ and core 
data \44\--specify the components of NMS information that must be made 
available for collection, consolidation, and dissemination under the 
national market system.\45\ The other new defined terms establish the 
scope of information included within the definitions of consolidated 
market data and core data. The definitions are designed to ensure that 
NMS information that is made available to market participants meets the 
goals set forth in Section 11A of the Exchange Act.\46\
---------------------------------------------------------------------------

    \43\ ``Consolidated market data'' is defined in Rule 600(b)(19) 
as the following data, consolidated across all national securities 
exchanges and national securities associations: (i) Core data; (ii) 
regulatory data; (iii) administrative data; (iv) self-regulatory 
organization-specific program data; and (v) additional regulatory, 
administrative, or self-regulatory organization-specific program 
data elements defined as such pursuant to the effective national 
market system plan or plans required under Sec.  242.603(b).
    \44\ ``Core data'' is defined in Rule 600(b)(21) of Regulation 
NMS.
    \45\ See supra Section I.A for a discussion of the regulatory 
requirements for NMS information. ``Consolidated market data 
product'' is defined as any data product developed by a competing 
consolidator that contains consolidated market data or any of the 
elements or subcomponents thereof. See Rule 600(b)(20); infra 
Section II.B.2.
    \46\ See infra note 151 and accompanying text with respect to 
certain information that is not included in the definition of core 
data.
---------------------------------------------------------------------------

    The Commission is defining three new data elements as ``core 
data:'' (1) Information about better priced quotations in higher priced 
stocks (implemented through a new definition of ``round lot'' and the 
inclusion of certain odd-lot information), (2) information about 
quotations that are outside of the best-priced quotations (implemented 
through a new ``depth of book data'' definition), and (3) information 
about orders that are participating in auctions (implemented through a 
new definition of ``auction information'').
    Round Lot Definition. To provide investors with information about 
better priced orders in high-priced stocks, the Commission proposed a 
five-tier definition of ``round lot'' based on the share price of an 
NMS stock.\47\ The Commission also proposed to amend the definition of 
protected quotation to require that protected quotes be of at least 100 
shares.\48\ These two changes would have established a NBBO \49\ that 
could differ from the best protected bid and best protected offer 
(``PBBO''). Commenters responded by expressing support and raising 
several issues and concerns.\50\
---------------------------------------------------------------------------

    \47\ See infra Section II.D.1.
    \48\ See infra Section II.E.1.
    \49\ See Rule 600(b)(50).
    \50\ See infra Sections II.D.2(a); II.E.2.
---------------------------------------------------------------------------

    For the reasons set forth below,\51\ the Commission has modified 
the round lot definition so that it has fewer tiers and is based on a 
higher notional value. Specifically, the adopted round lot definition 
is 100 shares for stocks priced at $250 or less, 40 shares for stocks 
priced at $250.01 to $1,000, 10 shares for stocks priced at $1,000.01 
to $10,000, and 1 share for stocks priced at $10,000.01 or more. 
Further, the Commission has decided not to adopt the proposed amendment 
to the definition of protected quotation. A protected quotation will 
remain a round lot; however, the protected quotation will change only 
insomuch as the round lot definition is changing.
---------------------------------------------------------------------------

    \51\ Id.
---------------------------------------------------------------------------

    The Commission also has decided to further increase the 
availability of information about better priced orders by adopting an 
additional element of ``core data'' for aggregated odd-lot quotations 
on each exchange that are priced at or better than the NBBO.\52\ The 
Commission believes that the new definition of round lot and the 
increased availability of better priced odd-lot information will 
provide investors with valuable information about the best prices 
available and help to facilitate more informed order routing decisions 
and the best execution of investor orders.
---------------------------------------------------------------------------

    \52\ See infra Section II.C.2(b).
---------------------------------------------------------------------------

    Depth of Book Data Definition. The Commission proposed a definition 
of depth of book data to include information about orders outside of 
the NBBO and PBBO because information about the depth of book on each 
exchange helps market participants decide where to place orders and 
provides information about order book imbalances and potential future 
price moves in a NMS stock.\53\
---------------------------------------------------------------------------

    \53\ See infra Section II.F.1.
---------------------------------------------------------------------------

    The Commission, for the reasons set forth below, is adopting the 
definition of depth of book data with a few modifications.\54\ First, 
the definition has been modified to reflect the fact that the 
definition of protected quotation is not changing, so it is not 
necessary to identify depth of book between the NBBO and PBBO. Second, 
the definition has been modified to specify that the five price levels 
included in the definition of depth of book data are measured from the 
NBBO. Third, the definition has been modified to specify that the 
aggregate size at each of the included price levels shall be attributed 
to each exchange so that market participants know where liquidity 
resides. Lastly, depth of book data will include all quotation sizes on 
a facility of a national securities association, instead of only on 
exchanges, as proposed. Adoption of the depth of book data definition 
with these modifications will provide useful information to market 
participants and support efficient order handling and execution.
---------------------------------------------------------------------------

    \54\ See infra Section II.F.
---------------------------------------------------------------------------

    Auction Information Definition. Finally, the Commission proposed a 
definition of auction information to include information about orders 
that participate in auctions.\55\ Auctions have become increasingly 
significant liquidity events. Information about the orders 
participating in an auction can help market participants decide whether 
and how to submit orders in and around an auction and understand the 
potential price moves upon completion of the auction. For the reasons 
set forth below, the Commission is adopting the definition of auction 
information as proposed except for a modification to specify that the 
definition only includes auction information that an exchange publicly 
disseminates on its proprietary feeds.
---------------------------------------------------------------------------

    \55\ See infra Section II.G.1.
---------------------------------------------------------------------------

D. Enhancements to the Provision of Consolidated Market Data

    The Commission is adopting a new model for the provision of 
consolidated market data under Regulation NMS to foster a competitive 
environment for the dissemination of market data. Under the new 
decentralized consolidation model, competing consolidators will 
collect, consolidate, and disseminate consolidated market data 
products, and self-aggregators will collect and consolidate such data 
for their own internal use. By fostering a competitive environment for 
the provision and dissemination of critical market data to investors 
and other market participants, this new model will better achieve the 
goals of Section 11A of the Exchange

[[Page 18603]]

Act and help to ensure broad availability to brokers, dealers, and 
investors of information with respect to quotations for and 
transactions in NMS stocks that is prompt, accurate, reliable, and 
fair. To implement this model, the Commission is amending Regulation 
NMS rules and adopting a new rule and a new form for entities seeking 
to register as competing consolidators.
    Since Congress adopted the 1975 Amendments, the Commission has not 
substantially updated the distribution of NMS information in the 
national market system to reflect how the markets operate and 
investors' trade. Today, markets rely on highly sophisticated 
electronic trading systems that can consume many points of data at 
speeds measured in sub-second increments. The data delivery mechanisms 
and data feeds established under the national market system have not 
kept up with the current needs of market participants. To fulfill the 
data needs of market participants, the exchanges have developed 
proprietary low-latency market data products that are designed for 
automated trading systems. These data products, which include data such 
as depth of book and order imbalance information for opening and 
closing auctions, are faster and more content-rich than the delivery 
mechanisms and content that the SROs provide pursuant to Regulation NMS 
and the Equity Data Plans. Because of this disparity, many market 
participants use the exchanges' proprietary market data products for 
their competitive electronic trading systems.\56\
---------------------------------------------------------------------------

    \56\ See infra Section III.B.2; note 588 and accompanying text.
---------------------------------------------------------------------------

    In addition, the exchanges have developed proprietary TOB data 
products for market participants that are less expensive and less 
content-rich than the data products that the SROs provide via the 
exclusive SIPs pursuant to Regulation NMS and the Equity Data 
Plans.\57\ Retail investors use these proprietary TOB products, which 
are specific to an individual exchange or affiliated exchanges. Because 
they are cheaper and faster, proprietary TOB products--despite their 
more limited content--decrease the demand for data delivered under the 
Equity Data Plans.\58\ The Commission is concerned that market 
participants who solely use individual exchange proprietary TOB 
products are not getting the full consolidated view of the market, may 
be missing better priced quotes on other exchanges, and may only have a 
partial view of the trades that were executed in the market.
---------------------------------------------------------------------------

    \57\ The SROs are required to provide NMS information to the 
national market system plan(s) disseminated to market participants 
under Regulation NMS. See supra Section I.A.
    \58\ Proprietary TOB products, like proprietary DOB products, 
are provided directly to market participants and are not centrally 
consolidated before dissemination as is required of SIP data under 
the national market system.
---------------------------------------------------------------------------

    The Commission believes that proprietary DOB and TOB data products 
that decrease the utilization of SIP data highlight fundamental issues 
regarding the fairness, usefulness, and efficiency of NMS information 
and how it is distributed today. Therefore, as discussed further below, 
the Commission is adopting a new dissemination model for the national 
market system--a decentralized consolidation model that will foster a 
competitive environment in the provision of consolidated market data. 
To effect this change, the Commission is amending Rule 603 under 
Regulation NMS to: (1) Remove the requirement that all consolidated 
information for an individual NMS stock be disseminated through a 
single, exclusive plan processor; and (2) require each national 
securities exchange and national securities association to make 
available to competing consolidators and self-aggregators its NMS 
information in the same manner and using the same methods, including 
all methods of access and the same format, as the exchange or 
association makes available any quotation or transaction information 
for NMS stocks to any person.\59\ Commenters who responded to this 
proposal expressed support and raised several issues and concerns.\60\
---------------------------------------------------------------------------

    \59\ See also infra Section III.B.9(f) discussing the 
applicability of Rule 603(a).
    \60\ See infra Section III.B.
---------------------------------------------------------------------------

    For the reasons set forth below, the Commission is adopting the 
decentralized consolidation model largely as proposed. The new 
decentralized consolidation model, with its fostering of a competitive 
environment, will modernize the provision of consolidated market data 
in the U.S. markets. Today, the national market system comprises two 
exclusive SIPs that consolidate and disseminate certain NMS information 
on a non-competitive basis.\61\ The non-competitive structure, as 
required under Regulation NMS, no longer adequately ensures the timely 
dissemination of NMS information. The Commission believes the fostering 
of a competitive environment and enabling the introduction of new 
market forces into the collection, consolidation, and dissemination 
process through a decentralized consolidation model will help to 
deliver consolidated market data to market participants in a more 
timely, efficient, and cost-effective manner than the current 
centralized consolidation model. The Commission is adopting Rule 603(b) 
as proposed.\62\
---------------------------------------------------------------------------

    \61\ The exclusive SIPs are operated by the exchanges, which 
also develop proprietary data products using the same data that they 
provide to the exclusive SIPs. See supra Section I.A.
    \62\ See infra Section III.B.9(b).
---------------------------------------------------------------------------

    As part of establishing the decentralized consolidation model, the 
Commission is amending the definition of NBBO to remove references to 
the plan processors and replace them with competing consolidators and 
self-aggregators.\63\ Competing consolidators will be responsible for 
calculating the NBBO for their subscribers and self-aggregators will be 
responsible for calculating their own NBBO.\64\ Given market 
participants' widespread usage of proprietary market data feeds and the 
array of issues these participants have raised with respect to NMS 
information currently provided by the exclusive SIPs, many of these 
market participants calculate their own NBBOs from different exchange 
proprietary data feeds in varying locations for their own internal use 
rather than rely on the exclusive SIPs. These current practices, as 
well as existing regulatory approaches to independent data 
aggregation,\65\ will help to ensure market participants are able to 
operate with different NBBOs calculated by different consolidators 
under this new model.
---------------------------------------------------------------------------

    \63\ See infra Section III.B.10.
    \64\ Id.
    \65\ See infra Section III.B.8.
---------------------------------------------------------------------------

    Under the new decentralized consolidation model, competing 
consolidators will be responsible for collecting, consolidating, and 
disseminating consolidated market data products to subscribers. New 
Rule 614 and new Form CC will govern the registration and 
responsibilities of competing consolidators.\66\ Informed by comments 
and upon further consideration, the Commission, for the reasons set 
forth below, is adopting Rule 614 and Form CC largely as proposed but 
with certain modifications to address points raised during the comment 
process.\67\ Market participants need timely consolidated market data 
to route and execute orders. The Commission believes entities will be 
incentivized to register as competing consolidators to satisfy the 
expected robust demand for consolidated market data products. The 
Commission is also modifying the requirements of Rule 614 so that 
competing consolidators are not required, as proposed, to offer a 
product

[[Page 18604]]

containing all elements of consolidated market data. Competing 
consolidators will be able to develop the consolidated market data 
products \68\ that their subscribers demand.\69\ Rule 614 requires, 
among other things, that competing consolidators generate consolidated 
market data products in a manner that is consistent with the 
definitions in Regulation NMS and provide monthly performance metrics. 
Together with the Commission's oversight of competing consolidators, 
these requirements will help to ensure that the dissemination of 
consolidated market data products by competing consolidators is prompt, 
accurate, reliable, and fair.
---------------------------------------------------------------------------

    \66\ See infra Section III.C.7.
    \67\ See infra Section III.B.3.
    \68\ See Rule 600(b)(20), which defines ``consolidated market 
data product.''
    \69\ See infra Sections II.B.2; III.C.8(a).
---------------------------------------------------------------------------

    Also, under the new decentralized consolidation model, self-
aggregators will be able to collect and consolidate NMS information for 
their own internal use. As defined, a self-aggregator will be a broker-
dealer, exchange, national securities association, or investment 
adviser registered with the Commission (``RIA'') that receives the NMS 
information that is necessary to generate consolidated market data from 
the SROs pursuant to Rule 603(b). A self-aggregator may only generate 
consolidated market data for its internal use. Market participants--
including broker-dealers, exchanges, and RIAs--self-aggregate 
proprietary market data today. The Commission is adopting this 
provision to allow these market participants to aggregate consolidated 
market data for their own internal uses. Notwithstanding the adopted 
improvements to the collection, consolidation, and dissemination of 
consolidated market data with the decentralized consolidation model, 
some market participants will continue to need to aggregate data 
themselves for their own internal purposes, for a variety of business 
reasons.\70\ Specifically, we are adopting a definition of self-
aggregator that will permit the exchanges, the Financial Industry 
Regulatory Authority, Inc. (``FINRA''), and RIAs to self-aggregate for 
their own internal purposes, including for the purpose of sharing 
consolidated market data across affiliated entities that are registered 
with the Commission.\71\
---------------------------------------------------------------------------

    \70\ See infra Section III.D.
    \71\ Id.
---------------------------------------------------------------------------

    In general, self-aggregators will not be permitted to disseminate 
or otherwise make available such data to any person, including 
customers or clients, because the Commission believes the widespread 
dissemination of consolidated market data must be subject to Commission 
oversight and, accordingly, must be performed by competing 
consolidators. As discussed below, competing consolidators will be 
subject to the registration, disclosure, and other regulatory 
requirements in Rule 614 and Form CC.\72\ The competing consolidator 
regulatory regime should help to ensure that non-registered persons 
receive market data that is consolidated and delivered in a reliable 
and accurate manner. Although self-aggregators will not be permitted to 
widely disseminate consolidated market data, they will be able to share 
consolidated market data with their affiliated entities that are 
registered with the Commission. The Commission has the authority to 
examine registered affiliated entities and would be able to determine 
how a self-aggregator provides consolidated market data to a registered 
affiliate and how the registered affiliate uses that data, whereas the 
Commission does not have the authority to examine a self-aggregator's 
affiliated entities that are not registered with the Commission.
---------------------------------------------------------------------------

    \72\ See infra Section III.C.7(a)(iv).
---------------------------------------------------------------------------

    Under the decentralized consolidation model, the effective national 
market system plan(s) for NMS stocks will continue to play an important 
role.\73\ The plan(s) will continue, for example, to develop and 
propose fees for the data content underlying consolidated market data, 
collect and allocate revenues collected for such data, develop the 
monthly performance metrics for competing consolidators, and provide an 
annual assessment of the competing consolidator model. Therefore, as 
discussed further below, the Commission is directing the effective 
national market system plan(s) participants to file an amendment to the 
plan(s) pursuant to Rule 608 of Regulation NMS to reflect the new 
functions of the plan(s). The Commission believes that the effective 
national market system plan structure provides a useful mechanism to 
gather consensus views from a wide variety of market participants on 
the operation of the national market system. The provisions requiring 
amendment to the effective national market system plan(s) are adopted 
largely as proposed with a few modifications.\74\
---------------------------------------------------------------------------

    \73\ Currently, there are three effective national market system 
plans for the collection, consolidation, and dissemination of 
certain NMS information. See supra note 10 and accompanying text. 
The Commission has ordered the Operating Committees of these three 
effective national market system plans to file a single new plan. 
See infra note 1128; see also Section III.E.2(a). On August 11, 
2020, the participants filed a proposed plan, which the Commission 
published for comment on October 6, 2020. See New Consolidated Data 
Plan Notice, supra note 40.
    \74\ See infra Section III.E.
---------------------------------------------------------------------------

    Finally, the Commission is amending Regulation SCI to expand the 
definition of ``SCI entities'' to include ``SCI competing 
consolidators'' that are subject to the requirements of Regulation SCI 
after an initial transition period if they meet a threshold based on a 
share of gross consolidated market data revenues, as described below. 
The Commission believes that the threshold as adopted is appropriate to 
identify those competing consolidators whose market share is large 
enough that they have the potential to significantly impact investors, 
the overall market, or the trading of securities should the competing 
consolidator have a systems or cybersecurity issue occur. As discussed 
below, based on the threshold being adopted for SCI competing 
consolidators, the Commission estimates that most competing 
consolidators will meet this definition.\75\ In addition, after 
consideration of commenters' concerns regarding potential barriers to 
entry, the Commission is adopting a tailored set of operational 
capability and resiliency obligations that will apply during an initial 
transition period and thereafter to competing consolidators that do not 
meet the threshold in the definition of SCI competing consolidator.\76\
---------------------------------------------------------------------------

    \75\ See infra Section III.F.
    \76\ See id.
---------------------------------------------------------------------------

    The amendments will significantly enhance and modernize the content 
of NMS information and the means by which it is disseminated to market 
participants. These changes will address meaningful shortcomings that 
have developed in the national market system relating to the 
consolidation and dissemination of NMS information.\77\ The centralized 
consolidation model is an outdated model that was initially developed 
for an entirely different, manual market structure, and it is no longer 
suitable for trading in today's high-speed electronic markets. Further, 
the exclusive SIP model was developed when the exchanges were not 
selling competing proprietary data products that are superior in both 
content and delivery to the SIP data products. Therefore, as discussed 
further below, the Commission is amending Regulation NMS to modernize 
the national market system consistent with its mandate under the 
Exchange Act so that ``[n]ew data processing and communications 
techniques [can be used] to create the

[[Page 18605]]

opportunity for more efficient and effective market operations'' \78\ 
and to ensure fair competition, the availability of NMS information, 
and ``the practicability of brokers executing investors' orders in the 
best market.'' \79\
---------------------------------------------------------------------------

    \77\ See Proposing Release, 85 FR at 16728, n. 17 and 
accompanying text.
    \78\ Section 11A(a)(1)(B) of the Exchange Act.
    \79\ See Sections 11A(a)(1)(C)(ii) through (iv) of the Exchange 
Act.
---------------------------------------------------------------------------

E. Implications for Best Execution

    The Commission has stated that the duty of best execution requires 
broker-dealers to ``execute customers' trades at the most favorable 
terms reasonably available under the circumstances, i.e., at the best 
reasonably available price.'' \80\ The Commission stated that certain 
other factors that are relevant to best execution include ``order size, 
trading characteristics of the security, speed of execution, clearing 
costs, and the cost and difficulty of executing an order in a 
particular market.'' \81\ Commenters questioned the implications of the 
proposed changes to the content and provision of NMS information on the 
duty of best execution.\82\ In the Proposing Release, the Commission 
stated that the proposed additional data content in consolidated market 
data and the method by which such data was disseminated would 
facilitate the best execution of investor orders and enhance best 
execution analyses.\83\ The Commission also stated that it was not 
``specifying minimum data elements needed to achieve best execution'' 
or ``mandating the consumption'' of the expanded data content and, more 
broadly, acknowledged that different market participants and different 
trading applications have different market data needs.\84\
---------------------------------------------------------------------------

    \80\ Regulation NMS Adopting Release at 37538. See also Geman v. 
SEC, 334 F.3d 1183, 1186 (10th Cir. 2003) (``[T]he duty of best 
execution requires that a broker-dealer seek to obtain for its 
customer orders the most favorable terms reasonably available under 
the circumstances.'' (quoting Newton v. Merrill, Lynch, Pierce, 
Fenner & Smith, Inc., 135 F.3d 266, 270 (3d Cir. 1998))); Kurz v. 
Fidelity Management & Research Co., 556 F.3d 639, 640 (7th Cir. 
2009) (describing the ``duty of best execution'' as ``getting the 
optimal combination of price, speed, and liquidity for a securities 
trade'').
    \81\ Regulation NMS Adopting Release at 37538.
    \82\ See, e.g., infra Sections II.F.2(h) (discussing comments 
received on best execution related to depth of book data); 
III.B.10(c) (discussing comments received on best execution related 
to ``multiple NBBOs'' and the selection of a competing 
consolidator).
    \83\ Proposing Release, 85 FR at 16729, 52, 69.
    \84\ Id. at 16734, 55.
---------------------------------------------------------------------------

    A broker-dealer has a legal duty to seek best execution of customer 
orders.\85\ The duty of best execution derives from common law agency 
principles and fiduciary obligations.\86\ It is incorporated in SRO 
rules \87\ and has been incorporated into the antifraud provisions of 
the Federal securities laws through judicial decisions.\88\ In addition 
to the best price reasonably available, speed of execution and 
available liquidity,\89\ the Commission has articulated a non-
exhaustive list of factors that may be relevant to broker-dealers' best 
execution analysis: (1) The size of the order; (2) the trading 
characteristics of the security involved; (3) the availability of 
accurate information affecting choices as to the most favorable market 
center for execution and the availability of technological aids to 
process such information; and (4) the cost and difficulty associated 
with achieving an execution in a particular market center.\90\
---------------------------------------------------------------------------

    \85\ Regulation NMS Adopting Release at 37537.
    \86\ Id. at 37538.
    \87\ FINRA has codified a duty of best execution in its rules, 
requiring a broker-dealer to ``use reasonable diligence to ascertain 
the best market for the subject security and buy or sell in such 
market so that the resultant price to the customer is as favorable 
as possible under prevailing market conditions.'' FINRA Rule 5310, 
``Best Execution and Interpositioning.''
    \88\ See Regulation NMS Adopting Release at 37538.
    \89\ Kurz v. Fidelity, supra note 80, 556 F.3d at 640.
    \90\ Securities Exchange Act Release No. 43590 (Nov. 17, 2000), 
65 FR 75414, 18 (Dec. 1, 2000). The Commission has recognized that 
the scope of the duty of best execution must evolve as changes occur 
in the market that give rise to improved executions for customer 
orders. Order Execution Obligations, Release No. 37619A (Sept. 6, 
1996), 61 FR 48290 (Sept. 12, 1996).
---------------------------------------------------------------------------

    While these amendments do not change a broker-dealer's duty of best 
execution,\91\ the Commission recognizes that the changes to 
consolidated market data resulting from the amendments may be relevant 
to a broker-dealer's best execution analysis.\92\ Broker-dealers must 
execute customers' trades at the most favorable terms reasonably 
available under the circumstances and must examine their procedures for 
seeking to obtain best execution in light of market and technology 
changes and modify those practices if necessary.\93\ Both the 
additional data content and the new method by which such data will be 
disseminated represent market and technology changes that should be 
considered by broker-dealers in connection with their best execution 
obligations.\94\
---------------------------------------------------------------------------

    \91\ Similarly, these amendments do not change investment 
advisers' duty of best execution. See generally Commission 
Interpretation Regarding Standard of Conduct for Investment 
Advisers, Release No. IA-5248 (June 5, 2019).
    \92\ The Commission will monitor the impact of these amendments 
on broker-dealer best execution policies and procedures and will 
consider whether additional steps, such as further best execution 
guidance, are necessary or appropriate.
    \93\ See Regulation NMS Adopting Release at 37538 (``Broker-
dealers must examine their procedures for seeking to obtain best 
execution in light of market and technology changes and modify those 
practices if necessary to enable their customers to obtain the best 
reasonably available prices.'').
    \94\ Best execution considerations may also be relevant to the 
selection of a market data provider and the choice to consume 
different data elements today. See FINRA, Regulatory Notice 15-46, 
1, 3 n. 12 (2015) (``The exercise of reasonable diligence to 
ascertain the best market under prevailing market conditions can be 
affected by the market data, including specific data feeds, used by 
a firm. For example, a firm that regularly accesses proprietary data 
feeds, in addition to the consolidated SIP feed, for its proprietary 
trading, would be expected to also be using these data feeds to 
determine the best market under prevailing market conditions when 
handling customer orders to meet its best execution obligations.'').
---------------------------------------------------------------------------

    Specifically, the availability of more data content in consolidated 
market data, including odd-lot information, depth of book data, and 
auction information, may be relevant to a broker-dealer's ability to 
achieve and analyze best execution because it can provide information 
that, in many circumstances, may be useful in making trading and order 
placement decisions.\95\ In addition, the availability of more timely 
consolidated market data may be relevant to a broker-dealer's ability 
to achieve and analyze best execution because it can bear upon the 
accuracy of the information about the most favorable market center for 
executing customer orders. Therefore, broker-dealers should consider 
the availability of consolidated market data, including the various 
elements of data content and the timeliness, accuracy, and reliability 
of the data provided by competing consolidators, in developing and 
maintaining their best execution policies and procedures. Further, 
because richer, more timely consolidated market data may enhance the 
ability of broker-dealers to obtain the most favorable terms reasonably 
available under the circumstances, including the best reasonably 
available price and other factors,\96\ for their customer orders, 
broker-dealers should consider the availability of consolidated market 
data for purposes of evaluating best execution.
---------------------------------------------------------------------------

    \95\ See Proposing Release, 85 FR at 16741, 54.
    \96\ See supra notes 80-81 and accompanying text.
---------------------------------------------------------------------------

    However, while the additional data content may be relevant to 
broker-dealers' best execution analyses and, in many cases, will 
facilitate the ability of broker-dealers to achieve best execution for 
their customer orders, the Commission, consistent with the approach 
taken in the Proposing Release, is not setting forth minimum data 
elements needed to achieve best execution and does not expect that all 
market participants will need to

[[Page 18606]]

purchase the most comprehensive or fastest consolidated market data 
product available. The legal requirements that establish minimum data 
standards for certain purposes are not changing. Specifically, Rule 
603(c) of Regulation NMS,\97\ the Vendor Display Rule, requires SIPs 
and broker-dealers to provide a consolidated display, as defined in 
Rule 600(b)(17) of Regulation NMS,\98\ in a context in which a trading 
or order routing decision can be implemented. In addition, in order to 
comply with Rule 611 of Regulation NMS, the Order Protection Rule, 
trading centers, as defined in Rule 600(b)(95) of Regulation NMS,\99\ 
must have access to the protected bid and protected offer. While these 
rules are impacted by the new definition of round lot, and the data 
that must be processed and displayed will change as the definition of 
round lot changes, the minimum data requirements associated with these 
rules are not changing.\100\ Additionally, market participants will 
need to obtain regulatory data to meet regulatory obligations and to be 
informed of trading halts, price bands, or other market conditions that 
may affect their trading activity.\101\
---------------------------------------------------------------------------

    \97\ 17 CFR 242.603(c).
    \98\ 17 CFR 242.600(b)(17).
    \99\ 17 CFR 242.600(b)(95).
    \100\ See Proposing Release, 85 FR at 16743-46; infra Section 
II.D.2(b).
    \101\ See Proposing Release, 85 FR at 16760; infra Section II.H.
---------------------------------------------------------------------------

    Best execution analysis varies depending upon the characteristics 
of customers and orders handled. For example, the data requirements for 
an institutional broker's smart order router (``SOR'') executing large 
algorithmic orders are likely different than for a small retail 
broker's visual display for non-professional individual investors. 
Given the large array of potential scenarios, the Commission cannot 
specify the data elements that may be relevant to every specific 
situation. Rather, broker-dealers must perform a best execution 
analysis to determine what data is relevant to obtaining best execution 
of customer orders, in a manner that is similar to decisions they must 
make today regarding whether to obtain data content that is available 
on a proprietary basis.
    In addition, the decentralized consolidation model will change the 
method by which market data is disseminated by introducing competing 
consolidators, who will offer consolidated market data products, which 
broker-dealers may choose as a source of market data. The speed of 
execution, the availability of accurate information affecting choices 
as to the most favorable market center for execution, and the 
availability of technological aids to process such information may be 
relevant factors in conducting a best execution analysis.\102\ While 
all competing consolidators will offer consolidated market data 
products, they may do so at different prices or at different latencies 
or with different amounts of data content.\103\ Therefore, the 
selection of a competing consolidator may also be relevant to a broker-
dealer's ability to achieve and analyze best execution. Competing 
consolidators will be required to disclose information about their 
consolidated market data products, including the services they will 
offer, the prices for such services as well as performance 
metrics.\104\ These disclosures should help to facilitate a broker-
dealer's ability to achieve and analyze best execution because they 
provide information regarding the timeliness, completeness, and 
accuracy of the market data offered by competing consolidators.\105\ 
These disclosures also provide statistics on capacity, network delay, 
and latency, offering additional insight into the technical 
capabilities and expected performance of a competing consolidator. This 
information will assist a broker-dealer in selecting an appropriate 
competing consolidator, which will affect the broker-dealer's ability 
to obtain ``the most favorable terms reasonably available under the 
circumstances'' for its customer orders. The Commission believes that a 
broker-dealer that uses low-latency or content-rich consolidated market 
data, whether self-aggregated or received from a competing 
consolidator, for its proprietary trading, would also be expected to 
use those data products when pursuing the best execution of customer 
orders, particularly those handled within the same aggregation unit 
that conducts proprietary trading. For example, a broker-dealer should 
not use a separate, less performant data source for its customer orders 
than the data source used for proprietary orders that may interact with 
those customer orders in a manner disadvantageous to those customer 
orders.\106\
---------------------------------------------------------------------------

    \102\ See supra notes 89 and 90 and accompanying text.
    \103\ See infra notes 897, 907-908 and accompanying text.
    \104\ See infra Section III.C.8(c).
    \105\ See supra note 90 and accompanying text.
    \106\ Cf. FINRA, Regulatory Notice 15-46, supra note 94. See 
also letter from Tyler Gellasch, Executive Director, Healthy Markets 
Association, to Vanessa Countryman, Secretary, Commission, dated May 
26, 2020, (``Healthy Markets Letter I'') at 4-5; letter from Marcia 
E. Asquith, Executive Vice President, Board and External Relations, 
Financial Industry Regulatory Authority, Inc., to Vanessa 
Countryman, Secretary, Commission, dated May 26, 2020, (``FINRA 
Letter'') at 6.
---------------------------------------------------------------------------

II. Enhancements to NMS Information

A. Introduction

    Today, most market participants utilize electronic trading systems 
to execute orders for themselves and for their customers. These 
electronic trading systems, which consume many pieces of data in an 
effort to trade competitively and efficiently in today's markets, are 
designed to analyze more information than is provided by the exclusive 
SIPs. Given that the current market is vastly different from when the 
national market system was established in the 1970s, the Commission 
believes that a broad cross-section of market participants would 
benefit from information that goes beyond SIP data to trade 
competitively and efficiently and that the information that is provided 
within the national market system needs to be augmented with new 
information elements. As discussed in detail below, the Commission is 
adopting new rules and amending certain existing rules under Regulation 
NMS to add new elements to the information that is collected, 
consolidated, and disseminated under the national market system.
    By way of example, in the 1970s, trading volume in any given stock 
was concentrated on its listing exchange and trading largely occurred 
manually with individuals representing orders on exchange floors.\107\ 
Since then, technology has fundamentally altered market operations and 
trading today largely occurs electronically with little human 
intervention.\108\ Numerous other changes have also impacted how 
trading occurs. For example, in 2001, decimalization reduced the 
increment of trading from fractions to pennies and resulted in a 
reduction in the size of liquidity at the best prices, commonly 
referred to as the ``top of book.'' \109\ The reduction in displayed 
order interest at the best bid or offer means liquidity is layered 
across multiple price levels, which makes depth of book information 
necessary for many market participants and trading systems to trade in 
an informed and effective manner.
---------------------------------------------------------------------------

    \107\ See Proposing Release, 85 FR at 16728.
    \108\ See id.
    \109\ See id. at 16751.
---------------------------------------------------------------------------

    In addition, individual odd-lot quotations, especially in high 
share price stocks, have become more prevalent \110\ and important to 
market participants as individual share prices

[[Page 18607]]

have increased.\111\ Finally, an increasing proportion of total trading 
volume is executed during opening and closing auctions, which has made 
information about orders participating in auctions increasingly 
important to many market participants. These changes have led market 
participants to call for additional information to be included in 
consolidated market data so that market participants can participate 
more fully and competitively.\112\ However, very few adjustments \113\ 
have been made to NMS information to account for these changes since 
the adoption of the 1975 Amendments.
---------------------------------------------------------------------------

    \110\ See infra note 240. See also Proposing Release, 85 FR at 
16739.
    \111\ See Proposing Release, 85 FR at 16739 (stating that 
between 2004 and 2019, the average price of a stock in the Dow Jones 
Industrial Average nearly quadrupled).
    \112\ See id. at 16740 (noting multiple Roundtable panelists and 
commenters supported the addition of odd-lot information to SIP 
data), 16751-52 (noting multiple Roundtable panelists and commenters 
supported the addition of depth of book data to SIP data), 16758 
(noting multiple Roundtable panelists and commenters supported the 
addition of auction information to SIP data).
    \113\ See, e.g., Securities Exchange Act Release Nos. 70793 
(Oct. 31, 2013), 78 FR 66788 (Nov. 6, 2013) (order approving 
Amendment No. 30 to the UTP Plan to require odd-lot transactions to 
be reported to consolidated tape); 70794 (Oct. 31, 2013), 78 FR 
66789 (Nov. 6, 2013) (order approving Eighteenth Substantive 
Amendment to the Second Restatement of the CTA Plan to require odd-
lot transactions to be reported to consolidated tape).
---------------------------------------------------------------------------

    The Commission believes that the content of current SIP data and 
the mechanism by which SIP data is collected, consolidated, and 
disseminated has not kept pace with market developments. Therefore, the 
Commission is adopting these amendments to specify additional 
information that must be made available pursuant to the effective 
national market system plan(s).\114\ Information about better priced 
orders in smaller sizes can improve investors' ability to trade at the 
best prices available. Further, certain market participants can more 
efficiently place larger sized orders that may not be fully executed at 
top of book prices using information about the prices of orders outside 
of the best bids and best offers, and they can more effectively 
participate in exchange auctions using relevant information about the 
trading interest in such auctions. Finally, market participants also 
need to have, and will continue to receive, regulatory information, 
administrative data, and other important information to participate 
effectively in the markets. The Commission received comments on each of 
these issues.
---------------------------------------------------------------------------

    \114\ Section 11A(c)(1)(B) of the Exchange Act provides the 
Commission with the authority to, among other things, assure the 
fairness and usefulness of the form and content of quotation and 
transaction information.
---------------------------------------------------------------------------

    As discussed more fully below, some commenters, stating that the 
information is not necessary for all investors, questioned the need to 
add new information elements.\115\ While the Commission recognizes that 
different market participants need differing amounts of information to 
meet different trading objectives, the Commission believes that the 
availability of the new information will enhance the ability of market 
participants to trade competitively and efficiently and will indirectly 
benefit investors who place orders in the national market system even 
if they do not directly consume all of the new data elements by 
facilitating executing broker-dealers' access to information.\116\ In 
today's market, information about odd-lot quotations, depth of book 
quotations, and auction information has become highly relevant. 
Together, these pieces of information can be significantly beneficial 
in facilitating informed trading decisions, and the Commission believes 
that they should be more widely distributed and more readily 
accessible. The Commission anticipates that a variety of consolidated 
market data products will be developed to meet the various needs 
investors have for data.\117\ The Commission believes that the 
amendments will enhance the usefulness of NMS information and thus 
better inform trading and investment decisions for all investors, which 
in turn will help maintain fair and efficient markets as well as 
facilitate best execution of customer orders.\118\
---------------------------------------------------------------------------

    \115\ See, e.g., letter from John A. Zecca, Executive Vice 
President, Chief Legal Officer, and Chief Regulatory Officer, 
Nasdaq, to Vanessa Countryman, Secretary, Commission, dated May 26, 
2020, (``Nasdaq Letter IV'') at 31-34; letter from Elizabeth K. 
King, Chief Regulatory Officer, ICE, and General Counsel and 
Corporate Secretary, NYSE, to Vanessa Countryman, Secretary, 
Commission, dated June 1, 2020, (``NYSE Letter II'') at 3-8; letter 
from Joseph Kinahan Managing Director, Client Advocacy and Market 
Structure, TD Ameritrade, to Vanessa A. Countryman, Secretary, 
Commission, dated June 1, 2020, (``TD Ameritrade Letter'') at 4.
    \116\ See infra Section II.C.2(a).
    \117\ See infra Section III.E.2(e).
    \118\ See supra Section I.E (discussing the implications for 
best execution).
---------------------------------------------------------------------------

    Accordingly, as discussed in more detail below, the Commission is 
adopting several new defined terms under Rule 600 of Regulation NMS to 
specify, and as a result expand and enhance, the data that Regulation 
NMS requires to be collected, consolidated, and disseminated. 
Importantly, the Commission is adopting two new definitions under 
Regulation NMS--``consolidated market data'' and ``core data''--to 
specify the components of NMS information that are required to be 
collected, consolidated, and disseminated under the national market 
system. ``Consolidated market data product'' is defined as any data 
product developed by a competing consolidator that contains 
consolidated market data or any of the elements or subcomponents 
thereof. The Commission is also adopting additional defined terms to 
further set forth the scope of information included within the 
definitions of consolidated market data and core data. The definitions 
include information that is currently provided by the exclusive SIPs as 
well as new information designed to ensure that brokers, dealers, and 
investors have available information with respect to quotations for and 
transactions in securities that is prompt, accurate, reliable, and 
fair.\119\
---------------------------------------------------------------------------

    \119\ See supra Section I.A.
---------------------------------------------------------------------------

B. Definition of ``Consolidated Market Data'' Under Rule 600(b)(19)

1. Proposal
    The Commission proposed to expand the content of the NMS 
information that would be required to be collected, consolidated, and 
disseminated under the rules of the national market system through the 
proposed definition of ``consolidated market data.'' Specifically, the 
Commission proposed that consolidated market data would include the 
following data, consolidated across all national securities exchanges 
and national securities associations: (1) Core data; (2) regulatory 
data; (3) administrative data; (4) exchange-specific program data; and 
(5) additional regulatory, administrative, or exchange-specific program 
data elements defined as such pursuant to the effective national market 
system plan or plans required under Rule 603(b).\120\ In addition, the 
proposed definition of consolidated market data would be used to 
delineate the responsibilities and obligations of the SROs under Rule 
603(b) and competing consolidators under Rule 614. These rules 
implement the decentralized consolidation model, which is discussed in 
more detail in Section III below.
---------------------------------------------------------------------------

    \120\ As discussed below, the Commission also proposed and is 
adopting definitions for ``core data,'' ``regulatory data,'' 
``administrative data,'' and ``self-regulatory organization-specific 
program data.'' See infra Sections II.C, II.H, II.J, II.K, 
respectively.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received a number of comments on the proposed 
expansion of NMS information related to the specific elements that make 
up

[[Page 18608]]

consolidated market data,\121\ and the Commission also received some 
comments on the proposed definition of consolidated market data. One 
commenter supported the expansion of NMS information to include the 
proposed elements of consolidated market data.\122\ Another commenter 
agreed with the proposed definition, stating that these data elements 
need to be clearly defined and categorized and that ``tight definitions 
would assist to `preserve the integrity and affordability of the 
consolidated data stream.' '' \123\
---------------------------------------------------------------------------

    \121\ See infra Sections II.C through II.K.
    \122\ See Capital Group Letter at 2.
    \123\ TD Ameritrade Letter at 3 (quoting Regulation NMS Adopting 
Release).
---------------------------------------------------------------------------

    Other commenters, however, stated that the Commission should allow 
additional core data elements to be included in consolidated market 
data through a process other than Commission rulemaking.\124\ A 
different commenter stated that the proposed changes to consolidated 
market data are ``not appropriately tailored to the needs of the 
market'' and ``are overly broad and unnecessarily complex.'' \125\ 
Another commenter, while agreeing that the definition of consolidated 
market data should be defined as proposed, suggested that it should 
only include depth-of-book data, certain odd-lot information, and three 
options for including auction data.\126\
---------------------------------------------------------------------------

    \124\ See Clearpool Letter at 11 (stating that the Commission 
should provide flexibility in the definition of core data or the 
process by which the elements of core data are determined); RBC 
Letter at 4 (stating that the proposed definition of core data 
should serve as a ``floor'' that the Operating Committee should be 
permitted to expand upon (but not reduce) pursuant to Plan 
amendments); letter from Emil R. Framnes, Global Head of Trading, 
and Simon Emrich, Market Structure and Trading Research, Norges Bank 
Investment Management Letter, to Vanessa Countryman, Secretary, 
Commission (``NBIM Letter'') at 5 (``[I]t might be prudent to allow 
for further modification of the definition of core data as market 
structure evolves.'').
    \125\ NYSE Letter II at 3.
    \126\ See letter from Kelvin To, Founder and President, Data 
Boiler Technologies, LLC, to Vanessa Countryman, Secretary, 
Commission, dated May 26, 2020, (``Data Boiler Letter I'') at 19-20. 
However, this commenter also stated that administrative data should 
be included in the proposed definition of consolidated market data. 
See id. at 34.
---------------------------------------------------------------------------

    The Commission is adopting the definition of consolidated market 
data largely as proposed.\127\ As discussed in detail below,\128\ the 
Commission continues to believe that expanding the NMS information that 
is required to be provided under the rules of the national market 
system, as set forth in the definition of consolidated market data, 
would support more informed trading and investment decisions by market 
participants in today's markets and facilitate the best execution of 
customer orders by the full range of broker-dealers.\129\ As reflected 
in comments received from a variety of market participants, each of the 
elements of consolidated market data--and in particular the expansion 
of core data to include quotation interest in smaller orders of higher-
priced stocks, depth of book data, and auction information--would 
provide significant, useful information to market participants.\130\ 
Consistent with the views of market participants--many of whom will be 
the users of consolidated market data--that this data would be useful 
to them to improve investment decisions and facilitate the best 
execution of customer orders, the Commission believes that the 
definition of consolidated market data is ``appropriately tailored'' to 
market participants' needs, that it is not overly broad, and that it 
does not entail unnecessary complexity.\131\ In addition, the proposed 
decentralized consolidation model permits competing consolidators to 
offer, and market participants to consume, customized market data 
products that suit their particular needs. This flexibility addresses 
concerns that consolidated market data is overly broad or unnecessarily 
complex because it allows competing consolidators and their subscribers 
to adjust the breadth and complexity of the market data products they 
offer and consume, respectively.\132\ On the other hand, limiting 
consolidated market data to only depth of book data, certain odd-lot 
information, and auction data, as one commenter suggested, would not 
include regulatory data--such as information regarding trading halts 
and price bands--that the Commission believes is necessary to trade 
effectively and efficiently.\133\
---------------------------------------------------------------------------

    \127\ The Commission is modifying the definition of exchange-
specific program data to be self-regulatory organization-specific 
program data. See infra Section II.K.
    \128\ See infra Sections II.C through II.K.
    \129\ See Proposing Release, 85 FR at 16735. See also infra 
Section II.C.2(a); supra Section I.E.
    \130\ See infra Sections II.C through II.K.
    \131\ See NYSE Letter II at 3.
    \132\ See infra Section III. See also infra notes 139 and 140 
and accompanying text (discussing the Commission's adoption of the 
new defined term ``consolidated market data product'').
    \133\ See infra Section II.H.
---------------------------------------------------------------------------

    In response to comments recommending a more streamlined or flexible 
process to include additional data elements in core data,\134\ the 
Commission agrees that the definition of consolidated market data 
should permit additional data elements to be added pursuant to 
effective national market system plan amendments. However, the 
Commission continues to believe that this process should be limited to 
future regulatory, administrative, or self-regulatory organization-
specific program information.\135\ As discussed below,\136\ the 
transaction and quotation information reflected in the definition of 
core data--including best bids and offers, the NBBO, protected 
quotations, last sale data, depth of book data, and auction 
information--is specified in the rule.\137\ The rule as proposed and 
adopted is designed to account appropriately for additional regulatory, 
administrative, and self-regulatory organization-specific program 
information data elements that may emerge periodically through the 
approval of new SRO rules or the development and refinement of 
technical specifications to be included in consolidated market data 
through the effective national market system plan amendment 
process.\138\
---------------------------------------------------------------------------

    \134\ See Clearpool Letter at 11.
    \135\ See Proposing Release, 85 FR at 16734.
    \136\ See infra Sections II.C through II.G.
    \137\ The Commission will continue to monitor the usefulness of 
these core data elements to market participants and consider whether 
any modifications to the definition of core data are necessary or 
appropriate as the markets evolve. Interested persons also may 
petition the Commission to amend such definition if they believe 
particular changes are warranted.
    \138\ See infra Sections II.H, II.J, and II.K. Both SRO rule 
changes and effective national market system plan amendments are 
subject to the public notice and comment process, as well as 
Commission review. See Exchange Act Section 19(b)(1), 15 U.S.C. 
78s(b)(1); 17 CFR 240.19b-4 (Rule 19b-4); Rule 608(b) of Regulation 
NMS, 17 CFR 242.608(b).
---------------------------------------------------------------------------

    The Commission is defining a new term, ``consolidated market data 
product'' to mean any data product developed by a competing 
consolidator that contains consolidated market data or components of 
consolidated market data. The definition of consolidated market data 
product also specifies that components of consolidated market data 
include the enumerated elements, and any subcomponent of the elements, 
of consolidated market data in Sec.  242.600(b)(19) and that all 
consolidated market data products must reflect data consolidated across 
all national securities exchanges and national securities 
associations.\139\ As discussed further below, Rule 614 will require 
competing consolidators to offer one or more consolidated market data 
products to their subscribers, and will not, as proposed, require them 
to offer a product that contains all elements of consolidated market 
data.\140\ In addition, the Commission recognizes that some market 
participants will not want or need a consolidated market data

[[Page 18609]]

product that contains all elements of consolidated market data.
---------------------------------------------------------------------------

    \139\ See infra Section VIII.
    \140\ See infra Section III.C.8(a).
---------------------------------------------------------------------------

3. The Fifth Amendment's Takings Clause
    The Constitution's Takings Clause prevents the taking of private 
property for public use without just compensation.\141\ One commenter 
stated that the proposal to expand the data that would be required to 
be provided under Regulation NMS would violate the Takings Clause by 
``effecting a physical taking . . . without just compensation.'' \142\ 
The commenter asserted that the proposal would require it to ``turn 
over vast amounts of their proprietary market data--valuable property 
that Nasdaq currently sells to market participants at a reasonable rate 
of return--to competing consolidators and self-aggregators at prices 
set by the operating committee of the consolidated NMS plan.'' \143\ 
The commenter stated that the government would ``expropriate property 
belonging to Nasdaq and redistribute it to Nasdaq's competitors at 
prices set, in part, by the non-SRO members of the consolidated NMS 
plan's operating committee'' that would be ``laboring under a conflict-
of-interest and would have no incentive to pay `just compensation' for 
the property taken from Nasdaq.'' \144\
---------------------------------------------------------------------------

    \141\ U.S. Const. amend. 5 (``No person shall be held to answer 
for a capital, or otherwise infamous crime, unless on a presentment 
or indictment of a grand jury, except in cases arising in the land 
or naval forces, or in the militia, when in actual service in time 
of war or public danger; nor shall any person be subject for the 
same offense to be twice put in jeopardy of life or limb; nor shall 
be compelled in any criminal case to be a witness against himself, 
nor be deprived of life, liberty, or property, without due process 
of law; nor shall private property be taken for public use, without 
just compensation.'').
    \142\ Nasdaq Letter IV at 50.
    \143\ Id.
    \144\ Id. at 50-51.
---------------------------------------------------------------------------

    Neither the expansion of NMS information pursuant to the definition 
of consolidated market data nor the requirement that national 
securities exchanges and associations make the data necessary to 
generate consolidated market data available to competing consolidators 
and self-aggregators constitutes a taking for the following reasons. 
The Commission's action does not encroach on or appropriate any 
property. The exchanges developed their proprietary data within a 
highly regulated statutory and regulatory structure that provides the 
Commission with ample authority to decide--and revise--which types of 
information the exchanges must provide to market participants to 
fulfill their responsibilities under the Exchange Act.\145\ Moreover, 
the SROs will be compensated for making the data necessary to generate 
consolidated market data available to competing consolidators and self-
aggregators pursuant to fees established by the effective national 
market system plan(s). Even if non-SRO members of plan Operating 
Committees have a degree of authority to influence proposed 
consolidated market data fees, the Commission retains authority to 
ensure that those fees are ``fair and reasonable'' and ``not 
unreasonably discriminatory.'' The exchanges thus had no reasonable 
basis to expect that the current regulatory structure would remain in 
place in perpetuity in this highly regulated field, and, in any event, 
they will not be deprived of the economic benefits of the information 
they will provide to market participants.\146\
---------------------------------------------------------------------------

    \145\ See supra note 5.
    \146\ See Ruckleshaus v. Monsanto Co., 467 U.S. 986, 1005-07 
(1984) (noting that the reasonableness of an investment-backed 
expectation depends in part on whether the regulated activity has 
been in an area ``that has long been the source of public concern 
and the subject of government regulation''); District Intown 
Properties Ltd. P'ship v. District of Columbia, 198 F.3d 874, 884 
(D.C. Cir. 1999) (``Businesses that operate in an industry with a 
history of regulation have no reasonable expectation that regulation 
will not be strengthened to achieve established legislative 
ends.''); Me. Educ. Ass'n Benefits Tr. v. Cioppa, 695 F.3d 145, 154 
(1st Cir. 2012) (the plaintiff's ``expectations are substantially 
diminished by the highly regulated nature of the industry in which 
it operates'').
---------------------------------------------------------------------------

C. Definition of ``Core Data'' Under Rule 600(b)(21)

1. Proposal
    As stated in the Proposing Release,\147\ Regulation NMS does not 
contain a definition of ``core data,'' although various Regulation NMS 
rules describe the information that is required to be collected, 
consolidated, and disseminated under Regulation NMS.\148\ The 
Commission proposed defining ``core data'' to include the information 
currently referred to as core data--last sale data, each SRO's best bid 
and best offer (``BBO''), and the NBBO \149\--along with new 
information that is not currently required to be provided under 
Regulation NMS or by the exclusive SIPs. The proposed new information 
included quotation data for smaller-sized orders in higher-priced 
stocks (pursuant to a new definition of ``round lot''), information on 
certain quotations below the best bid or above the best offer (pursuant 
to a new definition of ``depth of book data''), and information about 
orders participating in auctions (pursuant to a new definition of 
``auction information''). Specifically, the proposed definition of core 
data included: (A) Quotation sizes; (B) aggregate quotation sizes; (C) 
best bid and best offer; (D) national best bid and national best offer; 
(E) protected bid and protected offer; (F) transaction reports; (G) 
last sale data; (H) odd-lot transaction data disseminated pursuant to 
the effective national market system plan or plans required under Sec.  
242.603(b) as of [date of Commission approval of this Adopting 
Release]; (I) depth of book data; and (J) auction information.
---------------------------------------------------------------------------

    \147\ See Proposing Release, 85 FR at 16730.
    \148\ See, e.g., Rules 601, 602, and 603 of Regulation NMS.
    \149\ See supra note 16.
---------------------------------------------------------------------------

    Additionally, the proposed definition of core data specified how 
odd-lots are to be aggregated for purposes of certain data elements 
included within the definition of core data. Specifically, the proposed 
definition stated that the best bid and best offer, national best bid 
and national best offer, and depth of book data shall include odd-lots 
that when aggregated are equal to or greater than a round lot, and that 
such aggregation shall occur across multiple prices and shall be 
disseminated at the least aggressive price of all such aggregated odd-
lots.\150\
---------------------------------------------------------------------------

    \150\ As discussed below, the proposed definition of core data 
also specified an odd-lot aggregation methodology for protected 
quotations. See infra Section II.E.2(b).
---------------------------------------------------------------------------

    Finally, the proposed definition of core data did not include 
certain information--specifically, OTC Bulletin Board (``OTCBB'') data, 
and corporate bond and index data--that is currently provided by the 
exclusive SIPs.\151\
---------------------------------------------------------------------------

    \151\ See Proposing Release, 85 FR at 16736.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
(a) Expansion of Core Data, Generally
    Multiple commenters supported the expansion of NMS information 
generally \152\ and of core data \153\ in

[[Page 18610]]

particular.\154\ One commenter, ``agree[ing] that the proposed 
information to be included in core data has become much more important 
to broker-dealers in recent years . . .,'' ``strongly support[ed] 
expanding core data to include additional information of significance 
to investors.'' \155\ Another commenter stated that ``add[ing] more 
pricing information to the consolidated tape . . . would be a 
fundamental improvement that would expand data access to Main Street 
investors in a very meaningful way.'' \156\ A different commenter said 
that ``all data is `core data.' '' \157\
---------------------------------------------------------------------------

    \152\ See T. Rowe Price Letter at 1-2 (``Expanding the content 
of NMS information would improve its utility when consumed 
electronically (e.g., by algorithmic trading systems or smart order 
routers).''); BlackRock Letter at 2 (``BlackRock is supportive of 
expanding and revamping the content of NMS information. We agree 
that this would help to reduce information asymmetries between 
market participants who rely upon SIP data and those who purchase 
proprietary data feeds from the national securities exchanges.'').
    \153\ See Clearpool Letter at 11 (supporting ``the inclusion of 
this additional information in core data, which can reduce the 
reliance on exchanges' proprietary data feeds and provide market 
participants with additional information to make informed order 
routing and execution decisions,'' while also ``recommend[ing] that 
the Commission require a `retail interest indicator' to be added to 
quotes to assist market participants in defining what portion of the 
quote is attributable to retail interest''); RBC Letter at 4 
(stating that RBC ``generally support[s] the Proposal's definition 
of Core Data''); letter from Tim Lang, Chief Executive Officer, ACS 
Execution Services, LLC, to Vanessa Countryman, Secretary, 
Commission, dated May 26, 2020, (``ACS Execution Services Letter'') 
at 2; IEX Letter at 2 (``We support the Market Infrastructure 
Proposal because it will update the content of `core data' to better 
reflect the information needed to participate in today's markets . . 
. .''); ICI Letter at 4 (``We support the Commission expanding the 
scope of core data, which will benefit funds and their 
shareholders.'').
    \154\ As discussed below, many commenters also expressed views 
on the specific elements of the definition of core data. See infra 
Sections II.D; II.E; II.F; II.G.
    \155\ ACS Execution Services Letter at 2.
    \156\ Letter from Jeffrey T. Brown, Senior Vice President 
Legislative and Regulatory Affairs, Charles Schwab & Co., Inc., to 
Vanessa Countryman, Secretary, Commission, dated May 26, 2020, 
(``Schwab Letter'') at 2-3.
    \157\ Virtu Letter at 2, 5 (``[T]he `core data' offered through 
the SIPs is no longer sufficient for most market participants to 
trade competitively in today's marketplace.'').
---------------------------------------------------------------------------

    Some commenters opposed the expansion of core data, however. One 
commenter, though agreeing that Regulation NMS should define core data, 
stated that the new proposed core data elements are not necessary or 
useful for all market participants but will raise the costs of core 
data for all market participants by requiring them to receive and 
process core data to meet their regulatory obligations. \158\ 
Similarly, another commenter, though supportive of the Commission 
formally defining core data in its regulations, argued that the 
proposed definition was ``poorly designed'' because it ``only 
consider[s] the requirements of market participants that need, and are 
able to consume, a richer data set'' and that the proposed definition 
``would require non-professional investors who do not need such rich 
data to purchase and consume even more unnecessary data elements (e.g., 
depth of book data) than the current SIP product provides.'' \159\ 
Another commenter argued that the Commission falsely assumed that the 
decision by some market participants to supplement current core data 
with proprietary data means that this additional data is necessary to 
all market participants and investors, and that the expanded set of 
information included in the proposed definition of core data ``is 
neither necessary nor relevant to the business models and trading or 
investment strategies of many, if not most, ordinary investors and 
market participants.'' \160\ Additionally, the commenter stated that 
the Commission ``failed to collect data regarding whether any 
meaningful number of market participants that desire access to non-core 
data are actually unable to obtain it, either directly from exchanges 
or indirectly (and often free of charge) from their brokers.'' \161\
---------------------------------------------------------------------------

    \158\ See TD Ameritrade Letter at 3.
    \159\ NYSE Letter II at 3-4.
    \160\ Nasdaq Letter IV at 7-8.
    \161\ Id. at 8 (footnote removed). See also NYSE Letter II at 3-
8; TD Ameritrade Letter at 4.
---------------------------------------------------------------------------

    The Commission is adopting the definition of core data largely as 
proposed, as discussed further below.\162\ In the Proposing Release, 
the Commission stated its preliminary belief that the content of core 
data has not kept pace with market developments and that the proposed 
expansion of core data would enhance its usefulness to address the 
needs of a broad cross-section of market participants.\163\ Comments 
received from a variety of market participants--including exchanges, 
buy-side firms, and sell-side firms--have borne this out. Numerous 
commenters expressed support for the proposed definition of core data, 
stating that the specific subcomponents of core data, such as five 
levels of depth of book data, would help market participants to trade 
more effectively.\164\ Several commenters also pointed out that 
expanding core data would promote a wider dissemination of this data, 
including to market participants who cannot afford expensive 
proprietary feeds.\165\ For the reasons discussed in the Proposing 
Release and as set forth in detail below with respect to the specific 
elements of core data,\166\ the Commission believes that the expanded 
definition of core data will be useful to market participants and will 
help fulfill needs that are not currently being met by SIP data. 
Additionally, and for the same reasons, the Commission disagrees with 
comments suggesting that proposed core data would not be useful to many 
market participants, that proprietary market data products are 
adequately meeting the needs of all market participants, and that all 
market participants that have a need to access

[[Page 18611]]

these products are able to do so. Rather, the definition of core data 
specifies important information that would be useful to a wide variety 
of market participants--including those who do not obtain it through 
proprietary market data products today--and facilitates a broader 
dissemination of this information.\167\
---------------------------------------------------------------------------

    \162\ The Commission is revising the proposed definition of core 
data to include odd-lots priced at or better than the NBBO, to 
specify how quotation sizes are to be displayed in core data, and to 
require SRO attribution of core data elements. The Commission is 
also modifying the proposed definitions of depth of book data and 
auction information and is not adopting the proposed amendments to 
the definition of protected bid or protected offer, which 
definitions are embedded in the definition of core data. The 
particular elements of the definition of core data are discussed 
below. See infra Sections II.C.2(b); II.D; II.E; II.F; II.G.
    \163\ See Proposing Release, 85 FR at 16735-76.
    \164\ See, e.g., T. Rowe Price Letter at 2 (``We believe the 
addition of depth of book data (specifically, the five price levels 
above the protected offer and below the protected bid) and auction 
imbalance information, including opening, reopening, and closing 
auctions, will make SIP data a much more viable alternative to 
proprietary market data. . . . This additional data will help reduce 
the information asymmetries that currently exist between SIP data 
and proprietary data.''); ACS Execution Services Letter at 2 (``ACS 
strongly supports expanding core data to include additional 
information of significance to investors. As the proposal notes, 
through the provision of such additional information, market 
participants may have access to data to make better routing and 
trading decisions.'').
    \165\ See, e.g., Virtu Letter at 5 (``[I]ncluding depth of book 
information in the SIP will allow investors who cannot afford to pay 
for costly Exchange proprietary feeds to trade more competitively in 
the marketplace, and we believe five levels of depth of book is a 
reasonable and appropriate place to land.''); Clearpool Letter at 11 
(``[C]urrently, the `core data' provided through the SIP only 
includes the NBBO and top-of-book data. For this reason, there 
continues to be no viable alternatives for broker-dealers to paying 
exchanges for their proprietary market data, both to provide 
competitive execution services to clients and, equally important, to 
meet best execution obligations. Clearpool therefore strongly 
supports the inclusion of this additional information in core data, 
which can reduce the reliance on exchanges' proprietary data feeds 
and provide market participants with additional information to make 
informed order routing and execution decisions.''); IEX Letter at 5-
6 (``For these reasons, the NBBO no longer encompasses the `core 
data' that market participants need to stay competitive and satisfy 
best execution responsibilities. The fact that depth of book data 
can only be obtained through exchange proprietary data feeds allows 
exchanges to charge extraordinarily high prices completely 
disproportionate to any reasonable estimation of the cost of 
producing that data. . . . Importantly, however, to the extent that 
a significant subset of market participants could rely on this data 
as a viable alternative to purchasing proprietary data, or could 
viably choose to purchase less proprietary data than they need 
today, it could help to harness market competition to restrain data 
fee increases that today are largely unrestrained.''); letter from 
James J. Angel, Associate Professor of Finance, Georgetown 
University, to the Commission, dated June 12, 2020, (``Angel 
Letter'') at 7-8 (``Providing data on a visibly level playing field 
will increase public trust in the integrity of the markets. . . . 
Freely available information about the entire market, including 
orders inside the spread and the depth of book, will reduce the 
asymmetry of information in the market between small retail 
investors and larger players. This added transparency will reduce 
the notion that markets are `rigged' in favor of larger players.'').
    \166\ See Proposing Release, 85 FR at 16735-59 (discussing 
market developments such as rising stock prices and increased odd-
lot trading, decimalization, and the growth of auctions and the need 
to expand core data to include smaller-sized orders in higher priced 
stocks, depth of book data, and auction information to help market 
participants use core data to trade in a more informed and effective 
manner in light of these developments); infra Sections II.D through 
II.G.
    \167\ See supra note 114 (describing the authority under Section 
11A of the Exchange Act to specify additional information that must 
be made available within the national market system); Section I.A 
(explaining the need to improve and modernize the national market 
system to fulfill the goals of Section 11A of the Exchange Act and 
to meet the current core data needs of all market participants). As 
stated below, some market participants stated that those who do not 
buy the exchange proprietary DOB feeds and associated connectivity 
and transmission offerings are at a competitive disadvantage 
relative to market participants who purchase these feeds. See infra 
note 1620 and accompanying text. See also infra Sections III.E.2(c); 
V.C.2(b)(i)a (discussing how the amendments will affect data content 
fees).
---------------------------------------------------------------------------

    In addition, the Commission disagrees with comments that the 
definition of core data would require market participants, including 
non-professional investors, to purchase or consume all data that would 
be defined as core data, and thereby increase the cost of core data for 
all.\168\ Competing consolidators are not required to offer a data 
product that includes all consolidated market data,\169\ and the 
Commission has explicitly stated that the proposed definitions of core 
data and consolidated market data do not ``mandat[e] the consumption'' 
of particular data elements.\170\ Thus, the Commission believes it has 
considered and addressed the needs of market participants that do not 
directly need all elements of core data. The purpose of expanding core 
data is to promote wider dissemination of data that will be useful in 
meeting the needs of a broad array of market participants. As explained 
below, the enhanced core data content will benefit all investors, 
regardless of whether they directly consume it.\171\ Furthermore, the 
Operating Committee of the effective national market system plan(s) 
could develop fees for data content underlying consolidated market data 
offerings for different subsets of consolidated market data to suit the 
needs of various market participants, as one member of the Operating 
Committee has already suggested.\172\ Within this framework, the 
Commission believes that the market would develop to enable market 
participants to consume and pay for the market data that best suits 
their needs and that there would be downward pressure on data content 
fees.\173\
---------------------------------------------------------------------------

    \168\ See TD Ameritrade Letter at 3; NYSE Letter II at 3-4; 
Nasdaq Letter IV at 7-8.
    \169\ See infra Section III.C.8(a).
    \170\ Proposing Release, 85 FR at 16775.
    \171\ See infra notes 174-176 and accompanying text.
    \172\ See letter from Elizabeth K. King, Chief Regulatory 
Officer, ICE, General Counsel and Corporate Secretary, NYSE to 
Vanessa Countryman, Secretary, Commission, dated Feb. 5, 2020, 
(``Feb. NYSE Letter'') (recommending that the Commission expand SIP 
content and ``create products designed for modern use cases, 
including a SIP product with depth-of-book quotes for institutional 
traders and a National Best Bid and Offer (`NBBO') only version for 
retail customers, with fees based on content entitlements (or 
levels) instead of user type''). See also infra notes 1201-1208 and 
accompanying text.
    \173\ See supra note 28 (describing comments received by the 
Commission regarding the high cost of proprietary data products that 
contain data needed for effective participation in the markets); 
infra Sections III.E.2(c); V.C.2(b)(i)a (discussing how the 
amendments will affect data content fees).
---------------------------------------------------------------------------

    Moreover, the Commission believes that all investors will benefit, 
directly or indirectly, from the expanded definition of core data. Even 
if only a subset of market participants may choose to acquire directly 
a data product that includes the full set of data elements included 
within the definition of core data, the Commission believes that there 
will be ample demand for expanded core data \174\ and a corresponding 
incentive for competing consolidators to offer more content-rich 
products. The Commission expects that direct purchasers of such 
products likely will include many broker-dealers that are 
electronically routing orders for execution or executing orders 
internally. As discussed below, the additional data elements included 
within the definition of core data are useful to efficiently and 
effectively route and execute orders in today's dispersed electronic 
markets,\175\ and their widespread availability should facilitate 
broker-dealers' ability to achieve best execution for customers.\176\ 
Thus, broker-dealers will be incentivized to acquire products 
containing the expanded core data elements to compete effectively for 
customer business. In addition, by including these additional, 
important market data elements as part of expanded core data, this 
rulemaking should help facilitate executing broker-dealers' access to 
information, to the benefit of all investors. Accordingly, while the 
Commission expects only some market participants to choose to purchase 
a data product that includes the full set of core data, any market 
participant that submits an order in an NMS stock should benefit 
indirectly from their doing so because more executing broker-dealers 
will receive the data elements that will help them place customer 
orders in a more informed and effective manner.
---------------------------------------------------------------------------

    \174\ See infra notes 878-880; supra notes 163-167 and 
accompanying text.
    \175\ See infra notes 878-880 and accompanying text.
    \176\ See supra Section I.E.
---------------------------------------------------------------------------

    Finally, in response to the comment recommending that a ``retail 
interest indicator'' be added to quotes,\177\ the definition of self-
regulatory organization-specific program information already 
incorporates retail interest indicators disseminated in current SIP 
data and established pursuant to exchange retail liquidity programs in 
the definition of consolidated market data.\178\
---------------------------------------------------------------------------

    \177\ See Clearpool Letter at 6.
    \178\ See infra Section II.K.
---------------------------------------------------------------------------

(b) Odd-Lot Quotations
    In the Proposing Release, the Commission solicited comment on 
whether core data should include odd-lot quotations, but did not 
include odd-lot quotes in the definition of core data other than by 
incorporating them through the proposed definition of round lot.\179\ 
Several commenters recommended directly including odd-lots in core data 
rather than doing so through the mechanism of the proposed definition 
of round lot.\180\ Specifically, one commenter suggested including odd-
lots priced better than the PBBO in core data,\181\ and another 
suggested including the best-priced odd-lot quotation from each 
exchange.\182\ Another commenter supported the Commission's aim of 
increasing odd-lot transparency for higher priced securities but 
questioned doing so through the proposed definition of round lot.\183\ 
One commenter recommended adding unprotected odd-lots to core data, 
combined with best execution guidance on broker-dealer obligations with 
respect to odd-lot quotations, rather than redefining round lot.\184\ 
Similarly, another commenter recommended including odd-lot quotations 
in core data while leaving the definition of round lot as it currently 
stands.\185\ A

[[Page 18612]]

different commenter recommended delaying odd-lots to mitigate the 
impact on processing times.\186\ On the other hand, one commenter 
expressed concerns that adding odd-lot quotations to core data would 
harm investor confidence in the markets resulting from confusion over 
protected and unprotected quotes and increased costs and latency for 
core data by adding more information that needs to be 
disseminated.\187\ A different commenter presented data showing that, 
for a significant percent of orders in each of the Commission's 
proposed round lot tiers, there would still be a contra-side odd-lot 
quote better than the NBBO.\188\
---------------------------------------------------------------------------

    \179\ See Proposing Release, 85 FR at 16746.
    \180\ See letter from Patrick Sexton, Executive Vice President, 
General Counsel, and Corporate Secretary, Cboe, to Vanessa 
Countryman, Secretary, Commission, dated May 26, 2020, (``Cboe 
Letter'') at 15; NYSE Letter II at 5; Nasdaq Letter IV at 14; RBC 
Letter at 5; letters to Vanessa Countryman, Secretary, Commission, 
from Kimberly Unger, Chief Executive Officer and Executive Director, 
STANY, dated June 11, 2020, (``STANY Letter II'') at 3; Anders 
Franzon, General Counsel, MEMX LLC, dated May 26, 2020, (``MEMX 
Letter'') at 2 (``[A]ll data currently made available through 
proprietary data feeds should be available through NMS data feeds. 
This includes complete depth-of-book data (and thus all odd lot 
data). . . .'').
    \181\ See CBOE Letter at 15.
    \182\ See NYSE Letter II at 5.
    \183\ See Nasdaq Letter IV at 14.
    \184\ See RBC Letter at 5.
    \185\ See STANY Letter II at 3.
    \186\ See Data Boiler Letter I at 19.
    \187\ See TD Ameritrade Letter at 4-5.
    \188\ Memorandum from the Division of Trading and Markets 
regarding a June 19, 2020, meeting with representatives of JP Morgan 
(``JP Morgan Memo to File'') at 2 (``Under today's rules: 11.6% of 
orders contain a contra-side oddlot [sic] quote better than the 
NBBO. Under SEC's proposed round lot parameters: (i) Bucket A 
($50.00 and less)-100 share round lot-6.3% of orders would still 
contain a contra-side oddlot [sic] quote better than the NBBO; (ii) 
Bucket B (between $50.01 and $100.00)-20 share round lot-10.9% of 
orders would still contain a contra-side oddlot [sic] quote better 
than the NBBO; (iii) Bucket C (between $100.01 and $500.00)-10 share 
round lot-11.6% of orders would still contain a contra-side oddlot 
[sic] quote better than the NBBO; (iv) Bucket D (between $500.01 and 
$1,000.00)-2 share round lot-23% of orders would still contain a 
contra-side oddlot [sic] quote better than the NBBO; (v) Bucket E 
($1,000.01 and higher)-1 share round lot-all quotes are at round lot 
levels.'').
---------------------------------------------------------------------------

    The Commission continues to be concerned that the availability of 
odd-lot order information solely to market participants who have 
purchased proprietary market data products creates a potentially 
significant information asymmetry relative to market participants who 
purchase only SIP data.\189\ For the reasons discussed below, the 
Commission is also modifying the definition of round lot.\190\ While 
the proposed definition of round lot, as modified, would incorporate a 
substantial proportion of odd-lot quotations that occur at a price 
better than the NBBO for certain higher-priced stocks, the Commission 
is concerned that a significant amount of liquidity that could be 
available at better prices would be excluded from core data.\191\ After 
considering comments, and given that the adopted round lot definition, 
on its own, would have resulted in less odd-lot information being 
included in core data, the Commission is adopting a definition of core 
data that includes all odd-lots that are priced at or better than the 
NBBO, aggregated at each price level at each national securities 
exchange and national securities association.
---------------------------------------------------------------------------

    \189\ Proposing Release, 85 FR at 16741.
    \190\ See infra Section II.D (explaining that the Commission is 
adopting a four-tiered definition of round lot rather than the five-
tiered definition that was proposed).
    \191\ See JP Morgan Memo to File at 2.
---------------------------------------------------------------------------

    As summarized in Tables 1 and 2 below, staff analyzed data on the 
portion of all corporate stock and ETF volume executed on an exchange, 
transacted in a quantity less than 100 shares, at a price better than 
the prevailing NBBO, occurring in a quantity that would be defined as a 
round lot under both the adopted and proposed definitions of round lot.

                                 Table 1
------------------------------------------------------------------------
                                                       Portion of all
                                                     corporate stock and
                                                     ETF volume executed
                                                       on an exchange,
                                                       transacted in a
                                                     quantity less than
                                                      100 shares, at a
   Adopted round lot tier       Adopted round lot     price better than
                                   definition       the prevailing NBBO,
                                                       occurring in a
                                                     quantity that would
                                                       be defined as a
                                                     round lot under the
                                                     adopted definition
                                                        of round lot
------------------------------------------------------------------------
$0-$250.00..................  100 Shares..........  0%.
$250.01-$1,000..............  40 Shares...........  65.35%.
$1,000.01-$10,000.00........  10 Shares...........  88.28%.
$10,000.01 or more..........  1 share.............  100.00%.
------------------------------------------------------------------------
Source: Equity consolidated data feeds (CTS and UTDF), as collected by
  MIDAS (May 2020); NYSE Daily TAQ.


                                 Table 2
------------------------------------------------------------------------
                                                       Portion of all
                                                     corporate stock and
                                                     ETF volume executed
                                                       on an exchange,
                                                       transacted in a
                                                     quantity less than
                                                      100 shares, at a
   Proposed round lot tier     Proposed round lot     price better than
                                   definition       the prevailing NBBO,
                                                       occurring in a
                                                     quantity that would
                                                       be defined as a
                                                     round lot under the
                                                     proposed definition
                                                        of round lot
------------------------------------------------------------------------
$0-$50......................  100 shares..........  0%.
$50.01-$100.................  20 shares...........  86.32%.
$100.01-$500................  10 shares...........  93.57%.
$500.01-$1,000..............  2 shares............  98.85%.
$1,000.01 or more...........  1 share.............  100%.
------------------------------------------------------------------------
Source: Equity consolidated data feeds (CTS and UTDF), as collected by
  MIDAS (May 2020); NYSE Daily TAQ.

    In comparison to the proposed tiers, the round lot tiers in the 
final rule would have excluded a significant proportion of better-
priced odd-lot liquidity, particularly for stocks priced between $50.01 
and $250.00, and thus would not have included this liquidity in core 
data absent the Commission also including certain odd-lots in the 
definition of core data.
    The Commission believes that this better-priced odd-lot liquidity 
needs to be reflected in core data because it will help investors and 
other market participants to trade in a more informed and effective 
manner and to achieve better executions and reduce the information 
asymmetries that currently exist between subscribers to SIP data and 
subscribers to proprietary data. However, the Commission continues to 
be concerned that adding all odd-lot quotations, particularly those at 
less aggressive price levels, could ``burden systems, increase 
complexity, and degrade the usefulness of information in a manner that 
may not be warranted by the relative benefit of the additional 
information to investors and market participants'' and that the 
inclusion of

[[Page 18613]]

odd-lot quotations in proposed core data should be ``reasonably 
calibrated.'' \192\
---------------------------------------------------------------------------

    \192\ Proposing Release, 85 FR at 16741.
---------------------------------------------------------------------------

    Therefore, the Commission is modifying the proposed definition of 
core data to include odd-lots that are priced at or more aggressively 
than the NBBO.\193\ Specifically, pursuant to the revised definition of 
core data that the Commission is adopting, core data will include odd-
lot quotations priced greater than or equal to the national best bid 
and less than or equal to the national best offer, aggregated at each 
price level at each national securities exchange and national 
securities association, in addition to odd-lot transaction data.\194\ 
Making the best priced quotations available in core data is consistent 
with the Commission's goals in expanding the content of NMS 
information: Enhancing the availability and usefulness of the 
information, reducing information asymmetries, and facilitating best 
execution. In addition, this modification is reasonably calibrated to 
include the odd-lot quotation data that would be of the most interest 
to investors and other market participants--namely, quotations that 
offer pricing at or superior to the NBBO--thus limiting complexity and 
systems burdens, and therefore costs, relative to alternatives such as 
including all odd-lot quotations.\195\
---------------------------------------------------------------------------

    \193\ As discussed below, the Commission is adopting a standard 
odd-lot aggregation methodology for all elements of core data, 
including the NBBO, wherein odd-lots across multiple price levels 
would be aggregated and disseminated at the least aggressive price. 
See infra Section II.C.2(d). As a result, odd-lots priced at or 
better than the NBBO could be both included in the NBBO and 
displayed in the aggregate at each price level by exchange. The 
Commission believes that this is appropriate, since the NBBO and 
odd-lot interest at or better than the NBBO provide independently 
valuable information to market participants. For example, odd-lots 
priced at or better than the NBBO are beneficial for order routing 
and achieving best execution, while the NBBO is protected under Rule 
611 and must be provided in certain contexts pursuant to the Vendor 
Display Rule (Rule 603(c)). Additionally, as discussed below, 
competing consolidators will have the ability to customize data 
products for their customers, allowing investors to receive only the 
information they are able to process, so the Commission does not 
believe that including better-priced odd-lots both at each price 
level at each exchange and as part of an aggregated round lot would 
confuse investors.
    \194\ The Commission is adding odd-lots priced at or better than 
the NBBO through a new definition, ``odd-lot information,'' that is 
included in the definition of core data. The definition of odd-lot 
information will include both odd-lots priced at or better than the 
NBBO and odd-lot transaction data. Odd-lot transaction data, which 
was added to SIP data by the national market system plans in 2013 
(see Proposing Release, 85 FR at 16739), was proposed to be included 
in core data as a separate element, but the Commission believes it 
will simplify the definition of core data to include in a single 
defined term as ``odd-lot information'' odd-lots priced at or better 
than the NBBO and odd-lot transaction data. See infra Section VIII.
    \195\ As discussed below, odd-lots priced less aggressively than 
the NBBO are not included in core data unless they aggregate to a 
round lot and are within the first five price levels after the NBBO. 
See infra Section II.F.2(e) (discussing odd-lot aggregation in the 
depth of book context).
---------------------------------------------------------------------------

    The Commission is also adopting the proposed inclusion of odd-lot 
transaction data in the definition of core data, through the definition 
of odd-lot information.\196\ Odd-lot transaction data is included in 
SIP data today, and it constitutes part of the baseline information 
that provides the foundation of transparency and price discovery in the 
U.S. securities markets.\197\ The Commission therefore believes that it 
should be included in the definition of core data so that investors and 
other market participants who consume core data can continue to use it 
to make informed trading and investment decisions.\198\
---------------------------------------------------------------------------

    \196\ See supra note 194.
    \197\ See Proposing Release, 85 FR at 16736, 16739.
    \198\ See also infra Section II.C.2(c) (discussing why certain 
other data that is included in SIP data today is not included in 
core data but will be available through other means).
---------------------------------------------------------------------------

    To further limit the cost and complexity of the inclusion of odd-
lots priced at or better than the NBBO in core data, the definition of 
core data requires these odd-lots to be represented in the aggregate at 
each price level at each national securities exchange or national 
securities association rather than on an order-by-order basis.\199\ 
Finally, as discussed below, the Commission is modifying the proposed 
definition of round lot, which, relative to the proposal, will reduce 
the number of round lot tiers and eliminate certain better priced 
quotation information from the NBBO.\200\ However, the inclusion of 
odd-lot quotes priced at or better than the NBBO will make available 
additional quotation information market participants can use to trade 
in a more informed and effective manner, which counterbalances this 
reduction in information.
---------------------------------------------------------------------------

    \199\ This would not reintroduce a single-price-only odd-lot 
aggregation methodology in the same sense that prompted concerns 
from some commenters. See infra note 232 and accompanying text; 
Section II.C.2(d). Aggregating better-priced odd-lots at each price 
level at each exchange is not the same as aggregating odd-lots into 
round lots. Rather, it simply means that better-priced odd-lot 
orders will be represented in core data in terms of the total number 
of shares available at each price level at each exchange rather than 
on an order-by-order basis. For example, if the NBB for XYZ, Inc. is 
100 shares at $25.00, and there are three orders of five shares and 
two orders of ten shares at $25.01 on Exchange A, a competing 
consolidator's core data product would show 35 shares at $25.01 on 
Exchange A.
    \200\ See infra Section II.D (stating that increasing the 
minimum stock price for the first sub-100 share round lot tier from 
$50 to $250 will not improve odd-lot transparency for stocks priced 
between $50 and $250). See also supra Tables 1 and 2.
---------------------------------------------------------------------------

    The Commission believes that including only the best-priced odd-lot 
quote from each exchange, as one commenter suggested,\201\ would not 
include sufficient information about better-priced odd-lot liquidity in 
core data. Because for many securities there are odd-lot quotes priced 
better than the NBBO at multiple price levels,\202\ the Commission 
believes that including only the best-priced odd-lot quote from each 
exchange in core data would perpetuate some of the critical information 
asymmetries between SIP data and proprietary data and could impair the 
usability of core data for many market participants.
---------------------------------------------------------------------------

    \201\ See NYSE Letter II at 5.
    \202\ In response to the comment suggesting only including the 
best-priced odd-lot quote from each exchange, staff supplemented the 
analysis above (see, e.g., Tables 1 and 2) that evaluated the volume 
of trades occurring in a quantity that would be defined as a round 
lot under the adopted definition, by also considering the volume of 
quotation data for the week of May 22-29, 2020, for stocks priced 
from $250.01 to $1000.00, which will have a round lot size of 40 
shares pursuant to the modified definition of round lot that the 
Commission is adopting herein. Staff found that there is odd-lot 
interest priced better than the new round lot NBBO 28.49% of the 
time, and, in 48.49% of those cases, there are better priced odd-
lots at multiple price levels, confirming the view that only 
including the best-priced odd-lot quote from each exchange would not 
include sufficient information about better-priced odd-lot liquidity 
in core data.
---------------------------------------------------------------------------

    Furthermore, the Commission does not share the view of some 
commenters that its adoption of a modified definition of core data that 
incorporates odd-lots priced at or better than the NBBO is an 
alternative to redefining round lot sizes. Defining smaller-sized 
orders in higher-priced stocks as round lots, in addition to providing 
transparency into such quotations, ensures that these smaller-sized 
orders can establish the NBBO, receive order protection, and invoke the 
applicability of several other rules under Regulation NMS.
    The Commission does not agree that including quotation information 
about odd-lot orders priced at or better than the NBBO in core data, 
and enabling more investors to see and access this information, will 
undermine investor confidence in the markets resulting from potential 
confusion over protected versus unprotected quotes.\203\ As is the case 
today, Rule 611 will not protect these odd-lot orders except to the 
extent that they are aggregated into round lots. Investors and other 
market participants who do not believe they need to consume information 
on odd-lots priced at or better than the NBBO may choose not to do so, 
and therefore the

[[Page 18614]]

Commission does not believe the inclusion of this information in core 
data will confuse investors.\204\ Moreover, odd-lots are subject to 
best execution requirements,\205\ so investors have the assurance that 
their broker-dealers are required to seek the most favorable terms 
reasonably available under the circumstances for such orders despite 
the fact that the odd-lot quotes are not protected quotations pursuant 
to Rule 611.\206\ Furthermore, the Commission does not believe adding 
odd-lot quotations priced at or better than the NBBO to core data would 
materially increase latency for core data. Market participants are not 
required to consume and process this additional odd-lot data, and could 
choose a consolidated market data product offered by a competing 
consolidator that does not contain such information, reducing concerns 
about the latency effects of additional odd-lot information on core 
data more broadly. In addition, the Commission believes that the 
decentralized consolidation model will result in lower latencies for 
the delivery of all consolidated market data.\207\
---------------------------------------------------------------------------

    \203\ See TD Ameritrade Letter at 4-5.
    \204\ See infra Section III.B.
    \205\ See Order Execution Obligations, supra note 90, at 48305 
(``The market maker still will have best execution obligations with 
respect to the remaining odd-lot portion of the customer limit 
order.'').
    \206\ See supra note 95 and accompanying text. See also supra 
Section I.E.
    \207\ See supra note 199; infra Section III.B.5.
---------------------------------------------------------------------------

    The Commission does not believe that including a subset of odd-lot 
quotes in core data is, as one commenter suggested, likely to ``drag 
the processing time of SIP[s] and CC[s].'' \208\ The Commission 
believes that the most sophisticated, latency-sensitive market 
participants rely on proprietary market data feeds that include all 
odd-lots simultaneously with all other market data, which suggests that 
the inclusion of odd-lots, particularly the subset of odd-lots that 
will be included as part of core data, will not materially slow data 
dissemination. Therefore, the Commission does not believe it is 
necessary to consider new rulemaking that would ``make odd-lots become 
true `outliers' '' and/or require the publication of `` `delayed' odd-
lot trades and quotations statistics.'' \209\
---------------------------------------------------------------------------

    \208\ Data Boiler Letter I at 19.
    \209\ Id.
---------------------------------------------------------------------------

(c) OTC Equity, Corporate Bond, Index, and Other Information
    In the Proposing Release, the Commission solicited comment 
regarding the exclusion of information related to OTC equities,\210\ 
certain corporate bonds, and indices from the definition of core 
data.\211\ Commenters had mixed views about whether to include such 
information in the definition. One commenter favored the exclusion of 
this information on the grounds that core data should be kept 
``light,'' \212\ while others agreed with the Commission that this 
information does not relate to ``NMS securities'' and that it should 
not be included on that basis.\213\ One of those commenters, however, 
suggested the Commission ensure the information remain available to 
retail investors.\214\
---------------------------------------------------------------------------

    \210\ ``OTC Equity Security'' is defined in FINRA Rule 6420(f) 
to mean ``any equity security that is not an `NMS stock' as that 
term is defined in Rule 600(b)(47) of SEC Regulation NMS; provided, 
however, that the term `OTC Equity Security' shall not include any 
Restricted Equity Security.'' In its comment letter, FINRA notes 
that the Proposing Release refers to ``OTCBB'' data to describe the 
quotation and transaction data for OTC equities, which includes both 
transaction data from the FINRA OTC Reporting Facility (``ORF'') and 
quotation data from the OTCBB. See FINRA Letter at 9.
    \211\ Currently, Nasdaq UTP Plan Level 1 subscribers can obtain 
OTC equity quotation and transaction feeds for unlisted stocks. 
Similarly, the CTA Plan permits the dissemination of ``concurrent 
use'' data relating to NYSE-listed corporate bonds and indexes. See 
Proposing Release, 85 FR at 16736.
    \212\ Data Boiler Letter I at 21.
    \213\ See TD Ameritrade Letter at 4; MEMX Letter at 6.
    \214\ See TD Ameritrade Letter at 4.
---------------------------------------------------------------------------

    On the other hand, FINRA highlighted that excluding such data 
``would reduce investor access to [such data] and raise investor 
costs.'' \215\ FINRA argued that because OTC equities may become listed 
and become NMS stocks and vice versa, providing that information in the 
same data feed ``facilitates more orderly markets and transparency 
continuity in relation to transitioning issuers.'' \216\ Excluding such 
data would also, FINRA argued, increase costs for both FINRA and market 
participants.\217\
---------------------------------------------------------------------------

    \215\ FINRA Letter at 9.
    \216\ Id. at 11.
    \217\ Id.
---------------------------------------------------------------------------

    Given that OTC equities, corporate bonds, and indices are not NMS 
stocks,\218\ the Commission is not revising the proposed definition of 
core data to include this information, even though this information is 
currently disseminated by the SIPs. Nothing in these amendments 
prohibits SROs from independently providing this kind of market data. 
As discussed below,\219\ under the decentralized consolidation model, 
competing consolidators would be permitted to purchase data from the 
SROs and offer data products to subscribers that go beyond core data or 
consolidated market data.\220\ Therefore, the exclusion of these types 
of data from the definitions of core data and consolidated market data 
does not preclude the provision of this data to market participants who 
wish to receive it.\221\
---------------------------------------------------------------------------

    \218\ See Proposing Release, 85 FR at 16736-37.
    \219\ See infra Section III.B.
    \220\ As discussed below, the fees for such additional data 
would be proposed and filed by an individual SRO pursuant to Section 
19(b), 15 U.S.C. 78s(b), and Rule 19b-4, rather than by the 
effective national market system plan(s). See infra Section III.B.
    \221\ In addition, one commenter suggested including exchange-
traded product (``ETP'') intraday indicative values (``IIVs'') in 
core data and standardizing symbology across equity data feeds. See 
Angel Letter at 1, 11. The Commission is not including IIVs in core 
data because IIVs are not NMS stock quote or trade information and 
are therefore outside the scope of this proposal. In addition, the 
Commission did not require exchange-traded funds (``ETFs'') to 
disseminate IIVs in adopting Investment Company Act Rule 6c-11. See 
Securities Act Release Nos. 33-10695; IC-33646 (Sept. 25, 2019), 84 
FR 57162, 57179-80 (Oct. 24, 2019) (describing various shortcomings 
of IIV and stating that the Commission ``do[es] not believe that IIV 
will provide a reliable metric for retail investors . . .''). The 
commenter also argued that the different suffixes for various 
securities--including preferred shares, rights, and warrants--cause 
``confusion for investors and increases the risk of costly trading 
mistakes.'' Id. at 11. This comment is unrelated to the 
dissemination of NMS stock quote or trade information and is 
therefore outside the scope of this proposal.
---------------------------------------------------------------------------

    Additionally, as trades in OTC equities are reported to only one 
SRO (i.e., FINRA) while NMS stocks are traded on multiple SROs, there 
is less need to consolidate OTC data pursuant to an effective national 
market system plan, which functions primarily to consolidate data 
across market centers. Furthermore, FINRA makes information on OTC 
trades widely available to market participants through its ORF.\222\ In 
addition, FINRA's rules related to the reporting of OTC equity 
transaction data remain in effect, and any change to FINRA's rules 
would require Commission review.\223\ Finally, pursuant to Exchange Act 
Sections 15A(b)(5), (b)(6), and (b)(9), FINRA could recoup the costs of 
providing OTC quotation and transaction data by

[[Page 18615]]

charging fees that are fair, equitable, and do not impose an 
unnecessary burden on competition.\224\ The Commission will monitor, 
during the transition period and thereafter,\225\ the impact of these 
amendments on the provision of OTC quotation and transaction data, 
including its cost and availability, and consider whether additional 
steps are necessary or appropriate.
---------------------------------------------------------------------------

    \222\ See supra note 210. On September 24, 2020, FINRA filed a 
proposed rule change to eliminate its OTCBB. Historically, FINRA 
operated the OTCBB to provide an electronic quotation medium for OTC 
equity securities. However, FINRA represents that quoting on the 
OTCBB has declined and that the OTCBB does not currently display or 
widely disseminate quotation information on any OTC equity 
securities. FINRA represents that all quotation activity in OTC 
equity securities now occurs on member-operated interdealer 
quotation systems. As a result, in place of the OTCBB, FINRA is 
proposing to adopt enhanced requirements governing member 
interdealer quotation systems that provide real-time quotations in 
OTC equity securities. Among other things, the proposed rules would 
require such systems to maintain and enforce written policies and 
procedures relating to the collection and dissemination of quotation 
information in OTC equity securities on or through their systems. 
See Securities Exchange Act Release No. 99067 (Oct. 1, 2020), 85 FR 
63314 (Oct. 7, 2020) (SR-FINRA-2020-031).
    \223\ See FINRA Rule 6600.
    \224\ 15 U.S.C. 78o-3(b)(5), (b)(6), and (b)(9).
    \225\ See infra Section III.H.
---------------------------------------------------------------------------

(d) Odd-Lot Aggregation
    The Commission proposed that the best bid and best offer, national 
best bid and national best offer, and depth of book data shall include 
odd-lots that when aggregated are equal to or greater than a round lot, 
and that such aggregation shall occur across multiple prices and shall 
be disseminated at the least aggressive price of all such aggregated 
odd-lots.\226\ Several commenters supported odd-lot aggregation across 
multiple price levels for purposes of determining these elements of 
core data.\227\ One commenter argued that this method would ``provide 
market participants with a reasonably complete view of the best bids 
and offers for each security.'' \228\ Another commenter stated that ``a 
common odd-lot aggregation logic should be employed by all exchanges 
for the purpose of displaying meaningful size.'' \229\ However, a 
different commenter recommended that odd-lot quotes not be aggregated 
across multiple price levels because it ``would cause unnecessary 
confusion.'' \230\
---------------------------------------------------------------------------

    \226\ For example, if Market A had 25 shares offered at $1.98, 
25 shares offered at $1.99, and 50 shares offered at $2.00, the 
round lot offer would be displayed as 100 shares offered at $2.00. 
As discussed below, the Commission proposed a single-price odd-lot 
aggregation methodology for purposes of protected quotations. See 
infra Section II.E.1.
    \227\ See Fidelity Letter at 4; IEX Letter at 4.
    \228\ IEX Letter at 4-5.
    \229\ TD Ameritrade Letter at 2. See also IEX Letter at 5 
(``[I]t is important that this method be specified in SEC rules so 
as to ensure a common understanding of the NBBO by all market 
participants.'').
    \230\ Data Boiler Letter I at 24.
---------------------------------------------------------------------------

    The Commission is adopting the definition of core data with odd-lot 
aggregation across multiple price levels and specifying that such 
aggregation is for each market.\231\ Specifically, the best bid and 
best offer, national best bid and national best offer, and depth of 
book data shall include odd-lots that when aggregated are equal to or 
greater than a round lot, and such aggregation shall occur across 
multiple prices and shall be disseminated at the least aggressive price 
of all such aggregated odd-lots.\232\ The Commission does not believe 
that this would cause unnecessary confusion \233\ because many 
exchanges currently aggregate odd-lot prices in this manner. Setting 
forth this cross-price aggregation methodology in Commission rules will 
promote consistency in the calculation and display of core data. 
Additionally, this method of odd-lot aggregation will enable market 
participants to obtain a more reasonably complete view of the best bids 
and best offers of each security than they would if odd-lots were not 
aggregated or aggregated at only a single price level because the 
aggregation methodology the Commission is adopting captures liquidity 
dispersed across multiple prices. Furthermore, this odd-lot aggregation 
methodology would benefit market participants by promoting tighter 
spreads in all stocks, especially high priced ones.\234\
---------------------------------------------------------------------------

    \231\ The Commission is specifying that the definition of core 
data does not require cross-market odd-lot aggregation.
    \232\ As explained below, the Commission is also extending the 
multiple-price odd-lot aggregation methodology to protected 
quotations. See infra Section II.E.
    \233\ See Data Boiler Letter I at 24.
    \234\ See infra Section II.E.2(b).
---------------------------------------------------------------------------

(e) Quotation Sizes and SRO Attribution in Core Data
    Currently, the size of the NBBO is represented in core data in 
terms of the number of round lots. For example, if a 200 share bid at 
$25.00 establishes the national best bid, the SIP feed shows ``2'' at 
$25.00.
    One commenter, believing that this practice might be confusing 
given the new round lot sizes, particularly to retail investors, 
recommended requiring size to be represented in actual shares rather 
than round lots.\235\
---------------------------------------------------------------------------

    \235\ See CBOE Letter at 13-14. For example, an investor would 
have to know that, for a $300 stock, ``2'' means 80 shares pursuant 
to the adopted round lot sizes.
---------------------------------------------------------------------------

    The Commission agrees that continuing the current size 
representation convention--i.e., the number of round lots--could be 
confusing. Accordingly, the Commission is modifying the proposed 
definition of core data to require quotation sizes for core data 
elements--including the NBBO, each SRO's best and protected quotes, 
depth of book data, and auction information--to be disseminated in 
share sizes, rounded down to the nearest round lot multiple. For 
example, a 275 share buy order at $25.00 for a stock with a 100 share 
round lot would be disseminated as ``200.'' \236\
---------------------------------------------------------------------------

    \236\ The Commission has considered whether the entire size 
should be displayed including any odd-lot portion rather than 
rounding down to the nearest round lot multiple. The purpose of 
rounding down to the nearest round lot multiple is to ensure that 
the enumerated elements of core data reflect orders of meaningful 
size. Specifically with respect to the NBBO, rounding down also 
helps to ensure that the protected portion of the order is clearly 
represented, which addresses concerns about impacts on investor 
confidence and confusion that could result from showing unprotected 
size at the NBBO. In addition, as discussed above, odd-lots priced 
at or better than the NBBO, including the odd-lot portion of a mixed 
lot order at the NBBO, will be included in core data.
---------------------------------------------------------------------------

    The Commission is also modifying the proposed definition of core 
data to specify that core data elements--specifically, the best bid and 
best offer, NBBO, protected bid and protected offer, transaction 
reports, last sale data, odd-lot information, depth of book data, and 
auction information--to the extent that they are disseminated in a 
consolidated market data product, must be attributed to the national 
securities exchange or national securities association that is the 
source of each such element.\237\ The Commission believes that SRO 
attribution is critical to the utility of these core data elements so 
that market participants know where to access a displayed 
quotation.\238\ This requirement is consistent with the inclusion of 
exchange information in current SIP data.\239\
---------------------------------------------------------------------------

    \237\ See infra Section VIII.
    \238\ See also Section II.F.2(b).
    \239\ See supra note 17 and accompanying text (stating that core 
data currently includes the price, size, and exchange of the last 
sale; each exchange's current highest bid and lowest offer, and the 
shares available at those prices; and the NBBO).
---------------------------------------------------------------------------

D. Definition of ``Round Lot'' Under Rule 600(b)(82)

1. Proposal
    To better ensure the display and accessibility of significant 
liquidity for higher-priced stocks, the Commission proposed a 
definition of round lot that would assign different round lot sizes to 
individual NMS stocks depending upon their stock price. Specifically, 
the Commission proposed to define round lot as: (1) For any NMS stock 
for which the prior calendar month's average closing price on the 
primary listing exchange was $50.00 or less per share, an order for the 
purchase or sale of an NMS stock of 100 shares; (2) for any NMS stock 
for which the prior calendar month's average closing price on the 
primary listing exchange was $50.01 to $100.00 per share, an order for 
the purchase or sale of an NMS stock of 20 shares; (3) for any NMS 
stock for which the prior calendar month's average closing price on the 
primary listing exchange was $100.01 to $500.00 per share, an order for 
the purchase or sale of an NMS stock of 10 shares; (4) for any NMS 
stock for which the prior calendar

[[Page 18616]]

month's average closing price on the primary listing exchange was 
$500.01 to $1,000.00 per share, an order for the purchase or sale of an 
NMS stock of 2 shares; and (5) for any NMS stock for which the prior 
calendar month's average closing price on the primary listing exchange 
was $1,000.01 or more per share, an order for the purchase or sale of 
an NMS stock of 1 share. The Commission proposed using the IPO price if 
the prior month's average closing price is not available.
    As explained in the Proposing Release, a significant proportion of 
quotation and trading activity occurs in odd-lots, particularly for 
frequently traded, high-priced stocks.\240\ The proposed definition of 
round lot would incorporate information about meaningfully sized 
orders, including many odd-lot quotations in higher-priced stocks that 
are priced more favorably than the current round lot NBBO, into core 
data.\241\ This would improve the comprehensiveness and usability of 
core data, facilitate the best execution of customer orders, and reduce 
information asymmetries.
---------------------------------------------------------------------------

    \240\ Staff, using the week of June 8-12, 2020, instead of the 
week of September 10-14, 2018, repeated the analysis from the 
Proposing Release of odd-lot trade and message volume, duration on 
the inside, order-book distribution, and quoted spreads for the top 
500 securities by dollar volume included in the Proposing Release 
(see Proposing Release, 85 FR at 16739-40). The results were very 
similar and confirmed observations discussed in the Proposing 
Release. Bid-ask spreads widened significantly when calculated using 
only round lots relative to the odd-lot quotations displayed on 
proprietary feeds, and as average stock share prices rose, bid-ask 
spreads based only on round lots generally widened by a greater 
amount than did spreads based on round lots and odd-lots. 
Specifically, for the 500 most frequently traded securities by 
dollar volume, the average bid-ask spread of the 50 securities with 
the highest share prices decreased (improved or tightened) by 
$0.19839 when calculated using the proprietary feeds relative to the 
exclusive SIP feed. Bid-ask spreads for the 50 securities with the 
lowest share prices showed less improvement when using the 
proprietary feeds relative to the exclusive SIP feed, decreasing (or 
tightening) on average by $0.00093. Moreover, frequently traded, 
high priced securities were more likely to have executions occur in 
odd-lot sizes (about 34% of the share volume of the 50 securities 
with the highest share prices) than lower priced securities (about 
3.4% of the share volume of the 50 securities with the lowest share 
prices). Finally, around 91% of the trades that occurred in the two 
largest securities by market capitalization that have share prices 
greater than $1,000 occurred in odd-lot share amounts.
    \241\ Staff, using data from May 2020 instead of September 2019, 
repeated the analysis from the Proposing Release of the proportion 
of odd-lot trades that occurred at prices that are better than the 
prevailing NBBO included in the Proposing Release (see Proposing 
Release, 85 FR at 16740). The results were very similar and 
confirmed observations discussed in the Proposing Release. During 
May 2020, a substantial proportion of odd-lot trades occurred at 
prices that were better than the prevailing NBBO. Specifically, 
approximately 45% of all trades executed on exchange and 
approximately 10% of all volume executed on exchange in corporate 
stocks and ETFs (6,926 unique symbols) occurred in odd-lot sizes 
(i.e., less than 100 shares), and 40% of those odd-lot transactions 
(representing approximately 35% of all odd-lot volume) occurred at a 
price better than the NBBO.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received multiple comments on the definition of 
round lot. Commenters offered suggestions on various ways the proposed 
round lot tiers should be adjusted and opined on the proposed 
methodology for determining a stock's price for purposes of assigning a 
round lot size to a stock.
(a) Round Lot Tiers
    Generally: Several commenters expressed general support for a 
revised definition of round lot for higher-priced securities, but some 
suggested certain modifications to the proposed definition or otherwise 
qualified their support.\242\ Some commenters agreed with the 
Commission's proposed tiers of round lot sizes,\243\ while others 
agreed with the tier-based approach, but suggested fewer tiers.\244\ 
One commenter, stating that a one-share round lot for stocks over 
$1,000 could have ``unintended negative impacts'' on price discovery 
and routing complexity, suggested that the Commission ``defer action'' 
on defining round lots (and including them in core data) until the 
Commission receives further public input.\245\
---------------------------------------------------------------------------

    \242\ See, e.g., BlackRock Letter at 3 (stating that the 
proposed round lot definition is ``an elegant solution for 
increasing odd-lot transparency which innately extends the inclusion 
of odd-lots to complementary rules and mechanisms such as the 
determination of the national best bid and offer (`NBBO'), the 
behavior of order types, and the disclosure of execution 
statistics'' and strikes an appropriate balance between including 
every odd-lot order and enhancing the quality of market data by 
establishing a threshold notional amount, but cautioning that round 
lots should be judiciously calibrated into groups to minimize 
complexity); Fidelity Letter at 6 (supporting a revised definition 
of round lot for higher priced securities but urging the Commission 
to undertake an investor education campaign and to provide 
sufficient implementation time); Schwab Letter at 4; letter from 
Joan C. Conley, Senior Vice President and Corporate Secretary, 
Nasdaq, to Vanessa Countryman, Secretary, Commission, dated July 22, 
2020, (``Nasdaq Letter V'') at 3 (``Of 31 total comments on the 
proposed introduction of round lot tiers, fewer than half (14) 
supported the actual proposal; 11 comments supported a definition 
different from what the Commission proposed, and 6 opposed it.''); 
letter from Luc Burgun, President and CEO, NovaSparks S.A., to 
Vanessa Countryman, Secretary, Commission, dated Aug. 7, 2020, 
(``NovaSparks Letter'') at 1; letter from Christopher Solgan, VP, 
Senior Counsel, MIAX Exchange Group, to Vanessa Countryman, 
Secretary, Commission, dated Aug. 18, 2020, (``MIAX Letter'') at 5-6 
(recommending that the Commission periodically review the definition 
of round lot).
    \243\ See, e.g., IEX Letter at 3-4 (stating that the proposed 
round lot definition would make round lots ``less arbitrary and more 
comparable across securities . . . [because] [e]ach round lot tier 
above the $50 price level would represent a minimum notional value 
of $1,000, resulting in relatively comparable treatment across 
securities, regardless of per share price''); letter from Hitesh 
Mittal, Founder and Chief Executive Officer, BestEx Research, to 
Vanessa A. Countryman, Secretary, Commission, dated May 21, 2020, 
(``BestEx Research Letter'') at 2; Data Boiler Letter I at 24.
    \244\ See, e.g., T. Rowe Price Letter at 4; Capital Group Letter 
at 3.
    \245\ See State Street Letter at 3.
---------------------------------------------------------------------------

    Some commenters recommended the Commission eliminate the concepts 
of round lots and odd-lots in favor of displaying the exact number of 
shares of every order, arguing that the concepts are ``obsolete'' 
because ``[m]odern computer processing power is up to the task'' of 
calculating ``in real time the cost to buy or sell a given number of 
shares at the displayed prices.'' \246\
---------------------------------------------------------------------------

    \246\ Angel Letter at 15. See also Nasdaq Letter V at 17-19 
(suggesting adding intelligent ticks, in which the standard one cent 
tick that applies to all NMS stocks would be replaced with tick 
sizes that vary depending upon the trading characteristics of each 
such stock, while eliminating round lots).
---------------------------------------------------------------------------

    Several commenters suggested that the proposed five tiers would 
increase complexity, add confusion, compound costs, create execution-
quality challenges, and undermine the usefulness of the proposal, 
although these commenters offered different suggestions to improve the 
proposal.\247\ One commenter, however, stated that

[[Page 18617]]

adding tiers would not significantly increase complexity.\248\
---------------------------------------------------------------------------

    \247\ See, e.g., Clearpool Letter at 11-12; STANY Letter II at 3 
(``A more prudent and nonetheless effective approach to addressing 
the increased trading in odd-lots, would be to include odd-lot 
quotations in core data while leaving the definition of round-lot as 
it currently stands.''); Capital Group Letter at 3; Letter from 
Gerald D. O'Connell, SIG Compliance Coordinator, Susquehanna 
International Group, to Vanessa Countryman, Secretary, Commission, 
dated July 27, 2020, (``Susquehanna Letter'') at 2 (stating that any 
benefits of the proposing release ``will be impacted by . . . 
quoting congestion; . . . customer confusion; and . . . gaming 
strategies.''); Nasdaq Letter IV at 10; STANY Letter II at 3-4 
(recommending that the Commission conduct a derivative market impact 
analysis because ``STANY is concerned the Commission has not 
considered the impact and potential for investor confusion when 
trading options on securities with round-lots quotes in sizes less 
than the 100-share option contract convention''); TD Ameritrade 
Letter at 10 (``In the current Proposal for round lot tiers at five 
different increments, the Firm is also concerned for the potential 
confusion that may also be posed to investors trading options when 
contracts remain at 100 shares and the NBBO is quoted in lesser 
sizes.''); letter from Robert W. Holthausen, Professor of Accounting 
and Finance, and Robert Zarazowski, Managing Director, Wharton 
Research Data Services, The Wharton School, University of 
Pennsylvania, to Vanessa Countryman, Secretary, Commission, dated 
May 26, 2020, (``Wharton Letter'') at 4 (``A top of book replacement 
product for TAQ, despite possible cheaper costs from competing 
consolidators, even if it did not consist of more consolidated 
market data, would incur significantly greater storage costs than 
TAQ due to changes in the definition of `round lot.' '') (footnotes 
removed).
    \248\ See MEMX Letter at 4.
---------------------------------------------------------------------------

    Notional Value: Some commenters stated that the definition of core 
data should include all quotes over a certain notional value.\249\ 
Another commenter recommended basing round lots on the notional value 
of an order, rather than the number of shares, and suggested that the 
Commission ensure that anything over a minimum threshold qualifies as a 
round lot, eliminating mixed lots.\250\
---------------------------------------------------------------------------

    \249\ See Clearpool Letter at 11-12 (recommending, in the 
alternative, reducing the number of tiers to three with round lot 
sizes of 100, 50, and 20); letter from Roman Ginis, Founder, 
Intelligent Cross, to Vanessa Countryman, Secretary, Commission, 
dated June 1, 2020, (``IntelligentCross Letter'') at 3; ACS 
Execution Services Letter at 3.
    \250\ See letter from Alec Hanson, Founder, AHSAT LLC, to 
Vanessa Countryman, Secretary, Commission, dated May 26, 2020, 
(``AHSAT Letter'') at 3-5. A mixed lot is an order for a number of 
shares greater than a round lot that is not a multiple of a round 
lot (for example, an order for 107 shares). See, e.g., Cboe BZX Rule 
11.10.
---------------------------------------------------------------------------

    Different Threshold: Some commenters suggested increasing the 
$1,000 price-based threshold but did not suggest a specific 
number.\251\ One commenter suggested, as an alternative to including 
all quotes above a notional level in core data (as noted above), 
increasing the price-based threshold to $2,000, stating that ``the 
notional value of the median trade today is about $2,000.'' \252\
---------------------------------------------------------------------------

    \251\ See ICI Letter at 7-8; letter from Stephen John Berger, 
Managing Director, Global Head of Government and Regulatory Policy, 
Citadel Securities, to Vanessa Countryman, Secretary, Commission, 
dated May 26, 2020, (``Citadel Letter'') at 2; ACS Execution 
Services Letter at 3; STANY Letter II at 3.
    \252\ See IntelligentCross Letter at 3.
---------------------------------------------------------------------------

    Different Tiers: Multiple commenters offered recommendations to 
recalibrate the tiers in the proposed round lot definition, ranging 
from two to four tiers.\253\ One commenter, who opposed changing the 
definition of round lot,\254\ suggested that, if the Commission is 
committed to changing the definition of round lot, it should use two 
tiers: 100 shares for stocks priced under $500 and 50 shares for stocks 
priced over $500.\255\ Another commenter suggested a different 
definition using two tiers: 100 shares for stocks priced less than $250 
and 10 shares for stocks at or greater than $250, where the 10 share 
round lot would remain unprotected.\256\ Another commenter suggested 
three tiers: 100 shares for stocks priced under $100, 10 shares for 
stocks priced between $100.01 and $1,000, and 1 share for stocks priced 
over $1,000.01.\257\ Some commenters suggested a different three-tiered 
definition: 100 shares for stocks priced under $500, 10 shares for 
stocks priced from $500.01 to $1,000, and 1 share for stocks priced 
$1,000.01 or more.\258\ One of these commenters stated that their 
``recommended round lot sizes of 1, 10 and 100 shares are ones that are 
used today and that market participants are accustomed to seeing.'' 
\259\ Another commenter suggested another three-tiered definition: 100 
shares for securities priced up to $50, 20 shares for securities priced 
between $50.01 and $500, 2 shares for securities priced from $500.01 
and higher.\260\ Another commenter suggested reducing the proposed five 
tiers to four by collapsing the two-share and one-share highest-priced 
tiers because there are so few stocks in each of those tiers.\261\
---------------------------------------------------------------------------

    \253\ See, e.g., TD Ameritrade Letter at 6-7; T. Rowe Price 
Letter at 4; Capital Group Letter at 3.
    \254\ See TD Ameritrade Letter at 6-7 (``The Proposal for 
changing the nearly universal 100 share round lot to a price-tiered 
model appears to be based on some misconceptions. Odd lot trade 
frequency, which is cited as the justification for the price-tiered 
model, is not a valid proxy for passive order interest. In reality, 
trade size is more often dictated by the liquidity-taker than the 
liquidity-provider and is often a result of algorithmic `pinging' 
behavior. TD Ameritrade performed a review in 2019 showing that the 
increase in odd lot trades was largely due to small liquidity-taking 
orders, not small passive orders.'') (footnotes removed).
    \255\ See id. at 10-11.
    \256\ See T. Rowe Price Letter at 4.
    \257\ See Capital Group Letter at 3.
    \258\ See Virtu Letter at 3; SIFMA Letter at 9; MFA Letter at 
10; Susquehanna Letter at 2-4 (stating that the proposal would be 
likely to increase significantly, for many high-priced securities, 
``growth in quote changes, order routes, missed executions, and 
reroutes from missed executions,'' but acknowledging that these 
consequences would be reduced to the extent that fewer tiers are 
adopted); STANY Letter II at 3 (stating that ``[a]mong those members 
who support a change in the definition of round-lots, there is a 
decided preference for'' this particular three-tiered definition).
    \259\ SIFMA Letter at 9.
    \260\ See Schwab Letter at 4. In a subsequent letter, this 
commenter provided further support for its suggestion of these three 
tiers. See letter from Jeffrey T. Brown, Senior Vice President, 
Legislative and Regulatory Affairs, Charles Schwab & Co., Inc., to 
Vanessa Countryman, Secretary, Commission, dated Oct. 13, 2020, 
(``Schwab Letter II'') at 1 (``An analysis of orders filled for 
Schwab clients in the first quarter of 2020 shows that just 5 
percent of all odd lot orders are placed for stocks priced greater 
than $500. Of these orders, roughly the same number of orders are 
placed for stocks priced from $500 to $1000 and stocks priced 
greater than $1000. With such a low proportion of orders at prices 
greater than $500, Schwab believes the additional data provided by 
the SEC's proposed highest tier would not justify the operational 
complexity it would create or potential to confuse investors.'').
    \261\ See BlackRock Letter at 3.
---------------------------------------------------------------------------

    Inadequate Justification for the Proposed Tiers: One commenter 
stated the Commission failed to explain adequately its rationale for 
choosing the tiers it chose, suggesting the levels are arbitrary.\262\ 
That commenter also argued that the tiers are ``clunky'' and could 
result in large shifts in a round lot size in response to a small 
change in a stock's price.\263\ The commenter further stated that the 
Commission failed to consider alternatives to the round lot definition, 
including the commenter's ``intelligent tick'' proposal, which would 
vary tick size based upon the trading characteristics of each NMS 
stock.\264\ Additionally, that commenter argued that the tiers would 
complicate the national market system and ``upend longstanding 
conventions'' for market participants and their systems as to how they 
view and process quotes, especially the convention that one order of a 
security is generally thought of as 100 shares of that security.\265\ 
Similarly, in a subsequent letter, this commenter stated that the 
Commission did not undertake ``data driven analysis'' of the proposed 
round lot definition, that commenters raised concerns about the 
complexity of the proposal, and that therefore the Commission cannot 
determine whether the benefits of the proposal outweigh the costs.\266\
---------------------------------------------------------------------------

    \262\ See Nasdaq Letter IV at 14-15. See also Angel Letter at 14 
(``The Commission appears to have done little in the way of 
substantive economic analysis to determine the optimal round lot 
size as a dollar value. If it had, the proposed dollar value would 
not be oscillating between $100 and $5,000.'').
    \263\ See Nasdaq Letter IV at 14.
    \264\ See id. at 18.
    \265\ See id. at 17.
    \266\ See Nasdaq Letter V at 4-5.
---------------------------------------------------------------------------

    The Commission is adopting a modified definition of round lot (and, 
as discussed above, is including odd-lots that are priced at or more 
aggressively than the NBBO in core data).\267\ Specifically, the 
Commission is adopting a four-tiered definition of round lot: 100 
shares for stocks priced $250.00 or less per share, 40 shares for 
stocks priced $250.01 to $1,000.00 per share, 10 shares for stocks 
priced $1,000.01 to $10,000.00 per share, and 1 share for stocks priced 
$10,000.01 or more per share. These adjustments are responsive to 
comments that the proposed five-tiered approach is unnecessarily 
complex and that the new tiers should be based on a higher

[[Page 18618]]

notional value threshold. The Commission agrees that the number of 
round lot tiers should be decreased to reduce cost and complexity, 
avoid potential confusion among market participants, and promote a 
smoother transition to the new price-based round lot structure. In 
addition, the Commission believes that the objective of including 
additional information regarding orders currently defined as odd-lots 
in core data to enhance the usefulness of this data to market 
participants, reduce information asymmetries, and facilitate best 
execution would still be achieved with the simplified definition that 
the Commission is adopting.\268\
---------------------------------------------------------------------------

    \267\ See supra Section II.C.2(b). One commenter suggested an 
``intelligent tick'' regime as an alternative to new round lots. 
However, the commenter's intelligent tick proposal states that the 
proposal ``attempts to address a discrete set of challenges in the 
national market system'' and that policy makers also need to 
consider ``other, related challenges,'' including round lots. See 
Nasdaq, Intelligent Ticks: A Blueprint for a Better Tomorrow (Dec. 
2019) at 8, available at https://www.nasdaq.com/docs/2019/12/16/Intelligent-Ticks.pdf. Therefore, the commenter's intelligent tick 
proposal is not presented as an alternative to adopting new round 
lot sizes. Changes to the tick size of stocks are outside the scope 
of the rulemaking and the market data issues the Commission is 
addressing herein.
    \268\ See supra Table 1 (showing that under the four-tiered 
round lot approach that the Commission is adopting, 0%, 65.35%, 
88.28%, and 100% of all corporate stock and ETF volume transacted in 
a quantity less than 100 shares and at a price better than the 
prevailing NBBO would be captured in the $0-$250.00, $250.01-
$1,000.00, $1,000.01-$10,000.00, and $10,000.01 or more tiers, 
respectively).
---------------------------------------------------------------------------

    Moreover, under the modified approach, the new round lot tiers 
would still be normalized at a particular notional value threshold, 
albeit higher than the $1,000 notional value reflected in the proposed 
definition, promoting more consistent treatment of securities of 
varying prices than the 100-share definition that predominates today 
irrespective of how much a stock is worth. Commenters submitted data 
suggesting that average trade and order sizes are significantly higher 
than $1,000.\269\ To confirm those comments, staff evaluated all trades 
that occurred in 2019 and observed that the average number of shares 
for all trades was about 193 shares, with an average trade size of 
$8,842 (excluding auctions, the average number of shares per trade was 
178 shares, with an average trade size of $8,068). As a round lot is a 
trading unit that reflects an order of meaningful size to market 
participants, and since average trade or order sizes are a reasonable 
proxy for what market participants consider to be a meaningfully sized 
order, the Commission believes it is appropriate to adjust the notional 
value threshold of the new tiers upward to $10,000 in response to these 
comments. The Commission believes that using a round figure that is in 
line with data provided by commenters and internal staff analysis 
(i.e., $10,000) will reduce potential investor confusion and 
implementation cost and complexity.
---------------------------------------------------------------------------

    \269\ See IntelligentCross Letter at 3 (``[T]he notional value 
of the median trade today is about $2,000''); Virtu Letter at 3-4 
(estimating that ``average retail trade size between 2007 and the 
present is around 436 shares or $14,581'' but also stating that data 
from 2019 to present show that the vast majority (over 75%) of all 
trades are still for less than $10,000); Angel Letter at 17 (``[T]he 
median trade size is roughly $10,000.'').
---------------------------------------------------------------------------

    In addition, as discussed in more detail below, commenters 
overwhelmingly favored protecting orders in the new, smaller round lot 
sizes, and the Commission is not adopting its proposal to require 
protected quotations to be of at least 100 shares.\270\ In a market 
environment where the new round lots are protected, adjusting the 
notional value threshold upward is appropriate so that order protection 
under Rule 611, and the applicability of other rules under Regulation 
NMS, are limited to meaningfully sized orders. Similarly, a higher 
notional value threshold for the new round lot tiers will prevent 
orders of a smaller notional value from establishing a new NBBO, which 
could have added significant cost and complexity to the national market 
system.
---------------------------------------------------------------------------

    \270\ See infra Section II.E.2(a).
---------------------------------------------------------------------------

    The Commission acknowledges that increasing the minimum stock price 
for the first sub-100 share round lot tier from $50 to $250 will not 
improve odd-lot transparency for stocks priced between $50 and 
$250.\271\ However, as discussed above,\272\ the Commission is 
including information about all odd-lots priced at or better than the 
NBBO in core data, which will counterbalance this loss of odd-lot 
transparency. In making these choices, the Commission has balanced the 
competing objectives of: (a) Improving the display and accessibility of 
orders that are of significant notional size; (b) reducing quoted 
spreads; and (c) reducing an excessive amount of complexity that comes 
with having too many tiers.
---------------------------------------------------------------------------

    \271\ See supra Tables 1 and 2.
    \272\ See supra Section II.C.2(b).
---------------------------------------------------------------------------

    The Commission is also not revising the proposed definition of 
round lot to reflect a ``pure'' notional value approach--whereby all 
quotes over a certain notional amount, regardless of the number of 
shares, would constitute a round lot--as some commenters 
suggested.\273\ The new 40-, 10-, and 1-share tiers effectively require 
orders to be over a certain notional value to be assigned to those 
round lot sizes, but the Commission is reluctant to disrupt the 
longstanding practice of defining a round lot in terms of a number of 
shares. Doing so could substantially increase complexity and require 
significant additional systems reprogramming costs.\274\
---------------------------------------------------------------------------

    \273\ See supra notes 249-250 and accompanying text.
    \274\ Similarly, the Commission does not believe that the 
concept of a round lot should be eliminated as ``obsolete'' because 
round lot orders continue to play an important role in the national 
market system by delineating orders of meaningful size and focusing 
regulatory requirements and protections--such as those set forth in 
Rules 602 and 603, 17 CFR 242.604, 242.605, 242.606, and 242.610 
(Rules 604, 605, 606, and 610), and Rule 611 of Regulation NMS--on 
such orders as opposed to less significant orders. See Proposing 
Release, 85 FR at 16743-46. Rather, the Commission believes that 
eliminating the concept of a round lot could cause investor 
confusion and other unintended consequences.
---------------------------------------------------------------------------

    While 100, 10, and 1 are the round lot sizes in use today, the 
Commission does not believe that the round lot sizes of 100, 40, 10, 
and 1 that the Commission is adopting will materially increase the 
difficulty of transitioning to the new round lot sizes. Only a few, 
infrequently traded stocks have round lot sizes other than 100 today, 
so market participants are not accustomed to 10 or 1 share round lot 
sizes on a significant scale. Additionally, the thresholds of the new 
round lot tiers that the Commission is adopting are set at a consistent 
notional value of $10,000, which, as one commenter observed, results in 
a more consistent treatment of securities regardless of per-share price 
\275\ and helps to ensure that orders of meaningful size across 
securities of various prices are defined as round lots. The Commission 
believes that this structure will facilitate the transition to the new 
round lot sizes. Moreover, regulatory data includes an indicator of the 
applicable round lot size,\276\ and the Commission is requiring the 
representation of quotation sizes in terms of the number of shares 
rather than the number of round lots. These requirements should 
alleviate concerns regarding potential confusion caused by the switch 
to different round lot sizes because the size of each quotation and the 
round lot of each stock will be included in consolidated market data. 
Finally, only 134 stocks currently have share prices above $250.00, 
further limiting the cost and complexity of the introduction of the new 
round lot sizes.\277\ For these reasons, the Commission does not 
believe that the price-based definition of round lot will be confusing 
to investors.
---------------------------------------------------------------------------

    \275\ IEX Letter at 4.
    \276\ See infra Section II.H.
    \277\ According to data analyzed by staff for September 2020, 
9,023 stocks would be included in the 100-share tier, while only 117 
stocks would be included in the 40-share tier, 16 stocks would be 
included in the 10-share tier, and 1 stock would be included in the 
one-share tier.
---------------------------------------------------------------------------

    Additionally, the Commission does not believe that a one-share 
round lot for stocks priced at or above $10,000.01 would have 
``unintended negative impacts'' on price discovery and routing

[[Page 18619]]

complexity \278\ because, based on current pricing, only one stock 
would be included in the one-share tier, and that stock already has a 
round lot size of one.
---------------------------------------------------------------------------

    \278\ See State Street Letter at 3 (suggesting there could be 
such impacts for a one-share round lot for stocks over $1,000).
---------------------------------------------------------------------------

    Furthermore, the Commission does not believe it should defer action 
on defining round lot until it receives further public input, as one 
commenter recommended,\279\ because the Commission received substantial 
comment on this issue from a wide range of market participants during 
this rulemaking process and in connection with the Market Data 
Roundtable.\280\ Moreover, the definition of round lot is based on 
data-driven analysis. The Proposing Release included, among other 
things, data on the increasing prevalence of odd-lot trades, 
particularly among higher-priced stocks, the proportion of odd-lot 
trades occurring at prices better than the NBBO, and the proportion of 
these better-priced odd-lots that would be captured by the proposed 
definition of round lot.\281\ As discussed above, staff has updated 
these data analyses and has performed similar data analyses.\282\ The 
adopted definition is consistent with and supported by these analyses.
---------------------------------------------------------------------------

    \279\ See State Street Letter at 3.
    \280\ See Market Data Roundtable, supra note 33.
    \281\ See Proposing Release, 85 FR at 16739-43.
    \282\ See supra Table 1 and Table 2; notes 240 and 241.
---------------------------------------------------------------------------

    Finally, in response to the comment on the impact of the definition 
of round lot on options markets and on the standard convention that an 
options contract represents 100 shares of the underlying equity, the 
Commission does not believe that any such impact will be substantial or 
disruptive. As stated above, only a limited number of stocks will 
experience a change in their round lot sizes as a result of the amended 
definition of round lot.\283\ Moreover, options on at least one stock 
that currently has a sub-100 round lot size are traded in standard 
units of 100 shares, so there is some precedent for deviation between 
the standard number of shares for an options contract and the standard 
unit of trading for the underlying stock. Similarly, corporate actions, 
such as rights offerings, stock dividends, and mergers can result in 
adjusted contracts representing something other than 100 shares of 
stock.\284\ For these reasons, the Commission believes that options 
markets will be able to adjust without undue cost to the new round lot 
sizes that will apply to some NMS stocks. The Commission will monitor 
the impact of these amendments on options markets going forward, 
including during the transition period.\285\
---------------------------------------------------------------------------

    \283\ See supra note 277 and accompanying text.
    \284\ See Options Clearing Corporation, Equity Options, 
available at https://www.theocc.com/Clearance-and-Settlement/Clearing/Equity-Options-Product-Specifications (last accessed Sept. 
17, 2020).
    \285\ See infra Section III.H.
---------------------------------------------------------------------------

    Monthly Round Lot Calculation: Some commenters disagreed with using 
the prior calendar month's average closing price on the primary listing 
exchange to determine a stock's price for purposes of assigning a round 
lot size to a stock, as proposed.\286\ One commenter stated that the 
proposed monthly calculation for determining round lot size would be 
operationally risky and prone to errors and confusion.\287\ That 
commenter suggested a monthly calculation might ``cause a stock's round 
lot size to become significantly out of step with what it should be, 
particularly during periods of significant market volatility or when 
stock splits occur.'' \288\ Another commenter suggested that monthly 
updates would be ``messier'' than updating continuously.\289\ A 
different commenter suggested ``mak[ing] the referenced price that of 
the order itself (so each price level has a corresponding round lot 
size, and a given stock may have multiple round lot sizes at once).'' 
\290\ Another commenter recommended quarterly recalculations because 
the proposed monthly process ``will add an administrative burden.'' 
\291\ On the other hand, some commenters agreed with the proposal, 
stating that a monthly calculation time period strikes an appropriate 
balance.\292\ One commenter noted that the monthly calculation ``should 
not be too much hassle as long as the requirements are . . . clear.'' 
\293\
---------------------------------------------------------------------------

    \286\ See Nasdaq Letter IV at 17; Angel Letter at 17; AHSAT 
Letter at 4; NovaSparks Letter at 1.
    \287\ See Nasdaq Letter IV at 17.
    \288\ Id.
    \289\ Angel Letter at 17.
    \290\ AHSAT Letter at 4.
    \291\ NovaSparks Letter at 1.
    \292\ See MFA Letter at 10; Data Boiler I at 25.
    \293\ Data Boiler I at 25.
---------------------------------------------------------------------------

    Selecting an appropriate stock price metric for the round lot size 
determination involves striking an appropriate balance between using 
accurate, up-to-date pricing information and avoiding the cost and 
complexity of over-frequent computation and potential round lot 
reassignment. The Commission continues to believe the proposed monthly 
approach strikes an appropriate balance.\294\ The Commission believes 
continuous updating of round lot size or an order-based calculation 
would be too complex and would be subject to short-term price 
fluctuations, while quarterly updating could result in severely out-of-
date tier assignments. Additionally, market participants are accustomed 
to other kinds of monthly updates, including for SRO fees, so 
monitoring for round lot size changes resulting from price moves and 
making corresponding systems adjustments would not be overly burdensome 
or costly.\295\ Therefore, the Commission is adopting a stock price 
calculation methodology based on the prior calendar month's average 
closing price on the primary listing exchange, as proposed. 
Additionally, to alleviate concerns that a stock's round lot size 
changing as its stock price changes could be confusing to market 
participants, the new definition of regulatory data, as discussed 
below, includes an indicator of the applicable round lot. The 
Commission believes that including this information about the 
applicable round lot size in consolidated market data will reduce 
confusion as market participants adjust to the new round lot 
sizes.\296\
---------------------------------------------------------------------------

    \294\ See Proposing Release, 85 FR at 16743. One commenter 
``suspect[ed]'' that calculating round lot sizes automatically in 
real time might be operationally simpler and urged the Commission to 
``listen carefully to the brokerage ops people'' with respect to 
this issue. See Angel Letter at 17. However, the Commission did not 
receive any comments from brokerage operations professionals or 
other commenters that provided a reasoned explanation for a 
different approach.
    \295\ See infra Section V.C.1(b)(v).
    \296\ Moreover, the Commission does not believe the round lot 
tiers will be ``clunky,'' as one commenter suggested. Nasdaq Letter 
IV at 14. The Commission appreciates the commenter's concern that a 
small price shift around certain thresholds could cause large 
changes in round lot size, but the monthly methodology would address 
this concern by requiring a more sustained or extensive price shift 
to cause a stock to switch tiers.
---------------------------------------------------------------------------

    As stated above,\297\ the proposed definition of round lot provided 
that the IPO price would be used to determine an NMS stock's round lot 
size if the prior calendar month's average closing price is not 
available, and the Commission solicited comment regarding the stock 
price calculation methodology that should be utilized in this 
situation.\298\ The Commission received one comment in response.\299\ 
The Commission recognizes that there are other scenarios aside from 
IPOs--such as listings of securities traded in the OTC market or direct 
listings--where there may not be a full prior

[[Page 18620]]

month of closing prices on the primary listing exchange that can be 
averaged to ascertain the stock's price. Therefore, the Commission is 
modifying the proposed definition of round lot to delete references to 
the IPO price and to add a new provision that for any NMS stock for 
which the prior calendar month's average closing price is not 
available, that stock's round lot shall be 100 shares.\300\ This more 
general formulation will capture IPOs as well as other types of initial 
stock listings. In addition, assigning an initial, default round lot 
size of 100 shares to newly listed stocks will provide certainty and 
consistency and avoid the need to make last minute computations. 
Finally, the default assignment of a 100-share round lot size should be 
accurate for almost all new listings, since their prices tend to be 
well below $250 per share.\301\
---------------------------------------------------------------------------

    \297\ See supra Section II.D.1.
    \298\ See Proposing Release, 85 FR at 16743, 47.
    \299\ Data Boiler Letter I at 25 (``We tend to think: no round 
lot size information until there is a prior full calendar month's 
average closing price on the primary listing exchange was [sic] 
$500.01 or greater. Yet, we remain flexible to accommodate whatever 
minimum number of trading days as [sic] required by the industry and 
the SEC.'').
    \300\ See infra Section VIII.
    \301\ Staff analysis found that for U.S. equity IPOs traded on 
U.S. exchanges and issued over the last year (as of November 12, 
2020), the average share price was $13.75 and the highest share 
price was $120.
---------------------------------------------------------------------------

(b) Impact on Other Rules in Regulation NMS
    The Commission received multiple comments regarding how the 
proposed definition of round lot would impact Rules 602, 603, 604, 605, 
and 610.\302\
---------------------------------------------------------------------------

    \302\ See Proposing Release, 85 FR at 16743-45 (explaining the 
requirements of Rules 602, 603, 604, 605, and 610 of Regulation NMS 
and the impact of the proposed round lot definition upon these 
rules). Rule 602 governs the dissemination of quotations in NMS 
securities. Rule 603 governs the distribution, consolidation, and 
display of information with respect to quotations for and 
transactions in NMS stocks. Rule 604 governs the display of customer 
limit orders for NMS stocks. Rule 605 governs the disclosure of 
order execution quality information. Rule 610(d), 17 CFR 242.610(d), 
requires each national securities exchange and national securities 
association to establish, maintain, and enforce rules that, among 
other things, require its members to reasonably avoid displaying 
quotations that lock or cross any protected quotation in an NMS 
stock and that prohibit its members from engaging in a pattern or 
practice of displaying quotations that lock or cross any protected 
quotation in an NMS stock, absent an applicable exception.
---------------------------------------------------------------------------

    Rule 602 Comments: One commenter suggested that having multiple 
NBBOs would make the concept of locked and crossed markets and 
execution quality ``depend on your data provider and location. That in 
turn makes `fair access' of exchange data (Rule 602) a little 
redundant. The SEC hopes there are around a dozen consolidators, so 
it's likely some will be faster than others.'' \303\ On the other hand, 
another commenter agreed with the Commission ``that the bids and offers 
collected and made available under Rule 602(a) should be in the 
proposed round lot sizes, and the proposed round lot definition should 
apply to the obligations of responsible brokers or dealers under Rule 
602(b).'' \304\
---------------------------------------------------------------------------

    \303\ Letter from Phil Mackintosh, Chief Economist, Nasdaq, to 
Vanessa Countryman, Secretary, Commission, dated May 26, 2020, 
(``Nasdaq Letter III'') at 24-25.
    \304\ Data Boiler Letter I at 26.
---------------------------------------------------------------------------

    The amendments to the definition of NBBO to accommodate the 
decentralized consolidation model and the notion of ``multiple NBBOs,'' 
which already exist today,\305\ do not have any direct bearing on the 
requirements of Rule 602, which relate to the collection and provision 
of certain quotation data to vendors.
---------------------------------------------------------------------------

    \305\ See infra Section III.B.10.
---------------------------------------------------------------------------

    Rule 603 Comments: A number of commenters addressed the impact of 
the definition of round lot on Rule 603(c), the Vendor Display Rule. 
One commenter argued that the Commission did not consider the 
``indirect impact'' of ``the NBBO reflecting smaller-sized orders'' on 
the Vendor Display Rule.\306\ That same commenter stated, ``[t]he 
Commission also fails to consider whether the costs associated with 
retaining the Vendor Display Rule outweigh its benefits if the 
Commission adopts its proposed changes to the definition of `round 
lot.' '' \307\ Another commenter argued that the round lot change would 
mean a ``SIP, broker, or dealer would be required to provide a 
consolidated display reflecting smaller-sized orders in higher-priced 
stocks.'' \308\
---------------------------------------------------------------------------

    \306\ NYSE Letter II at 6-7.
    \307\ Id.
    \308\ Fidelity Letter at 6.
---------------------------------------------------------------------------

    A different commenter suggested that the protected quotation 
definition would increase complexity because the Vendor Display Rule 
``generally requires a `consolidated display,' which would include an 
NBBO based on the revised round-lot sizes, in a context in which a 
trading or order routing decision can be implemented but would not 
require the display of valuable information about the protected 
quotation.'' \309\
---------------------------------------------------------------------------

    \309\ Cboe Letter at 8.
---------------------------------------------------------------------------

    The Commission continues to believe that providing a consolidated 
display that includes the new round lot NBBO is appropriate to help 
ensure that market participants receive basic quotation information, in 
a context in which a trading or order routing decision can be 
implemented. This information should reflect orders of meaningful size, 
including smaller-sized orders in higher-priced stocks.\310\ Moreover, 
the commenter did not describe any specific costs, including any 
indirect costs, that it believed the Commission had not 
considered.\311\
---------------------------------------------------------------------------

    \310\ Proposing Release, 85 FR at 16744.
    \311\ See NYSE Letter II at 6-7. In addition, the comment 
related to additional complexity in the Vendor Display Rule as a 
result of the proposed amendment to the definition of protected 
quotation is no longer applicable, as the Commission is not adopting 
the proposed amendment to that definition. See infra Section II.E.2.
---------------------------------------------------------------------------

    Rule 604 Comments: One commenter suggested the round lot definition 
would create a burden on market participants to engage in ``careful 
monitoring and changes to the programming of market makers['] systems . 
. . each month'' in order to remain compliant with Rule 604, given the 
potential for month-to-month changes in round lot sizes for individual 
securities.\312\ That commenter recommended a three-tiered structure to 
reduce such a burden.\313\
---------------------------------------------------------------------------

    \312\ MFA Letter at 12-13.
    \313\ Id.
---------------------------------------------------------------------------

    Another commenter suggested that the round lot definition's 
narrowing of the Rule 604 odd-lot exception, resulting in the display 
of customer limit orders at the NBBO but less than 100 shares, in 
combination with the proposed amendment to the definition of protected 
quotation, would ``separate[ ] brokers' Rule 604 requirements from 
their best execution obligations . . . [and] create[ ] challenges for a 
broker-dealer to meet its best execution obligations because under the 
proposed amendments, a customer limit order that is less than 100 
shares would not be protected under Rule 611.'' \314\
---------------------------------------------------------------------------

    \314\ Nasdaq Letter IV at 20-21 (footnotes removed).
---------------------------------------------------------------------------

    The Commission continues to believe that Rule 604 should use round 
lots, as defined and adopted herein, as the measure for customer limit 
orders that must be reflected in a specialist or OTC market maker's 
published bid or offer because customer limit orders of meaningful size 
should be displayed. The Commission believes this will further the 
objective of Rule 604: ensuring that customers have the ability to 
effectively seek price improvement through the dissemination of their 
limit orders by specialists or OTC market makers.\315\ Moreover, the 
concerns raised regarding Rule 604 complexities that would arise as a 
result of the proposed five-tier round lot definition and the proposed 
amendments to the definition of protected quotation are diminished 
significantly since the Commission is adopting a four-tiered definition 
of round lot with a higher notional value size and is not adopting the 
proposed amendments to the definition of protected quotation.\316\
---------------------------------------------------------------------------

    \315\ See Proposing Release, 85 FR at 16744.
    \316\ See supra Section II.D; infra Section II.E.
---------------------------------------------------------------------------

    Rule 605 Comments: Many commenters discussed the effects of the 
definition of round lot on the execution

[[Page 18621]]

quality statistics under Rule 605. One commenter argued that ``Rule 605 
reports would no longer . . . provid[e] uniform comparisons because the 
NBBO that each market center will use will be different,'' and some 
suggested changes to Rule 605 in response.\317\ Another commenter 
argued that the monthly round lot calculation could create investor 
confusion if a stock is near a different tier threshold regarding 
whether ``the execution information about such stocks needs to be added 
to Rule 605 reports,'' leading ``investors to be misled by execution 
quality statistics.'' \318\ However, other commenters suggested the 
proposal would improve the accuracy of Rule 605 reports.\319\
---------------------------------------------------------------------------

    \317\ STANY Letter II at 4, 6. See also Nasdaq Letter IV at 19-
20 (stating that the proposed definition of round lot will render 
Rule 605 execution quality statistics less accurate, that statistics 
on price improvement for higher-priced stocks may show a reduction 
in the number of shares of marketable orders that received price 
improvement because price improvement would be measured against a 
narrower NBBO, that an increase in the frequency or length of 
crossed markets resulting from the proposed definitions of round lot 
and protected quote could cause more orders to be excluded from Rule 
605 execution quality statistics, rendering those statistics less 
accurate, and that the creation of multiple NBBOs would undermine 
the comparability of Rule 605 statistics across different market 
centers).
    \318\ Nasdaq Letter IV at 17.
    \319\ ICI Letter at 6-7. See also T. Rowe Price Letter at 2 
(stating that one objective of the Commission's rulemaking was to 
improve the accuracy of Rule 605 reports).
---------------------------------------------------------------------------

    Some commenters argued for ``moderniz[ing]'' Rule 605.\320\ One 
suggested ``(a) creating a `marketable benchmark' statistic that 
reflects the size of the quote at the NBBO, (b) adding notional buckets 
as an additional method of categorization, and (c) incorporating all 
customer orders regardless of size.'' \321\ Another commenter provided 
an example of how the exclusion of odd-lot quotes from the SIP feeds 
can skew Rule 605 price improvement statistics.\322\ Additionally, a 
different commenter suggested measuring Rule 605 price improvement 
statistics using an ``Effective Best Bid or Offer'' calculated using 
the average fill price of an order at a given time.\323\
---------------------------------------------------------------------------

    \320\ See, e.g., Virtu Letter at 4 (``many of the Rule 605 
execution quality share buckets now bear little relation to the 
average trade sizes sent by the majority of investors. . . . [F]or 
stocks with prices over $50, about 70% of trades are odd-lot orders 
which would not be captured by the current Rule 605. . . . [A] 
significant overhaul of Rule 605 would be necessary, including 
possibly expanding measurement of execution quality to include depth 
of book'').
    \321\ Citadel Letter at 4.
    \322\ Healthy Markets Letter I at 1.
    \323\ See Angel Letter at 16.
---------------------------------------------------------------------------

    The Commission continues to believe that the order execution 
disclosures required under Rule 605 should be based on an NBBO that 
reflects orders in the new round lot sizes.\324\ The definition of 
round lot will allow additional orders of meaningful size to determine 
the NBBO, and, therefore, the execution quality and price improvement 
statistics required under Rule 605 would be based upon an NBBO that the 
Commission believes is a more meaningful benchmark for these 
statistics.\325\ As explained below, the Commission does not believe 
that the amendments to the definition of NBBO to accommodate the 
decentralized consolidation model or the notion of ``multiple NBBOs,'' 
which already exist today, will confuse market participants.\326\ 
Similarly, the Commission does not believe the accuracy or 
comparability of Rule 605 statistics will be impaired. On the contrary, 
the Commission believes that an NBBO that incorporates orders that 
often reflect superior pricing by comparison to today's round lot 
orders \327\ will provide market participants with more accurate 
information about the true quality of the executions they are 
receiving, even if this information may show a reduction in the number 
of shares that received price improvement.\328\ Finally, while the 
Commission has reviewed the comments about the need to modernize and 
update Rule 605, any changes to Rule 605--as opposed to the more 
limited impact on Rule 605 as a result of the Commission's adoption of 
the definition of round lot--are beyond the scope of the present 
rulemaking.
---------------------------------------------------------------------------

    \324\ See Proposing Release, 85 FR at 16745.
    \325\ See id.
    \326\ See infra Section III.B.10(b).
    \327\ See supra note 241 and accompanying text.
    \328\ Additionally, because the Commission is adopting modified 
definitions of round lot and protected quotation, one commenter's 
concern is no longer applicable--specifically, that an increase in 
the frequency or length of crossed markets as a result of the 
proposed definitions of round lot and protected quotation could 
cause more orders to be excluded from Rule 605 execution quality 
statistics. See Nasdaq Letter IV at 19-20.
---------------------------------------------------------------------------

    Rule 610 Comments: Commenters discussed the effects of the 
definition of round lot on 17 CFR 242.610(c) and (d) (Rule 610(c) and 
(d)). One commenter stated that, with the definition of round lot 
affecting Rule 610(c), the Commission did ``not consider the harm that 
an expanded fee limitation would have on competition, or the burdens it 
would place on market participants, including trading centers that 
display quotes.'' \329\ The commenter stated that in not expanding 
order protection to orders in the new round lots, the Commission is 
eliminating one of the bases it used when it first created the fee 
limitation in Regulation NMS.\330\ On the other hand, another commenter 
agreed the Commission should change Rule 610(c) to apply to quotations 
in the proposed round lot sizes because doing so ``would further that 
rule's objectives of ensuring the accuracy of displayed quotations by 
establishing an outer limit on the cost of accessing them.'' \331\
---------------------------------------------------------------------------

    \329\ NYSE Letter II at 7-8.
    \330\ Id.
    \331\ Data Boiler Letter I at 26.
---------------------------------------------------------------------------

    Multiple commenters raised concerns that the proposed amendment to 
the definition of protected quotation would limit the restrictions in 
Rule 610(d) on locked and crossed markets, allowing round lots smaller 
than 100 shares to be locked and crossed.\332\ Some commenters 
recommended ``the locking and crossing requirements . . . be extended 
to orders reflected in the NBBO.'' \333\ Another commenter stated that 
the Commission did not ``justify why it is proposing to expand the fee 
limitation applicable to SROs' best bids and offers under Rule 610(c), 
but not proposing to expand the limits in Rule 610(d) on SRO members 
locking and crossing protected quotations.'' \334\ Furthermore, one 
commenter argued that the Rule 610(d) effects ``could add significant 
complexity to broker-dealers'

[[Page 18622]]

best execution analyses and could create confusion and uncertainty 
regarding the quotations that a broker-dealer should rely upon to 
provide best execution for its customers.'' \335\
---------------------------------------------------------------------------

    \332\ See Clearpool Letter at 13-14; TD Ameritrade Letter at 9 
(``Because the proposed round lot sizes would allow stepping ahead 
by economically insignificant amounts, locked and crossed markets 
may not simply be arbitraged away. At times liquidity-takers may 
perceive a sophisticated trader has locked or crossed the market for 
an economically insignificant amount and be reluctant to interact 
with them. This may lead to occasions of sustained locked and 
crossed markets, similar to what was observed prior to Reg. NMS Rule 
610's prohibition on locked and crossed markets.''); ICI Letter at 
7, n. 24 (expressing ``concern'' about this approach); BlackRock 
Letter at 4 (``This would directly contravene the intent of 
employing the round lot definition as a mechanism for expanding odd-
lot coverage, as the application of other provisions, such as order 
protection, to round lot orders was a key consideration of this 
approach. Further, this policy perpetuates an archaic double 
standard for odd-lot quotations which seem incongruous to the 
acknowledged economic significance and prevalence of odd-lot 
activity in the market.'') (footnotes removed); SIFMA Letter at 1-2 
(arguing the Commission should make any changes to Rule 610(d) of 
Regulation NMS in a separate proposal after ``further industry 
dialogue and consideration''); Nasdaq Letter IV at 18 (``Many of the 
same concerns that Nasdaq has with respect to the Commission's round 
lot and trade-through protection proposals also apply to the 
Commission's proposal to allow orders to lock or cross unprotected 
round lot displayed quotes of less than 100 shares.'').
    \333\ Clearpool Letter at 13-14; BlackRock Letter at 5.
    \334\ NYSE Letter II at 8. See also Nasdaq Letter IV at 19 
(``[E]ven if the Commission is correct that protection against 
locked and crossed markets is no longer warranted, the Commission 
fails to explain why it is reasonable, and not arbitrary, for it to 
roll back Rule 610(d) only for quotes of under 100 shares, rather 
than for all quotes in NMS stocks.'').
    \335\ FINRA Letter at 7.
---------------------------------------------------------------------------

    The Commission continues to believe that applying the fee 
limitations of Rule 610(c) to orders of meaningful size, as reflected 
in the proposed definition of round lot, would further the rule's 
objectives of ensuring the accuracy of displayed quotations by 
establishing an outer limit on the cost of accessing them and would 
help ensure that the rule applies consistently to orders of meaningful 
size.\336\ Further, the Commission does not believe that an expanded 
fee limitation would harm competition or unduly burden market 
participants, as one commenter stated.\337\ The national securities 
exchanges do not distinguish between protected or best quotations and 
other quotations for purposes of their transaction fees,\338\ so the 
extension of the requirements of Rule 610(c) to orders in the new round 
lot sizes will not affect an area of exchange pricing that has been 
subject to competition or differentiation among exchanges. In addition, 
as a result of the amended definition of round lot, a relatively small 
number of NMS stocks will have their round lot size change,\339\ so the 
impact on exchanges and other trading centers and market participants 
should be small.\340\
---------------------------------------------------------------------------

    \336\ The concern expressed by one commenter suggesting that the 
Commission is eliminating one of the bases for the fee limitation in 
Rule 610(c) of Regulation NMS is no longer applicable in light of 
the Commission's decision not to adopt the proposed amendments to 
the definition of protected bid or protected offer. See infra 
Section II.E. Similarly, the concerns relating to Rule 610(d) of 
Regulation NMS expressed by several commenters that the proposed 
amendments to the definition of protected bid or protected offer 
would allow quotations in the new round lot sizes to be locked or 
crossed are no longer applicable. Id.
    \337\ See NYSE Letter II at 7-8.
    \338\ See, e.g., Cboe U.S. Equities Fee Schedules, BZX Equities, 
Transaction Fees; NYSE Price List 2020 (last updated Nov. 2, 2020), 
available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf; Nasdaq, Price List--Trading Connectivity, 
available at http://nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 (last accessed Nov. 25, 2020).
    \339\ See infra notes 364 and 365 and accompanying text.
    \340\ See infra Section V.C.1(b)(vii) (stating that the impact 
of these amendments on 610(c) of Regulation NMS might not result in 
economic effects).
---------------------------------------------------------------------------

E. Definition of ``Protected Bid or Protected Offer'' Under Rule 
600(b)(70)

1. Proposal
    In connection with the proposed round lot definition, the 
Commission proposed to amend the definition of protected bid or 
protected offer in 17 CFR 242.700(b)(70) (Rule 600(b)(70)) by requiring 
automated quotations that are the best bid or offer of a national 
securities exchange or national securities association to be ``of at 
least 100 shares'' in order to qualify as a protected bid or protected 
offer. The Commission proposed this change to maintain the status quo 
with regard to protected quotes, which are currently required to be 
round lots, and to avoid expanding to the proposed smaller round lots 
the order protection requirements of Rule 611 and the requirements of 
Rule 610(d) to prevent locked/crossed markets.\341\
---------------------------------------------------------------------------

    \341\ See Proposing Release, 85 FR at 16747-50. Rule 611 of 
Regulation NMS requires trading centers to have policies and 
procedures that are reasonably designed to prevent ``trade-
throughs'' on that trading center of protected bids or protected 
offers in NMS stocks, subject to specified exceptions. Rule 
600(b)(94) of Regulation NMS defines ``trade-through'' as ``the 
purchase or sale of an NMS stock during regular trading hours, 
either as principal or agent, at a price that is lower than a 
protected bid or higher than a protected offer.'' Rule 600(b)(94) of 
Regulation NMS, 17 CFR 242.600(b)(94).
---------------------------------------------------------------------------

    Additionally, the Commission proposed that protected quotations 
would only include odd-lots at a single price (rather than multiple 
price levels) that, when aggregated, are equal to or greater than 100 
shares.\342\
---------------------------------------------------------------------------

    \342\ See Proposing Release, 85 FR at 16737.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received multiple comments on the definition of 
protected bid or protected offer. Many commenters opposed the proposal 
to amend the definition and argued that round lots, which determine the 
NBBO, should be protected quotations. These commenters stated that not 
protecting the round lot NBBO would result in unnecessary complexity, 
investor confusion, more trade-throughs, additional locked and crossed 
markets, and harm to retail investors. Other commenters also discussed 
odd-lot aggregation for the purposes of the definition of protected bid 
or protected offer. Commenters also addressed the effects of 
withdrawing the protected status of the 12 stocks that currently have 
round lots smaller than 100 shares. Additional commenters discussed the 
effects of a different PBBO and NBBO on best execution.
(a) Expanding Protection to New Round Lots
    Most commenters that mentioned order protection suggested that the 
definition of protected quotation should reflect the new round lot NBBO 
and not be limited to those quotations that are of at least 100 
shares.\343\ One commenter supported the proposal not to protect the 
new round lots of less than 100 shares,\344\ and two were neutral.\345\ 
In support, one commenter stated that the order protection rule would 
continue to function similarly to the way it does today and that 
extending order protection to the new round lots would have significant 
negative trading implications, such as encouraging the posting of 
quotes in insignificant sizes, which would cause asset managers to 
break down large orders to avoid signaling their full trading 
intent.\346\
---------------------------------------------------------------------------

    \343\ See Submitted Comments, Comments on Proposed Rule: Market 
Data Infrastructure, Commission, available at https://www.sec.gov/comments/s7-03-20/s70320.htm; Nasdaq Letter V at 3 (``Just five 
commenters supported the Commission's proposed treatment of the 
Order Protection Rule; 24 others opposed it outright.''). See, e.g., 
Cboe Letter at 8; MIAX Letter at 6; Fidelity Letter at 7; Citadel 
Letter at 2; BestEx Research Letter at 6-9.
    \344\ See T. Rowe Price Letter at 2.
    \345\ See IEX Letter at 7; Data Boiler Letter I at 21.
    \346\ See T. Rowe Price Letter at 3. In addition, one commenter 
highlighted that extending order protection to the new round lots 
would create complexity and confusion: ``Protecting the new round 
lots could also significantly alter the behavior of market makers 
like Virtu, impacting their approach to internalization and 
affecting their capacity to provide price improvement to retail 
investors. It could also dramatically alter the flow of orders to 
the exchanges and other trading venues. And, of course, it would 
impose unknown, but surely significant, implementation costs on 
market participants.'' Virtu Letter at 5.
---------------------------------------------------------------------------

    Complexity and Confusion: Multiple commenters suggested that the 
amendment to the definition of protected quote would add complexity, 
including by requiring market participants to monitor an NBBO and a 
PBBO throughout the trading day.\347\ One commenter noted that the 
``confusion and complexity of a NBBO that deviates from the PBBO 
outweighs concerns about protecting quotes that otherwise may not be 
`meaningful.' '' \348\ Similarly, another commenter argued that the 
round lot definition, in combination with the definition of protected 
bid or protected offer, would create a bifurcated system of displayed 
orders where better priced displayed orders are not protected against 
trade-throughs.\349\
---------------------------------------------------------------------------

    \347\ See, e.g., Cboe Letter at 8; MEMX Letter at 4; NYSE Letter 
II at 6; Nasdaq Letter IV at 13-17; Fidelity Letter at 7; Citadel 
Letter at 2; FINRA Letter at 6-7; Healthy Markets Letter I at 5.
    \348\ STANY Letter II at 4. See also Schwab Letter II at 2 
(stating that protecting only transactions of 100 shares or more 
``would create [an NBBO] that is distinct from the [PBBO] and would 
leave broker-dealers with uncertainty over order routing and data 
display decisions. Schwab believes this would confuse investors.'').
    \349\ See Fidelity Letter at 7.

---------------------------------------------------------------------------

[[Page 18623]]

    Additionally, one commenter suggested that amending the definition 
of protected quote would de-couple the order protection rule and the 
duty of best execution, creating confusion where brokers have access to 
a wide swath of required core data but may, or may not, be obligated to 
use that data to benefit customers.\350\
---------------------------------------------------------------------------

    \350\ See Nasdaq Letter IV at 21.
---------------------------------------------------------------------------

    Locked and Crossed Markets: Some commenters argued that the 
proposal to limit the definition of protected quotation to orders of 
100 shares or more partially rescinds the rule against locked or 
crossed markets, allowing some orders to lock or cross the market 
depending on the price of the stock, the size of the order, and the 
state of the NBBO.\351\
---------------------------------------------------------------------------

    \351\ See id. at 16.
---------------------------------------------------------------------------

    Best Execution: \352\ Some commenters argued that a bifurcated 
approach to protected and unprotected round lots would add complexity 
regarding best execution obligations, including routing and execution 
decisions.\353\ Others suggested that if the Commission were to adopt 
the proposed bifurcated approach, the Commission should ``promulgate 
clear guidance'' surrounding market participants' best execution 
obligations.\354\ However, one commenter stated that it was ``not 
convinced by criticisms that the Proposal would alter asset managers' 
best execution obligations as a result of potentially different 
reference prices (i.e., NBBO vs. PBBO).'' \355\
---------------------------------------------------------------------------

    \352\ See supra Section I.E.
    \353\ See, e.g., Fidelity Letter at 7; BlackRock Letter at 4; 
MFA Letter at 10-12.
    \354\ Nasdaq Letter IV at 21. See also SIFMA Letter at 10, 13; 
FINRA Letter at 7.
    \355\ T. Rowe Price Letter at 2.
---------------------------------------------------------------------------

    Effects on Retail Investors: Some commenters suggested that 
limiting protected quotations to those of 100 shares would harm retail 
orders/investors because displayed retail orders in the new round lot 
sizes would be traded-through.\356\ Furthermore, a commenter argued 
that the Commission provided no reasonable basis for the proposal to 
treat round lots differently and that the proposal would unfairly 
discriminate against retail investors.\357\ One commenter suggested 
that the order protection rule fosters retail investor confidence and 
that not protecting the new round lots could erode trust in the 
markets.\358\ Another commenter suggested that market makers may not 
protect round lot orders that are not within the scope of the order 
protection rule and stated that limiting order protection to 
transactions of 100 shares or more would ``discourage limit orders--a 
valuable driver of price discovery--as investors would be less likely 
to receive execution without price protection.'' \359\
---------------------------------------------------------------------------

    \356\ See Cboe Letter at 6-7; Nasdaq Letter IV at 13-17. See 
also BlackRock Letter at 4 (``[A] recent academic study has 
identified that `trade-throughs of non-protected odd-lot orders are 
frequent' such that this `limitation in the National Market System . 
. . results in a hidden cost to equity traders.' '').
    \357\ See Nasdaq Letter IV at 16.
    \358\ See TD Ameritrade Letter at 10.
    \359\ Schwab Letter II at 2.
---------------------------------------------------------------------------

    Separate Rulemaking: Some commenters stated that they disagreed 
with the proposal to separate order protection from the NBBO, and if 
the Commission were to make such a change, it should do so in a 
separate rulemaking.\360\
---------------------------------------------------------------------------

    \360\ See SIFMA Letter at 14; Nasdaq Letter IV at 14-15.
---------------------------------------------------------------------------

    The Commission is not adopting the proposed amendment to the 
definition of protected bid or protected offer.\361\ A wide range of 
commenters expressed significant concerns regarding this aspect of the 
proposal, including concerns about complexity and ambiguity that could 
stem from the best execution, routing, and order handling ramifications 
of introducing round lot quotes that are unprotected, a potential 
increase in trade-throughs and locked and crossed markets, and possible 
erosion of confidence among retail investors that their orders are 
being treated fairly. The Commission recognizes these concerns and does 
not believe that adopting the proposed amendments to the definition, at 
this time, would appropriately advance the broader objectives of the 
proposal, particularly enhancing the utility and availability of 
consolidated market data.
---------------------------------------------------------------------------

    \361\ However, the Commission is still making the technical 
change to delete the references to ``The Nasdaq Stock Market, Inc.'' 
in the definition. The Commission did not receive comments on this 
piece of the proposal and continues to believe the language is 
redundant because the Nasdaq Stock Market is now a national 
securities exchange. See Proposing Release, 85 FR at 16749.
---------------------------------------------------------------------------

    In support of its preliminary belief that Rules 611 and 610(d) 
should not be extended to the smaller-sized quotations reflected in the 
proposed definition of round lot, the Commission cited concerns 
expressed by various market participants about the existing scope of 
these rules.\362\ However, given the concerns expressed in comments on 
the proposal, the Commission believes that not extending Rules 611 and 
610(d) to the new round lot sizes could create unnecessary complexity 
and confusion. For example, the Commission continues to believe that 
improvements in trading and order routing technology since 2005 and the 
applicability of best execution requirements to orders of all sizes 
would incentivize market participants to engage with orders in the new 
round lot sizes even if they were not protected, and that these 
technological improvements and market forces would also help mitigate 
excessive locking or crossing of quotations in the new round lot sizes. 
However, the Commission also agrees with commenters that consistently 
applying Rules 611 and 610(d) to all round lot sizes would promote 
confidence among investors and other market participants that market 
participants will engage with orders in the new round lot sizes and 
that orders in the new round lot sizes will not be excessively locked 
or crossed.
---------------------------------------------------------------------------

    \362\ See Proposing Release, 85 FR at 16747-49.
---------------------------------------------------------------------------

    Furthermore, other modifications to the proposal that the 
Commission is adopting herein mitigate the Commission's concerns, as 
expressed in the Proposing Release, about the expansion of the order 
protection requirements in Rule 611 and the prohibitions on locked and 
crossed markets in Rule 610(d). Specifically, as discussed above, the 
Commission is: (a) Modifying the proposed definition of round lot so 
that only stocks priced over $250.00 will be assigned to a round lot 
size less than 100; and (b) increasing the notional size thresholds of 
the new round lot sizes so that protected order interest at the new 
round lot sizes is more meaningful.\363\ Further, since currently only 
134 stocks are priced over $250.00,\364\ the scope of the extension of 
Rules 611 and 610(d) would be fairly limited, extending to a much 
smaller number of stocks than under the proposed amendments.\365\ 
Furthermore, of this number, six NMS stocks already have a round lot 
size of less than 100 today.\366\ Therefore, only 128 NMS stocks would 
receive trade-through protection for smaller-sized orders. 
Additionally, with the larger notional size of $10,000 adopted for the 
definition of round lot,\367\ the extension of order protection to 
round lots would apply only to orders of a more substantial size.
---------------------------------------------------------------------------

    \363\ See supra Section II.D.
    \364\ This information is based on data analyzed by staff for 
September 2020.
    \365\ By comparison, under the proposed definition of round lot, 
Rules 611 and 610(d) of Regulation NMS would have extended to over 
1,600 stocks in the absence of the proposed amendment to the 
definition of protected bid or offer.
    \366\ See infra Section II.E.2(c).
    \367\ See supra Section II.D.
---------------------------------------------------------------------------

(b) Odd-Lot Aggregation for Protected Quotations
    A number of commenters discussed odd-lot aggregation with respect 
to protected quotes, and most stated that

[[Page 18624]]

the Commission should allow aggregation across multiple price levels, 
instead of at just one level.\368\ Some commenters stated that 
preventing odd-lot orders from being aggregated across different price 
levels to create protected quotes, as proposed, would cause spreads to 
widen, with one commenter providing empirical data, based on quoting 
activity during the month of April 2020, showing that average spreads 
would widen by over $0.50 for shares with prices of $500.01 to 
$1,000.00 and nearly $1.50 for shares with prices of $1,000.01 or 
more.\369\ One commenter suggested this restriction would hurt retail 
investors because it would result in their orders being executed at 
inferior prices.\370\
---------------------------------------------------------------------------

    \368\ See, e.g., AHSAT Letter at 4.
    \369\ See Cboe Letter at 9-12; IEX Letter at 7; Nasdaq Letter IV 
at 16-17; Virtu Letter at 5.
    \370\ See Cboe Letter at 10-11.
---------------------------------------------------------------------------

    Another commenter suggested that only allowing odd-lot aggregation 
at one price level, instead of across price levels, would lead to fewer 
protected quotes.\371\
---------------------------------------------------------------------------

    \371\ See TD Ameritrade Letter at 11.
---------------------------------------------------------------------------

    One commenter suggested that different odd-lot aggregation 
methodologies between the NBBO and the PBBO would create confusion 
among market participants.\372\ That commenter also suggested that 
different methodologies could raise confusion from a best execution 
perspective.\373\ Similarly, one commenter suggested only allowing odd-
lot aggregation at one price level, combined with the proposal to 
provide all levels of depth up to the PBBO, would ``create[] 
implementation difficulties.'' \374\
---------------------------------------------------------------------------

    \372\ See BlackRock Letter at 4; SIFMA Letter at 7-8 (suggesting 
different odd-lot aggregation methodologies would ``rais[e] 
additional technical issues'' and recommending that the Commission 
should provide clarification as to how depth-of-book data is 
determined, ``particularly because the aggregation process appears 
to work differently for the PBBO versus the NBBO, BBO and depth-of-
book determinations'').
    \373\ See BlackRock Letter at 4.
    \374\ MEMX Letter at 4.
---------------------------------------------------------------------------

    Another commenter suggested that, given the proposal's intent to 
maintain the status quo with respect to the scope of orders that are 
subject to Rule 611, the Commission should consider continuing the 
existing market practice, as codified in exchange rules, to aggregate 
quotes at multiple price levels.\375\
---------------------------------------------------------------------------

    \375\ IEX Letter at 7.
---------------------------------------------------------------------------

    One commenter stated that if order protection were extended to all 
round lots, the commenter would ``support aggregating odd lots in the 
manner currently described for the PBBO.'' \376\
---------------------------------------------------------------------------

    \376\ Capital Group Letter at 4.
---------------------------------------------------------------------------

    In light of these comments, the Commission is modifying the 
proposed definition of core data to require odd-lot aggregation across 
multiple prices for purposes of the NBBO and protected quotations.\377\ 
The Commission believes that this approach will: (a) Provide a 
consistent odd-lot aggregation methodology for all elements of core 
data; (b) be consistent with existing practices, as some commenters 
pointed out,\378\ and would avoid potential costs associated with 
changing these practices; and (c) avoid unintended consequences that 
could adversely affect investors, such as widening spreads or reducing 
the number of protected quotes. As stated in the Proposing 
Release,\379\ this methodology effectively extends order protection to 
the aggregated odd-lot orders. However, as discussed above,\380\ a 
majority of commenters who opined on odd-lot aggregation for protected 
quotations preferred a cross-price methodology. Lastly, the comment 
raised regarding the need for a consistent odd-lot aggregation 
methodology for the NBBO and protected quotations is less relevant in 
light of changes the Commission is adopting herein--namely, that the 
new round lot NBBO will be protected.
---------------------------------------------------------------------------

    \377\ For example, if there is one 50-share bid at $25.10, one 
50-share bid at $25.09, and two 50-share bids at $25.08, the adopted 
cross-price odd-lot aggregation method would show a protected 100-
share bid at $25.09, while the proposed single-price odd-lot 
aggregation method would show a protected 100-share bid at $25.08.
    \378\ See, e.g., BlackRock Letter at 4.
    \379\ See Proposing Release, 85 FR at 16747-50.
    \380\ See supra notes 368 through 376.
---------------------------------------------------------------------------

(c) Removing Protected Status From Certain NMS Stocks
    Some commenters stated that removing protected status for those NMS 
stocks that currently have a protected quotation size of under 100 
shares would potentially increase the number of locked and crossed 
markets for the twelve current NMS stocks that have protected 
quotations of under 100 shares.\381\ One commenter stated that the 
Commission did not analyze the effects of removing order protection 
from those twelve stocks.\382\
---------------------------------------------------------------------------

    \381\ See SIFMA Letter at 13-14.
    \382\ See NYSE Letter II at 6.
---------------------------------------------------------------------------

    The Commission understands these concerns regarding the possible 
reduction of order protection and locked/crossed markets restrictions 
for these 12 stocks in their current round lot sizes. However, as 
discussed above,\383\ the Commission is not adopting the proposed 
amendments to the definition of protected bid or offer, so all NMS 
stocks--including the 12 that currently have non-100 round lot sizes--
would be assigned to round lot sizes based on their per share price, 
and all round lot orders in these stocks would be protected quotations 
subject to the trade-through prevention requirements of Rule 611 and 
the locked and crossed markets restrictions of Rule 610(d).
---------------------------------------------------------------------------

    \383\ See supra Section II.E.2(a).
---------------------------------------------------------------------------

    In addition, the Commission acknowledges that, based on staff 
analysis of stock prices as of September 2020, one stock will have its 
round lot size increased from 10 to 40, one will have its round lot 
size increased from 1 to 10, and six will have their round lot size 
increased from 10 to 100. As a result, order protection pursuant to 
Rule 611 and the locked/crossed markets prohibitions of Rule 610(d) 
will no longer apply to some smaller orders in these stocks.\384\ 
However, the Commission continues to believe that determining the round 
lot sizes of all stocks based upon price, without special exceptions 
for certain stocks that currently have non-standard round lot sizes, 
will reduce complexity and implementation costs, set consistent 
expectations regarding round lot sizes among market participants, 
facilitate the transition to price-based round lots, and justify any 
potential costs of increasing the round lot sizes of a limited number 
of stocks.\385\
---------------------------------------------------------------------------

    \384\ In addition, for four of the twelve stocks that currently 
have non-100 share round lot sizes, the round lot size would not 
change, and these stocks would not experience a change in terms of 
the applicability of Rules 611 or 610(d) of Regulation NMS.
    \385\ See Proposing Release, 85 FR at 16749.
---------------------------------------------------------------------------

F. Definition of ``Depth of Book Data'' Under Rule 600(b)(26)

1. Proposal
    The Commission proposed to include ``depth of book data,'' defined 
as follows, as an element of core data: All quotation sizes at each 
national securities exchange, aggregated at each price at which there 
is a bid or offer that is lower than the best bid down to the protected 
bid and higher than the best offer up to the protected offer, and all 
quotation sizes at each national securities exchange, aggregated at 
each of the next five prices at which there is a bid that is lower than 
the protected bid and offer that is higher than the protected offer.
    The Commission solicited comment on various aspects of the proposed 
definition of depth of book data, including whether the definition 
captures the appropriate level of depth data and whether the Commission 
should include more or fewer levels of

[[Page 18625]]

depth or otherwise revise the definition to capture the key depth 
information that would be useful to market participants.
2. Final Rule and Response to Comments
    The Commission received comments expressing support for the 
proposed definition of depth of book data and comments raising various 
concerns, recommendations, and requests for clarification. As discussed 
in more detail below, the Commission is adopting a modified definition 
of depth of book data in response to comments.
(a) Support for Five Levels of Depth
    Several commenters expressed general support for including depth of 
book data in core data \386\ or specifically agreed with the 
Commission's proposed five levels of depth,\387\ with some explaining 
that five levels of depth is suitable for certain market participants 
or trading practices.\388\ One commenter expressed general support for 
the expansion of core data, including depth of book data, provided that 
it does not materially increase overall latency.\389\
---------------------------------------------------------------------------

    \386\ See Angel Letter at 1-9 (stating that including depth of 
book in core data is a ``great idea'' and emphasizing the importance 
of depth of book data, particularly to retail investors trading in 
illiquid stocks of smaller companies and using liquidity-providing 
limit orders); letter from Allison Bishop, President, Proof Trading, 
to Vanessa Countryman, Secretary, Commission, dated May 1, 2020, 
(``Proof Trading Letter'') at 1; Healthy Markets Letter at 3; DOJ 
Letter at 2-4; NovaSparks Letter at 1.
    \387\ See IEX Letter at 5; Capital Group Letter at 2-3; Fidelity 
Letter at 4-5; Schwab Letter at 4; T. Rowe Price Letter at 2; 
Wellington Letter at 1; Virtu Letter at 5; SIFMA Letter at 7; STANY 
Letter II at 4; IntelligentCross Letter at 4. In addition, staff 
conducted the same analysis of book depth that was included in the 
Proposing Release but evaluated proprietary market data from a more 
recent time period (the week of May 4, 2020) than was included in 
the Proposing Release (July 19, 2019). The results were very similar 
and confirmed the Commission's view that there is a substantial 
amount of quotation volume several levels below the best bid. Staff 
observed substantial quotation volume several levels below the best 
bid (the offer side was not examined). On average, there is 
quotation interest at every $0.01 increment at least ten levels out 
for the most liquid stocks; for the least liquid stocks, there is a 
large gap between the best bid and the next highest bid, and large 
gaps are generally also present between the next several bid levels. 
In addition, the staff review found a significant percentage of the 
total notional value of all depth of book quotations for both liquid 
and illiquid stocks falls within the first five price levels.
    \388\ See State Street Letter at 2-3 (stating that institutional 
firms generally use up to five levels of depth for order routing); 
ICI Letter at 8-9 (stating that depth of book data ``should consist 
of at least five price levels, based on the typical trading needs of 
funds''); Clearpool Letter at 14 (stating that five levels of depth 
of book data is sufficient to improve the usefulness of core data 
for most market participants and that ``five price levels typically 
tend to be a sufficient level of depth for Clearpool for sweeping 
multiple levels of the book in executing an order''); SIFMA Letter 
at 7 (``[A] review of our institutional member firms found that 
while some used less than five levels and others used more, five 
levels of depth strikes an appropriate balance for the order routing 
purposes of most.'').
    \389\ See Citadel Letter at 1.
---------------------------------------------------------------------------

    The Commission agrees that including depth of book data in core 
data will be useful for and beneficial to a variety of market 
participants and is adopting the definition of depth of book data 
largely as proposed, with certain modifications.\390\ The Commission 
does not believe that including depth of book data in core data will 
materially increase the overall latency of core data for several 
reasons. First, only five levels of depth are included, limiting the 
number of quotes necessary to be processed.\391\ Moreover, the 
decentralized consolidation model will result in consolidated market 
data, including depth of book data, being delivered to market 
participants with lower latencies.\392\ In addition, the Commission 
believes that market participants that choose to receive the full set 
of consolidated market data, including depth of book data, will either 
leverage the existing technology that they currently use to receive 
depth of book data on a proprietary basis or make the investments in 
technology to receive the data so that the additional content will not 
add significant latency.\393\
---------------------------------------------------------------------------

    \390\ See infra Sections II.F.2(b) through II.F.2(c).
    \391\ See infra Section II.F.2(d) (discussing comments 
suggesting that full, order by order depth of book should be 
included in core data and the potential latency ramifications 
thereof).
    \392\ See infra Section III.B.5.
    \393\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

(b) Proposed Definition Would Include More Than Five Levels of Depth
    Some commenters stated that the proposed definition would include 
five levels of depth on each exchange, which could be confusing and 
costly and could add latency by increasing actual quote traffic and 
information to be processed significantly beyond five levels.\394\ Some 
commenters also stated that the proposal to include price levels 
between the best and protected quotes could similarly include a large 
number of additional data points.\395\ Some commenters recommended that 
the Commission clarify how depth of book data will be determined and 
made available on an individual exchange basis, particularly with 
respect to how odd-lots would be aggregated at depth of book price 
levels.\396\
---------------------------------------------------------------------------

    \394\ See STANY Letter II at 4; TD Ameritrade Letter at 5 
(``[T]he proposal to include five levels of depth would add ten 
quotes per security for every exchange, which today amounts to 130 
new data points per security.'').
    \395\ See STANY Letter II at 4; TD Ameritrade Letter at 5 
(``[T]the Proposal includes all price levels between the BBO and the 
protected quote, which for higher priced securities could add 
hundreds more data points.''); NYSE Letter II at 5 (stating that the 
number of price levels between the best and protected quotes, as 
proposed, could be more than five levels and could fluctuate intra-
day as quotes update).
    \396\ See SIFMA Letter at 7.
---------------------------------------------------------------------------

    The Commission believes that these comments highlight the need to 
more clearly articulate the scope of data that the definition of depth 
of book data includes and how this data will be attributed to 
individual SROs \397\ in the consolidated market data products made 
available by competing consolidators. The Commission is therefore 
adopting a modified version of the definition of ``depth of book 
data.''
---------------------------------------------------------------------------

    \397\ As discussed below, an indicator of the national 
securities exchange or national securities association on which the 
liquidity at a depth of book price level resides will be included in 
the adopted definition of depth of book data.
---------------------------------------------------------------------------

    First, the revised definition of depth of book data will not 
include the first clause of the proposed definition, which referred to 
``all quotation sizes at each national securities exchange, aggregated 
at each price at which there is a bid or offer that is lower than the 
best bid down to the protected bid and higher than the best offer up to 
the protected offer.'' As discussed above, the Commission is not 
adopting the proposed amendments to the definition of protected bid or 
protected offer, which would have required such quotations to be ``of 
at least 100 shares.'' \398\ As a result, as is the case today, in the 
vast majority of cases the best quotes and the protected quotes will be 
the same.\399\ Therefore, the definition of depth of book data does not 
need to include quotation interest between the best and protected 
quotes. This modification also addresses commenters' concerns that this 
aspect of the proposed definition would have

[[Page 18626]]

included an excessive amount of information in core data that would be 
difficult to calculate and consume as prices fluctuate throughout the 
trading day.
---------------------------------------------------------------------------

    \398\ See supra Section II.E.2.
    \399\ Among other things, a protected bid or offer must be an 
``automated quotation,'' which means a quotation displayed by a 
trading center that: (1) Permits an incoming order to be marked as 
immediate-or-cancel; (2) Immediately and automatically executes an 
order marked as immediate-or-cancel against the displayed quotation 
up to its full size; (3) Immediately and automatically cancels any 
unexecuted portion of an order marked as immediate-or-cancel without 
routing the order elsewhere; (4) Immediately and automatically 
transmits a response to the sender of an order marked as immediate-
or-cancel indicating the action taken with respect to such order; 
and (5) Immediately and automatically displays information that 
updates the displayed quotation to reflect any change to its 
material terms. Rules 600(b)(6), (70) of Regulation NMS, 17 CFR 
242.600(b)(6), (70). Therefore, a ``manual quotation'' that is not 
automated--also known as a ``slow quote''--can sometimes be the best 
quotation without being a protected quotation. Rule 600(b)(45) of 
Regulation NMS, 17 CFR 242.600(b)(45).
---------------------------------------------------------------------------

    Second, in response to comments suggesting that the proposed 
definition of depth of book data would require five price levels from 
each exchange to be included in core data, the Commission is modifying 
the second clause of the proposed definition so that it refers to the 
next five prices at which there is a bid (offer) that is lower (higher) 
than the national best bid (offer) rather than five price levels from 
the protected bid or offer. These changes specify that the starting 
points for the ``next 5 prices'' are the highest priced bid and lowest 
priced offer on any exchange (i.e., the national best bid and national 
best offer) rather than on each exchange. Thus, the modified definition 
specifies that depth of book data includes five levels of aggregated 
quotation sizes; it does not include more than five levels to account 
for differences in the highest priced bid or lowest priced offer on 
each exchange.
    The following example illustrates the price levels that are 
included in the definition of depth of book data.
[GRAPHIC] [TIFF OMITTED] TR09AP21.000

    In this example, depth of book data would include aggregate 
quotation sizes at each price level at and between $25.01 \400\ and 
$24.97 because the starting point for the ``next five prices'' is 
$25.02 (the best bid on Exchange A and the national best bid) rather 
than $25.01 (the best bid on Exchange B) or $25.00 (the best bid on 
Exchange C). Depth of book data would not include the interest at or 
below $24.96, even if that interest is within the top five levels of 
any given exchange, because it is not within the first five price 
levels from the national best bid. A competing consolidator could 
provide interest beyond the first five levels of depth across exchanges 
but would have to acquire such data on a proprietary basis from the 
exchanges.\401\
---------------------------------------------------------------------------

    \400\ The Commission notes that, in this example, the interest 
at $25.02 would also be included in core data because the NBBO is 
one of the elements of core data.
    \401\ As explained below, Rule 614(d) requires competing 
consolidators to calculate, generate, and make available to 
subscribers a consolidated market data product, which can contain 
all elements of consolidated market data or a subset thereof, but 
competing consolidators are permitted to offer custom products 
containing more information as well. Competing consolidators would 
compensate SROs for the data necessary to generate consolidated 
market data through fees established by the effective national 
market system plan(s) and would compensate SROs for data that goes 
beyond consolidated market data on a proprietary basis pursuant to 
individual SRO fee schedules. See infra note 1132.
---------------------------------------------------------------------------

    The Commission believes that revising the definition of depth of 
book data so that the included price levels are the five prices below 
the national best bid and above the national best offer, rather than 
the five prices above and below the best quotes on each exchange, is 
appropriate because it limits the amount of information that competing 
consolidators will process and display,\402\ which mitigates concerns 
raised by some commenters about adverse consequences--such as 
unnecessary complexity or increased processing demands and latency--
that could result from a broader interpretation of the proposed 
definition.\403\ In addition, the Commission believes, consistent with 
the views expressed by various commenters, that a broad array of market 
participants could use five levels of depth of book data away from the 
national best bid and national best offer to trade in an informed and 
effective manner.\404\
---------------------------------------------------------------------------

    \402\ See id.
    \403\ See Proposing Release, 85 FR at 16753 (stating that 
defining depth of book data to include a finite number of price 
levels would limit ``processing demand on systems'' and avoid 
``excessive message traffic or complexity'').
    \404\ See Proposing Release, 85 FR at 16753 (stating that depth 
of book data should ``enhance[ ] the utility of proposed core data 
for a wide range of market participants'' rather than ``supplanting 
the proprietary depth offerings of the exchanges that contain 
additional content and that may be more appropriate for certain 
market participants or more specialized use cases''). Market 
participants in need of more depth than included in the definition 
of depth of book data could purchase a custom depth product 
separately from exchanges or through a competing consolidator.
---------------------------------------------------------------------------

    Third, the Commission is modifying the definition of depth of book 
data to specify that, in addition to quotation sizes at the first five 
price levels from the NBBO, the aggregate size at each

[[Page 18627]]

included price level shall be attributed to each exchange on which the 
interest is available. Although the proposed definition of depth of 
book data referred to quotation sizes ``at each national securities 
exchange'' in order to require the price and size information in depth 
of book data to be associated with the source exchange, the Commission 
believes that specifying that depth of book data includes the aggregate 
\405\ quotation size available at each price at each national 
securities exchange and national securities association would clarify 
where the liquidity resides.\406\ For instance, with respect to Example 
1, depth of book data would include:
---------------------------------------------------------------------------

    \405\ For example, if the national best bid is $25.10, Exchanges 
A and B have 100-share bids at $25.09, and Exchange C has two 100 
share bids at $25.09, the competing consolidator would disseminate: 
100 shares at Exchange A, 100 shares at Exchange B, 200 shares at 
Exchange C. The Commission believes that aggregating quotation sizes 
at each price level at each exchange will limit the number of 
messages included in depth of book data as compared to an order by 
order approach, reducing potential concerns about processing demands 
on systems, latency, and operational costs. See infra Section 
II.F.2(d).
    \406\ See infra Section II.F.2(c) for an explanation of why the 
Commission is revising the definition of depth of book data to 
include quotations on a facility of a national securities 
association.

$25.01 (100 on Exchange A, 100 on Exchange B)
$25.00 (100 on Exchange A, 100 on Exchange B, 100 on Exchange C)
$24.99 (100 on Exchange A, 100 on Exchange B, 100 on Exchange C)
$24.98 (100 on Exchange A, 100 on Exchange B)
$24.97 (100 on Exchange A, 100 on Exchange C)

    The Commission believes that attributing the quotation size at each 
price to its source national securities exchange or association can, in 
many circumstances, be essential to achieving the benefits of including 
depth of book data in consolidated market data. Improved placement of 
liquidity-taking and liquidity providing orders, for example,\407\ 
requires knowledge of the exchange at which the liquidity resides so 
that market participants can direct orders to that exchange.
---------------------------------------------------------------------------

    \407\ Proposing Release, 85 FR at 16754.
---------------------------------------------------------------------------

(c) Expand Definition to FINRA's Alternative Display Facility
    The proposed definition of depth of book data referred to 
quotations only on national securities exchanges, but the Commission 
solicited comment on whether to include the depth of book quotations of 
national securities associations to account for the possibility of 
quotes being reported to FINRA's Alternative Display Facility (``ADF'') 
in the future.\408\ One commenter stated that while the ADF does not 
currently have quoting participants, it is an actively maintained FINRA 
facility and could readily add quoting participants in the future.\409\ 
This commenter recommended including future potential ADF quotations by 
modifying the definition of depth of book data to refer to all 
quotation sizes at each national securities exchange and ``on a 
facility of a national securities association.'' \410\
---------------------------------------------------------------------------

    \408\ Proposing Release, 85 FR at 16756.
    \409\ FINRA Letter at 12-13.
    \410\ Id. The commenter recommended this particular formulation, 
rather than a direct reference to the ADF, ``to account for the 
possibility that other quotation facilities may be developed in the 
future.'' Id. at 13.
---------------------------------------------------------------------------

    The Commission agrees and is modifying the proposed definition of 
depth of book data so that it refers to quotation sizes on a facility 
of a national securities association as well as quotation sizes on a 
national securities exchange. The Commission agrees with the commenter 
that any depth of book quotation activity displayed through the ADF or 
similar facilities is comparable to the exchange depth of book data 
that would be included as core data under the proposal and that it 
should be made available on the same terms as exchange depth of book 
data. To provide market participants with a more complete view of the 
liquidity that may be available at depth of book price levels, the 
Commission is modifying the proposed depth of book data definition so 
that any future ADF depth of book quotation data--or data from similar 
national securities association facilities that may be developed--would 
be included in core data without the need for additional Commission 
rulemaking. In addition, by modifying the definition to refer generally 
to a facility of a national securities association, rather than 
specifically to FINRA's ADF, the definition will include any potential 
national securities association depth of book quotations.
(d) Include Full Depth of Book and Order by Order Data
    Some commenters suggested including full depth of book data in core 
data rather than five levels of depth of data.\411\ One commenter 
stated that the proposal could be ``counterproductive and confusing'' 
and recommended adding full depth of book data, including order-by-
order data across all price levels.\412\ Another commenter recommended 
including complete, order-by-order depth of book data in core data, 
explaining that ``the existence of proprietary data feeds alongside a 
public tape creates incentives which are incompatible with promoting 
fair and orderly markets.'' \413\ One commenter agreed with the 
proposed five-levels of depth of book data but stated that, while not 
necessary for all market participants, providing full depth of book 
would not tax systems much more than providing five levels, since 
ninety percent of ``quote changes'' occur at the top five price 
levels.\414\ However, another commenter stated that providing complete 
depth of book data is not necessary at this time, explaining that 
additional data results in increased data processing, latency, and 
complexity that could impair the usability of the data.\415\ Finally, 
one commenter suggested that the Commission should replicate the full 
depth of book curve to help subscribers of consolidated data better 
understand the supply and demand imbalance of liquidity in real 
time.\416\
---------------------------------------------------------------------------

    \411\ See MEMX Letter at 5; BlackRock Letter at 2.
    \412\ See MEMX Letter at 5.
    \413\ See BlackRock Letter at 2.
    \414\ See IntelligentCross Letter at 4.
    \415\ See Clearpool Letter at 14.
    \416\ See Data Boiler Letter I at 19.
---------------------------------------------------------------------------

    The Commission does not believe that the definition of depth of 
book data should be expanded to include complete, order-by-order depth 
of book at all price levels. As explained in the Proposing Release, the 
expansion of NMS information generally, and the inclusion of depth of 
book data in core data specifically, was intended to provide additional 
information that would be useful to a broad cross-section of market 
participants and to reduce information asymmetries between users of 
proprietary data and users of SIP data.\417\ However, the Commission 
explained that these objectives must be balanced against the risk of 
excessive complexity, message traffic, processing demand on systems, 
and associated operational costs that might result from the inclusion 
of more complete depth of book information.\418\ The Commission 
recognized that some market participants may need more granular and 
expansive data, such as the proprietary depth of book products offered 
by many exchanges, for certain use cases.\419\ Including complete depth 
of book data in core data would go beyond the needs of a wide array of 
market participants or standard use cases for depth of book data in 
trading, and could result in additional operational costs and latency 
because of increased message traffic with order by

[[Page 18628]]

order data at all price levels. Therefore, consistent with the views of 
several commenters,\420\ the Commission continues to believe that while 
five levels of depth of book data would significantly enhance the 
usability of core data for many market participants, including complete 
depth of book data in core data could impair the usability of core data 
for many subscribers.
---------------------------------------------------------------------------

    \417\ Proposing Release, 85 FR at 16734, 53.
    \418\ Id. at 16753.
    \419\ Id.
    \420\ See, e.g., supra note 388.
---------------------------------------------------------------------------

    Moreover, while the Commission has considered the view expressed by 
one commenter that providing depth of book data at all price levels 
would not be overly burdensome and would not tax systems much more than 
providing five levels, this commenter also acknowledged that full depth 
of book data is not necessary at this time for all market 
participants.\421\ The Commission shares some commenters' concern about 
the processing and latency ramifications of including complete depth of 
book data and therefore is not adopting a definition of depth of book 
data that goes beyond five levels.\422\
---------------------------------------------------------------------------

    \421\ See IntelligentCross Letter at 4.
    \422\ Similarly, in response to the comment regarding the full 
depth of book curve, see supra note 416 and accompanying text, while 
full order book shape patterns may contain valuable information for 
certain sophisticated computerized models, the Commission, as 
discussed above, is concerned that mandating the inclusion of the 
entire depth of book across all national securities exchanges would 
have significant processing, latency, and cost ramifications.
---------------------------------------------------------------------------

(e) Odd-Lots at Depth and Determination of Five Price Levels
    One commenter recommended that ``depth-of-book quotations 
aggregated at each of the first five price levels where a displayed 
order is available to trade . . . regardless of the associated size 
displayed at those prices'' be disseminated.\423\ This commenter 
requested that the Commission clarify, preferably with an example, how 
odd-lots would be aggregated at depth of book price levels, stating 
that the proposed definition of core data requires odd-lots to be 
aggregated across prices and disseminated at the least aggressive price 
for purposes of depth of book data, while the proposed definition of 
depth of book data provides that the required five price levels are 
determined by the presence of a ``bid'' or ``offer,'' which by 
definition, implies a round lot.\424\
---------------------------------------------------------------------------

    \423\ See Cboe Letter at 15.
    \424\ See id. at 16-17; see also SIFMA Letter at 7 (requesting 
clarification regarding how odd-lots will be aggregated at depth of 
book price levels).
---------------------------------------------------------------------------

    The Commission does not agree that all odd-lots within the first 
five price levels of the NBBO should be displayed in core data or that 
the five price levels included in depth of book data should be 
determined by the presence of an odd-lot quotation at those price 
levels. First, as explained in detail above, the inclusion of odd-lot 
quotations in core data must be reasonably calibrated to include the 
information that is most relevant to investors and other market 
participants.\425\ While the Commission believes that information on 
the most attractively priced individual odd-lots--namely, those priced 
at or better than the NBBO--should be included in core data, the 
inclusion of information regarding individual odd-lots at inferior 
prices is not warranted because these quotations do not represent 
direct and immediate opportunities for price improvement.\426\ Second, 
the magnitude of the quotation size available at a particular price 
level should factor in to whether that price level counts as one of the 
five price levels that are included in core data. Otherwise, 
particularly in cases where liquidity is widely dispersed over a number 
of price levels, as is the case with many illiquid stocks, orders of 
insignificant notional value could ``take up'' price levels and prevent 
the dissemination of more significant interest at price levels further 
away. For example, if the NBB for stock A is $25.15, and there are 1 
share bids at $25.14-$25.10 and a 100 share bid at $25.09, the five 
bids of relatively insignificant notional value at $25.14-$25.10 would 
prevent the bid of relatively significant notional value at $25.09 from 
being captured by the definition of depth of book data. For this 
reason, the proposed definition of depth of book data included a 
``minimum size requirement'' for depth price levels--namely, the 
presence of a ``bid or offer,'' which incorporates the concept of a 
``round lot.'' \427\
---------------------------------------------------------------------------

    \425\ See supra Section II.C.2(b).
    \426\ See also infra Section II.F.2(h) (explaining the relevance 
of depth of book data to best execution analyses); Proposing 
Release, 85 FR at 16754 (explaining how depth of book data can 
enable market participants to trade in a more informed and effective 
manner).
    \427\ Proposing Release, 85 FR at 16754.
---------------------------------------------------------------------------

    That said, in response to the commenter's request, the Commission 
is clarifying that the requirement for the presence of a bid or offer 
in determining the five price levels does not require a ``pure'' or 
``unitary'' round lot consisting of only one order to be present at a 
price level. Rather, odd-lots that aggregate into a round lot pursuant 
to the prescribed method could also establish a price level, as long as 
there is at least one round lot of interest--unitary or aggregated--on 
at least one SRO. As a round lot reflects trading interest of 
meaningful size to market participants, the Commission believes that 
odd-lots that in the aggregate reflect size equivalent to a round lot 
also represent trading interest of meaningful size and should be 
included in depth of book data. The following example illustrates how 
odd-lot aggregation would operate in the depth of book context.
    Example 2: Odd-Lot Aggregation at Depth

----------------------------------------------------------------------------------------------------------------
                                                               Number of shares bid for stock X
                    Price                    -------------------------------------------------------------------
                                                          Exchange A                Exchange B      Exchange C
----------------------------------------------------------------------------------------------------------------
$25.50......................................  100 (NBB).........................               0               0
25.49.......................................  0.................................             100               0
25.48.......................................  0.................................               0              50
25.47.......................................  60................................               0              50
25.46.......................................  0.................................               0               0
25.45.......................................  60................................               0               0
25.44.......................................  0.................................              25               0
25.43.......................................  0.................................              75               0
25.42.......................................  100...............................               0               0
25.41.......................................  0.................................               0               2
25.40.......................................  0.................................               5               0
25.39.......................................  0.................................               0             100
----------------------------------------------------------------------------------------------------------------


[[Page 18629]]

    Here, the first five prices at which there is a bid that is lower 
than the NBB--measured in terms of the presence of at least one 
singular or aggregated round lot on at least one SRO--are $25.49 (100 
shares on Exchange B), $25.47 (50 shares at $25.48 and 50 shares at 
$25.47 on Exchange C, aggregated and displayed at the less aggressive 
price), $25.45 (60 shares at $25.47 and 60 shares at $25.45 on Exchange 
A, aggregated and displayed at the less aggressive price), $25.43 (25 
shares at $25.44 and 75 shares at $25.43 on Exchange B, aggregated and 
displayed at the less aggressive price), and $25.42 (100 shares on 
Exchange A). Hence, in Example 2, depth of book data would include: 100 
shares at $25.49, $25.47, $25.45, $25.43, and $25.42 (with attribution 
to the relevant SRO, as explained above).
    One commenter argued that allowing aggregation across multiple 
price levels to determine whether there is a round lot bid or offer at 
a particular depth of book price level could create significant 
computational issues, particularly when orders are cancelled and the 
five price levels would have to be redetermined, possibly resulting in 
diminished competing consolidator performance and higher capacity 
requirements for downstream users of the data. This commenter also 
argued that displaying depth of book price levels in this manner could 
potentially lead to a deceptive view of market activity at prices that 
are nowhere near current market prices, raising concerning issues 
related to investor protection.\428\
---------------------------------------------------------------------------

    \428\ CBOE Letter at 19.
---------------------------------------------------------------------------

    The Commission acknowledges that aggregating odd-lots to determine 
depth of book price levels will require computation by competing 
consolidators and that new orders or order cancelations and 
modifications could require the five levels to be redetermined. 
However, alternatives such as the inclusion of all odd-lots at inferior 
prices would require more outbound message traffic from competing 
consolidators to subscribers and would therefore raise similar concerns 
about system performance and the capability of subscribers to consume 
the data.\429\ In addition, as explained below and in the Proposing 
Release, the decentralized consolidation model will foster a 
competitive environment for the provision of consolidated market data, 
and the Commission believes that this will lead to improvements in the 
use of more competitive, low-latency aggregation and transmission 
technologies, mitigating concerns about computational and performance 
issues related to the generation and dissemination of depth of book 
data.\430\ Competing consolidator subscribers also have the option of 
consuming varying levels of depth of book data, depending on their 
needs, and could determine that the latency costs of consuming several 
levels of depth exceed the benefits. Furthermore, the Commission does 
not believe that aggregating odd-lots across prices will lead to a 
deceptive view of market activity or mislead investors because 
exchanges currently aggregate odd-lots across price levels to form 
round lots and provide their best bids and offers to the exclusive SIPs 
at the least aggressive price of all such odd-lots. In addition, 
Commission rules, which will include this methodology, will provide 
transparency to market participants regarding the inclusion in core 
data of odd-lots at depth of book price levels aggregated pursuant to 
this methodology, which addresses the concern that cross-price odd-lot 
aggregation would lead to a deceptive view of market activity or 
mislead investors.
---------------------------------------------------------------------------

    \429\ As discussed above, other alternatives presented by 
commenters, such as including five price levels of depth of book 
information without regard to whether those price levels are round 
lots, have other drawbacks. See supra notes 423-427 and accompanying 
text.
    \430\ See Proposing Release, 85 FR at 16768; infra Section 
III.B.5.
---------------------------------------------------------------------------

(f) Insufficient Justification for Inclusion of Depth of Book Data in 
Core Data
    Some commenters questioned whether there is sufficient need among 
market participants for depth of book data to be included in core 
data.\431\ One commenter stated that depth of book data is for 
``serious traders'' and is already available on a proprietary basis for 
anyone who needs it, and that it is not clear whether there would be 
demand for the ``truncated'' set of information reflected in the 
proposed definition of depth of book from any particular set of market 
participants.\432\ In a subsequent letter, this commenter stated that 
the Commission's depth of book data proposal ``lacks data driven 
analysis'' and that the Commission ``released no independent studies or 
research analyzing the impact of this proposal or addressing the five 
price level demarcation.'' \433\ Similarly, another commenter stated 
that depth of book data is not ``necessary or helpful for all 
investors'' and that its inclusion in core data would increase core 
data costs unnecessarily and create confusion as to what is necessary 
for regulatory compliance.\434\
---------------------------------------------------------------------------

    \431\ See Nasdaq Letter IV at 33; TD Ameritrade Letter at 5; 
NYSE Letter II at 3-4.
    \432\ See Nasdaq Letter IV at 33.
    \433\ See Nasdaq Letter V at 5.
    \434\ See TD Ameritrade Letter at 5.
---------------------------------------------------------------------------

    The Commission disagrees with these comments. As evidenced by the 
support for including five levels of depth of book data expressed by a 
wide range of commenters--including exchange, buy-side, and sell-side 
market participants, many of whom explained with specificity why five 
levels of depth of book would meet their needs \435\--the Commission 
believes there is demand for core data that includes depth of book 
data, including the definition of depth of book data, as modified and 
adopted herein. The Commission also believes that including depth of 
book data in core data would promote a broader distribution of this 
data among market participants, particularly those who do not currently 
subscribe to the proprietary depth of book products offered by the 
exchanges.\436\ Nevertheless, the Commission acknowledges that depth of 
book data may not be ``necessary or helpful for all investors'' \437\ 
in a direct sense, but even investors who do not directly consume depth 
of book data will benefit from it indirectly,\438\ since many of their 
broker-dealer intermediaries would likely use depth of book data for 
improved order placement,\439\ which ultimately will improve the 
execution quality of customer orders.\440\ Furthermore, the Commission 
has explained the implications of these amendments on best execution 
obligations in detail.\441\ Therefore, the inclusion of depth of book 
data in core data should not ``cause confusion as to what may be 
required for regulatory compliance.'' \442\ Finally, the Commission 
disagrees that the definition of depth of book data is unsupported by 
``data driven analysis'' because the Commission considered staff 
analyses of depth of book data in both proposing \443\ and adopting 
\444\ the definition.
---------------------------------------------------------------------------

    \435\ See supra note 388.
    \436\ See infra note 1974 and accompanying text.
    \437\ See TD Ameritrade Letter at 5.
    \438\ See supra Section II.C.2(a).
    \439\ See infra note 879 and accompanying text.
    \440\ These indirect benefits would accrue to customer orders 
executed by broker-dealers that do not currently use proprietary 
depth of book data but that would use the depth of book data as 
adopted and as included in core data.
    \441\ See supra Section I.E (discussing the implications of 
these amendments generally for best execution obligations); infra 
Section II.F.2(h) (discussing best execution obligations in the 
context of depth of book data).
    \442\ See TD Ameritrade Letter at 5.
    \443\ See Proposing Release, 85 FR at 16754.
    \444\ See supra note 387.

---------------------------------------------------------------------------

[[Page 18630]]

(g) Need for Competing Consolidators To Offer Depth of Book
    Some commenters supported requiring SROs to provide depth of book 
information to competing consolidators but opposed requiring competing 
consolidators to include depth of book in the products offered to their 
subscribers \445\ or emphasized that competing consolidators should be 
provided with enough raw data to be competitive with proprietary 
offerings but permitted to offer a range of products due to investors' 
diverse market data needs.\446\
---------------------------------------------------------------------------

    \445\ See BestEx Research Letter at 2, 5 (``Given that exchanges 
have zero competition in providing their own market data feeds, we 
welcome the Commission's proposed mandate that exchanges provide 
depth of book information and auction information to competing SIP 
vendors, thus reducing information asymmetry among market 
participants. However, we believe that SIP providers should not be 
required to include that information in their products.'').
    \446\ See BlackRock Letter at 2-3.
---------------------------------------------------------------------------

    The Commission agrees that competing consolidators should be 
permitted to offer customers a range of products, including customized 
depth of book products that include more or less depth of book 
information than set forth in the definition of depth of book data. 
Modifying the requirements of Rule 614 so that competing consolidators 
will only be required to generate and offer one or more consolidated 
market data products, which can contain some or all of the elements of 
consolidated market data, will enable competing consolidators to 
specialize in different products to address their subscribers' market 
data needs.\447\ Competing consolidators that receive proprietary data 
products from SROs to create products that go beyond consolidated 
market data (e.g., full depth of book data), would compensate SROs for 
this use pursuant to individual SRO fee schedules, while competing 
consolidators that limit their use of SRO data to the creation of 
products that include consolidated market data or a subset thereof 
would be charged pursuant to the effective national market system 
plan(s) fee schedules. If the effective national market system plan(s) 
establishes fees for data content underlying consolidated market data 
offerings that use subsets of consolidated market data, the competing 
consolidator would have the option of providing customized products 
that do not, for example, include all five levels of depth of book 
data, including products providing only the NBBO and/or the top of book 
quotes of exchanges.\448\
---------------------------------------------------------------------------

    \447\ See infra Sections III.C.1(b); III.C.8(a).
    \448\ See infra Section III.E.2(e).
---------------------------------------------------------------------------

(h) Best Execution Obligations Regarding Depth of Book Data
    Some commenters discussed market participants' duty of best 
execution in light of the inclusion of depth of book data in core data. 
Some commenters noted that including depth of book data in core data 
would assist market participants in fulfilling their best execution 
requirements.\449\ Others went further and stated that depth of book 
data is currently necessary to fulfill their best execution 
obligations.\450\ However, one commenter stated that ``[s]upplementing 
core market data with depth-of-book data would confound market 
participants in fulfilling their best execution obligations.'' \451\
---------------------------------------------------------------------------

    \449\ See, e.g., RBC Letter at 4; SIFMA Letter at 3-4; T. Rowe 
Price Letter at 1; Clearpool Letter at 1, 11 (stating that data 
content currently available only in proprietary feeds is necessary 
for best execution); Capital Group Letter at 2; McKay Letter at 1; 
Better Markets Letter at 1-2; DOJ Letter at 4.
    \450\ See State Street Letter at 2; IEX Letter at 5.
    \451\ Nasdaq Letter IV at 7. See also FINRA Letter at 7 (stating 
generally that the proposed changes to the content of consolidated 
market data and the manner in which it would be disseminated raise 
questions regarding best execution requirements and that the 
Commission should consider providing best execution guidance for 
broker-dealers).
---------------------------------------------------------------------------

    As explained above, these amendments do not change the duty of best 
execution.\452\ Rather, the availability of additional data content as 
core data--including depth of book data--may be relevant to a broker-
dealer's ability to achieve and analyze best execution, and broker-
dealers should consider the availability of this information in 
connection with their best execution obligations.\453\ However, for the 
reasons stated above, the Commission is not setting forth minimum data 
elements needed to achieve best execution or specifying the data 
elements that may be relevant to any specific situation or 
customer.\454\ In addition, the Commission has explained the 
implications of these amendments on best execution obligations in 
detail,\455\ and does not agree that market participants will be 
``confounded'' in fulfilling their best execution obligations by the 
addition of depth of book data to core data.\456\
---------------------------------------------------------------------------

    \452\ See supra Section I.E.
    \453\ See id.
    \454\ See id.
    \455\ See id.
    \456\ See supra note 451 and accompanying text. See also supra 
note 92.
---------------------------------------------------------------------------

G. Definition of ``Auction Information'' Under Rule 600(b)(5)

1. Proposal
    The Commission proposed to define ``auction information'' as an 
element of core data. Specifically, ``auction information'' would be 
defined as all information specified by national securities exchange 
rules or effective national market system plans that is generated by a 
national securities exchange leading up to and during an auction--
including opening, reopening, and closing auctions--and disseminated 
during the time periods and at the time intervals provided in such 
rules and plans. Auctions have become increasingly important liquidity 
events in recent years and have come to represent a significant 
proportion of overall trading volume. The Commission proposed to 
include auction information in core data to promote more informed and 
effective trading in auctions, which could also facilitate price 
formation and improve execution quality for more traders and 
investors.\457\ The Commission solicited comment on the proposed 
definition of auction information, including the scope of auction-
related information that should be included in the definition.\458\
---------------------------------------------------------------------------

    \457\ See Proposing Release, 85 FR at 16759.
    \458\ See id.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    Many commenters favored including auction information in core data, 
but some opposed doing so. The Commission is adopting the definition of 
auction information, as proposed, with one modification.\459\ 
Specifically, the Commission is adding the word ``publicly'' before 
``disseminated'' to specify that only auction information that is 
publicly disseminated on an exchange's proprietary feeds is included in 
the definition of auction information and hence as an element of core 
data. The Commission believes that this modification will help ensure 
that all auction information that an exchange includes in its 
proprietary feeds will be included in core data, addressing the 
information asymmetries that currently exist between users of SIP data 
and proprietary data and facilitating the ability of core data 
subscribers to participate in auctions in an informed

[[Page 18631]]

and effective manner.\460\ This modification would also clarify that 
auction information does not include auction-related information that 
is made available to a limited group of market participants under 
certain exchange models, but not made publicly available.\461\
---------------------------------------------------------------------------

    \459\ The adopted definition of auction information also 
includes one technical change from the proposed definition--using 
the plural ``auctions'' rather than the singular ``an auction'' in 
the phrase ``generated by a national securities exchange leading up 
to and during auctions.'' The plural form is more consistent with 
the use of ``auctions'' in the next clause of the definition. See 
infra Section VIII.
    \460\ See Proposing Release, 85 FR at 16758-59.
    \461\ See NYSE Rule 123C(6)(b) (relating to the dissemination of 
certain auction-related information to floor brokers).
---------------------------------------------------------------------------

(a) Support for Inclusion of Auction Information in Core Data
    Many commenters supported the inclusion of auction information in 
core data, emphasizing the importance of this information in light of 
the increasing proportion of transaction volume that takes place during 
opening and closing auctions.\462\ One commenter stated that including 
auction information in core data would eliminate proprietary data costs 
as a barrier to auction trading and encourage a broader range of market 
participants to submit trading interest into auctions, enhancing market 
liquidity and price discovery.\463\ Another commenter cited recent 
market wide circuit breaker halts and the consequent re-opening 
auctions as reasons for its support of including auction information in 
core data.\464\ Another commenter stated that retail investors should 
be properly informed with appropriate information about the indicative 
auction price and the trading imbalance.\465\
---------------------------------------------------------------------------

    \462\ See IEX Letter at 6; MEMX Letter at 5-6; Cboe Letter at 
21; BlackRock Letter at 2; Fidelity Letter at 5; Schwab Letter at 5; 
State Street Letter at 2-3; T. Rowe Price Letter at 2; Capital Group 
Letter at 2; ICI Letter at 9-10; SIFMA Letter at 7; Citadel Letter 
at 1 (supporting the inclusion of auction information in core data 
as long as it does not materially increase latency); Virtu Letter at 
5; IntelligentCross Letter at 4; STANY Letter II at 4; BestEx 
Research Letter at 5 (stating that competing consolidators should be 
able to determine whether or not to include auction information in 
the products offered to subscribers); Healthy Markets Letter at 3; 
Clearpool Letter at 15; Wellington Letter at 1; Proof Trading Letter 
at 1 (stating that auction information could be useful for agency 
trading); NovaSparks Letter at 1.
    \463\ See ICI Letter at 9-10 (``Doing so also would eliminate 
proprietary data costs as a barrier to auction trading and encourage 
a broader range of market participants to submit trading 
interest.''); see also SIFMA Letter at 7.
    \464\ See RBC Letter at 5.
    \465\ See Angel Letter at 8.
---------------------------------------------------------------------------

    The Commission agrees with these comments on the growing 
significance of auctions and auction information to investors and other 
market participants. As the Commission stated in the Proposing Release, 
opening and closing auctions conducted by the exchanges have become 
increasingly important liquidity events and represent a significant 
proportion of overall trading volume.\466\ The growth of passive, 
index-tracking investment strategies through mutual funds, ETFs, and 
similar products has contributed to the higher concentration of trading 
in closing auctions.\467\
---------------------------------------------------------------------------

    \466\ See Proposing Release, 85 FR at 16756 (stating that 
auctions account for approximately 7% of daily equity trading volume 
based on data available on Cboe's website from November 2019). Staff 
conducted the same analysis of auction data that was included in the 
Proposing Release but for a more recent time period (the month of 
June 2020) and observed that auctions account for approximately 7% 
of daily equity trading volume. Staff also observed that auctions 
accounted for more than 20% of total volume on two days (June 19 and 
June 26). See Cboe: U.S. Equities Market Volume Summary, available 
at https://markets.cboe.com/us/equities/market_share/ (last accessed 
Aug. 30, 2020).
    \467\ See Proposing Release, 85 FR at 16756-57.
---------------------------------------------------------------------------

    For these reasons, the Commission believes that auction information 
should be included in core data to promote more informed and effective 
participation in auctions by market participants and to potentially 
broaden the range of market participants who participate in auctions, 
enhancing auction liquidity and price discovery. Specifically, the 
Commission believes that auction information, such as order imbalances 
and indicative prices, helps market participants determine whether to 
participate in auctions, how to trade leading up to an auction, and how 
to best place their trading interest into an auction.\468\ Finally, the 
Commission agrees that recent market wide circuit breaker halts, which 
occurred after the Commission's issuance of the Proposing Release, 
further underscore the need for auction information to be included in 
core data so that information related to the reopening auctions that 
occur after such halts is broadly disseminated to market participants, 
promoting more informed participation in these auctions.
---------------------------------------------------------------------------

    \468\ See id. at 16826-27.
---------------------------------------------------------------------------

(b) Asserted Violation of Intellectual Property Rights
    One commenter stated that it ``possesses copyright rights in its 
auction data as a compilation . . .'' and the proposal would require 
that it ``forfeit these copyrights rights.'' \469\ The commenter noted 
that there have been ``auctions of financial instruments for hundreds 
of years,'' and that it ``has developed a unique approach to auctions 
that includes a creative selection and arrangement of auction data.'' 
\470\ The commenter stated that it ``has the exclusive right to 
reproduce its compilation in copies, to prepare derivative works based 
on the compilation, and to distribute copies of the compilation.'' 
\471\ The commenter further stated that the proposal would ``force 
Nasdaq to surrender these rights, robbing Nasdaq of its ability as 
copyright owner to obtain fair market value of licenses for its 
intellectual property.'' \472\
---------------------------------------------------------------------------

    \469\ Nasdaq Letter IV at 51.
    \470\ See id. (``When performing an opening or closing auction, 
Nasdaq receives orders and disseminates (via NOII messages) the 
results of those simulations. The frequency at which the NOII is 
disseminated changes over the course of an auction; for example, in 
the closing auction, the NOII is disseminated every ten seconds for 
the first five minutes of the auction, and then every second for the 
final five minutes of the auction. The NOII includes a number of 
data fields, including: Symbol (indicating the security to which the 
NOII relates); Near Indicative Price (which is based on orders in 
both the closing and continuous books); Far Indicative Price (which 
is based on orders solely in the closing book); Current Reference 
Price (which is based solely on orders in the continuous book); 
Paired Shares (indicating how many shares would execute at the 
Current Reference Price); Imbalance Shares (indicating the number of 
shares that would remain after execution at the Current Reference 
Price); and Imbalance Side (indicating whether the Imbalance Shares 
relate to buy orders or sell orders). The three prices in the NOII 
are not simply based on executed transactions, but rather they are 
simulations of what the price ``would be'' if the auction were to 
execute at that moment, based on different inputs. Each day, Nasdaq 
generates over 400 simulations of these three prices for each 
security. As there are over 3000 securities traded on Nasdaq each 
day, this means that Nasdaq compiles more than 1.2 million NOII 
records each day. The selection and arrangement of the NOII data 
fields are original and reflect Nasdaq's creative judgment; Nasdaq 
did not copy this selection of auction data, and there is no 
precedent for this unique and creative assembly of auction data 
fields. . . .'').
    \471\ Id.
    \472\ Id.
---------------------------------------------------------------------------

    Some commenters disagreed.\473\ One commenter stated that viewing 
auction information (or depth of book data) as the intellectual 
property of the exchanges would ignore the fact that the broker-dealers 
who submit the orders and the investors who generate the orders are the 
source of this data and would contravene broker-dealers and investors' 
ownership rights in the underlying data.\474\
---------------------------------------------------------------------------

    \473\ See Fidelity Letter at 5; SIFMA Letter at 7.
    \474\ See SIFMA Letter at 7.
---------------------------------------------------------------------------

    The Commission does not agree that the definition of auction 
information or its inclusion in core data would violate any copyright 
interests of the commenter. The Commission has the authority to 
determine the content of the quotation and transaction information made 
available under the national market system rules, including information 
related to exchange auctions.\475\ In addition, other Commission rules 
require the public disclosure or provision of information that must be 
compiled, such as Rules 601 (transaction reports), 602 (quotations), 
605 (order execution

[[Page 18632]]

information), and 606 (order routing information) of Regulation NMS and 
17 CFR 240.15c2-12 (Exchange Act Rule 15c2-12) (credit rating and audit 
information related to municipal securities).\476\
---------------------------------------------------------------------------

    \475\ See supra note 114.
    \476\ See also Securities Exchange Act Release No. 74244 (Feb. 
11, 2015), 80 FR 14564, 14669-70 (Mar. 19, 2015) (Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information 
Adopting Release) (``Under the federal securities laws, the 
Commission imposes a number of requirements that compel the 
provision of information to the Commission itself or to the public. 
. . . Businesses that operate in an industry with a history of 
regulation have no reasonable expectation that regulation will not 
be strengthened to achieve established legislative ends.'').
---------------------------------------------------------------------------

    Moreover, auction information, such as order imbalances and 
indicative pricing, pertains to certain outputs of an exchange's 
auction process. Such auction information does not require the 
disclosure of any details about the process of the auction or require 
the exchanges to ``reproduce'' their compilations. Rather, the 
exchanges can comply with the requirement to make information related 
to their auctions available to competing consolidators and self-
aggregators without using their existing compilation systems; they are 
free to collect and publish the factual information required by the 
amendments to be made public by any means they choose in a manner that 
does not utilize any copyrightable format or collection methodology. 
Therefore, to the extent that any intellectual property rights attach 
to exchange auction processes themselves, these amendments do not 
violate those rights.\477\
---------------------------------------------------------------------------

    \477\ For example, the dissemination of auction information as 
required by these amendments does not violate any patents that the 
commenter has identified, as these amendments do not compel the 
disclosure of the process of how the auction prices are derived. See 
Rule 600(b)(5) of Regulation NMS (defining ``auction information,'' 
by reference to information specified in exchange rules, which do 
not disclose how auction prices are derived). Rather, these 
amendments require exchanges to make auction information available 
to competing consolidators and self-aggregators so that market 
participants may submit trading interest into auctions in a more 
informed manner.
---------------------------------------------------------------------------

    Furthermore, exchanges will continue to be compensated for making 
auction information available to competing consolidators and self-
aggregators through fees established by the effective national market 
system plan(s). The Operating Committee of the effective national 
market system plan(s) will propose fees for the data content underlying 
consolidated market data, including auction information, as well as 
updates to the formula for allocating revenues from this data among the 
SROs.\478\ In so doing, the Commission expects the Operating Committee 
to assess the impact of the inclusion of auction information in 
consolidated market data on the fees to be charged for the data content 
underlying consolidated market data, as well as how exchanges that 
contribute auction information should be compensated for this data 
through the allocation formula.
---------------------------------------------------------------------------

    \478\ Auction data for a particular NMS stock will likely be 
generated by a single exchange, namely the primary listing exchange 
for that stock. However, all data elements that make up consolidated 
market data, such as individual quotes and trades or regulatory 
data, originate from a single SRO, and, as explained below, the 
Operating Committees of the effective national market system plans 
historically have determined how best to allocate consolidated 
market data revenues among the SROs to fairly reflect their 
individual contributions. See infra Sections III.E.2(b), III.E.2(f). 
In addition, certain NYSE auction data is currently included in Tape 
A. See Proposing Release, 85 FR at 16757.
---------------------------------------------------------------------------

(c) Assertion of Insufficient Justification for Inclusion of Auction 
Information in Core Data
    One commenter characterized auction information as ``esoteric'' and 
``designed to assist sophisticated market participants,'' arguing that 
anyone who needs this information can buy it now, that it is likely to 
be ``useless'' to anyone who does not currently buy it, and that 
including it in core data will not make it ``any more or less 
available.'' \479\ Similarly, another commenter stated that auction 
information is not ``necessary or helpful for all investors'' and that 
its inclusion in core data would increase core data costs unnecessarily 
and create confusion as to what is necessary for regulatory 
compliance.\480\
---------------------------------------------------------------------------

    \479\ See Nasdaq Letter IV at 33.
    \480\ See TD Ameritrade Letter at 5.
---------------------------------------------------------------------------

    A variety of commenters--including exchange, buy-side, and sell-
side market participants--stated, and the Commission agrees, that 
auction information is not ``esoteric'' information that would be of 
use only to some small subset of ``sophisticated'' market 
participants.\481\ Rather, the Commission continues to believe that 
auction information would be useful or beneficial to a broad cross-
section of market participants--including retail investors, according 
to one commenter \482\--and would enable these market participants to 
participate in auctions, and to trade leading up to auctions, in a more 
informed manner.\483\ Furthermore, as explained above, even market 
participants that do not directly acquire all elements of core data, 
including auction information, will still indirectly benefit from the 
inclusion of auction information in core data. The inclusion of auction 
information in core data will facilitate greater access to this 
information among a broader group of executing broker-dealers and will 
enable them to place orders into auctions more effectively and to 
achieve better executions for their customer orders.\484\ As commenters 
stated, proprietary data costs may discourage some market participants 
from participating in auctions.\485\ The Commission is sensitive to 
these concerns and believes that including auction information in core 
data would help facilitate its broader dissemination.\486\ Finally, the 
Commission is not mandating the consumption of auction information and 
has explained the implications of these amendments on best execution 
obligations above.\487\ The Commission believes the inclusion of 
auction information in core data will not create confusion as to 
regulatory requirements, as one commenter stated might happen.\488\
---------------------------------------------------------------------------

    \481\ See supra note 462.
    \482\ See Angel Letter at 8.
    \483\ See supra note 468.
    \484\ See supra Section II.C.2(a); infra Sections V.C.1(c)(iii) 
(discussing how the amendments will affect access to auction 
information); III.E.2(c); V.C.2(b)(i)a (discussing how the 
amendments will affect data content fees).
    \485\ See ICI Letter at 9-10 (``Including auction information in 
the consolidated feed would enhance transparency into market 
activity. Doing so also would eliminate proprietary data costs as a 
barrier to auction trading and encourage a broader range of market 
participants to submit trading interest.''); SIFMA Letter at 7 
(``Adding this [auction] data to the definition of core data would 
assist with alleviating some of the discrepancies in content between 
the exchange proprietary feeds and the current SIP feeds and provide 
market participants with the ability to rely on SIP feeds rather 
than incurring the substantial costs in being forced to purchase 
both the proprietary data and the SIP data.'').
    \486\ See supra note 484.
    \487\ See supra Section I.E.
    \488\ TD Ameritrade Letter at 4.
---------------------------------------------------------------------------

(d) Include Competing Crosses in Auction Information
    One commenter recommended expanding the proposed definition of 
auction information to include data on competing crosses offered by 
national securities exchanges other than the listing market, such as 
one of the commenter's products (the Cboe Market Close product), so 
that investors have a full view of exchange trading in other mechanisms 
through which investors can seek to have their orders executed at 
official opening or closing prices.\489\
---------------------------------------------------------------------------

    \489\ See Cboe Letter at 21.
---------------------------------------------------------------------------

    The Commission does not believe that information on competing 
crosses should be included in core data at this time. Auctions are held 
pursuant to exchange rules at specified periods during the trading day 
(e.g., at the open, at the close, or during the day to reopen a stock 
that has been halted) when continuous trading is not occurring.

[[Page 18633]]

During auctions, buy and sell orders generally interact at the single 
price, within limits, that maximizes the trading volume that can be 
executed.\490\ For example, a closing auction generally is held at the 
end of regular trading hours on the primary listing exchange pursuant 
to a process set forth in the primary listing exchange's rules to 
determine a security's official closing price.\491\
---------------------------------------------------------------------------

    \490\ See, e.g., NYSE Rule 123C(8). See also Proposing Release, 
85 FR at 16756.
    \491\ See, e.g., NYSE Rule 123C(1)(e). See also Proposing 
Release, 85 FR at 16756.
---------------------------------------------------------------------------

    While the Cboe Market Close process seeks to provide executions on 
Cboe BZX Exchange at the official closing price published by the 
primary listing exchange, which is typically determined through an 
auction, it is not itself an auction process that establishes 
pricing.\492\ In proposing to include auction information in core data, 
the Commission was responding to the growing importance of auctions 
themselves rather than competing cross processes that leverage auction-
based pricing. Because competing cross processes are a derivative of 
the underlying auctions that establish prices, the Commission does not 
believe that including information regarding Cboe Market Close or 
similar competing cross processes would further the objective of 
promoting more informed participation in auctions. The Commission's 
decision does not preclude the dissemination of information related to 
such processes on a proprietary basis or prevent competing 
consolidators from acquiring and providing this information to their 
subscribers. Additionally, self-regulatory organization-specific 
program information can also be required to be included in consolidated 
market data pursuant to the national market system plan or plans 
required under Section 242.603(b) or amendments thereto that are 
approved by the Commission.\493\
---------------------------------------------------------------------------

    \492\ Securities Exchange Act Release No. 88008 (Jan. 21, 2020), 
85 FR 4726 (Jan. 27, 2020). Through Cboe Market Close, buy and sell 
market on close orders for stocks not listed on Cboe are matched 
together and executed at the closing price of the stock's primary 
listing exchange. Because the Cboe Market Close process is using the 
primary listing exchange's closing price as the execution price, the 
Cboe process is not independently discovering a closing price 
different than the primary listing exchange. Id. at 4727, 4738 
(``The Commission finds that . . . Cboe Market Close should not 
disrupt the price discovery process in the closing auctions of the 
primary listing exchanges. Importantly, Cboe Market Close will only 
accept, match, and execute unpriced MOC orders with other unpriced 
MOC orders (i.e., paired-off MOC orders). Contrary to some 
commenters' assertions that MOC orders contribute to the 
determination of the official closing price, the Commission believes 
that paired-off MOC orders, which do not specify a price but instead 
seek to be executed at whatever closing price is established via the 
primary listing exchange's closing auction, do not directly 
contribute to setting the official closing price of securities on 
the primary listing exchanges but, rather, are inherently the 
recipients of price formation information.'').
    \493\ See supra Section II.B.2; infra Section II.K.2.
---------------------------------------------------------------------------

(e) Classification of Auction Information
    One commenter stated that auction information (along with odd-lots 
and depth of book data) should be part of the consolidated market data, 
rather than core data, and expressed its doubt that firms would have an 
option to receive only a portion of core data.\494\ Another commenter 
stated that auction information should be further split into three 
products: (1) Core data that has no auction data but includes Cboe 
Market Close orders in order not to drag the processing speed of normal 
data distribution; (2) separate subscription for auction imbalance 
information (matched quantity, imbalance size, near price, far price, 
paired shares, and imbalance shares); and (3) integrated auction data 
in a combined feed, the speed of which may be slower than (1) and 
(2).\495\
---------------------------------------------------------------------------

    \494\ See TD Ameritrade Letter at 6 (``Inclusion under the 
broader Consolidated Market Data definition would still require for 
the collection, aggregation, and dissemination of the data to make 
it available to self-aggregators and competing consolidators but 
would avoid future confusion about what is required of end users for 
regulatory purposes in the future.'').
    \495\ See Data Boiler Letter I at 20.
---------------------------------------------------------------------------

    The Commission believes that auction information should be part of 
core data. Core data includes elements that the Commission has 
determined to be useful to inform trading decisions by today's 
investors. Auction information is important to investors who wish to 
participate in the opening, reopening, and closing auctions, which make 
up an increasing proportion of overall trading volume. However, as 
discussed above,\496\ the Commission is not creating any new regulatory 
obligation to consume auction information.\497\ Furthermore, the 
Operating Committee of the effective national market system plan(s) 
could set separate fees for different data content subsets, and 
competing consolidators could offer a variety of customized market data 
products to meet their subscribers' the diverse needs. This would help 
ensure that market participants pay for only the data that they consume 
and addresses the commenter's recommendation to provide for product 
differentiation and customer choice with respect to auction data.
---------------------------------------------------------------------------

    \496\ See supra Section II.C.2(a).
    \497\ See supra Section I.E. These amendments do not mandate the 
consumption of auction information, regardless of whether auction 
information is defined as core data or consolidated market data, 
contrary to what one commenter suggested. See supra note 494 and 
accompanying text.
---------------------------------------------------------------------------

H. Definition of ``Regulatory Data'' Under Rule 600(b)(78)

1. Proposal
    The Commission proposed defining regulatory data as follows: (1) 
Information required to be collected or calculated by the primary 
listing exchange for an NMS stock and provided to competing 
consolidators and self-aggregators pursuant to the effective national 
market system plan or plans required under Rule 603(b), including, at a 
minimum: (A) Information regarding Short Sale Circuit Breakers pursuant 
to Rule 201 of Regulation SHO; (B) information regarding Price Bands 
required pursuant to the LULD Plan; (C) information relating to 
regulatory halts or trading pauses (news dissemination/pending, LULD, 
and market wide circuit breakers (``MWCBs'')) and reopenings or 
resumptions; (D) the official opening and closing prices of the primary 
listing exchange; and (E) an indicator of the applicable round lot 
size; and (2) information required to be collected or calculated by the 
national securities exchange or national securities association on 
which an NMS stock is traded and provided to competing consolidators 
and self-aggregators pursuant to the effective national market system 
plan(s) required under Rule 603(b), including, at a minimum: (A) 
Whenever such national securities exchange or national securities 
association receives a bid (offer) below (above) an NMS stock's lower 
(upper) LULD price band, an appropriate regulatory data flag 
identifying the bid (offer) as non-executable; and (B) other regulatory 
messages including sub-penny execution and trade-though exempt 
indicators. For purposes of item (1)(C) of the proposed definition, the 
primary listing exchange that has the largest proportion of companies 
included in the S&P 500 Index shall monitor the S&P 500 Index 
throughout the trading day; determine whether a Level 1, Level 2, or 
Level 3 decline, as defined in self-regulatory organization rules 
related to Market-Wide Circuit Breakers, has occurred; and immediately 
inform the other primary listing exchanges of all such declines (so 
that the primary listing exchange can initiate trading halts, if 
necessary).
2. Final Rule and Response to Comments
    The Commission received several comments regarding the definition 
of

[[Page 18634]]

regulatory data.\498\ Some commenters supported including regulatory 
data in consolidated market data and did not comment on the substance 
of the definition of regulatory data.\499\ Other commenters pointed out 
difficulties or unintended consequences that they believed would result 
from the proposed definition.\500\
---------------------------------------------------------------------------

    \498\ See FINRA Letter at 9; NYSE Letter II at 21; MFA Letter at 
9; Capital Group Letter at 2; TD Ameritrade Letter at 3.
    \499\ See Capital Group Letter at 2; TD Ameritrade Letter at 3; 
MFA Letter at 9 (recommending that competing consolidators should be 
allowed to provide a regulatory data only feed and/or exchanges 
should be allowed to provide regulatory data on proprietary feeds); 
Data Boiler Letter I at 33; MEMX Letter at 6.
    \500\ See FINRA Letter at 7; NYSE Letter II at 21.
---------------------------------------------------------------------------

    The Commission is adopting the definition of regulatory data as 
proposed. As discussed below, the Commission believes that the 
information in the definition of regulatory data should help market 
participants meet their regulatory obligations and be informed of 
trading halts, price bands, or other market conditions that may affect 
their trading decisions.
(a) Complexity of Shifting Responsibilities to Primary Listing 
Exchanges
    One commenter stated that shifting the dissemination of LULD and 
Short Sale Circuit Breaker information from the exclusive SIPs to 
multiple primary listing exchanges would lead to these key market 
functions becoming disaggregated, more expensive, more prone to errors, 
and more complex due to multiple calculation methodologies and the need 
to uniformly adapt to change requests that impact the 
calculations.\501\ Another commenter stated that the Commission did not 
consider how a primary listing exchange responsible for calculating and 
disseminating regulatory data would obtain the information needed to 
perform these calculations from the other exchanges and failed to 
account for the financial costs, competitive implications, and latency 
impacts of this design.\502\
---------------------------------------------------------------------------

    \501\ See FINRA Letter at 7.
    \502\ See NYSE Letter II at 21.
---------------------------------------------------------------------------

    The Commission does not believe that the proposal would 
significantly increase the cost, complexity, or error rate of 
regulatory data such as LULD or Short Sale Circuit Breakers 
information. With respect to LULD information, just as the primary 
listing exchanges provide trading pause and reopening auction messages 
to the two exclusive SIPs today, the primary listing exchanges will 
provide this same information to competing consolidators and self-
aggregators under the decentralized consolidation model. Similarly, 
with respect to Rule 201 information, the primary listing exchange 
currently determines whether a Short Sale Circuit Breaker has been 
triggered and notifies the exclusive SIPs; under the decentralized 
consolidation model, the primary listing exchange will notify competing 
consolidators and self-aggregators. The Commission does not believe the 
incremental cost of providing this data to additional entities--i.e., 
competing consolidators and self-aggregators--will be substantial. 
Further, the Commission does not believe that the competing 
consolidator model would significantly increase complexity because the 
primary listing exchanges today already disseminate regulatory messages 
to the two exclusive SIPs. Finally, the Commission does not believe 
that shifting the calculation of regulatory data to primary listing 
exchanges would lead to more errors as the commenter suggested, since 
primary listing exchanges are capable of generating regulatory messages 
accurately and already generate many of these messages today.
    Moreover, the primary listing exchanges, and not only those that 
oversee the operation of exclusive SIPs, are qualified and capable to 
calculate LULD price bands, as the exclusive SIPs do today. The 
Commission does not agree with the commenter that the costs of 
performing these calculations at the primary listing exchange would be 
greater than the costs of doing so at the exclusive SIPs because the 
mechanical nature of these calculations would not introduce variable 
costs depending upon the entity performing the calculation. 
Furthermore, the Commission anticipates that the Operating Committee of 
the effective national market system plan(s) could reimburse these 
costs from plan revenue prior to allocation. In addition, as discussed 
below, the Commission believes that various factors would exert a 
downward pressure on the fees for the data content underlying 
consolidated market data, including regulatory data.\503\ Because the 
primary listing exchanges already calculate ``synthetic'' LULD price 
bands after reopening prices are disseminated but before the 
``official'' price bands are sent by the SIPs,\504\ any costs of 
requiring them to do so pursuant to the definition of regulatory data 
and the decentralized consolidation model should be limited. Finally, 
with respect to the comment that the Commission did not account for the 
financial costs of its regulatory data proposal, the Commission 
provided an estimate of the burdens and costs of providing competing 
consolidators and self-aggregators with the data necessary to generate 
consolidated market data, including regulatory data, and solicited 
comment on this estimate.\505\
---------------------------------------------------------------------------

    \503\ See infra Sections III.E.2(c); V.C.2(b)(i)a (discussing 
how the amendments will affect data content fees).
    \504\ See Nasdaq, Equity Trader Alert #2016-79: NASDAQ Announces 
Improved Protections for Equity Markets Coming Out of Halts (``Leaky 
Bands'') (Apr. 12, 2016), available at https://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2016-79; NYSE, Trader Update: NYSE and NYSE 
MKT: Enhanced Limit Up Limit Down Procedures (Aug. 1, 2016), 
available at https://www.nyse.com/trader-update/history#110000029205; Securities Exchange Act Release No. 34-78435 
(July 28, 2016), 81 FR 51239 (Aug. 3, 2016) (SR-FINRA-2016-028).
    \505\ Proposing Release, 85 FR at 16807-09.
---------------------------------------------------------------------------

    With respect to the comment regarding how primary listing exchanges 
would obtain the information needed to calculate and disseminate 
regulatory data from the other exchanges, the Commission observes that 
many primary listing exchanges already subscribe to the proprietary 
feeds of many other exchanges and will continue to have this option 
under the decentralized consolidation model.\506\ Like many other 
market participants, the primary listing exchanges do so to calculate 
their own NBBOs based on data from across the national market system 
and use the proprietary feeds, rather than the SIP feeds, for their 
matching engines.\507\ Furthermore, the Commission is adopting rules to 
allow the primary listing exchanges the option of obtaining the data 
from other exchanges necessary to perform these calculations through 
self-aggregation.\508\
---------------------------------------------------------------------------

    \506\ See, e.g., NYSE Rule 7.37(e) (showing the data feeds for 
handling, execution, and routing of orders and subscribing to the 
direct feeds for all national securities exchanges except three 
exchanges (Investors' Exchange, LLC, Long-Term Stock Exchange, Inc., 
and MEMX LLC)); Nasdaq Rule 4759 (showing the data feeds for 
handling, routing, and execution of orders and subscribing to the 
direct feeds for all national securities exchanges except six 
exchanges (NYSE National, MIAX Pearl, Long-Term Stock Exchange, NYSE 
Chicago, MEMX, and IEX)).
    \507\ Id.
    \508\ See infra Section III.D.2(a). The exchanges today perform 
with proprietary data many functions that are similar to self-
aggregation, such as calculating the best bid and offer to decide 
where to route routable orders. The Exchanges would continue to have 
the option to self-aggregate under the adopted rules, allowing the 
exchanges to perform many of the functions they do today, including, 
among other things, routing of orders and compliance with the order 
protection rule. See also supra note 503 (regarding the Commission's 
expectations with respect to the fees for data content, including 
regulatory data).
---------------------------------------------------------------------------

    In addition, the Commission does not believe the proposal will 
introduce

[[Page 18635]]

unwarranted complexity or inconsistency in the dissemination of 
regulatory data. While each primary listing exchange will calculate 
LULD price bands, the primary listing exchanges are not permitted to 
apply ``separate calculation methodologies'' as suggested by the 
commenter, since the reference price calculation methodology is set 
forth in the LULD Plan and not subject to deviations.\509\ The 
definition of regulatory data that the Commission is adopting assigns a 
single entity, the primary listing exchange, with the responsibility to 
calculate regulatory data such as LULD price bands or to monitor the 
S&P 500 for purposes of sending MWCB alerts in order to avoid the 
complexity and confusion that could result from having multiple 
entities--competing consolidators and self-aggregators--performing 
these functions.
---------------------------------------------------------------------------

    \509\ LULD Plan Section V(A).
---------------------------------------------------------------------------

    Finally, the Commission does not believe these additional 
requirements would impose any competitive disadvantages on primary 
listing exchanges. Listing securities already entails significant 
regulatory obligations, including, as discussed above, the provision of 
certain regulatory data to the exclusive SIPs, as well as other 
regulatory functions that are required of a listing SRO to regulate its 
listed securities and the issuing companies. The Commission estimates 
that the incremental burdens imposed by the amendments, including the 
calculations required to disseminate the elements of regulatory data, 
and costs, if any, necessary to obtain the data underlying those 
calculations, would be minimal, particularly because the primary 
listing exchanges already perform many of these functions today.\510\
---------------------------------------------------------------------------

    \510\ In addition, the Operating Committee of the effective 
national market system plan(s) could consider the costs of providing 
competing consolidators and self-aggregators with regulatory data in 
proposing fees for consolidated market data and could propose 
adjustments to the revenue allocation formula to compensate primary 
listing exchanges in particular.
---------------------------------------------------------------------------

(b) Geographic Latency of Regulatory Data
    One commenter stated that as a result of competing consolidators 
being positioned at different locations, listing exchanges are likely 
to experience a delay in identifying the moment a LULD halt or a 
Regulation SHO restriction is triggered, which may result in executed 
trades that violate the LULD Plan and Regulation SHO, and that such 
latency issues will make it difficult for SROs to surveil and determine 
with certainty that a market participant intentionally violated a LULD 
or Regulation SHO rule.\511\
---------------------------------------------------------------------------

    \511\ See Letter from Anthony J. Albanese, Chief Regulatory 
Officer, NYSE, et al. dated June 15, 2020 (``Joint CRO Letter'') at 
3.
---------------------------------------------------------------------------

    The Commission acknowledges that competing consolidators would be 
in different locations, likely co-located at the exchanges' primary 
data centers currently in Mahwah, Carteret, Secaucus, and Weehawken, 
New Jersey. However, the Commission does not believe that the different 
locations would make it more difficult for SROs to conduct their market 
surveillance with respect to LULD and Regulation SHO. Currently, the 
SROs develop surveillance systems using the data sources that allow 
them to perform their regulatory obligations.\512\ As discussed 
below,\513\ the varying distances between the existing SIPs and the 
locations of different exchanges ensure that SIP-provided regulatory 
messages will arrive at different times today, measured in microseconds 
or finer increments of time. The Commission believes that, in fact, 
there will be less of a latency differential experienced under the 
decentralized consolidation model because it eliminates other material 
geographic latencies in the consolidation and regulatory message 
generation process.\514\
---------------------------------------------------------------------------

    \512\ See infra note 771 and accompanying text. In addition, 
time stamps will be added to all consolidated market data, including 
regulatory data, by the SROs as well as competing consolidators. See 
infra Sections III.C.8(b); III.E.2(h). These timestamps will help 
identify when LULD halts and Regulation SHO restrictions were 
triggered and communicated.
    \513\ See infra Section III.B.5.
    \514\ See id.
---------------------------------------------------------------------------

    One commenter stated that assigning responsibility to the primary 
listing exchanges to produce regulatory information such as LULD bands, 
market-wide circuit-breaker information, and Regulation SHO thresholds 
underscores the importance of the Governance Order \515\ and having a 
single effective national market system plan and a single, independent 
plan administrator and of ``standing up the governance regime quickly'' 
prior to the launch of the competing consolidator model.\516\ The 
Commission believes that ascribing the responsibility for calculating 
and providing regulatory data to primary listing exchanges pursuant to 
these amendments is not dependent on the changes contemplated in the 
Governance Order,\517\ such as the submission of a single consolidated 
data plan. Independent of issues related to the governance of the 
effective national market system plan(s), the primary listing markets, 
which are already performing many of these functions, are well-situated 
to calculate and provide regulatory data under the decentralized 
consolidation model.\518\
---------------------------------------------------------------------------

    \515\ See infra note 1128.
    \516\ RBC Letter at 7.
    \517\ See infra note 1127.
    \518\ See Proposing Release, 85 FR at 16759.
---------------------------------------------------------------------------

    One commenter recommended that the Commission should require 
competing consolidators, not the effective national market system 
plan(s) participants, to make available a regulatory-data-only feed at 
a fair and reasonable price because this information is a public good, 
or, alternatively should allow exchanges to provide regulatory market 
data through their proprietary feeds.\519\
---------------------------------------------------------------------------

    \519\ See MFA Letter at 9 (``The Commission should require 
competing consolidators to provide a regulatory data-only feed at a 
fair and reasonable price relative to the cost of that subset of 
consolidated market data. Alternatively, we believe the Commission 
should explicitly permit exchanges to provide regulatory data 
through their proprietary market data feeds.'').
---------------------------------------------------------------------------

    Regulatory data is essential for the investing public and necessary 
for market participants to fulfill regulatory obligations. The fees for 
regulatory data must be fair and reasonable and not unreasonably 
discriminatory.\520\ As discussed below, the Commission believes that 
the introduction of competitive forces and other factors will constrain 
regulatory data fees. Moreover, these amendments permit the Operating 
Committee of the effective national market system plan(s) to propose 
fees for data content underlying different consolidated market data 
offerings, including consolidated market data offerings that use a 
subset of consolidated market data, and permit competing consolidators 
to offer a variety of products--including, potentially, a regulatory-
data-only product--suited to the needs of their subscribers. Therefore, 
the Commission is adopting the proposal without any changes.
---------------------------------------------------------------------------

    \520\ See infra Section III.E.2(c).
---------------------------------------------------------------------------

I. Regulation SHO: Conforming Amendments to Rule 201

1. Proposal
    Under the definition of regulatory data, the primary listing 
exchange for an NMS stock would make the determination regarding 
whether a Short Sale Circuit Breaker has been triggered. The Commission 
proposed to amend the process required under Rule 201 in two ways. 
First, if the Short Sale Circuit Breaker has been triggered, the 
listing market would be required immediately to notify competing 
consolidators and self-aggregators

[[Page 18636]]

(rather than notifying a single plan processor as was previously the 
case). Competing consolidators would then be required to consolidate 
and disseminate this information to their subscribers.
    Specifically, the Commission proposed to amend Rule 201(b)(1)(ii)--
which requires Short Sale Circuit Breakers to be applied ``the 
remainder of the day and the following day when a national best bid for 
the covered security is calculated and disseminated on a current and 
continuing basis by a plan processor pursuant to an effective national 
market system plan''--by removing the reference to the plan processor 
to reflect the proposed decentralized consolidation model. Furthermore, 
the Commission proposed amending Rule 201(b)(3)--which requires listing 
markets to immediately notify ``the single plan processor responsible 
for consolidation of information for the covered security pursuant to 
Rule 603(b)'' when a Short Sale Circuit Breaker has been triggered--by 
removing the single plan processor notice requirement and replacing it 
with the requirement for the listing market to immediately make such 
information available as provided in Rule 603(b) (i.e., to competing 
consolidators and self-aggregators).
    Second, under the proposed decentralized consolidation model with 
competing consolidators and self-aggregators, the listing market, in 
order to make determinations as to whether a Short Sale Circuit Breaker 
has been triggered as required by 17 CFR 242.201(b)(1)(i) (Rule 
201(b)(1)(i)), would have the option of obtaining proposed consolidated 
market data from one or more competing consolidators (rather than from 
a single plan processor as is currently the case), to aggregate 
consolidated market data itself, or some combination of the two.\521\
---------------------------------------------------------------------------

    \521\ For example, a listing market could self-aggregate for its 
own listings and obtain consolidated data from a competing 
consolidator for stocks listed elsewhere. The rules that the 
Commission is adopting do not require a listing market to purchase 
consolidated data from a competing consolidator.
---------------------------------------------------------------------------

    The Commission also proposed certain conforming amendments in Rule 
201 to harmonize that rule with the Proposing Release. Currently, 17 
CFR 242.201(a) (Rule 201(a)) defines ``listing market'' by reference to 
the listing market as defined in the effective transaction reporting 
plan for the covered security. Since primary listing exchanges will be 
required to collect and calculate regulatory data, the Commission 
proposed to introduce a definition of ``primary listing exchange'' in 
Rule 600(b)(68) to provide greater clarity with respect to the 
responsibilities regarding regulatory data. Specifically, under 
proposed Rule 600(b)(68), primary listing exchange would be defined as, 
for each NMS stock, the national securities exchange identified as the 
primary listing exchange in the effective national market system plan 
or plans required under Rule 603(b).\522\
---------------------------------------------------------------------------

    \522\ See infra Section III.E.2(j) (discussing the requirement 
that the effective national market system plan(s) be amended to 
include a list of the primary listing exchange for each NMS stock).
---------------------------------------------------------------------------

    The Commission believes that it is appropriate for the effective 
national market system plan(s) to determine which exchange is the 
primary listing exchange for each NMS stock and that the definition 
would ensure that primary listing exchanges are clearly identified. The 
Commission also believes that the definition of listing market in Rule 
201(a)(3) should be amended so that it cross-references this proposed 
definition of primary listing exchange to facilitate the consistent 
identification of primary listing exchanges across Regulation SHO and 
Regulation NMS and to avoid potentially duplicative or confusing 
definitions in the Commission's rules.
2. Final Rule and Response to Comments
    The Commission received one letter supporting the amendments to 
Regulation SHO.\523\ For the same reasons discussed above with regard 
to how the proposed amendments would facilitate the decentralized 
consolidation model, the Commission is adopting the amendments to 
Regulation SHO as proposed.
---------------------------------------------------------------------------

    \523\ See Data Boiler Letter I at 27.
---------------------------------------------------------------------------

J. Definition of ``Administrative Data'' Under Rule 600(b)(2)

1. Proposal
    The Commission proposed defining ``administrative data'' as 
administrative, control, and other technical messages made available by 
national securities exchanges and national securities associations 
pursuant to the effective national market system plan or plans required 
under Sec.  242.603(b) or the technical specifications thereto as of 
the date of Commission approval of the proposal. Administrative data 
would be a component of the definition of ``consolidated market data,'' 
which permits additional administrative data elements to be added 
pursuant to amendments to the effective national market system plan(s). 
Examples of administrative messages include market center and issue 
symbol identifiers, and examples of control messages include messages 
regarding the beginning and end of trading sessions. As the Commission 
stated in the proposing release, the proposed definition was ``intended 
to capture administrative information that is currently provided in SIP 
data.'' \524\
---------------------------------------------------------------------------

    \524\ See Proposing Release, 85 FR at 16763.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received one comment supporting the proposed 
definition of administrative data,\525\ and is adopting the definition 
as proposed. The Commission continues to believe that including 
administrative messages in consolidated market data will facilitate 
market participants' efficient and accurate use of consolidated market 
data. Further, the Commission believes that this information is useful 
to market participants and should continue to be widely available. The 
Commission believes that SROs would be well-situated to provide 
administrative data messages, which relate to SRO-specific details such 
as the market-center identifiers or the beginning and ending of trading 
sessions, because SROs have direct and immediate access to this 
information and could efficiently integrate it into the data feeds that 
they will utilize to make available the data necessary for competing 
consolidators and self-aggregators to generate core and regulatory 
data.
---------------------------------------------------------------------------

    \525\ This commenter stated that the current administrative data 
``provides additional context for market participants to understand, 
and efficiently and accurately use, the proposed core and regulatory 
data to support their trading activities.'' Data Boiler Letter I at 
35. The commenter further added that ``there can be streamlining 
opportunity for [competing consolidators] to eliminate any 
repetitive information during distribution and recipients should 
have a choice to opt-out.'' Id. As stated above, the decentralized 
consolidation model permits competing consolidators to offer 
different products to market data end users, allowing end users to 
decide which data feeds to purchase and utilize.
---------------------------------------------------------------------------

K. Definition of ``Self-Regulatory Organization-Specific Program Data'' 
Under Rule 600(b)(85)

1. Proposal
    The Commission proposed to define exchange-specific program data 
as: (1) Information related to retail liquidity programs specified by 
the rules of national securities exchanges and disseminated pursuant to 
the effective national market system plan or plans required under Sec.  
242.603(b) as of the date of Commission approval of the proposal and 
(2) other exchange-specific information with respect to quotations for 
or transactions in NMS stocks as

[[Page 18637]]

specified by the effective national market system plan or plans 
required under Sec.  242.603(b).
    The Commission stated that existing retail liquidity programs, 
which offer opportunities for retail orders to receive price 
improvement, and, in certain cases, other exchange-specific program 
information should continue to be included in proposed consolidated 
market data. If (i) an exchange(s) develops new program(s) in the 
future, and (ii) the broad dissemination of information about such 
programs as part of consolidated market data would facilitate 
participation in such programs, an amendment to the effective national 
market system plan(s) could be filed with the Commission under Rule 608 
of Regulation NMS to include such information in consolidated market 
data.

2. Final Rule and Response to Comments

    The Commission received comments regarding the definition of 
exchange-specific program data. One commenter supported the inclusion 
of exchange-specific program data in consolidated market data, stating 
that this data, which is already carried by the SIPs, is highly 
relevant and important to all types of market participants.\526\ 
Another commenter agreed with the inclusion of information related to 
existing retail liquidity programs but stated that there should be a 
``procedural mechanism to review if there might be other new exchange-
specific program information to be included in the future.'' \527\
---------------------------------------------------------------------------

    \526\ See IEX Letter at 7.
    \527\ Data Boiler Letter I at 35-36.
---------------------------------------------------------------------------

    Some commenters objected to the proposed definition of exchange-
specific program data. One commenter stated that the proposal would 
require changes to exchange-specific programs to become effective 
through an effective national market system plan amendment even though 
exchanges are currently free to propose such programs through the SRO 
rulemaking process provided in Section 19(b) of the Exchange Act and 
that requiring such changes to be duplicatively filed as proposed plan 
amendments would serve no policy or regulatory purpose and would 
improperly give competing exchanges (as members of the plans' Operating 
Committee) a vote in whether or not an exchange may change its 
programs.\528\ Another commenter characterized exchange-specific 
program information as ``an essentially unknown category of information 
that may or may not be useful to particular categories of investors'' 
and stated that the Commission has determined that ``virtually all 
categories of information--even indeterminate ones--constitute core 
data.'' \529\
---------------------------------------------------------------------------

    \528\ See NYSE Letter II at 28.
    \529\ Nasdaq Letter IV at 33.
---------------------------------------------------------------------------

    The Commission is adopting the definition of exchange-specific 
program data largely as proposed, but is modifying the definition to 
``self-regulatory organization-specific program data'' so that it 
extends to national securities associations in addition to all national 
securities exchanges.\530\ The Commission believes that information 
related to any program developed by a national securities association 
in the future should also be able to be included in consolidated market 
data if specified by the effective national market system plan(s).\531\ 
Information related to retail liquidity programs is already in the SIP 
feeds today, and the Commission agrees that this information is 
relevant to market participants who wish to submit orders to, or 
otherwise participate in, such programs and should therefore be 
included in consolidated market data. To the extent other exchange-
specific or national securities association-specific programs may be 
developed in the future, the Commission believes such information would 
be similarly relevant to market participants who wish to engage with 
such programs.
---------------------------------------------------------------------------

    \530\ The Commission is also modifying proposed Rule 
600(b)(85)(ii) of Regulation NMS so that it refers to ``[o]ther 
self-regulatory organization-specific information with respect to 
quotations for or transactions in NMS stocks . . .'' rather than 
``other exchange-specific information with respect to quotations for 
or transactions in NMS stocks . . .''. See infra Section VIII.
    \531\ See also supra Section II.F.2(c) (explaining that the 
Commission is adopting a modified definition of depth of book data 
that includes liquidity at depth of book price levels that may be 
available on FINRA's ADF or other facilities of a national 
securities association in the future).
---------------------------------------------------------------------------

    The Commission also agrees that a procedural mechanism to modulate 
the inclusion in consolidated market data of information related to 
future SRO-specific programs is needed. The Commission believes that 
requiring such data to be included by amendment to the effective 
national market systems plan(s), as proposed, is the appropriate 
mechanism because, as explained above, it allows for the inclusion of 
additional SRO-specific program information data elements that may 
emerge periodically through the approval of new SRO rules.\532\
---------------------------------------------------------------------------

    \532\ See supra Section II.B.2.
---------------------------------------------------------------------------

    The Commission disagrees with the comment that this process would 
be ``duplicative'' of the Section 19(b) process or give an exchange's 
competitors a vote in whether an exchange may change its programs. The 
Section 19(b) process for approval of an SRO's rules and a plan 
amendment serve two distinct purposes. An individual SRO could develop 
a new program on its own initiative pursuant to the Section 19(b) 
process. The SRO could disseminate information related to any such 
program to market participants on a proprietary basis only. On the 
other hand, a plan amendment would only be required in order to include 
this information in consolidated market data if an SRO decides to 
pursue the option and the Operating Committee agrees it is appropriate 
to provide it to market participants under the national market system 
rules.
    Finally, the Commission disagrees that exchange-specific program 
data is an ``essentially unknown category of information'' that may or 
may not be useful to market participants. The rules would allow the 
effective national market system plan(s) to add other SRO-specific 
information if the Operating Committee determines that the information 
would be useful to market participants. The Commission believes that 
allowing the Operating Committee(s) some flexibility to add additional 
SRO-specific information would be in the interest of investors and 
would strengthen the national market system. The Equity Data Plans have 
utilized such a mechanism in the past.

III. Enhancements to the Provision of Consolidated Market Data

A. Introduction

    The Commission is adopting a decentralized consolidation model in 
which competing consolidators, rather than the exclusive SIPs, will 
collect, consolidate, and disseminate consolidated market data. This 
new model will address the geographic, aggregation, and transmission 
latencies that characterize the existing centralized consolidation 
model,\533\ which has

[[Page 18638]]

relied upon the exclusive SIP for each NMS stock to centrally collect, 
consolidate, and disseminate SIP data from its location, regardless of 
the location of other exchanges, FINRA, or subscribers. The Commission 
believes this new model will foster a competitive environment for the 
dissemination of consolidated market data and will modernize the 
underlying architecture of the national market system.
---------------------------------------------------------------------------

    \533\ See Proposing Release, 85 FR at 16765-66 (describing the 
latencies that exist in the current centralized consolidation 
model). The existing centralized consolidation model system suffers 
from three sources of latencies: (a) Geographic latency, (b) 
aggregation latency, and (c) transmission latency. Geographic 
latency is typically the most significant component of the latencies 
that the exclusive SIPs experience compared to the proprietary data 
feeds. Geographic latency, as used herein, refers to the time it 
takes for data to travel from one physical location to another, 
which must also take into account that data does not always travel 
between two locations in a straight line. Aggregation or 
consolidation latency, as used herein, refers to the amount of time 
an exclusive SIP takes to aggregate the multiple sources of SRO 
market data into SIP data and includes calculation of the NBBO. 
Transmission latency, as used herein, refers to the time interval 
between when data is sent (e.g., from an exchange) and when it is 
received (e.g., at an exclusive SIP and/or at the data center of the 
subscriber), and the transmission latency between two fixed points 
is determined by the transmission communications technology through 
which the data is conveyed.
---------------------------------------------------------------------------

    The centralized consolidation model has largely remained unchanged 
despite significant market developments since it was developed in the 
1970s. Today, the exclusive SIPs are located in disparate locations far 
from each other and from end users. Each exclusive SIP must collect 
data from geographically dispersed SRO data centers, consolidate that 
data, and then disseminate that data as SIP data from the exclusive 
SIP's location to end-users, which are often in other locations. The 
need for market information to travel back and forth across the ``New 
Jersey triangle'' \534\ prior to reaching subscribers creates 
significant geographic and other latencies.\535\ This structure, as 
well as the limited data content available in SIP data, has led many 
market participants to relegate SIP data to backup data.\536\
---------------------------------------------------------------------------

    \534\ The CTA/CQ SIP is located in Mahwah, NJ, and the UTP SIP 
is located in Carteret, NJ. Other exchanges and broker-dealers are 
located in Secaucus, NJ. These three main data center locations are 
typically referred to as the ``New Jersey Triangle.''
    \535\ See supra note 533.
    \536\ See, e.g., SIFMA Letter at 3 (``Even if a broker-dealer 
elects to consolidate market data through proprietary feeds, it must 
also purchase the core data from the SIPs for a number of reasons, 
such as to comply with the Vendor Display Rule, receive regulatory 
messages like trading halts and have a backup source of data in case 
an exchange experiences issues with its proprietary feeds.''). But 
see BestEx Research Letter at 2 (``Despite the claims of many market 
participants, the SIP is a critical component of the US equity 
market structure and is widely used by institutional broker-
dealers.''). The commenter, however, also stated that ``the reforms 
to the SIP proposed by the Commission will make it even more robust 
and useful.'' Id. at 1. While SIP data is widely used, market 
participants, as well as the commenter, acknowledge that the 
decentralized consolidation model will modernize the national market 
system and make it more useful for today's trading.
---------------------------------------------------------------------------

    The national market system for the collection, consolidation, and 
dissemination of SIP data was established to be the heart of the 
national market system and is designed to provide broad public access 
to a consolidated, real-time stream of market information.\537\ 
Investors' need for real time information has been recognized since the 
adoption of the 1975 Amendments and is reflected in Section 11A of the 
Exchange Act.\538\ In the context of market data, the Commission has 
said that ``real time'' means that ``there is very little delay between 
the time a quotation is made or a transaction is effected and the time 
that this information is made available to investors and others who use 
the information.'' \539\ Some market participants believe that the 
latencies inherent in the centralized consolidation model have affected 
the ability of brokers to trade competitively and to provide best 
execution to customer orders, especially when compared to proprietary 
data products that are not encumbered by centralized 
consolidation.\540\
---------------------------------------------------------------------------

    \537\ See Market Information Concept Release, supra note 22, at 
70614.
    \538\ Section 11A(c)(1)(B) of the Exchange Act states that the 
Commission should assure, among other things, the ``prompt'' 
collection, processing, distribution, and publication of 
information. Further, the Senate Report for the enactment of Section 
11A stated that ``it is critical for those who trade to have access 
to accurate, up-to-the-second information.'' S. Rep. No. 94-75 at 8 
(1975) (``Senate Report'').
    \539\ Market Information Concept Release, supra note 22, at 
70614.
    \540\ One commenter stated that ``[c]urrent market structure 
allows investors' order [sic] to be traded at stale prices.'' Better 
Markets Letter at 6. See also Capital Group Letter at 2, 4; 
Clearpool Letter at 2; DOJ Letter at 2, 4; Fidelity Letter at 2; MFA 
Letter at 2; State Street Letter at 2, 3; T. Rowe Price Letter at 1-
2; Virtu Letter at 2, 5.
---------------------------------------------------------------------------

    Significant technological changes have occurred since the 1970s and 
the passage of the 1975 Amendments. Electronic trading has all but 
supplanted manual trading, and electronic trading systems can handle 
and process data at speeds unheard of when the national market system 
was established. While the Equity Data Plans have made various 
investments and systems upgrades over time, they have not kept up with 
the demands of all market participants. The concurrent existence of the 
centralized consolidation model for SIP data and the decentralized 
consolidation model for proprietary data has resulted in a two-tiered 
market in which certain market participants that can afford and choose 
to pay for proprietary data feeds receive content-rich data faster than 
those who do not purchase these feeds, including market participants 
who may face higher barriers to entry from data and other exchange 
fees. Market participants that do not receive proprietary DOB feeds may 
be affected in their efforts to seek best execution and otherwise 
effectively compete with market participants that receive proprietary 
DOB data feeds because they do not obtain access to the additional 
content and may be receiving data in a slower manner.
    Therefore, the Commission believes that the national market system 
must be modernized to allow ``new data processing and communications 
systems [to] create the opportunity for more efficient and effective 
market operations.'' \541\ The centralized consolidation model no 
longer meets market participants' need for real-time consolidated 
market data.\542\ The purpose of the decentralized consolidation model 
is to modernize the infrastructure of the national market system by 
eliminating the outdated centralized architecture for data 
consolidation and dissemination.
---------------------------------------------------------------------------

    \541\ Section 11A(a)(1)(B) of the Exchange Act.
    \542\ See supra Section II.C.2(a) (discussing the indirect 
benefits to market participants whose executing broker-dealers will 
receive expanded data content from competing consolidators); infra 
Section III.B.5 (discussing indirect benefits to investors from 
enhancements to trading by their broker-dealers resulting from 
reductions in latency, the expanded data content and the competitive 
environment fostered by the decentralized consolidation model).
---------------------------------------------------------------------------

    Under the current model, each exclusive SIP must collect data for 
specific NMS stocks from geographically dispersed SRO data centers, 
consolidate the data, and then disseminate it from its location to end-
users, which are often in other locations. The new decentralized 
consolidation model will speed up the dissemination of consolidated 
market data by allowing competing consolidators to collect data 
directly from each SRO and consolidate the data in the same data center 
as end users. Latency-sensitive data end-users will be able to receive 
consolidated market data products at the same data center location from 
which the competing consolidator operates.
    Under this new model, the relevant exchange will provide quotes and 
trades in the NMS stocks they trade directly to competing consolidators 
and self-aggregators and the hub-and-spoke method of centralized 
collection and dissemination will be eliminated.\543\ Further, by 
fostering a competitive environment for the collection, consolidation, 
and dissemination of consolidated market data, the

[[Page 18639]]

decentralized consolidation model will incentivize greater innovation, 
competitive pricing, and the timely adoption of updated technologies 
into the national market system.
---------------------------------------------------------------------------

    \543\ See Proposing Release, 85 FR at n. 395. Under the 
centralized consolidation model, quotes and trades that occur on 
Nasdaq for NYSE-listed stocks must be provided to the CTA/CQ SIP for 
dissemination. Under the decentralized consolidation model, such 
quotes and trades in NYSE-listed stocks will be provided directly by 
Nasdaq to competing consolidators and self-aggregators.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model 
will better serve the needs of market participants and investors. It 
should address concerns about the costs associated with the current 
structure, in which many market participants are compelled to buy 
proprietary feeds and the exclusive SIP feeds to trade competitively 
and represent their customers' orders.\544\ The amendments also should 
address the concerns about, and improve, the content and latency 
differentials that currently exist between SIP data and proprietary 
data.\545\ The Commission believes that the amendments will provide all 
market participants with access to a real-time stream of consolidated 
market data, improve the national market system, help to ensure the 
continued success of the U.S. securities markets, and better achieve 
the goals of Section 11A of the Exchange Act by assuring ``the 
availability to brokers, dealers and investors of information with 
respect to quotations for and transactions in securities'' that is 
prompt, accurate, reliable, and fair.
---------------------------------------------------------------------------

    \544\ One commenter stated that it expects that its use of 
direct feeds would be eliminated if the proposal is implemented. See 
NBIM Letter at 4.
    \545\ See Proposing Release, 85 FR at 16764-65.
---------------------------------------------------------------------------

B. Proposed Decentralized Consolidation Model

    The Commission proposed a decentralized consolidation model in 
which new competing SIPs, called competing consolidators, would collect 
the data content underlying consolidated market data from the 
individual SROs, consolidate the information of all of the SROs, and 
disseminate that consolidated information as consolidated market data 
to end users. The proposed decentralized consolidation model also would 
allow broker-dealers to act as self-aggregators to collect all of the 
data content underlying consolidated market data from the individual 
SROs and consolidate that information solely for their internal use. 
The Commission proposed this model to reduce significantly the 
geographic and other latencies inherent in the existing centralized 
consolidation model. The proposed decentralized consolidation model 
would allow competing consolidators and self-aggregators to eliminate 
the back-and-forth travel of data associated with the centralized 
consolidation model, to operate in the data center of their choice 
(i.e., in close proximity to data subscribers), and to foster a 
competitive environment for the aggregation and transmission of 
consolidated market data.\546\
---------------------------------------------------------------------------

    \546\ See Proposing Release, 85 FR at nn. 419-20.
---------------------------------------------------------------------------

1. Comments on the Decentralized Consolidation Model
    The Commission received comments on the proposed decentralized 
consolidation model.\547\ Many commenters supported the goals of the 
decentralized consolidation model and the potential positive impacts 
this model would have on the provision of consolidated market 
data,\548\ while numerous commenters raised issues with--or questioned 
certain aspects of--the proposed model.\549\
---------------------------------------------------------------------------

    \547\ See BlackRock Letter; Fidelity Letter; State Street 
Letter; Wellington Letter; ICI Letter; Virtu Letter; AHSAT Letter; 
IntelligentCross Letter; BestEx Research Letter; MEMX Letter; 
Clearpool Letter; T. Rowe Price Letter; ACS Execution Services 
Letter; IEX Letter; SIFMA Letter; MFA Letter; Schwab Letter; RBC 
Letter; STANY Letter II; Angel Letter; Nasdaq Letter III; Nasdaq 
Letter IV; NYSE Letter II; FINRA Letter; Cboe Letter; Proof Trading 
Letter; Citadel Letter; TD Ameritrade Letter; Data Boiler Letter I; 
Healthy Markets Letter I; Joint CRO Letter; Susquehanna Letter; 
NovaSparks Letter; Better Markets Letter; Capital Group Letter; 
McKay Letter; NBIM Letter; Wharton Letter; letter from Kermit R. 
Kubitz, dated May 26, 2020, (``Kubitz Letter''); letter from Kelvin 
To, Founder and President, Data Boiler Technologies, LLC, dated June 
10, 2020, (``Data Boiler Letter II''); DOJ Letter; letter from 
Nandini Sukumar, Chief Executive Officer, World Federation of 
Exchanges, to Chairman Clayton and Commissioners Lee, Peirce, and 
Roisman, dated May 26, 2020, (``WFE Letter''); letters to Vanessa 
Countryman, Secretary, Commission, from Stephen J. McNeany Chief 
Executive Officer, and Frank W. Piasecki, President, ACTIV Financial 
Systems, Inc., dated May 26, 2020, (``ACTIV Financial Letter''); 
Doris Choi, Co-General Counsel, ICE Data Services, dated May 29, 
2020, (``IDS Letter I''); John L. Thornton and R. Glenn Hubbard, Co-
Chairs, and Hal S. Scott, President, Committee on Capital Markets 
Regulation, dated Apr. 23, 2020, (``Committee on Capital Markets 
Regulation Letter''); Kevin R. Edgar, Counsel, BakerHostetler LLP 
and Counsel, Equity Markets Association, dated June 30, 2020, 
(``Equity Markets Association Letter''); Joanna Mallers, Secretary, 
FIA Principal Traders Group, dated June 3, 2020, (``FIA PTG 
Letter''); Tom C. W. Lin, Professor of Law, Temple University 
Beasley School of Law, dated May 26, 2020, (``Temple University 
Letter''); Tyler Gellasch, Executive Director, Healthy Markets, 
dated July 27, 2020, (``Healthy Markets Letter II''); Doris Choi, 
Co-General Counsel, ICE Data Services, dated Aug. 12, 2020, (``IDS 
Letter II'').
    \548\ See BlackRock Letter; Fidelity Letter; State Street 
Letter; Wellington Letter; ICI Letter; Virtu Letter; AHSAT Letter; 
FIA PTG Letter; IntelligentCross Letter; Committee on Capital 
Markets Regulation Letter; BestEx Research Letter; Wharton Letter; 
MEMX Letter; Clearpool Letter; T. Rowe Price Letter; Capital Group 
Letter; DOJ Letter; ACS Execution Services Letter; IEX Letter; SIFMA 
Letter; ACTIV Financial Letter; MFA Letter; Better Markets Letter; 
NBIM Letter; NovaSparks Letter; letter from Anthony H Steinmetz, 
dated Feb. 17, 2020, (``Steinmetz Letter'') (supporting the proposal 
generally).
    \549\ See STANY Letter II; Angel Letter; Nasdaq Letter III; 
Nasdaq Letter IV; NYSE Letter II; FINRA Letter; Cboe Letter; Proof 
Trading Letter; Citadel Letter; TD Ameritrade Letter; Kubitz Letter; 
Data Boiler Letter I; Data Boiler Letter II; Healthy Markets Letter 
I; WFE Letter; Joint CRO Letter; Equity Markets Association Letter.
---------------------------------------------------------------------------

    Commenters that supported the decentralized consolidation model 
believed that it would inject needed competition into the consolidated 
market data environment,\550\ address conflicts of interest in the 
centralized consolidation model,\551\ reduce latency in the 
dissemination of consolidated market data,\552\ improve the usefulness 
of consolidated market data as an alternative to proprietary market 
data feeds,\553\ improve the reliability of the consolidated market 
data infrastructure,\554\ and reduce the cost of consolidated market 
data \555\ while increasing its quality.\556\
---------------------------------------------------------------------------

    \550\ See MEMX Letter at 3, 8; Committee on Capital Markets 
Regulation Letter at 3; BestEx Research Letter at 1; State Street 
Letter at 3; ACTIV Financial Letter at 1; Fidelity Letter at 9; 
SIFMA Letter at 5, 12; Wellington Letter at 1; IntelligentCross 
Letter at 4-5; ICI Letter at 4, 10; RBC Letter at 6; DOJ Letter at 
5; Capital Group Letter at 4; T. Rowe Price Letter at 4; Virtu 
Letter at 6.
    \551\ See SIFMA Letter at 5; Fidelity Letter at 3, 10; IEX 
Letter at 2.
    \552\ See MEMX Letter at 6, 7, 8; Fidelity Letter at 3, 10; 
Wellington Letter at 1; ICI Letter at 4, 10; Capital Group Letter at 
4; BlackRock Letter at 5; IEX Letter at 3; Better Markets Letter at 
3; AHSAT Letter at 1, 3; DOJ Letter at 3, 4; SIFMA Letter at 1, 5, 
11; ACS Execution Services Letter at 5.
    \553\ See MFA Letter at 2; Capital Group Letter at 2, 4; ICI 
Letter at 4; DOJ Letter at 2-3, 4; SIFMA Letter at 5; MEMX Letter at 
2, 8; NBIM Letter at 4.
    \554\ See NovaSparks Letter at 1.
    \555\ See BestEx Research Letter at 1, 4; DOJ Letter at 3-4, 5; 
Committee on Capital Markets Letter at 3; IntelligentCross Letter at 
5; Better Markets Letter at 3; RBC Letter at 5-6; State Street 
Letter at 3; Fidelity Letter at 3, 9; Wellington Letter at 1; 
BlackRock Letter at 5; IEX Letter at 3; SIG Letter at 1.
    \556\ See Committee on Capital Markets Regulation Letter at 3; 
BestEx Research Letter at 1; RBC Letter at 5-6; State Street Letter 
at 3.
---------------------------------------------------------------------------

    Commenters that raised concerns about the proposed decentralized 
consolidation model said that it would not achieve its goal of 
disseminating consolidated market data to market participants in a more 
timely, efficient, and cost-effective manner than the current 
centralized consolidation model; \557\ that its impact on the markets 
would be uncertain until implementation; \558\ that the impact on fees 
and costs for consolidated market data was uncertain; \559\ that the 
new

[[Page 18640]]

architecture could result in increased costs for some market 
participants; \560\ and that it could result in increased costs for 
SROs.\561\ Commenters also questioned its feasibility,\562\ the 
complexity introduced by multiple competing consolidators,\563\ its 
impact on regulation,\564\ and its benefits to latency.\565\ A few 
commenters also suggested that the decentralized consolidation model 
would benefit from further consideration by market participants and the 
Commission and should be the subject of a separate rulemaking.\566\
---------------------------------------------------------------------------

    \557\ See Healthy Markets Letter I at 2; Kubitz Letter at 1; 
Data Boiler Letter I at 46-47; Data Boiler Letter II at 1; Citadel 
Letter at 5; TD Ameritrade Letter at 2; NYSE Letter II at 22; Nasdaq 
Letter IV at 2-3, 8; Angel Letter at 18-20; STANY Letter II at 5.
    \558\ See FINRA Letter at 3, 4; letter from Linda Moore, 
President and CEO, TechNet, to Vanessa Countryman, Secretary, 
Commission, dated June 18, 2020, (``TechNet Letter II'') at 2.
    \559\ See STANY Letter II at 5; Data Boiler Letter I at 47; TD 
Ameritrade Letter at 15; Nasdaq Letter IV at 23, 26, 47-48, 60. See 
also, e.g., Angel Letter at 22-23.
    \560\ See Cboe Letter at 23-24; FINRA Letter at 3, 4. See also, 
e.g., Angel Letter at 21.
    \561\ See FINRA Letter at 3, 4; Nasdaq Letter IV at 27, 29, 30.
    \562\ See Nasdaq Letter IV at 23-26; NYSE Letter II at 13, 17-
18; IDS Letter I at 3, 4, 7-8; IDS Letter II at 1, 3; STANY Letter 
II at 6; Data Boiler Letter I at 46; Angel Letter at 18, 20; Equity 
Markets Association Letter at 3; FINRA Letter at 3; TechNet Letter 
II at 1-2.
    \563\ See FINRA Letter at 2, 3, 5-6; Angel Letter at 18-19; 
Healthy Markets Letter I at 4-5; TechNet Letter II at 2; STANY 
Letter II at 6, 8; Joint CRO Letter at 2; Data Boiler Letter I at 
48; Nasdaq Letter III at 8; Citadel Letter at 5; TD Ameritrade 
Letter at 12-13; WFE Letter at 1.
    \564\ See Nasdaq Letter IV at 2, 3, 4, 12-13, 35; Joint CRO 
Letter at 2, 3, 4; FINRA Letter at 4, 5, 6; TechNet Letter II at 2; 
Data Boiler Letter I at 48; Healthy Markets Letter I at 4-5; TD 
Ameritrade Letter at 13; Citadel Letter at 5; Kubitz Letter at 1; 
NYSE Letter II at 23.
    \565\ See Cboe Letter at 23; Nasdaq Letter IV at 49; STANY 
Letter II at 5, 6; Citadel Letter at 5; NYSE Letter II at 11, 22, 
23; TD Ameritrade Letter at 12; Proof Trading Letter at 1; Angel 
Letter at 18, 19; FINRA Letter at 8; IDS Letter I at 15; Data Boiler 
Letter II at 1.
    \566\ See Citadel Letter at 5; STANY Letter II at 8.
---------------------------------------------------------------------------

    These comments are addressed below.
2. Comments on the Effectiveness of the Proposal
    Several commenters questioned whether the proposed decentralized 
consolidation model would achieve its goal of disseminating 
consolidated market data to market participants in a more timely, 
efficient, and cost-effective manner than the current centralized 
consolidation model.\567\ One commenter stated that while the proposed 
system may be desirable, ``it is not clear how the development of 
multiple parties interacting and providing quotations and trade data 
can be implemented over time to assure accuracy, completeness and 
avoidance of gaming and fraud.'' \568\ Another commenter said that the 
proposed decentralized consolidation model is impractical and would 
increase market fragmentation.\569\ One commenter stated that the 
Commission failed to show how the decentralized consolidation model 
would result in the dissemination of market data that is prompt, 
accurate, reliable, and fair and said that the proposal violates the 
Administrative Procedure Act (``APA'') \570\ because it did not 
demonstrate a rational connection between the proposal and its 
goals.\571\
---------------------------------------------------------------------------

    \567\ See Healthy Markets Letter I at 2; Kubitz Letter at 1; 
Data Boiler Letter I at 46-47; Data Boiler Letter II at 1; Citadel 
Letter at 5; TD Ameritrade Letter at 2, 12; NYSE Letter II at 22; 
Nasdaq Letter IV at 2-3, 8; Angel Letter at 18-20; STANY Letter II 
at 5.
    \568\ Kubitz Letter at 1.
    \569\ See Data Boiler Letter II at 1.
    \570\ 5 U.S.C. 551 et seq.
    \571\ See NYSE Letter II at 22.
---------------------------------------------------------------------------

    A few commenters stated that the Proposing Release did not include 
enough information to evaluate whether the decentralized consolidation 
model would reduce market data costs, improve transmission latency, and 
improve resiliency.\572\ One commenter stated that the proposal lacked 
information about ``data quality, availability, reliability and 
potential for significant additional cost'' and expressed the view that 
the negative effects of the proposal could exceed any benefits to 
retail investors.\573\ Another commenter said that it was ``unclear 
whether the prices set by competing consolidators will be reliable, 
resilient, or well-regulated; and how anomalies and disparities among 
competing consolidators will be resolved.'' \574\
---------------------------------------------------------------------------

    \572\ See STANY Letter II at 5; TD Ameritrade Letter at 2.
    \573\ TD Ameritrade Letter at 2.
    \574\ TechNet Letter II at 2.
---------------------------------------------------------------------------

    Some commenters raised questions regarding the competitive aspects 
of the proposal. One commenter stated that there was no guarantee that 
competition would improve latency and cost,\575\ and another commenter 
questioned the ability of competing consolidators to provide the needed 
competition to decrease latency and cost.\576\ Further, one commenter 
stated that, although the proposal would provide for competition, there 
is no guarantee that competition would occur or that the proposal would 
result in a competitive outcome that would benefit investors.\577\ This 
commenter stated that competition would result in competing 
consolidators selling differentiated products that would result in a 
proliferation of market data tiers and information asymmetries.\578\
---------------------------------------------------------------------------

    \575\ See TD Ameritrade Letter at 12.
    \576\ See Data Boiler Letter I at 46-47.
    \577\ See Nasdaq Letter IV at 3.
    \578\ See id.
---------------------------------------------------------------------------

    However, several commenters said that the proposed decentralized 
consolidation model would introduce needed competition,\579\ which 
would result in better quality consolidated market data,\580\ lower 
market data costs,\581\ and improved latency.\582\ One commenter stated 
that competition in the consolidation and dissemination of market data 
would increase investor choice and would address both the conflicts of 
interest that exist in the centralized consolidation model and the 
latency advantages enjoyed by market participants that are able to 
purchase proprietary data feeds.\583\ One commenter stated that 
competition will allow for innovation that could reduce dependence on 
proprietary market data,\584\ and another asserted that ``a market with 
competing data feeds will be more efficient and effective.'' \585\ One 
commenter said that modernization through competitive market forces 
would bring desired changes to consolidated market data and its 
framework,\586\ and another supported the proposal's addition of 
competition ``while still preserving a significant role for the 
exchanges to participate.'' \587\
---------------------------------------------------------------------------

    \579\ See MEMX Letter at 3, 8; T. Rowe Price Letter at 4; 
Committee on Capital Markets Regulation Letter at 3; BestEx Research 
Letter at 1; State Street Letter at 3; ACTIV Financial Letter at 1; 
Fidelity Letter at 9; SIFMA Letter at 5, 12; Wellington Letter at 1; 
IntelligentCross Letter at 4-5; ICI Letter at 4, 10; RBC Letter at 
6; DOJ Letter at 5; Capital Group Letter at 4; Virtu Letter at 6.
    \580\ See Committee on Capital Markets Regulation Letter at 3; 
BestEx Research Letter at 1; RBC Letter at 6; State Street Letter at 
3.
    \581\ See Fidelity Letter at 3, 9, 10; Committee on Capital 
Markets Regulation Letter at 3; BestEx Research Letter at 1, 4; 
ACTIV Financial Letter at 1; SIFMA Letter at 12; State Street Letter 
at 3; Wellington Letter at 1; IntelligentCross Letter at 5; ICI 
Letter at 4; RBC Letter at 5-6; DOJ Letter at 3-4, 5; Better Markets 
Letter at 3; BlackRock Letter at 5; IEX Letter at 3.
    \582\ See SIFMA Letter at 1, 5, 11; ICI Letter at 4, 10; Capital 
Group Letter at 4; MEMX Letter at 8; Fidelity Letter at 3, 10; 
BlackRock Letter at 5; IEX Letter at 3; Better Markets Letter at 3; 
AHSAT Letter at 1; DOJ Letter at 3-4, Wellington Letter at 1 (``We 
believe the introduction of competitive forces to the distribution 
of data will result in lower-latency, faster data that is more 
broadly available and also at reduced costs for participants.''); 
NovaSparks Letter at 1 (``The competitive nature of the new model 
will encourage Competing Consolidators to deliver excellent 
reliability, functionality and performance.'').
    \583\ See SIFMA Letter at 5, 12.
    \584\ See State Street Letter at 3.
    \585\ Capital Group Letter at 4.
    \586\ See T. Rowe Price Letter at 4.
    \587\ Virtu Letter at 6.
---------------------------------------------------------------------------

    Several commenters stated that the proposed decentralized 
consolidation model could improve the usefulness of consolidated market 
data and make it a viable alternative to proprietary market data 
feeds.\588\ Commenters indicated that the exchange operators of the 
exclusive SIPs currently lack the incentive to improve the content,

[[Page 18641]]

delivery, and pricing of consolidated market data because improved 
consolidated market data could reduce demand for the proprietary data 
feeds that the exchanges sell.\589\ Two commenters stated that the 
proposal would result in a less costly alternative to proprietary 
market data feeds.\590\ One of these commenters stated that 
alternatives to proprietary data feeds could increase participation in 
the financial services industry and bring down costs for market 
participants.\591\
---------------------------------------------------------------------------

    \588\ See MFA Letter at 2; Capital Group Letter at 2, 4; ICI 
Letter at 4; DOJ Letter at 2-3, 4; SIFMA Letter at 5; MEMX Letter at 
2, 8; NBIM Letter at 4, 5-6.
    \589\ See BestEx Research Letter at 1; State Street Letter at 3.
    \590\ See DOJ Letter at 4; MEMX Letter at 8 (``The new content 
and infrastructure enhancements would provide an opportunity to 
introduce new less-expensive NMS data alternatives to proprietary 
market data products.'').
    \591\ See DOJ Letter at 4.
---------------------------------------------------------------------------

    Two commenters stated that the proposal would narrow the content 
and latency gaps between proprietary market data feeds and consolidated 
market data.\592\ One commenter said that equalizing the content and 
distribution of market data provided by exchanges to competing 
consolidators and self-aggregators and proprietary market data would 
eliminate the ``two-tiered'' market data structure.\593\ Another 
commenter stated that the proposal's improvements to content and 
latency could result in greater reliance on consolidated market 
data.\594\ One commenter stated that the proposal would ``put 
consolidators on more equal footing'' with proprietary market data 
feeds.\595\
---------------------------------------------------------------------------

    \592\ See MFA Letter at 2 (stating that the proposal should 
narrow the ``significant gap in usefulness between exchange 
proprietary data feeds and consolidated market data''); Capital 
Group Letter at 2.
    \593\ MEMX Letter at 2.
    \594\ See ICI Letter at 4.
    \595\ Capital Group Letter at 4.
---------------------------------------------------------------------------

    Another commenter indicated that the geographic diversification of 
competing consolidators could increase the use of consolidated market 
data.\596\ The commenter stated that its own need for direct 
proprietary market data feeds would be eliminated if a competing 
consolidator were located within the same data center as the broker-
dealers the commenter uses.\597\ The commenter also stated that it is 
unlikely that broker-dealers and ``higher-turnover market 
participants'' would use consolidated market data as a substitute for 
lowest-latency, self-aggregated direct proprietary market data feeds 
because latency minimization is critical for their trading 
activities.\598\
---------------------------------------------------------------------------

    \596\ See NBIM Letter at 5-6.
    \597\ See id. at 4.
    \598\ Id. at 4, 5. This commenter said that to be ``consistently 
competitive,'' broker-dealers need to self-aggregate and use the 
fastest connectivity available. According to this commenter, this 
would require using direct proprietary market data feeds for 
algorithmic executions. Id. at 3-4.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model 
will modernize the national market system so that consolidated market 
data is disseminated to market participants in an accurate, reliable, 
prompt, and fair manner.\599\ The Commission also believes that the 
decentralized consolidation model will help to ensure the accuracy and 
completeness of consolidated market data.
---------------------------------------------------------------------------

    \599\ See 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

    The Commission disagrees with the comments that stated that the 
decentralized consolidation model would not achieve the goal of 
disseminating consolidated market data to market participants in a more 
timely, efficient, and cost-effective manner than the current 
centralized consolidation model.\600\ Further, in response to comments 
that stated that competition either would not materialize or would not 
guarantee any benefits to market participants,\601\ the Commission 
believes that the amendments will allow the introduction of competitive 
forces, and foster a competitive environment, for the dissemination of 
consolidated market data. Today, there is no competition in the 
collection, consolidation, and dissemination of SIP data. The exclusive 
SIPs do not compete with each other because Rule 603(b) currently 
requires the dissemination of all consolidated information for an 
individual NMS stock to occur through an exclusive SIP. Therefore, each 
exclusive SIP represents different tapes. The amendments to Rule 603(b) 
will provide an opportunity for competition to improve the 
dissemination of consolidated market data. Market participants have 
stated frequently that SIP data is slower than certain proprietary 
market data products distributed by the exchanges \602\ and that the 
SRO operators of the Equity Data Plans--some of whom have an inherent 
conflict of interest because their proprietary data products compete 
with the SIP data distributed by the Equity Data Plans--have had little 
incentive to improve the quality of SIP data.\603\ The exclusive SIPs 
have not kept pace with the needs of certain market participants, while 
the exchanges have expanded the content and reduced the latency of 
their proprietary data products in response to market participants' 
needs.
---------------------------------------------------------------------------

    \600\ See Healthy Markets Letter I at 2; Kubitz Letter at 1; 
Data Boiler Letter I at 46-47; Citadel Letter at 5; TD Ameritrade 
Letter at 2, 12; NYSE Letter II at 22; Nasdaq Letter IV at 2-3, 8; 
Angel Letter at 18-20; STANY Letter II at 5.
    \601\ See TD Ameritrade Letter at 12; Data Boiler Letter I at 
46-47; Nasdaq Letter IV at 3.
    \602\ See BestEx Research Letter at 1; State Street Letter at 2; 
SIFMA Letter at 5.
    \603\ See SIFMA Letter at 3, 5; BestEx Research Letter at 1, 4 
(citing the Proposing Release, 85 FR at 16767). The first commenter 
stated that the current market data infrastructure provides no 
incentives for the SRO operators of the SIPs to make such 
improvements. See SIFMA Letter at 3. The commenter also noted the 
``inherent conflicts of interest in the existing exclusive SIP 
model.'' Id. at 5.
---------------------------------------------------------------------------

    Some commenters stated that they will consider entering the 
competing consolidator business.\604\ These statements suggest the 
potential competitive landscape that will develop in the national 
market system with the decentralized consolidation model. The 
Commission believes that competitors will be drawn to the significant 
market for the enhanced data content that will be included in 
consolidated market data. By fostering a competitive environment for 
consolidated market data, the Commission is providing the opportunity 
for competing consolidators to end the exclusive SIP monopoly by 
competing on the technology and data services they offer. A competitive 
environment should lead to the use of new, updated technology in a more 
expedited fashion than occurs today. The Commission believes that 
competing consolidators will develop different consolidated market data 
products and services for their subscribers and will compete on the 
basis of latency, resiliency, services and products offered, and other 
factors, including price. The Commission agrees with the commenters who 
stated that competition will lower market data costs, reduce latency, 
and provide better quality data.\605\
---------------------------------------------------------------------------

    \604\ See McKay Letter at 2; MIAX Letter at 1; NovaSparks Letter 
at 1 (``[A] wide variety of trading firms consolidate this data and 
we believe several vendors will soon become Competing 
Consolidator.''). See also Miami International Holdings Announces 
That It Is Evaluating Registration as a Competing Consolidator, 
dated Nov. 18, 2020, available at https://www.miaxoptions.com/press-releases. The Commission notes that Virtu Financial submitted a 
comment letter on a proposed rule change in which it expressed 
interest in establishing a competing consolidator. See letter from 
Douglas A. Cifu, Chief Executive Officer, Virtu Financial, to 
Vanessa A. Countryman, Secretary, Commission, dated Aug. 28, 2020, 
available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf.
    \605\ See Committee on Capital Markets Regulation Letter at 3; 
Fidelity Letter at 9; BestEx Research Letter at 1; ACTIV Financial 
Letter at 1; SIFMA Letter at 5, 12; State Street Letter at 3; 
IntelligentCross Letter at 5; ICI Letter at 4, 10; RBC Letter at 6; 
DOJ Letter at 5; Wellington Letter at 1; Capital Group Letter at 4.
---------------------------------------------------------------------------

    Due to the structure of the decentralized consolidation model, the 
Commission believes that competing consolidators and self-aggregators 
will

[[Page 18642]]

significantly reduce the geographic, aggregation, and transmission 
latency differentials that exist between SIP data and proprietary data. 
With respect to geographic latency, competing consolidators will be 
able to deliver consolidated market data products directly to 
subscribers because such data will no longer be required to travel 
several miles to a separate location for consolidation by the exclusive 
SIPs. By allowing consolidation to occur at the data center where a 
data end-user is located instead of occurring only at the CTA/CQ SIP in 
Mahwah, NJ, and the Nasdaq UTP SIP data center in Carteret, NJ, market 
participants located outside of these data centers should receive 
consolidated market data at reduced geographic latencies. With respect 
to aggregation latency, competition will incentivize competing 
consolidators to minimize the amount of time it takes to aggregate SRO 
data into consolidated market data products. Competition will also 
incentivize competing consolidators to reduce transmission latency 
because they will not be restricted to the transmission methods 
mandated by the Equity Data Plans; \606\ therefore, they can compete 
based on the efficiency of their delivery of consolidated market data 
products. Even if a competing consolidator chooses not to consolidate 
data at its users' data centers, the Commission believes the users may 
still benefit from reduced aggregation and transmission latencies 
because competing consolidators will be incentivized to use the latest 
aggregation and transmission mechanisms as a means to attract 
subscribers.
---------------------------------------------------------------------------

    \606\ As described in the Proposing Release, the transmission 
methods mandated by the Equity Data Plans typically rely on 
transmission options that are slower than competitive options. See 
Proposing Release, 85 FR at 16767.
---------------------------------------------------------------------------

    The Commission believes that the competition fostered by the new 
model will enhance the speed and quality of the collection, 
consolidation, and dissemination of consolidated market data. For 
example, competing consolidators could seek to provide faster 
consolidation times, reduce transmission and connectivity latency, 
provide greater connectivity bandwidth, and reduce connectivity fees. 
Several commenters agreed that competition will enhance the national 
market system.\607\
---------------------------------------------------------------------------

    \607\ See Committee on Capital Markets Regulation Letter at 3; 
Fidelity Letter at 9; BestEx Research Letter at 1; ACTIV Financial 
Letter at 1; SIFMA Letter at 5, 12; State Street Letter at 3; 
IntelligentCross Letter at 5; ICI Letter at 4, 10; RBC Letter at 6; 
DOJ Letter at 5; Wellington Letter at 1; Capital Group Letter at 4.
---------------------------------------------------------------------------

    The Commission recognizes that some market participants that 
require the lowest possible latency and additional (e.g., order-by-
order data) content may continue to use proprietary data feeds for 
certain trading applications. However, for applications that do not 
require additional content beyond the scope of new core data, the 
Commission believes that, once operating in a competitive landscape 
with the requirement that data be made available ``in the same manner 
and using the same methods, including all methods of access and the 
same format,'' \608\ latency alone will not be a compelling reason to 
subscribe to proprietary data.\609\ As affirmed by commenters, the 
Commission believes the model's significant improvements to the latency 
and content of consolidated market data products will enhance the 
usefulness of the data provided to users under the national market 
system.
---------------------------------------------------------------------------

    \608\ Rule 603(b) of Regulation NMS. See infra Section III.B.9.
    \609\ The Commission recognizes that there will be a small 
``extra hop'' for competing consolidators that could result in a 
small amount of additional latency as compared to proprietary data 
because competing consolidators must collect, consolidate, and 
disseminate consolidated market data products to end users. However, 
the extra hop will be significantly less than the geographic latency 
that currently exists with the exclusive SIPs. The extra hop refers 
to the need to transmit data within a data center, a span of feet, 
as compared to geographic latency among geographically diverse data 
centers, a span of miles. More specifically, a competing 
consolidator that chooses to collect, consolidate, and disseminate 
market data within the same data center as its end-users will only 
have to disseminate consolidated market data within the data center, 
while exclusive SIPs must collect data from geographically dispersed 
SRO data centers, and consolidate and disseminate consolidated 
market data to end-users in other data centers. If a competing 
consolidator does not consolidate data at its users' data centers, 
its end-users may still benefit from reduced aggregation and 
transmission latencies due to the competitive aspect of the 
decentralized consolidated model. Further, the amount of latency 
that may result from using competing consolidators will depend upon 
other technical choices and competencies of the competing 
consolidator (i.e., a competing consolidator may choose to use the 
most technologically advanced aggregation and transmission 
technologies and therefore narrow its latency differential with 
proprietary data; conversely, a decision to use less state-of-the-
art technology could widen this latency differential while 
potentially lowering costs to users). Self-aggregators would not 
have the extra hop because they will be collecting and consolidating 
this data for themselves. See infra Section III.D.2(d).
---------------------------------------------------------------------------

    The rules adopted for the decentralized consolidation model have 
been designed to avoid ``gaming and fraud'' \610\ and to ensure the 
accuracy and completeness of consolidated market data. Competing 
consolidators and self-aggregators will be regulated entities, which 
will help monitoring efforts regarding the accuracy and completeness of 
consolidated market data. Competing consolidators are required to 
register with the Commission pursuant to Rule 614 and will be subject 
to Commission oversight. In addition, self-aggregators, which must be 
registered entities--i.e., broker-dealers, national securities 
exchanges, national securities associations, or RIAs--will be subject 
to Commission oversight.
---------------------------------------------------------------------------

    \610\ Kubitz Letter at 1.
---------------------------------------------------------------------------

    Under Rule 614, all competing consolidators will be subject to 
standards with respect to the promptness, accuracy, reliability, and 
fairness of their consolidated market data products' distribution.\611\ 
Form CC will require competing consolidators to provide operational 
transparency, and Rule 614(d) will require a competing consolidator to 
publish monthly performance metrics and other information concerning 
performance and operations.\612\ These requirements should help to 
ensure that consolidated market data products are provided in a prompt, 
accurate, and reliable manner by providing transparency to subscribers 
and potential subscribers into a competing consolidator's performance 
and operations. Because these provisions require that all competing 
consolidators disclose the same information, they will allow market 
participants to evaluate and compare competing consolidators more 
easily based on cost, service, and performance. These requirements are 
designed to establish a system whereby a competing consolidator will 
have to provide consolidated market data products with competitive 
latency, but also reliably and accurately, and in a cost-effective 
manner in order to attract and maintain its subscriber base.
---------------------------------------------------------------------------

    \611\ Under Section 11A(b)(3)(B) of the Exchange Act, 15 U.S.C. 
78k-1(b)(3)(B), the Commission will be able to grant the 
registration of a competing consolidator only if the Commission is 
able to find, among other things, that the competing consolidator is 
so organized, and has the capacity, to be able to assure the prompt, 
accurate, and reliable performance of its functions and to operate 
fairly and efficiently as a SIP.
    \612\ See infra Section III.C.8.
---------------------------------------------------------------------------

    The Commission does not believe that the decentralized 
consolidation model will be impractical or increase market 
fragmentation. While the decentralized consolidation model introduces 
multiple competing consolidators disseminating consolidated market data 
products, today, market participants utilize data products developed by 
multiple data vendors, exchanges, and the exclusive SIPs. The 
decentralized consolidation model does not introduce additional 
fragmentation in the market data landscape.

[[Page 18643]]

    In the Proposing Release, the Commission described the significant 
latencies that exist in the centralized consolidation model and 
explained specifically how the decentralized consolidation model will 
address them.\613\ Further, the Commission discussed how the proposed 
rules will address data quality, availability, and reliability \614\ 
and the disclosure of fees set by competing consolidators. The 
Commission provided information demonstrating how the proposed rules 
would achieve the Commission's goal of modernizing the national market 
system so that consolidated market data is disseminated to market 
participants in an accurate, reliable, prompt, and fair manner.
---------------------------------------------------------------------------

    \613\ See Proposing Release, 85 FR at 16768. See also supra note 
533 (discussing the latencies that exist in the current centralized 
consolidated model). See also infra Section III.B.5 (discussing 
comments on the decentralized consolidation model's impact on 
latency).
    \614\ See Proposing Release, 85 FR at 16782. See infra Section 
III.C.8 (discussing competing consolidator responsibilities under 
Rule 614).
---------------------------------------------------------------------------

3. Comments on the Viability of the Decentralized Consolidation Model
    Commenters questioned whether enough competing consolidators would 
enter the market to make the decentralized consolidation model 
viable.\615\ Some commenters stated that the success of the model 
depends on the creation of multiple competing consolidators.\616\
---------------------------------------------------------------------------

    \615\ See Nasdaq Letter IV at 23-26; NYSE Letter II at 9, 13-18; 
IDS Letter I at 3, 4, 7-8, 9; STANY Letter II at 6; Data Boiler 
Letter I at 46; Angel Letter at 18, 20.
    \616\ See IDS Letter I at 3, 7; NYSE Letter II at 3, 13; Nasdaq 
Letter IV at 25; Equity Markets Association Letter at 3 (quoting 
NYSE Letter II at 3).
---------------------------------------------------------------------------

    Several of these commenters stated that the proposal lacked support 
to assume that multiple competing consolidators would enter the 
market.\617\ One commenter stated that the proposal assumes there would 
be a competitive market but lacks support for its assumption that there 
would be multiple competing consolidators.\618\ This commenter said 
that a competitive market could not arise if only a few competing 
consolidators were established, resulting in competing consolidators 
charging a premium for consolidated market data.\619\ The commenter 
said that the proposal did not consider this possibility, nor did it 
reasonably consider whether any competing consolidators would register, 
their viability, and the costs to investors and other market 
participants if the competing consolidators ceased operating.\620\
---------------------------------------------------------------------------

    \617\ See NYSE Letter II at 9, 13-18; IDS Letter I at 3-4. One 
commenter said that the Commission should have considered the 
European Union's efforts to create a consolidated tape with 
competing consolidators, noting that no such competing consolidators 
have registered. Angel Letter at 20. This commenter said that the 
proposal's lack of discussion of other jurisdictions as alternatives 
was a potential violation of the APA. See id. at 21. The Commission 
does not believe the European Union's experience with developing a 
consolidated tape is relevant for purposes of this proposal. The 
market and regulatory structure of the European Union are different 
than they are in the United States. In December 2019, the European 
Securities and Markets Authority (``ESMA'') released a report 
describing the obstacles to developing a consolidated tape in the 
EU, including the lack of data quality for OTC transactions, the 
need for a consolidated tape provider to have to negotiate contracts 
for data from 170 trading venues and approved publication 
arrangements, and certain regulatory requirements. See ESMA, MiFID 
II/MiFIR Review Report No. 1: On the development in prices for pre- 
and post-trade data and on the consolidated tape for equity 
instruments (Dec. 5, 2019), available at https://www.esma.europa.eu/sites/default/files/library/mifid_ii_mifir_review_report_no_1_on_prices_for_market_data_and_the_equity_ct.pdf. See also European Commission, The Study on the 
Creation of an EU Consolidated Tape (Sept. 2020), available at 
http://www.marketstructure.co.uk/wp-content/uploads/Full-Report_
The-Study-on-the-Creation-of-an-EU-Consolidated-Tape.pdf. The U.S. 
equity markets do not face the same issues and have vast experience 
in creating consolidated market data.
    \618\ See IDS Letter I at 7. See also NYSE Letter II at 13. This 
commenter said that the success of the proposed decentralized 
consolidation model ``rests entirely on unfounded assumptions 
regarding the appearance of a market for competing consolidators . . 
.'' Id. at 3.
    \619\ See IDS Letter I at 7. This commenter, a market data 
aggregation firm, also said that it would be very costly for it to 
become a competing consolidator because it would have to develop a 
new infrastructure to collect, consolidate, and disseminate NMS data 
since its method of data consolidation and dissemination is 
``fundamentally different'' than that used by the exclusive SIPs. 
See IDS Letter II at 1, 2-3.
    \620\ See IDS Letter I at 3, 9. The commenter also said that the 
Commission failed to meet its burden to examine economic costs and 
inefficiencies of the proposal because it did not consider the 
possibility of a delayed implementation, or that it may never be 
implemented or that it may cease to be viable. See also IDS Letter 
II at 3. The commenter stated that the proposal did not discuss 
contingencies in the event of such occurrences. See IDS Letter I at 
8. See also Nasdaq Letter IV at 24 (stating that the Commission did 
not imagine an environment in which only a few competing 
consolidators survive the initial period of entry).
---------------------------------------------------------------------------

    One commenter said that there may be few competing consolidators 
because ``SROs or other firms may have cost or other economic 
advantages (e.g., scale or scope economies) not enjoyed by other 
potential consolidators . . .'' resulting in competition insufficient 
to achieve the proposal's goals.\621\ Two other commenters, however, 
stated that the proposal incorrectly presumed the willingness of SROs 
to become competing consolidators.\622\ One of the commenters stated 
that the proposal lacked analysis supporting why SROs would want to 
incur the costs of becoming a competing consolidator, why the SROs that 
operate the existing exclusive SIPs would want to become competing 
consolidators, and how exchange-affiliated competing consolidators 
could avoid being deemed a facility of an exchange.\623\
---------------------------------------------------------------------------

    \621\ Nasdaq Letter IV at 25. See also Angel Letter at 20 
(stating the only competing consolidators will be the two existing 
exclusive SIPs because only they can afford to comply with 
Regulation SCI).
    \622\ See NYSE Letter II at 17-18; IDS Letter I at 3-4.
    \623\ See NYSE Letter II at 17-18. See also IDS Letter I at 3-4, 
16 (stating that because the proposal did not establish criteria to 
determine when a competing consolidator would be deemed a facility 
of an exchange, there was no reasoned basis to assume that half of 
the competing consolidators would be exchanges); infra Section 
III.C.7(a)(iv) (discussing competing consolidators affiliated with 
exchanges).
---------------------------------------------------------------------------

    Finally, one commenter questioned the proposal's assumption that 
current market data vendors would choose to become competing 
consolidators.\624\ The commenter said data vendors that want to 
continue to receive proprietary data from an SRO would have to register 
as competing consolidators, or they would have to subscribe to a 
competing consolidator to purchase this data. The commenter said the 
price of this data could increase, causing a data vendor's customer 
base to decrease. The commenter said the proposal lacks analysis of 
whether the added costs to vendors outweigh the benefits to vendors and 
said the proposal would cause data vendors to leave the market.\625\
---------------------------------------------------------------------------

    \624\ See NYSE Letter II at 18. 17 CFR 242.614(a)(1) (Rule 
614(a)(1)) provides that only entities that receive information with 
respect to quotations for and transactions in NMS stocks directly 
from a national securities exchange or national securities 
association pursuant to an effective NMS plan, and generate 
consolidated market data for dissemination, will be required to 
register as competing consolidators. See infra Section 
III.C.7(a)(iii) (discussing this change).
    \625\ See NYSE Letter II at 18.
---------------------------------------------------------------------------

    Three commenters stated that large broker-dealers would opt to 
become self-aggregators instead of becoming competing consolidators or 
being subscribers of competing consolidators.\626\ Because one 
commenter believed that larger broker-dealers would likely become self-
aggregators, the commenter said that the remaining potential customer 
base for competing consolidators would be less likely to need faster 
and more comprehensive market data and thus would not benefit from the 
introduction of competing consolidators.\627\ Another

[[Page 18644]]

commenter stated that less than 1% of exclusive SIP customers are 
proprietary DOB feed customers, and because proprietary data feeds 
would continue to be faster than competing consolidators, the potential 
increase in subscribers for competing consolidators over the total 
number of professional SIP data subscribers would amount to a fraction 
of the 1%.\628\ The commenter stated that the Commission's assumption 
that there would be 12 competing consolidators did not consider that 
many users of NMS information would become self-aggregators and not 
subscribers of competing consolidators.\629\
---------------------------------------------------------------------------

    \626\ See id. at 17; Nasdaq Letter IV at 2, 24; STANY Letter II 
at 7 (``[S]elf-aggregators may diminish what could potentially be a 
thin field.'').
    \627\ See NYSE Letter II at 17. See also Nasdaq Letter IV at 2.
    \628\ See Nasdaq Letter III at 7.
    \629\ See Nasdaq Letter IV at 24. One commenter also said that 
customers that decide to self-aggregate instead of subscribe to a 
competing consolidator would reduce the number of potential 
subscribers for competing consolidators. Accordingly, the potential 
revenues of competing consolidators would be reduced as well. IDS 
Letter I at 14.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model 
is a viable data dissemination model and that a sufficient number of 
competing consolidators will register to provide data consolidation and 
dissemination services to market participants due to significant 
anticipated demand from market participants for consolidated market 
data products that will be provided competitively, with lower latency, 
enhanced content, and competitive pricing.\630\ Competing consolidators 
will be the only entities permitted to receive the data content 
underlying consolidated market data at the prices set by the Equity 
Data Plans, which will be filed with the Commission pursuant to Rule 
608 and reviewed for compliance with statutory and regulatory 
standards,\631\ and permitted to sell consolidated market data products 
to customers, and the prices set by competing consolidators will be 
subject to competitive forces under the decentralized consolidation 
model. As consolidated market data products, including connectivity to 
competing consolidators, would be subject to competitive pricing, they 
would likely be offered at lower prices than the current equivalent 
proprietary data products.\632\ The Commission believes that 
competitive pricing, combined with market participants' need for 
consolidated market data, will drive demand for competing 
consolidators.
---------------------------------------------------------------------------

    \630\ See infra Section V.C.2(a)(ii)c. The Commission estimates 
that approximately eight entities, including SRO affiliates and 
broker-dealers that currently aggregate for themselves, will become 
competing consolidators. See infra Section IV.C.1(b). Some 
commenters responded that they are considering registering as 
competing consolidators. See supra note 604. The Commission believes 
that even if a smaller number of competing consolidators enters the 
market, there will be some degree of competition, which will yield 
benefits. See infra Section V.C.2(a)(ii).
    \631\ See infra Section III.E.2(c).
    \632\ See infra Section III.B.6.
---------------------------------------------------------------------------

    The decentralized consolidation model will foster a competitive 
environment, which should provide benefits to market participants even 
if there is a small number of competing consolidators.\633\ Competing 
consolidators will be able to register and begin operations at any 
time.\634\ This competitive dynamic should enhance the operation of the 
national market system by incentivizing competing consolidators to 
continually seek to provide optimal consolidated market data products 
for end users.
---------------------------------------------------------------------------

    \633\ See supra note 630.
    \634\ See infra Section III.C.7. See also infra Section III.H.
---------------------------------------------------------------------------

    In addition, the Commission believes that because market 
participants require consolidated market data to participate in the 
market and to comply with regulatory requirements, such as Rule 611 and 
Rule 603(c), competing consolidators will enter the market to service 
this demand. The Commission believes that market participants will 
continue to need consolidated market data under the decentralized 
consolidation model because a significant number of non-professional 
subscribers and other market participants use SIP data today and likely 
will not become self-aggregators, thereby promoting the viability of 
this model. The Equity Data Plans report significant numbers of 
subscribers for SIP data. For example, the CTA Plan reports 5.4 million 
non-professional subscribers, 290,000 professional subscribers, 368 
real-time internal use only vendors, 234 real-time external vendors, 
and 327 non-display vendors in the second quarter of 2020.\635\ The 
Nasdaq UTP Plan reports 5.7 million non-professional subscribers, 
280,000 professional subscribers, 316 real-time only vendors, 252 real-
time external vendors and 319 non-display vendors for second quarter of 
2020.\636\ Many of these current exclusive SIP subscribers are likely 
to need the data services of a competing consolidator, which indicates 
the potential demand for consolidated market data products. Further, 
some market participants that currently rely on proprietary market data 
feeds may decide to utilize a competing consolidator because the 
Commission believes that competing consolidators will offer faster and 
more comprehensive alternatives to current exclusive SIP and 
proprietary feeds at competitive pricing.
---------------------------------------------------------------------------

    \635\ See CTA Plan, CTA Tape A & B Subscriber/Household Metrics: 
CTA Q2 2020, available at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_2Q2020.pdf (last accessed Nov. 
27, 2020) (describing the different categories of subscribers).
    \636\ See UTP Plan, UTP Q2 2020 U.S. Equities Securities 
Information Processor (UTP SIP) Key Quarterly Operating Metrics of 
TAP: Tape C Subscriber/Household Metrics, available at http://www.utpplan.com/DOC/UTP_2020_Q2_Stats_with_Processor_Stats.pdf (last 
accessed Nov. 27, 2020) (describing the different categories of 
subscribers).
---------------------------------------------------------------------------

    Three commenters suggested that large broker-dealers that self-
aggregate would either not become competing consolidators or would not 
become subscribers of competing consolidators.\637\ Some market 
participants today purchase exchange proprietary data products and 
aggregate such data for their own uses. There is no regulatory 
requirement to purchase proprietary data, but a market has developed 
for these enhanced products. The Commission believes that competing 
consolidators, operating in a decentralized consolidation model, will 
improve the latencies that exist in the current centralized 
consolidation model. The competitive environment fostered by the 
decentralized consolidation model should result in greater innovation 
and the timely adoption of updated technologies into the aggregation 
and transmission of consolidated market data.\638\ Further, the 
Commission believes that the additional content that will be available 
in consolidated market data products may also serve some market 
participants that purchase proprietary data. As a result, the 
Commission believes that some market participants may choose to use 
consolidated market data products disseminated by competing 
consolidators rather than aggregate it themselves; for example, with 
the improved latencies of a competing consolidator, it could be more 
convenient or cheaper for certain market participants to subscribe to a 
competing consolidator than to self-aggregate.\639\
---------------------------------------------------------------------------

    \637\ See supra note 626.
    \638\ See supra note 533.
    \639\ Additionally, self-aggregators are permitted to generate 
consolidated market data solely for internal use. A firm that wants 
to generate and disseminate consolidated market data to its 
customers will have to purchase the consolidated market data from a 
competing consolidator rather than self-aggregate to avoid the 
internal use limitation or would have to purchase proprietary data 
feeds. See Rule 600(b)(83); see also infra Section III.D.2.
---------------------------------------------------------------------------

    Further, the Commission believes that it is possible that a broker-
dealer or RIA that self-aggregates could decide to become a competing 
consolidator. For example, a firm may decide that the benefits of 
entering the competing consolidator business, such as

[[Page 18645]]

generating a new revenue stream or providing services to its customers 
by disseminating consolidated market data products to them, exceed the 
costs of becoming a competing consolidator.\640\
---------------------------------------------------------------------------

    \640\ See letter from Douglas A. Cifu, Chief Executive Officer, 
Virtu Financial, to Vanessa A. Countryman, Secretary, Commission, 
dated Aug. 28, 2020, at 4, available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf (expressing 
interest in establishing a competing consolidator); infra Section 
V.C.2(d)(i).
---------------------------------------------------------------------------

    One commenter stated that unresolved issues regarding the 
regulatory framework for competing consolidators would deter competing 
consolidators from registering, including whether and when the 
Commission would approve an effective national market system plan.\641\ 
The commenter said the proposal ``does not adequately consider or 
analyze the structural requirements or potential revenue and cost 
streams for competing consolidators or the implications of this model 
on costs to market participants . . .'' \642\ The commenter said the 
proposal raises questions regarding the fees competing consolidators 
can charge and the value they add to subscribers.\643\ Similarly, 
another commenter stated that ``[t]he stability and viability of any 
potential competing consolidator's revenues are entirely dependent on 
outside conditions, including the yet-to-be determined fees set by NMS 
plans . . . . ' '' \644\
---------------------------------------------------------------------------

    \641\ The commenter said that no potential competing 
consolidator would register and incur the attendant costs of 
becoming a competing consolidator before the Commission approves the 
effective national market system plan. The commenter said, ``[n]o 
rational entity would expend the effort to create a competing 
consolidator if it cannot estimate the relevant costs and 
benefits.'' IDS Letter I at 8. The commenter also said that without 
knowing the number of competitors and customers and the fees it can 
charge, a potential competing consolidator cannot estimate whether 
its revenue would exceed its costs. See IDS Letter I at 14.
    \642\ Id. at 3.
    \643\ See id.
    \644\ NYSE Letter II at 14. See also id. at 15 (stating that 
potential competing consolidators would be deterred from registering 
because they would not know the cost of market data or what they 
could charge for consolidated market data).
---------------------------------------------------------------------------

    While the Commission acknowledges that the future fees for data 
content underlying consolidated market data have not been developed or 
proposed by the effective national market system plan(s),\645\ the 
Commission believes that this should not be an impediment to potential 
competing consolidators evaluating whether to register. The fees for 
the data content underlying consolidated market data will be 
established before competing consolidators can begin to register \646\ 
and will be the same for all data users, so competing consolidators can 
evaluate how they will compete on the services they provide to 
subscribers, such as their aggregation and transmission services for 
consolidated market data products. Further, the Commission believes 
that there will be downward pressure on the fees for the data content 
underlying consolidated market data as compared to fees for proprietary 
data.\647\ Potential competing consolidators can evaluate the potential 
subscriber pool \648\ of market participants that do not self-
aggregate, including current SIP users, and current exclusive SIP 
metrics to evaluate potential technology needs.\649\
---------------------------------------------------------------------------

    \645\ See infra Section III.E.2(c).
    \646\ See infra Section III.H.
    \647\ See infra Section III.E.2(c).
    \648\ See supra note 635 and accompanying text.
    \649\ See, e.g., CTA Plan, Key Operating Metrics of Tape A&B 
U.S. Equities Securities Information Processor (CTA SIP), available 
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf (last accessed Nov. 27, 2020) 
(providing peak messages per second, 100 milliseconds, and 10 
milliseconds and peak transactions and capacity transactions per day 
and latency information for Tapes A and B); UTP Q3 2020--July Tape C 
Quote Metrics, available at http://www.utpplan.com/DOC/UTP_website_Statistics_Q3-2020-July.pdf (last accessed Nov. 27, 
2020) (for Tape C).
---------------------------------------------------------------------------

    Finally, one commenter stated that the Commission did not address 
the possibility that a competing consolidator could begin operations, 
the exclusive SIPs would be dismantled, and the competing consolidator 
could go out of business and cease operations by publishing a notice of 
its cessation of operations on Form CC.\650\ This commenter also stated 
that the Commission did not ``meaningfully rebut'' the reasons why 
competing consolidators would not appear in sufficient numbers, 
qualifications, and duration to produce the proposed decentralized 
consolidation model \651\ and that the Commission assumes, without 
relying on underlying data, that competing consolidators would be able 
to operate successfully.\652\ The commenter said this lack of analysis 
was a violation of the APA.\653\ Similarly, another commenter 
questioned what would happen if a number of competing consolidators 
ceased operations, which would result in the system not being 
viable.\654\ This commenter compared competing consolidators that could 
terminate operations by filing a Form CC to the exclusive SIPs, which 
are obligated to perform their duties.\655\ The commenter also stated 
that the proposal failed to consider the costs to investors and other 
market participants if a competing consolidator ceased to operate.\656\
---------------------------------------------------------------------------

    \650\ See NYSE Letter II at 13, n. 42.
    \651\ Id.
    \652\ See id.
    \653\ See id. at 14.
    \654\ See IDS Letter I at 9.
    \655\ See id.
    \656\ See id. at 3.
---------------------------------------------------------------------------

    The Commission believes that it is highly unlikely that all 
competing consolidators would cease operations because market 
participants require consolidated market data to trade, both for 
competitive purposes and to comply with regulatory requirements such as 
best execution, the Vendor Display Rule, and the Order Protection Rule. 
Market participants that do not self-aggregate will not be able to 
trade without the consolidated market data products produced by 
competing consolidators. This demand for consolidated market data will 
ensure that competing consolidators, as the providers of consolidated 
market data products, are operating in the national market system at 
all times. If one competing consolidator ceases to operate, the 
Commission believes that other competing consolidators will be 
available to provide consolidated market data products to the customers 
of the competing consolidator that has ceased operations or that new 
entrants would quickly arise to fill any gaps in supply. Finally, 
consistent with the requirements under the APA, the Commission 
discussed in the Proposing Release why it believes that competing 
consolidators would begin operations in the decentralized consolidation 
model and why they would be viable.\657\
---------------------------------------------------------------------------

    \657\ See Proposing Release, 85 FR at 16776.
---------------------------------------------------------------------------

4. Comments on Conflicts of Interest
    Three commenters said the proposed decentralized consolidation 
model would mitigate the conflicts of interest that exist in the 
current centralized consolidation model, in which the exchanges operate 
the exclusive SIPs while also selling proprietary market data products 
that compete with SIP data.\658\ Two of the commenters highlighted high 
market data costs and latency as two effects of the conflicts, 
suggesting that eliminating such conflicts would help make competing 
consolidators' data dissemination a ``viable alternative'' to 
proprietary feeds.\659\ Another commenter stated that the proposal 
would ``replace an outdated and conflicted monopoly system to deliver 
core data with one that is competitive and better able to adapt to 
future changes and investors' needs.'' \660\ The Commission agrees that

[[Page 18646]]

the decentralized consolidation model will help mitigate the conflicts 
of interest inherent in the existing exclusive SIP model by allowing 
independent entities in the form of competing consolidators and self-
aggregators, rather than SRO-affiliated exclusive SIPs, to collect, 
consolidate, and disseminate consolidated market data.
---------------------------------------------------------------------------

    \658\ See SIFMA Letter at 5; Fidelity Letter at 3, 10; IEX 
Letter at 1, 2.
    \659\ See SIFMA Letter at 5; Fidelity Letter at 3.
    \660\ IEX Letter at 2.
---------------------------------------------------------------------------

5. Comments on Latency
    Several commenters stated that the proposed decentralized 
consolidation model could reduce latency in the dissemination of 
consolidated market data.\661\ One commenter stated that the 
decentralized consolidation model would allow more timely delivery of 
consolidated market data.\662\ Another commenter said the proposal's 
content and latency reforms ``go a long way.'' \663\
---------------------------------------------------------------------------

    \661\ See AHSAT Letter at 1, 3; BlackRock Letter at 5; DOJ 
Letter at 2-3, 4; Fidelity Letter at 3, 10; MEMX Letter at 6, 7, 8; 
SIFMA Letter at 1, 5, 11; Wellington Letter at 1; ICI Letter at 4, 
10; ACS Execution Services Letter at 5; Better Markets Letter at 3; 
Capital Group Letter at 4; IEX Letter at 3.
    \662\ See DOJ Letter at 4.
    \663\ AHSAT Letter at 1.
---------------------------------------------------------------------------

    One commenter stated that the proposal's changes to latency would 
``modernize market data infrastructure.'' \664\ This commenter said 
that competition among competing consolidators would reduce geographic 
and aggregation latency.\665\ Other commenters also noted the proposed 
decentralized consolidation model's potential beneficial effects on 
geographic latency.\666\ One commenter stated that the proposal would 
reduce geographic latency because exchange data would no longer be 
aggregated by the exclusive SIPs in two locations, and competing 
consolidator subscribers could receive consolidated data within the 
data center of the competing consolidator.\667\ Two commenters said 
that the proposed decentralized consolidation model could reduce the 
geographic, aggregation, and transmission latency differentials between 
proprietary market data feeds and SIP data.\668\ Other commenters also 
noted the proposed decentralized consolidation model's potential to 
reduce both the latency and the content differentials between 
proprietary market data feeds and SIP data.\669\
---------------------------------------------------------------------------

    \664\ SIFMA Letter at 1.
    \665\ See id. at 11. See also NovaSparks Letter at 1 (stating 
that competition will encourage competing consolidators to deliver 
excellent performance).
    \666\ See MEMX Letter at 6, 7, 8; ICI Letter at 10; BlackRock 
Letter at 5.
    \667\ See ICI Letter at 10.
    \668\ See MEMX Letter at 6, 8; BlackRock Letter at 5. See also 
NBIM Letter at 6 (stating that it uses direct feeds to reflect the 
``physical reality'' of the broker-dealers whose performance it 
needs to evaluate and that the proposal would provide an opportunity 
for competitive processors located in the same data centers as most 
institutional broker-dealers to emerge).
    \669\ See ACS Execution Services Letter at 5 (stating that the 
model would reduce content and latency differentials between SIP and 
proprietary market data); DOJ at 2-3, 4 (supporting the proposal's 
efforts to address the granularity and latency differentials between 
SIP and proprietary market data).
---------------------------------------------------------------------------

    However, several commenters questioned whether the decentralized 
consolidation model could meaningfully impact the latency of 
consolidated market data.\670\ One commenter said that there was no 
guarantee that competition would result in improved latency.\671\ 
Another said that exchanges could increase the latency gap between 
proprietary data and consolidated market data with frequent 
upgrades.\672\ One commenter stated that the proposal failed to explain 
how the decentralized consolidation model would reduce latency and 
asked the Commission to explain why the proposed model is preferable to 
the distributed SIP alternative, which would address geographic 
latency.\673\ Another commenter said that the proposed decentralized 
consolidation model is inconsistent with the Commission's obligations 
under the APA because it is not based on current market conditions and 
relies instead on ``outdated discussions and panelist comments'' from 
the Market Data Roundtable.\674\ The commenter said that changes to 
market data infrastructure and governance have since reduced the 
latency differentials.\675\
---------------------------------------------------------------------------

    \670\ See Cboe Letter at 23; Citadel Letter at 5; STANY Letter 
II at 5, 6; NYSE Letter II at 11, 22, 23; Nasdaq Letter IV at 49; 
Angel Letter at 18, 19; TD Ameritrade Letter at 12; FINRA Letter at 
8; IDS Letter I at 15; Data Boiler Letter II at 2; Proof Trading 
Letter at 1.
    \671\ See TD Ameritrade Letter at 12.
    \672\ See Data Boiler Letter II at 2.
    \673\ See Nasdaq Letter IV at 49.
    \674\ NYSE Letter II at 9, 10, 23. Similarly, one commenter 
stated that the Commission solely relied on comments from the Market 
Data Roundtable to support its belief that the decentralized 
consolidation model would reduce transmission latency differentials 
between SIP and proprietary market data. See Nasdaq Letter IV at 45.
    \675\ The commenter said that the Commission has ignored ``the 
impact of significant changes to the SIP infrastructure already 
implemented by the SROs and to the governance of the national market 
systems that the Commission recently imposed, while overlooking the 
impressive performance of the existing system in a time of extreme 
market volatility.'' NYSE Letter II at 10.
---------------------------------------------------------------------------

    The Commission believes that fostering a competitive environment 
for the collection, consolidation, and dissemination of consolidated 
market data will result in such data being delivered to market 
participants in a decentralized manner with improved geographic, 
aggregation, and transmission latencies. With respect to geographic 
latency, unlike the current exclusive centralized consolidation model, 
the decentralized consolidation model will allow the direct delivery of 
each SRO's market data to competing consolidators and self-aggregators, 
and competing consolidators may be located in the same data center as 
their subscribers. This stands in stark contrast to today's model where 
(a) one consolidator is located in one centralized data center while 
(b) a significant number (in some cases a majority) of subscribers are 
located in different data centers, and (c) each SRO's market data is 
required to travel to the one centralized location to be aggregated, 
prior to (d) traveling to yet another data center for receipt and use 
by subscribers.\676\ In the decentralized consolidation model, SRO data 
will no longer be required to travel to a separate central location for 
consolidation by an exclusive SIP. Consolidation could occur at the 
data center where a data end-user is located instead of occurring only 
at the CTA/CQ SIP and the Nasdaq UTP SIP data centers. As one commenter 
stated, the physical location of a processor is critical.\677\
---------------------------------------------------------------------------

    \676\ Today, each exclusive SIP must collect data from 
geographically dispersed SRO data centers, consolidate the data, and 
then disseminate the consolidated data from the exclusive SIP's 
location to end-users, which are often in other locations, in a hub-
and-spoke form of centralized consolidation that creates additional 
latency. See Proposing Release, 85 FR at 16765.
    \677\ See NBIM Letter at 4.
---------------------------------------------------------------------------

    Furthermore, competition will incentivize competing consolidators 
to minimize latency and improve aggregation and transmission 
performance and services for consolidated market data products through 
the use of low-latency aggregation and transmission technologies.\678\ 
Competing consolidators and self-aggregators will not be restricted to 
the transmission methods mandated by the Equity Data Plans, and 
competing consolidators will compete with each other based on the 
efficiency of their aggregation of raw SRO data to generate 
consolidated market data. In contrast to today's non-competitive 
exclusive SIPs, the Commission believes that competing consolidators 
will be incentivized to

[[Page 18647]]

make continued improvements.\679\ For example, competing consolidators 
will be incentivized to minimize the amount of time it takes to 
aggregate consolidated market data products; \680\ reduce their 
transmission latency\681\ (e.g., by offering wireless connectivity 
through microwave or laser technology, currently offered by exchanges 
\682\); reduce connectivity latency (e.g., by offering field-
programmable gate array (``FPGA'') services \683\); lower connectivity 
fees; enhance customer service; and enhance their technology and 
services to remain competitive. Competing consolidators providing 
consolidated market data products to clients for electronic trading 
will likely compete along all of these lines, similar to the manner in 
which the providers of proprietary data products have competed. 
Further, self-aggregators will be able to better utilize technologies 
to perform their aggregation and transmission functions.
---------------------------------------------------------------------------

    \678\ See infra Section V.C.2(c) (discussing the effect of the 
decentralized consolidation model on innovation in data delivery and 
reducing latency differentials). Although the exclusive SIPs have 
reduced their aggregation latencies and made other improvements, as 
the Commission stated above, there is currently no competition for 
consolidated market data, and the technology for the distribution of 
SIP data has continued to meaningfully lag behind technologies 
utilized across the private competitive data landscape. See supra 
Section III.B.2.
    \679\ See text accompanying notes 602-603. The Commission notes 
that the Nasdaq UTP SIP revised its technology in the fourth quarter 
of 2016 to lower quote latency at the 99th percentile from 5,393 
microseconds to 28 microseconds. In the same quarter, the CQS SIP's 
99th percentile of latency was 1,570 microseconds and it did not 
reduce that latency to below 100 microseconds until the third 
quarter of 2020. See Nasdaq UTP Q3 2020--September Tape C Quote 
Metrics, available at http://utpplan.com/DOC/UTP_website_Statistics_Q3-2020-September.pdf (last accessed Nov. 27, 
2020); Key Operating Metrics of Tape A&B U.S. Equities Securities 
Information Processor (CTA SIP), available at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf (last accessed Nov. 27, 2020).
    \680\ See SIFMA Letter at 11; BlackRock Letter at 5.
    \681\ See ICI Letter at 10; BlackRock Letter at 5.
    \682\ See, e.g., ICE Global Network: New Jersey Metro, available 
at https://www.theice.com/market-data/connectivity-and-feeds/wireless/new-jersey-metro (last accessed Nov. 27. 2020); Nasdaq, 
Wireless Connectivity--Metro Millimeter Wave Frequently Asked 
Questions, available at https://www.nasdaq.com/docs/2020/01/15/Metro_Millimeter_Wave_FAQ.pdf (last accessed Nov. 27, 2020).
    \683\ See NovaSparks Letter at 1. See also Nasdaq Equity Trader 
Alert #2015-194, ``Nasdaq Reintroducing FPGA Order Entry Ports, 
Announcing Port and Pricing Updates for 2016,'' available at https://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2015-194 (last accessed 
Nov. 27, 2020); Flanagan, Terry, Co-Location: How Close Can You 
Get?, MarketsMedia (Dec. 27, 2012), available at https://www.marketsmedia.com/co-location-how-close-can-you-get/ (explaining 
the use of FPGA to reduce co-location latencies).
---------------------------------------------------------------------------

    One commenter asserted that the proposed decentralized 
consolidation model assumed that competing consolidators would 
specialize in lower latency data but said that this assumption was 
accurate only if the SROs from which they receive data can offer low-
latency connectivity.\684\ The commenter noted that the proposal could 
result in the discontinuation of low-latency connectivity options by 
SROs and said that the Commission did not assess the impact of the 
proposal on this connectivity market.\685\ The Commission believes that 
this comment fails to recognize the ways in which the proposal 
addressed the connectivity market. In specifying ``by the same means, 
and on the same terms,'' at a minimum, the Commission has prohibited an 
SRO from providing superior connectivity for proprietary data products 
than it provides for NMS data. The Commission further addresses these 
concerns below.\686\
---------------------------------------------------------------------------

    \684\ See IDS Letter I at 15.
    \685\ See id.
    \686\ See infra Section III.B.9.
---------------------------------------------------------------------------

    Some commenters stated that competing consolidators would not 
eliminate geographic latency.\687\ One commenter stated that geographic 
latency would still exist despite implementation of the proposed 
decentralized consolidation model.\688\ The commenter stated that 
incremental reductions to transmission latency would be the most the 
decentralized consolidation model could achieve but that the Commission 
failed to analyze whether such reductions would be worth the cost of 
the proposal.\689\ Another commenter stated that competing 
consolidators would still be subject to geographic and operational 
latency, which would result in competing consolidators located within 
the same data center disseminating differing prices.\690\
---------------------------------------------------------------------------

    \687\ See Citadel Letter at 5; STANY Letter II at 6; NYSE Letter 
II at 11, 23.
    \688\ See NYSE Letter II at 23.
    \689\ See id. at 11.
    \690\ See Angel Letter at 18.
---------------------------------------------------------------------------

    Other commenters stated that the proposed decentralized 
consolidation model would reduce the latencies associated with the 
dissemination of SIP data.\691\ The Commission agrees and believes that 
the model will significantly reduce geographic latency because, as 
described above, it will allow consolidation of market data to occur at 
the data center where a data end-user is located and end the 
consolidation of data at a single location where end-users may not be 
located. While full elimination of geographic latency for NMS data is 
impossible in a marketplace where different markets are located in 
different geographic locations, the reduction of latency caused by a 
centralized consolidation requirement is desirable and will result in 
significant latency benefits. If a competing consolidator chooses not 
to provide a consolidation service in all of the data centers of its 
users, the Commission believes the users will still benefit from 
reduced aggregation and transmission latencies resulting from 
competition among competing consolidators.
---------------------------------------------------------------------------

    \691\ See AHSAT Letter at 1; BlackRock Letter at 5; DOJ Letter 
at 2-3, 4; Fidelity Letter at 10; MEMX Letter at 3, 6, 7, 8; SIFMA 
Letter at 1, 11; Wellington Letter at 1; ICI Letter at 10; ACS 
Execution Services Letter at 5; Better Markets Letter at 3.
---------------------------------------------------------------------------

    Finally, one commenter said that the current latency of the 
exclusive SIPs is sufficient for agency trading and doubted that any 
latency improvements would benefit long-term investors.\692\ However, 
several commenters representing long-term investors expressed the view 
that the current latency of the SIPs was not sufficient to meet their 
needs.\693\ While the current latency of the exclusive SIPs may be 
sufficient for some retail investors and other visual consumers of 
market data, the Commission believes that the reduction in latency 
should enhance trading by the brokers who service retail investors by 
allowing them to evaluate the markets quickly, adjust their quotes, 
trade more efficiently and competitively, and facilitate best 
execution. Furthermore, the addition of new data content in 
consolidated market data and the competitive environment fostered by 
the decentralized consolidation model may allow agency brokers to 
purchase consolidated market data products, which may be offered at a 
lower cost than current proprietary data, rather than proprietary data 
feeds, which could result in cost savings for investors.
---------------------------------------------------------------------------

    \692\ See Proof Trading Letter at 1.
    \693\ See, e.g., Capital Group Letter at 2, 4; Fidelity Letter 
at 2; State Street Letter at 2.
---------------------------------------------------------------------------

    While some commenters stated the proposed decentralized 
consolidation model would have little, if any, impact on latency,\694\ 
other commenters said that the decentralized consolidation model would 
perpetuate latency differentials.\695\ One commenter stated that 
competing consolidators would initiate a ``costly arms race in speed,'' 
\696\ resulting in major market participants complaining about having 
to pay a premium for the fastest consolidator.\697\ One commenter said 
nothing in the proposal would address the Commission's concerns 
expressed in the Proposing Release \698\ about a ``two-

[[Page 18648]]

tiered market data environment'' \699\ and argued that competing 
consolidators would create a multi-tiered market where market 
participants would be charged more for better products and faster 
services.\700\ Further, this commenter stated that competing 
consolidator subscribers, such as retail investors, would be at a 
latency disadvantage to self-aggregators that can generate an NBBO 
faster.\701\ This commenter also said that competing consolidators 
could even start a ``new fragmentation war'' for latency-sensitive 
subscribers that need to be co-located near their competing 
consolidator.\702\
---------------------------------------------------------------------------

    \694\ See supra note 670.
    \695\ See Nasdaq Letter IV at 8, 23-24; NYSE Letter II at 22, 
23; STANY Letter II at 6; Angel Letter at 19; FINRA Letter at 8-9.
    \696\ Angel Letter at 19.
    \697\ See id.
    \698\ See Proposing Release, 85 FR at 16767-8.
    \699\ Nasdaq Letter IV at 23-24. This commenter also said that 
the ``two-tiered'' environment adds no cost to the majority of 
traders and believed that SIP data is sufficient for human traders 
who would not benefit from expensive infrastructure and that 
professional traders tend to opt for custom solutions rather than 
buying the same products anyway. Nasdaq Letter III at 5.
    \700\ See Nasdaq Letter IV at 8.
    \701\ See id. at 8, 42.
    \702\ Id. at 26.
---------------------------------------------------------------------------

    The Commission believes that competing consolidators, based on 
subscriber demand, will develop different consolidated market data 
products for their subscribers and will compete on the basis of 
latency, resiliency, products and services offered, and other factors, 
including price. Subscribers also will be able to evaluate competing 
consolidators on the basis of system availability, network delay 
statistics, and data quality and system issues that will be publicly 
available in the Form CC and the performance statistics and operational 
information required to be disclosed by competing consolidators on a 
monthly basis by Rule 614. Different subscribers and trading 
applications may prioritize these factors differently. The Commission 
recognizes that there will be different needs for different 
participants and applications. However, the Commission does not believe 
that the realm of such differentiation and innovation should be 
exclusively limited to proprietary data products. As noted above, some 
commenters believed that the decentralized consolidation model would 
perpetuate latency differentials.\703\ Although there may be 
differences in the latencies among competing consolidators, the 
Commission believes the decentralized consolidation model will result 
in a net benefit in overall improved latencies for users of 
consolidated market data relative to the current model, and competitive 
market forces should reduce the likelihood of an unlevel playing field.
---------------------------------------------------------------------------

    \703\ See Nasdaq Letter IV at 8, 23-24; NYSE Letter II at 22, 
23; STANY Letter II at 6; Angel Letter at 19; FINRA Letter at 8-9.
---------------------------------------------------------------------------

    Two commenters stated that self-aggregators would have a latency 
advantage over competing consolidators, which would continue a two-
tiered market data environment despite the presence of competitive 
forces.\704\ One of the commenters said that self-aggregators would 
continue to obtain and use market data faster than subscribers of 
competing consolidators.\705\ The commenter also said that the proposal 
lacked an analysis of the latency advantages of self-aggregators over 
competing consolidators.\706\ Another commenter said the decentralized 
consolidation model would ``institutionalize latency inequities'' 
through the use of self-aggregators and competing consolidators.\707\ 
The commenter stated that the latency advantage of self-aggregators 
over competing consolidators was not actually minor, nor did it believe 
that competing consolidators could minimize the latency 
differences.\708\ This commenter suggested that the Commission should 
either require the SROs to delay provision of market data to self-
aggregators or allow only competing consolidators to provide 
consolidated market data.\709\ One other commenter stated that broker-
dealers that offer algorithmic trading would not be able to utilize a 
competing consolidator due to the inherent latency of third party 
aggregation.\710\
---------------------------------------------------------------------------

    \704\ See NYSE Letter II at 22, 23; STANY Letter II at 6.
    \705\ See NYSE Letter II at 23. See also Healthy Markets Letter 
I at 2-3.
    \706\ See NYSE Letter II at 23.
    \707\ FINRA Letter at 8.
    \708\ See id. at 8. The commenter also said that competing 
consolidators that aggregate data for themselves would have a 
latency advantage over their subscribers. Id.
    \709\ See id. at 8-9. See also Healthy Markets Letter I at 3 
(recommending that an exchange that wished to send data to its 
customer be required to do so ``through an affiliate that would 
receive the same data, at the same time, on the same terms, and at 
the same cost as any competing SIP distributor'').
    \710\ See NBIM Letter at 4. This commenter, however, also stated 
that from an asset manager's perspective, the proposal would reduce 
its needs for direct feeds if there is a competitive consolidated 
tape offering. Id.
---------------------------------------------------------------------------

    As discussed more fully below,\711\ the Commission acknowledges 
that, unlike self-aggregators, competing consolidators would need to 
transmit consolidated market data to their customers,\712\ but does not 
believe that this would lead to the development of a two-tiered market. 
Latency sensitive customers of competing consolidators are likely to be 
co-located in the same data centers as their competing consolidators, 
so the transmission time between the servers of the competing 
consolidator and its customer will be exceedingly small. The Commission 
expects that market participants that elect to aggregate consolidated 
market data, whether competing consolidators or self-aggregators, will 
innovate and compete aggressively on the efficiency and cost-
effectiveness of their aggregation technologies to attract and retain 
subscribers (in the case of competing consolidators) or to facilitate 
their trading strategies (in the case of self-aggregators). The 
Commission believes that the development and implementation of the 
technology to collect, consolidate, and generate consolidated market 
data will create opportunities for latency efficiencies that are of 
substantially greater magnitude than the transmission time between the 
server of a competing consolidator and its customer. Competing 
consolidators, for example, may benefit from economies of scale that 
allow them to offer a very low-latency product more cost effectively 
that an individual self-aggregator. In some cases, a competing 
consolidator may have a latency or cost advantage, and in others a 
self-aggregator may have such advantages.\713\ Competition may also 
impact the efficiency of choices.\714\ Therefore, the Commission does 
not believe that self-aggregators would necessarily have a systematic 
latency advantage over customers of competing consolidators.
---------------------------------------------------------------------------

    \711\ See infra Section III.D.2(d).
    \712\ In the Proposing Release, the Commission noted that self-
aggregators could have a minor latency advantage over market 
participants that use a competing consolidator for their 
consolidated market data. See Proposing Release, 85 FR at 16791.
    \713\ Self-aggregators could have a cost advantage over market 
participants that receive consolidated market data from a competing 
consolidator because self-aggregators will not be required to 
compensate a competing consolidator for its services. A self-
aggregator will of course incur expenses to generate consolidated 
market data including the costs of having the systems capability to 
collect, consolidate, and generate consolidated market data. It may 
use a vendor to establish connectivity to an SRO or to perform 
aggregation or other functions necessary for generating consolidated 
market data. As a result, any potential cost advantage of a self-
aggregator over market participants that purchase consolidated 
market data from competing consolidators may not be significant.
    \714\ See infra Section V.C.4(b).
---------------------------------------------------------------------------

6. Comments on the Potential Impact on Costs for Consolidated Market 
Data
    Several commenters said that the proposed decentralized 
consolidation model would result in a reduction in the cost of 
consolidated market data.\715\ One

[[Page 18649]]

commenter stated that having multiple competing consolidators will 
reduce the prices of consolidated market data and proprietary market 
data feeds.\716\ Several commenters stated that competition could bring 
down fees or the cost of consolidated market data.\717\ One commenter 
said that competing forces should help market participants to access 
market data in a cost-effective manner,\718\ and another commenter said 
that competition would maintain fair prices.\719\ A commenter stated 
that the proposal would constrain the cost of consolidated market data 
through competition among consolidators and the requirement that the 
fees charged to competing consolidators by the SROs be subject to 
approval.\720\ Another commenter said the introduction of competing 
consolidators could impact aggregation and dissemination costs but 
stated that the proposal did not explain how competing consolidators 
would address exchange market data fees.\721\
---------------------------------------------------------------------------

    \715\ See BestEx Research Letter at 4; DOJ Letter at 4, 5; 
Committee on Capital Markets Letter at 6; IntelligentCross Letter at 
5; Better Markets Letter at 3; RBC Letter at 5-6; State Street 
Letter at 3; Fidelity Letter at 3, 9; Wellington Letter at 1; 
BlackRock Letter at 5; IEX Letter at 3.
    \716\ See BestEx Research Letter at 4.
    \717\ See DOJ Letter at 3-4 (``The Department agrees with the 
SEC's belief that `by introducing competition and market forces into 
the collection, consolidation, and dissemination process, the 
decentralized consolidation model would help ensure that 
consolidated market data is delivered to market participants in a 
more timely, efficient and cost effective manner than the current 
centralized consolidation model.' ''); Committee on Capital Markets 
Regulation Letter at 6; IntelligentCross Letter at 5; Fidelity 
Letter at 9; Wellington Letter at 1; ICI Letter at 4.
    \718\ See Better Markets Letter at 3.
    \719\ See RBC Letter at 5-6.
    \720\ See IEX Letter at 3.
    \721\ See Citadel Letter at 5.
---------------------------------------------------------------------------

    However, other commenters expressed uncertainty about whether the 
proposed decentralized consolidation model would lower the cost of 
consolidated market data \722\ or believed that the proposed model 
would increase costs.\723\ One commenter stated that the proposal 
lacked proof that competing consolidators would reduce market data 
costs, explaining that the proposal lacked sufficient guidance and 
analysis of how market data fees would be determined, how to define 
reasonable fees, and how the proposed model would control costs to 
participants.\724\ Another commenter said that competing consolidators 
would not result in enough competition to lower the cost of 
consolidated market data,\725\ and a commenter stated that there was no 
guarantee that competition would improve costs.\726\
---------------------------------------------------------------------------

    \722\ See STANY Letter II at 5; Data Boiler Letter I at 46-47; 
TD Ameritrade Letter at 12; NYSE Letter II at 9.
    \723\ See Cboe Letter at 23-24; FINRA Letter at 1, 2, 3, 4; 
Angel Letter at 21, 24; Kubitz Letter at 1; Nasdaq Letter IV at 23, 
26, 47-48, 60; TD Ameritrade Letter at 15.
    \724\ See STANY Letter II at 5. Similarly, another commenter 
said the proposal lacked a ``reasoned analysis of expected costs and 
fees for market data under the decentralized consolidation model.'' 
NYSE Letter II at 9. See also id. at 19-20.
    \725\ See Data Boiler Letter I at 46-47.
    \726\ See TD Ameritrade Letter at 12.
---------------------------------------------------------------------------

    Commenters also stated that the proposed decentralized 
consolidation model would increase the cost of consolidated market 
data.\727\ One commenter stated that nothing in the proposal supported 
the conclusion that competing consolidators would price consolidated 
market data economically efficiently.\728\ This commenter argued that 
market data costs would be higher because differentiation would result 
in higher prices as differentiated competing consolidators would have 
fewer customers over which to spread their fixed costs.\729\ This 
commenter also said that the proposed increased content of consolidated 
market data could increase costs and burden retail investors who have 
no need for the more comprehensive data.\730\ The commenter also said 
that costs will be dependent on the effective national market system 
plan(s) and fee proposals.\731\ Another commenter said that retail 
investors could incur ``exponentially more'' costs as a result of the 
proposal.\732\
---------------------------------------------------------------------------

    \727\ See Nasdaq Letter IV at 23, 26, 47-48, 60; TD Ameritrade 
Letter at 15.
    \728\ See Nasdaq Letter IV at 23.
    \729\ See id. at 26.
    \730\ See id. at 60, n. 162.
    \731\ See id. at 47-48.
    \732\ TD Ameritrade Letter at 15.
---------------------------------------------------------------------------

    One commenter stated that product differentiation among competing 
consolidators could lead to an increase in prices as the fastest 
competing consolidators would charge more due to inelastic demand.\733\ 
This commenter also believed that only the existing SIPs could afford 
Regulation SCI compliance; therefore, as the only competing 
consolidators, they would charge oligopolistic prices for consolidated 
market data.\734\ This commenter also said that the real prices for 
consolidated market data are determined by what the Commission will 
permit the exchanges to charge, not competition.\735\
---------------------------------------------------------------------------

    \733\ See Angel Letter at 23.
    \734\ See id. at 20.
    \735\ See id. at 21.
---------------------------------------------------------------------------

    Several commenters stated that the proposed decentralized 
consolidation model would result in higher consolidated market data 
costs \736\ as well as other costs \737\ for market participants. One 
commenter said that competing consolidators would ``impose meaningful 
costs on investors'' and said that the proposal did not explain how 
competing consolidators would charge fees to investors (such as whether 
they could charge additional fees for content or only for data 
delivery).\738\ This commenter also said that the proposal is deficient 
because ambiguities surrounding fees to be charged by competing 
consolidators to investors, as well as by SROs to competing 
consolidators, impede meaningful public comment and the ability of the 
Commission to perform a cost-benefit analysis as required under the 
APA.\739\ One commenter said that exchanges facing competitive pressure 
from shareholders will be forced to charge high prices to competing 
consolidators, which will then pass down these prices to their 
subscribers.\740\ Another commenter said that competing consolidators 
are ``an intermediary between suppliers and users adding a layer of 
cost to the overall system.'' \741\
---------------------------------------------------------------------------

    \736\ See Cboe Letter at 23-24; Kubitz Letter at 1; Angel Letter 
at 21, 24; Nasdaq Letter IV at 27, 30, 60, n. 162; Data Boiler 
Letter II at 1.
    \737\ See FINRA Letter at 4; Nasdaq Letter IV at 5, 27, 30.
    \738\ Cboe Letter at 23-24.
    \739\ See Cboe Letter at 4.
    \740\ See Angel Letter at 24.
    \741\ Data Boiler Letter II at 1.
---------------------------------------------------------------------------

    Two commenters stated that market participants would face increases 
in other costs as a result of the proposal.\742\ One of the commenters 
said that exchange trading costs for retail and other investors will 
increase due to reductions in SROs' market data revenue as a result of 
the proposal.\743\ The other commenter said that costs would increase 
as a result of requiring broker-dealers (or other market participants) 
to subscribe and pay fees to multiple competing consolidators.\744\
---------------------------------------------------------------------------

    \742\ See FINRA Letter at 4; Nasdaq Letter IV at 5, 27, 30.
    \743\ See Nasdaq Letter IV at 5, 27, 30. See also Clearpool 
Letter at 3 (suggesting safeguards to keep exchanges from increasing 
consolidated market data prices to recoup any revenue lost from the 
proposed requirement to sell core data to competing consolidators).
    \744\ See FINRA Letter at 4.
---------------------------------------------------------------------------

    The Commission recognizes that the fees for the data content 
underlying consolidated market data are unknown at this time and that 
such fees are a fixed cost for all competing consolidators to assess 
when developing their business plans. However, in response to the 
comments that expressed uncertainty about the direction of consolidated 
market data costs as a result of the proposal and those comments that 
stated that consolidated market data costs would increase for market 
participants, the

[[Page 18650]]

Commission believes that competition will constrain the prices at which 
competing consolidators can sell consolidated market data products. 
Further, the Commission believes that there will be downward pressure 
on the fees for the data content underlying consolidated market data as 
compared to fees for proprietary data.\745\
---------------------------------------------------------------------------

    \745\ See infra Section III.E.2(c) (discussing the statutory 
requirements applicable to consolidated market data and the 
standards the Commission has historically applied to assessing 
compliance with the statutory requirements).
---------------------------------------------------------------------------

    Specifically, the new data content underlying consolidated market 
data (i.e., depth of book data, auction information, and odd-lot 
information) are currently elements of proprietary data products that 
are assessed under the statutory standards that apply to proprietary 
data, including Sections 6(b)(4), 15A(b)(5), and 11A(c)(1)(C)-(D) of 
the Exchange Act \746\ and Rule 603(a) under Regulation NMS.\747\ These 
proprietary data fees are filed with the Commission pursuant to Section 
19(b) of the Exchange Act and Rule 19b-4 thereunder \748\ and are 
effective upon filing with the Commission.
---------------------------------------------------------------------------

    \746\ 15 U.S.C. 78f(b)(4), 15 U.S.C. 78o-3(b)(5), and 15 U.S.C. 
78k-1(c)(1)(C)-(D).
    \747\ 17 CFR 242.603(a).
    \748\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

    Fees for the data content underlying consolidated market data will 
be assessed against the statutory standard that applies to fees 
proposed by the effective national market system plan(s), including 
Sections 11A(c)(1)(C)-(D) of the Exchange Act and Rule 603(a) under 
Regulation NMS. The proposed fees must be fair and reasonable and not 
unfairly discriminatory.\749\ The fees must be filed with the 
Commission pursuant to Rule 608 and will be published for public 
comment and thereafter, if consistent with the Exchange Act, must be 
approved by the Commission before becoming effective.\750\
---------------------------------------------------------------------------

    \749\ See infra Section III.E.2(c).
    \750\ See Effective-Upon-Filing Adopting Release supra note 17.
---------------------------------------------------------------------------

    In addition, a New Consolidated Data Plan has been filed that 
contains a proposed new governance structure and procedures that, if 
approved, will address some of the conflicts of interest inherent in 
the existing governance structure and will bring a more inclusive 
representation of market participants into the process for developing 
fees for the data content underlying consolidated market data.\751\ The 
Commission believes that the governance model required to be included 
in the proposed New Consolidated Data Plan will support the building of 
broad consensus in developing the future fees for the data content 
underlying consolidated market data. Notwithstanding the new governance 
model, the new fees for data content underlying consolidated market 
data will have to satisfy statutory standards: They must be fair and 
reasonable and not unfairly discriminatory.\752\
---------------------------------------------------------------------------

    \751\ See Governance Order, infra note 1128; New Consolidated 
Data Plan Notice, supra note 40.
    \752\ See Sections 11A(c)(1)(C)-(D) of the Exchange Act and Rule 
603(a) of Regulation NMS, 17 CFR 242.603(a).
---------------------------------------------------------------------------

    Further, competition should constrain other aspects of consolidated 
market data costs, including the fees charged by competing 
consolidators for their products and services. Competing consolidators 
will compete in their aggregation and transmission services, which 
should also be reflected in their prices for such services. All 
competing consolidators will be required, under Rule 614(d), to 
disclose publicly metrics and other information concerning their 
performance and operations, which will allow market participants to 
evaluate effectively competing consolidators, fostering competition 
among competing consolidators. Further, competing consolidators are 
required to disclose their prices for consolidated market data 
products.\753\ In response to the comments warning that product 
differentiation would permit competing consolidators to increase their 
fees for consolidated market data products, the Commission believes 
that competing consolidators will face competition from each other and 
from potential new entrants, especially if a differentiated product 
serves as a material economic opportunity. This threat of competition 
will discipline prices and efficiency in the consolidated market data 
space. For example, if products tailored to the different needs of 
market participants become popular, competition should drive the 
creation and sale of similar products at prices attractive to 
subscribers.
---------------------------------------------------------------------------

    \753\ See Form CC, Exhibit F.
---------------------------------------------------------------------------

    In response to the comment that stated that exchange trading costs, 
and consequently retail investor trading costs, would increase due to a 
reduction in exchange revenue as a result of the proposal,\754\ the 
Commission notes that the exchanges may file proposed rule changes to 
reflect any necessary adjustments to their fees as a result of the 
proposal. These proposed rule changes must meet the applicable 
statutory standards for fees. However, a reduction in proprietary data 
revenue, if it were to occur, would not, by itself, necessarily make it 
optimal for exchanges to adjust their trading fees.\755\
---------------------------------------------------------------------------

    \754\ See supra note 743.
    \755\ See note 2392 and accompanying text.
---------------------------------------------------------------------------

    In response to the comment that stated that market participant 
costs will increase as a result of the proposal because all market 
participants would need to retain a back-up competing 
consolidator,\756\ the Commission is not requiring market participants 
to have back-up competing consolidators. Market participants may choose 
to subscribe to competing consolidators that are ``SCI competing 
consolidators''--those subject to the requirements of Regulation SCI 
that help ensure that the core technology systems of SCI entities 
remain reliable and resilient, including the requirements to have 
geographically diverse back-up and recovery capabilities, and conduct 
an SCI review each year, as discussed below. Some market participants 
may choose to subscribe to multiple competing consolidators. In either 
case, this choice will be for market participants to elect after 
evaluating the needs of their business and their customers. The 
Commission cannot estimate at this point specific cost increases, if 
any, for market participants that subscribe to competing 
consolidators.\757\ But market participants may face an overall 
reduction in costs due to the competitive environment for consolidated 
market data fostered by the decentralized consolidation model.
---------------------------------------------------------------------------

    \756\ See FINRA Letter at 4.
    \757\ Those broker-dealers that do not currently have back-up 
capabilities may decide not to have back-up capabilities under the 
decentralized consolidation model. To the extent that such broker-
dealers decide to subscribe to redundant back-up competing 
consolidator feeds, they may incur higher costs. Further, as 
discussed below, the effective national market system plan(s) will 
have to develop MISU policies for consolidated market data 
subscribers. See infra Section III.E.
---------------------------------------------------------------------------

7. Comments on Complexity of the Decentralized Consolidation Model
    Several commenters stated that the proposed decentralized 
consolidation model would generally add complexity to the consolidated 
market data environment.\758\ One commenter said that competing 
consolidators would increase technological complexity, which would also 
increase risk and aggregate costs, while reducing resilience.\759\ 
Another commenter said that the complexity and costs created by 
competing consolidators could exceed

[[Page 18651]]

their benefits to investors.\760\ One commenter said that the proposed 
decentralized consolidation model and the proposed changes to 
consolidated market data ``could introduce significant additional 
costs, confusion and complexity into an already complex system for 
equity market data, and raises a number of questions and issues.'' 
\761\
---------------------------------------------------------------------------

    \758\ See TechNet Letter II at 1-2; STANY Letter II at 8.
    \759\ See TechNet Letter II at 1-2. This commenter said that 
every new competing consolidator brings ``exponentially increasing 
risks'' and that the competing consolidator model lacked strong 
industry support. Id. at 2.
    \760\ See STANY Letter II at 8.
    \761\ FINRA Letter at 3.
---------------------------------------------------------------------------

    The markets currently have a decentralized model of data 
dissemination with regard to the exchange proprietary data feeds. This 
decentralized model operates alongside the current centralized 
consolidation model, and market participants must navigate the 
different data offerings, connectivity options, and fees. Therefore, 
the Commission does not believe that a decentralized consolidation 
model would necessarily increase complexity. Rather, the Commission 
believes that the decentralized consolidation model may lessen some of 
the complexities that exist today by eliminating the need to purchase 
both SIP data and proprietary data for some market participants. 
Additionally, because the Commission expects that there will be 
multiple competing consolidators providing consolidated market data 
products to market participants, rather than one exclusive SIP--the 
single point of failure that exists in the current model--the 
Commission believes that the decentralized consolidation model will 
enhance, rather than harm, the resiliency of the national market 
system.\762\ If one competing consolidator ceases operations, its 
impact on the markets should be minimized due to the presence of other 
competing consolidators that can perform the same functions \763\ and 
the ability of new entrants to serve as competing consolidators.
---------------------------------------------------------------------------

    \762\ See infra Section III.C.2. The competing consolidator 
model is designed to result in multiple viable sources of 
consolidated market data, not a single source of such data. 
Therefore, there will not be a single point of failure. However, the 
second prong of the definition of ``critical SCI systems'' in 
Regulation SCI, 17 CFR 242.1000 through 242.1007--a catch-all for 
systems that ``[p]rovide functionality to the securities markets for 
which the availability of alternatives is significantly limited or 
nonexistent and without which there would be a material impact on 
fair and orderly markets''--would apply in the event that 
availability of alternatives were significantly limited or 
nonexistent in the future. See infra Section III.F for a discussion 
of the application of Regulation SCI to competing consolidators.
    \763\ See infra Section V.C.2(c)(iv) (discussing the benefits of 
the decentralized consolidation model to market resiliency).
---------------------------------------------------------------------------

8. Comments on Surveillance and Regulation in the Decentralized 
Consolidation Model
    Several commenters expressed concern about the proposed 
decentralized consolidation model's impact on regulation.\764\ Some 
commenters stated that the proposed model would present regulatory 
risks.\765\ Additionally, commenters asked questions related to the 
proposed model's regulatory impact.\766\
---------------------------------------------------------------------------

    \764\ See Nasdaq Letter IV at 2, 3, 4, 12-13, 35; TechNet Letter 
II at 2; Kubitz Letter at 1; Joint CRO Letter at 2, 3, 4; FINRA 
Letter at 3, 4-5, 6; Citadel Letter at 5; TD Ameritrade Letter at 
13.
    \765\ See Nasdaq Letter IV at 35; TechNet Letter II at 2; Kubitz 
Letter at 1.
    \766\ See Citadel Letter at 5; FINRA Letter at 4, 5, 6; TD 
Ameritrade Letter at 13.
---------------------------------------------------------------------------

    One commenter stated that the proposal overlooked the effect of the 
proposed decentralized consolidation model on market surveillance and 
enforcement.\767\ The commenter also said that the proposal would limit 
exchange market data revenue because revenues would be based upon 
``some unspecified measure of cost,'' which would impact exchanges' 
abilities to perform their self-regulatory functions,\768\ while also 
increasing the cost of regulatory compliance.\769\
---------------------------------------------------------------------------

    \767\ See Nasdaq Letter IV at 2.
    \768\ See id. at 37; see also NYSE Letter II at 22.
    \769\ See Nasdaq Letter IV at 35; see also NYSE Letter II at 22.
---------------------------------------------------------------------------

    Another commenter, representatives from two exchanges, stated that 
the proposal leaves unclear whether SROs will be required to purchase 
all of the consolidated market data feeds of competing consolidators 
and self-aggregators for surveillance purposes, or if SROs can use a 
limited number of such feeds instead.\770\
---------------------------------------------------------------------------

    \770\ See Joint CRO Letter at 3.
---------------------------------------------------------------------------

    The Commission does not believe that the decentralized 
consolidation model raises unique regulatory risks, undermines 
effective SRO surveillance, or imposes burdens on broker-dealers. The 
U.S. equity markets and the regulatory programs that have been 
developed to oversee their operation already have experience handling 
multiple sets of data due to the existence of the exclusive SIPs' feeds 
and proprietary data feeds. Market participants currently can utilize 
many data options for different purposes, and the SROs are able to 
develop surveillance programs to oversee their members. Further, in the 
current model with both SIP data and proprietary data, the SROs develop 
their surveillance systems based on the data sets they believe best 
allow them to perform their regulatory obligations.\771\ Broker-dealers 
using different data sets than those used by their SROs already have to 
respond to SRO surveillance requests based on the different data used 
by the SROs. This process will not change in the decentralized 
consolidation model. Surveillance and regulatory programs that utilize 
SIP data may have to be updated to utilize a new data source, either 
from a competing consolidator or based on self-aggregation by the 
SRO.\772\ SROs will not be required to purchase every consolidated feed 
from all competing consolidators to conduct enforcement or 
surveillance, just as they are not required today to purchase all 
consolidated (synthetic NBBO) data products provided by each of the 
different market data vendors aggregating proprietary feeds.
---------------------------------------------------------------------------

    \771\ Section 6(b)(1) of the Exchange Act provides that an 
exchange must be so organized and have the capacity to be able to 
enforce compliance by its members, and persons associated with its 
members, with the Exchange Act, the rules and regulations 
thereunder, and the rules of the exchange. See also Section 
15A(b)(2) of the Exchange Act. See, e.g., Securities Exchange Act 
Release Nos. 74690 (Apr. 9, 2015), 80 FR 20282 (Apr. 15, 2015) 
(proposed rule change from Nasdaq explaining that Nasdaq uses a 
real-time surveillance system that uses a ``mirrored'' version of 
Nasdaq's ``NMS feed,'' which consumes the Nasdaq Protected Quote 
Service as well as certain proprietary market data feeds and SIP 
data); 74967 (May 15, 2015), 80 FR 29127 (May 20, 2015) (proposed 
rule change from Nasdaq PHLX (``Phlx'') stating that Phlx's 
surveillance similarly relies on a mirrored version of Phlx's NMS 
feed, which consumes the Phlx Protected Quote Service and certain 
proprietary market data feeds and SIP data). See also Nasdaq Rule 
4759(a) and Nasdaq PSX Rule 3304(a) for a list of the proprietary 
quotation feeds and SIP feeds used by the respective exchanges for 
the handling, routing, and execution of orders, as well as for 
regulatory compliance functions related to those functions.
    \772\ The Commission has modified the definition of self-
aggregator so that SROs would be permitted to be self-aggregators.
---------------------------------------------------------------------------

    Furthermore, all competing consolidators will register with the 
Commission and become regulated entities (if not already SROs) subject 
to Rule 614 of Regulation NMS and Commission oversight. As required by 
Rule 614, competing consolidators will provide information about their 
operations through a public Form CC, as well as monthly reports on 
their performance and other metrics relevant to potential subscribers, 
such as latency, system up-time, and system issues.\773\ Like many of 
the disclosures made by the exclusive SIPs,\774\ the information

[[Page 18652]]

required pursuant to Rule 614(d) will be publicly available.\775\ 
Competitive forces also will incentivize competing consolidators to 
operate reliably and with low latency, and in conjunction with 
Commission oversight, the application of Regulation SCI and the 
required disclosures and transparency provided by Rule 614, should help 
to ensure high performance and system integrity.
---------------------------------------------------------------------------

    \773\ See Rule 614(d); see also infra Section III.C.8.
    \774\ The information to be published by competing consolidators 
is based upon information that is currently produced by the CTA/CQ 
SIP and the Nasdaq UTP SIP, either for public or internal 
distribution. The exclusive SIPs currently publish to their 
respective websites monthly processor metrics that provide the 
following information: System availability, message rate and 
capacity statistics, and the following latency statistics from the 
point of receipt by the SIP to dissemination from the SIP: Average 
latency and 10th, 90th and 99th percentile latency. See CTA Metrics, 
available at https://www.ctaplan.com/metrics (last accessed Nov. 27, 
2020); UTP Metrics, available at http://www.utpplan.com/metrics 
(last accessed Nov. 27, 2020). Additionally, the exclusive SIPs post 
on their websites any system alerts and the Nasdaq UTP Plan posts 
vendor alerts as well. See CTA Alerts, available at https://www.ctaplan.com/alerts (last accessed Nov. 27, 2020); UTP-SIP System 
Alerts, available at http://www.utpplan.com/system_alerts (last 
accessed Nov. 27, 2020); UTP Vendor Alerts, available at http://www.utpplan.com/vendor_alerts (last accessed Nov. 27, 2020). 
Further, the exclusive SIPs publish on their websites charts 
detailing realized latency from the inception of a Participant 
matching engine event through the point of dissemination from the 
exclusive SIP. See CTA Latency Charts, available at https://www.ctaplan.com/latency-charts (last accessed Nov. 27, 2020); UTP 
Realized Latency Charting, available at http://www.utpplan.com/latency_charts (last accessed Nov. 27, 2020).
    \775\ Because this information is useful to current users of the 
exclusive SIPs and participants of the Equity Data Plans, the 
Commission believes that it should be made publicly available by 
competing consolidators.
---------------------------------------------------------------------------

    In response to the comment that stated the proposal would limit 
exchange market data revenue, hurting exchanges' abilities to perform 
their self-regulatory functions \776\ and increasing the cost of 
regulatory compliance,\777\ the Commission notes that SROs will develop 
fees for the data content underlying consolidated market data via the 
effective national market system plan(s), and the SROs will receive 
their revenue allocation for their data, as they do today.\778\ One 
commenter suggested having an ``authority or agency'' evaluate whether 
the proposed decentralized consolidation model could be gamed, 
arbitraged, or fraudulently used in a way to interfere with retail 
investors' access to market data and execution of trades.\779\ The 
Commission believes that the adopted rules, as well as the oversight of 
SROs, competing consolidators, and self-aggregators should help to 
ensure that retail investors' access to consolidated market data would 
not be impacted by the decentralized consolidation model. Specifically, 
Rule 603(b) requires the SROs to provide their information to competing 
consolidators, which would be responsible for disseminating 
consolidated market data products to their subscribers, which would 
likely include broker-dealers that have retail customers. Among other 
requirements, Rule 603(c) would continue to apply; therefore, broker-
dealers and SIPs \780\ must continue to provide a consolidated display 
of information in the context in which a trading decision can be 
implemented.
---------------------------------------------------------------------------

    \776\ See Nasdaq Letter IV at 37; see also NYSE Letter II at 22.
    \777\ See Nasdaq Letter IV at 35; see also NYSE Letter II at 22.
    \778\ See infra Section III.E.2. The Commission discusses the 
potential economic effects of the proposal on exchange proprietary 
market data revenue in Section V.C.4(a). See infra Section V.C.4(a); 
see also infra text accompanying notes 2468-2469.
    \779\ Kubitz Letter at 1.
    \780\ Under Rule 600(b)(16) of Regulation NMS, a competing 
consolidator is defined as a SIP. See infra Section III.C.1(b).
---------------------------------------------------------------------------

    Further, Rule 614(d)(3) requires competing consolidators to make 
available consolidated market data products to subscribers on terms 
that are not unreasonably discriminatory.\781\ Competing consolidators 
will also be subject to the requirements of Rule 614(d), which, among 
other things, mandate the filing of a public Form CC to provide 
operational transparency, as well as the public monthly disclosure of 
metrics and other information concerning performance and operations. 
These requirements should allow subscribers of a competing consolidator 
to verify that consolidated market data products are provided in a 
prompt, accurate, and reliable manner and thus motivate competing 
consolidators to continue to provide consolidated market data products 
accordingly.
---------------------------------------------------------------------------

    \781\ See infra Section III.C.8.
---------------------------------------------------------------------------

    Commenters also raised questions related to the proposed 
decentralized consolidation model's regulatory impact.\782\ One 
commenter asked whether there would be any regulatory immunity 
differences between competing consolidator offerings from SROs and non-
SROs.\783\ SRO immunity considerations would depend on the particular 
facts and circumstances.\784\
---------------------------------------------------------------------------

    \782\ See Citadel Letter at 5; FINRA Letter at 4-5, 6.
    \783\ See Citadel Letter at 5.
    \784\ See also infra Section III.C.7(a)(iv); Brief of the 
Securities and Exchange Commission, Amicus Curiae, No. 15-3057, City 
of Providence v. Bats Global Markets, Inc. (2d Cir.), at 21, 22. 
Courts have found that SROs are entitled to absolute immunity from 
private claims under certain circumstances. In particular, ``when 
acting in its capacity as a SRO, [the SRO] is entitled to immunity 
from suit when it engages in conduct consistent with the quasi-
governmental powers delegated to it pursuant to the Exchange Act and 
the regulations and rules promulgated thereunder.'' See DL Capital 
Group, LLC v. NASDAQ Stock Market, Inc., 409 F. 3d 93, 97 (2d Cir. 
2005) (quoting D'Alessio v. New York Stock Exchange, Inc., 258 F. 3d 
93, 106 (2d Cir. 2001)). If an SRO fails to comply with the 
provisions of the Exchange Act, the rules or regulations thereunder, 
or its own rules, the Commission is authorized to take action. See 
15 U.S.C. 78s(g).
---------------------------------------------------------------------------

9. Access to Data: Rule 603(b)
(a) Proposal
    Rule 603(b) of Regulation NMS currently requires a centralized 
consolidation model. The Commission proposed to amend Rule 603(b) to 
require each SRO to provide its NMS information, including all data 
necessary to generate consolidated market data, to all competing 
consolidators and self-aggregators in the same manner and using the 
same methods, including all methods of access and data formats, as such 
SRO makes available any information to any other person. Under the 
proposed approach, competing consolidators and self-aggregators would 
collect each SRO's market data that is necessary to generate 
consolidated market data.\785\ As proposed, the same access options 
available to proprietary feeds, including, but not limited to, 
transmission medium (i.e., fiber optics or wireless), multicast 
communication, co-location options, physical port, logical port, 
bandwidth, and FPGA services, would be required to be made available 
for proposed consolidated market data feeds. Further, any enhancements 
to proprietary feed methods of access would similarly be made to 
consolidated market feeds.\786\
---------------------------------------------------------------------------

    \785\ See Proposing Release, 85 FR at 16769.
    \786\ See id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that the exchanges 
could utilize their existing proprietary data product offerings that 
contain consolidated market data elements or the exchanges could 
develop new consolidated market data offerings for purposes of making 
information available under Rule 603(b). Competing consolidators and 
self-aggregators could choose to purchase products that include only 
the proposed consolidated market data elements or products that contain 
elements of both proposed consolidated market data and other 
proprietary data.\787\
---------------------------------------------------------------------------

    \787\ See id.
---------------------------------------------------------------------------

    The Commission also proposed to remove the requirement in Rule 
603(b) that ``all consolidated information for an individual NMS stock 
[be disseminated] through a single plan processor'' \788\ because it 
would be inconsistent with the proposed decentralized consolidation 
model. In a decentralized consolidation model, multiple competing 
consolidators would

[[Page 18653]]

disseminate consolidated market data in individual NMS stocks rather 
than single plan processors.\789\
---------------------------------------------------------------------------

    \788\ 17 CFR 242.603(b).
    \789\ Proposing Release, 85 FR at 16771.
---------------------------------------------------------------------------

    In the proposal, the Commission stated that the proposed 
decentralized consolidation model and the proposed consolidated market 
data definition would not preclude the exchanges from continuing to 
sell proprietary data and that the fees for proprietary data, which are 
outside of the proposed definition of consolidated market data, would 
be subject to the rule filing process pursuant to Section 19(b) of the 
Exchange Act and Rule 19b-4.\790\ The Commission stated that if an 
exchange provided its proprietary data products to a competing 
consolidator or self-aggregator and a competing consolidator or self-
aggregator developed a product, or otherwise used data, that exceeded 
the scope of proposed consolidated market data (e.g., full depth of 
book data), the competing consolidator or self-aggregator would be 
charged separately for the proprietary data use pursuant to the 
individual exchange fee schedules.\791\ Self-aggregators and competing 
consolidators that limited their use of exchange data to proposed 
consolidated market data elements would be charged only for proposed 
consolidated market data pursuant to the effective national market 
system plan(s) fee schedules, in accordance with Rule 608 of Regulation 
NMS.\792\
---------------------------------------------------------------------------

    \790\ 15 U.S.C. 78s(b) and 17 CFR 240.19b-4. See id. at 16769.
    \791\ See id.
    \792\ 17 CFR 242.608.
---------------------------------------------------------------------------

(b) Final Rule and Response to Comments
    The Commission is adopting the amendments to Rule 603(b) as 
proposed. The Commission believes that these changes to Rule 603(b) are 
appropriate to establish the decentralized consolidation model. Under 
Rule 603(b), the SROs are required to make available all quotation and 
transaction information that is necessary to generate consolidated 
market data in the same manner and using the same methods, including 
all methods of access and the same format, as such SRO makes available 
any information with respect to quotations for and transactions in NMS 
stocks to any person. Competing consolidators and self-aggregators will 
be able to collect from the SROs that NMS information that is necessary 
to generate consolidated market data as defined in Rule 
600(b)(19),\793\ which includes core data,\794\ regulatory data, 
administrative data, and self-regulatory organization-specific program 
data.
---------------------------------------------------------------------------

    \793\ See also infra Section III.C.8(a).
    \794\ For example, competing consolidators and self-aggregators 
will collect quotation information that is necessary to calculate 
the NBBO as described in Rule 600(b)(50).
---------------------------------------------------------------------------

    Under Rule 603(b), the SROs are allowed to provide their core data 
to competing consolidators and self-aggregators via the existing 
proprietary data feeds, a combination of proprietary data feeds, or a 
newly developed consolidated market data feed.\795\ However, if an SRO 
developed a dedicated consolidated market data feed, the SRO will have 
to take steps to ensure that any proprietary data feed is not made 
available on a more timely basis (i.e., by any time increment that 
could be measured by the SRO) than a consolidated market data 
feed.\796\ Rule 603(a) also applies to the provision of data content 
underlying consolidated market data by the SROs to competing 
consolidators. The Commission believes that under Rule 603(a), if an 
SRO developed a consolidated market data feed, it would likely have to 
throttle any order-by-order proprietary data feed so that it is not 
made available on a more timely basis than such dedicated consolidated 
market data feed. Any dedicated consolidated market data feed developed 
by an exchange would likely involve processing by an exchange to 
segment its consolidated market data elements, which adds latency to 
data dissemination, while an order-by-order proprietary data feed would 
involve no less processing by the exchange. Further, the SROs are 
allowed to offer different access options (e.g., with different 
latencies, throughput capacities, and data-feed protocols) to market 
data customers, as long as any access options available to proprietary 
data customers are made available to competing consolidators and self-
aggregators for their selection for the collection of the data 
necessary to generate consolidated market data.
---------------------------------------------------------------------------

    \795\ Competing consolidators and self-aggregators would be 
permitted to choose among the data feed options offered by the SROs 
to satisfy their obligations under Rule 603(b) to collect the SRO 
information that is necessary to generate consolidated market data. 
See also Section III.E.2(g) for a discussion of the licensing, 
billing and audit process. The effective national market systems 
plans through their licensing, billing and audit processes can 
determine the extent to which data content utilized by competing 
consolidators and self-aggregators constituted elements of 
consolidated market data.
    \796\ See infra Section III.B.9(f).
---------------------------------------------------------------------------

    In addition, if an SRO provided its proprietary data products to 
competing consolidators or self-aggregators for purposes of Rule 603(b) 
and a competing consolidator or self-aggregator developed a product, or 
otherwise used data content that is beyond the scope of consolidated 
market data (e.g., full depth of book data), the proprietary data 
content will be subject to the individual exchange fees for proprietary 
data,\797\ while the data content underlying consolidated market data 
will be subject to the fees established pursuant to the effective 
national market system plan(s).\798\
---------------------------------------------------------------------------

    \797\ Fees for proprietary data are filed with the Commission 
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder.
    \798\ Fees for the data content underlying consolidated market 
data will be filed with the Commission pursuant to Rule 608 of 
Regulation NMS, 17 CFR 242.608.
---------------------------------------------------------------------------

    The Commission received several comments on its proposed amendments 
to Rule 603(b). Some commenters stated that the changes to Rule 603(b) 
were key to the success of the proposal.\799\ One commenter stated that 
the proposed changes to Rule 603(b) ``should help to ensure that 
proprietary feeds, competing consolidators and self-aggregators operate 
on a more level playing field with regards to the speed that market 
participants can obtain market data and access.'' \800\ The commenter 
continued that the proposal would create a true alternative to 
subscribing to and paying for each individual exchange's proprietary 
feed.\801\ Another commenter stated that the requirement to make data 
available to competing consolidators in the same manner as the 
exchanges make it available to any other person would address latency 
issues that exist in core data.\802\
---------------------------------------------------------------------------

    \799\ See McKay Letter; SIFMA Letter. See also Clearpool Letter 
at 7 (supporting the proposed language of Rule 603(b)).
    \800\ SIFMA Letter at 11. See also McKay Letter at 4 (stating 
that the proposed language of Rule 603(b) would prevent an exchange 
from creating a proprietary data feed that would not be sufficient 
to create consolidated market data but which has a latency or other 
access advantage associated with it).
    \801\ See SIFMA Letter at 11.
    \802\ See Fidelity Letter at 10.
---------------------------------------------------------------------------

    One commenter suggested that the exchanges provide content that is 
similar to what they provide on their direct feeds, stating that all 
data can be useful for ``execution algorithms' quantitative trading 
decisions.'' \803\ Another commenter suggested that the exchanges 
should provide a single data feed--their proprietary DOB feed--to 
satisfy the requirements of the proposed rules, simplify data 
distribution, and ease Rule 603(a) burdens.\804\ The Commission has set 
forth minimum data content underlying consolidated market data that 
must be made available by the SROs under Rule 603(b). The Commission 
has identified these elements as necessary for a wide array of trading 
in the national market system.

[[Page 18654]]

Because the Commission recognizes that some market participants may 
need more information than what is defined as consolidated market data, 
SROs can provide additional information to these customers via 
proprietary feeds. Further, as discussed above, the SROs can satisfy 
their obligations under Rule 603(b) by utilizing their proprietary data 
feeds, a combination of proprietary data feeds, or a newly developed 
core data feed that contains all of the data content underlying 
consolidated market data.\805\ Rule 603(b) does not specify a required 
method of delivery of the data content underlying consolidated market 
data but requires that such data be provided in the same manner and 
using the same methods of access and the same format,\806\ as the SROs 
use to make any NMS information available in NMS stocks to any person.
---------------------------------------------------------------------------

    \803\ BestEx Research Letter at 5.
    \804\ See MEMX Letter at 9.
    \805\ See supra note 795 and accompanying text.
    \806\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    One commenter, however, stated, without further explanation, that 
the ``same manner and methods'' language was ``merely a standard price 
list offered by the exchange.'' \807\ The commenter further stated that 
the ``same format'' language would hurt average investors and give high 
frequency trading firms an advantage and asserted that ``[o]ne can only 
attempt to match faster connectivity by altering data format and 
compression methods.'' \808\ To the extent that the commenter is 
suggesting that investors who obtain consolidated market data products 
from a competing consolidator may be at a disadvantage to self-
aggregators because of the latency advantage of self-aggregators, the 
Commission believes, as discussed in Section IV.D.2(d), that the self-
aggregators will not necessarily have a systematic latency advantage 
over competing consolidators. If the commenter is suggesting that SROs 
provide data in a different format to compensate for faster 
connectivity, Rule 603(b) requires the SROs to make the data content 
underlying consolidated market data available to competing 
consolidators and self-aggregators in the same manner and methods, 
including all methods of access and the same format, as proprietary 
data. Further, Rule 603(a) prohibits an SRO from making NMS information 
available to any person on a more timely basis (i.e., by any time 
increment that could be measured by the SRO) than it makes such data 
available to competing consolidators and self-aggregators.\809\
---------------------------------------------------------------------------

    \807\ Data Boiler Letter II at 1.
    \808\ Id. at 1.
    \809\ See infra Section III.B.9(f).
---------------------------------------------------------------------------

    Another commenter stated that the proposed language in Rule 603(b) 
did not consider that an exchange's connectivity options may not have 
the capacity to be provided to all competing consolidators and self-
aggregators in the same manner and using the same methods.\810\ The 
commenter stated that the proposal did not address the possible impact 
on wireless connectivity or how customers would be affected if the SROs 
ceased to offer wireless connectivity. The commenter did not expand 
upon how the decentralized consolidation model would burden capacity 
beyond what occurs today in the provision of proprietary data using the 
same connectivity options. The exchanges assess capacity needs for 
their proprietary data products and will be able to assess such needs 
for the connectivity options for the data content underlying 
consolidated market data. Each individual SRO will be required to 
provide the data underlying consolidated market data to competing 
consolidators and self-aggregators in the same manner and using the 
same methods as is provided for proprietary data. The exchanges can 
utilize their proprietary data feeds to make the data content 
underlying consolidated market data available to competing 
consolidators and self-aggregators and will be able to offer any access 
options available to proprietary data feeds to competing consolidators 
and self-aggregators for their selection.
---------------------------------------------------------------------------

    \810\ See IDS Letter I at 11.
---------------------------------------------------------------------------

(c) Comments on Access Options
    In the Proposing Release, the Commission stated that the exchanges 
could provide different access options (e.g., with different latencies, 
throughput capacities, and data feed protocols) to market data 
customers, but any access options available to proprietary data 
customers must also be available to competing consolidators and self-
aggregators. As proposed, Rule 603(b) would require exchanges to 
provide all forms of access used for proprietary data to all competing 
consolidators and self-aggregators for the collection of the data 
necessary to generate proposed consolidated market data.\811\ Further, 
an exchange must offer the same form of access, such as fiber optics, 
wireless, or other forms, in the same manner and using the same 
methods, including all methods of access and the same format, as the 
exchange offers for its proprietary data. For instance, if an exchange 
has more than one form of transmission for its proprietary data, then 
the exchange must offer the competing consolidators and self-
aggregators those types of transmission for consolidated market data. 
As discussed, the rule will not require an exchange to offer new forms 
of access, but if an exchange did offer any new forms of access for 
proprietary data, it will have to offer them for consolidated market 
data as well.
---------------------------------------------------------------------------

    \811\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    One commenter stated that all forms of data submission must assure 
full and equal, transparent, and equally timed access to data.\812\ 
Another commenter stated that the most important component for the 
success of the competing consolidator model is ``to ensure that all 
market participants have the opportunity for equal access within the 
facilities of an exchange for purposes of receiving market data from 
the exchange, transmitting that market data out of the exchange and 
receiving and distributing market data from another exchange (e.g., to 
receive and deliver an away exchange's market data.'' \813\ This 
commenter further stated that exchanges should not favor certain market 
participants over others and that equal access must cover both egress 
and ingress within exchange data centers.\814\ Further, the commenter 
stated that the economic incentive to become a competing consolidator 
may not be sufficient without such equal access.\815\ Another commenter 
cautioned that allowing an exchange to develop a new market data 
product that contains only the data elements that are specified in the 
proposed definition of consolidated market data could be problematic 
because (1) competing consolidators likely will have feed handlers for 
publicly available feeds, which would impose additional burdens; and 
(2) there would be no incentive for exchanges to keep the latency of 
these special feeds similar to that of public feeds.\816\
---------------------------------------------------------------------------

    \812\ See Kubitz Letter.
    \813\ McKay Letter at 3. See also Temple University Letter at 2 
(stating that ``intermediaries'' including exchanges and SIPs should 
not ``unfairly discriminate or privilege certain market participants 
to the detriment of others in terms of data access, execution and 
other market data operations'' and that such intermediaries should 
act ``independently and neutrally towards market participants to 
ensure the competitive integrity of the marketplace'').
    \814\ See McKay Letter at 3.
    \815\ Id.
    \816\ See NovaSparks Letter at 1-2.
---------------------------------------------------------------------------

    The Commission believes that the SROs should be required to provide 
the information necessary to generate consolidated market data in the 
same manner and using the same methods, including all methods of access 
and the same format as they provide to any person. Different forms of 
access affect

[[Page 18655]]

the delivery of data. If an exchange provided a superior form of access 
to its proprietary data products, then transmission of consolidated 
market data would be negatively impacted and the benefits of the 
decentralized consolidation model, such as lower latencies, would not 
be realized. The national market system would be affected by this 
disparity as it is today--with certain proprietary data products 
providing superior access as compared to consolidated market data 
products. As stated in the Proposing Release, different market 
participants have different access needs. The Commission is not 
mandating a specific access option or limiting options for market 
participants, but all access options, including co-location, must be 
available to all market participants whether they are purchasing the 
data content underlying consolidated market data or proprietary data.
    The access requirement under Rule 603(b) requires the exchanges to 
provide their NMS information, including all data necessary to generate 
consolidated market data, at one data dissemination location co-located 
near each exchange's matching engine. The requirement in Rule 603(b) 
that access be provided in the same manner as any other information is 
provided to any person encompasses co-location options that are 
provided by exchanges to market participants that purchase proprietary 
data. Proprietary data users are typically co-located near an 
exchange's matching engine. Rule 603(b) will allow competing 
consolidators and self-aggregators to receive data at the same speeds, 
and with the same access options, as the exchange offers its market 
data.\817\ Different co-location options within a data center could 
raise concerns about whether that exchange is providing the same manner 
of access to its data as required under Rule 603(b). Further, the 
exchanges would not be permitted to provide their NMS information 
necessary to generate consolidated market data in a faster manner to 
any affiliate exchange, a subsidiary, or other affiliate that operates 
as a competing consolidator or a subsidiary or affiliate that competes 
in the provision of proprietary data.
---------------------------------------------------------------------------

    \817\ See also infra Section III.B.9(f).
---------------------------------------------------------------------------

(d) Comments on Latency Neutralization
    In the Proposing Release, the Commission stated that proposed Rule 
603(b) would require that all access options be provided in a latency-
neutralized manner such that all participants within an exchange's data 
center--such as proprietary data subscribers, competing consolidators, 
and self-aggregators--would receive information at the same time, 
regardless of their location or status within the data center. The 
Commission continued that exchanges could, for example, adopt equal 
cable length protocols (i.e., where cable lengths from network 
equipment to customer cabinets are harmonized for equal access) to 
ensure that all of the exchange's data center connections provide 
market data simultaneously. Finally, the Commission stated that the 
SROs must use the same latency-neutralization processes for competing 
consolidators and self-aggregators as they offer subscribers of 
proprietary data.
    One commenter stated that to provide a level playing field 
``latency-neutralized'' access must apply to locally produced data 
(i.e., data produced within an exchange's data center where a market 
participant is co-located) and that the exchange must not interfere in 
the competition to provide inbound market data from exchanges located 
in other market centers.\818\ This commenter provided a detailed 
discussion of five steps of data access and delivery that it believed 
should be subject to latency neutralization requirements under Rule 
603(b) if an exchange or its affiliate exercises direct control or 
indirect control.\819\ Specifically, the commenter stated that latency 
neutralization should apply to (1) the initial distribution from an 
exchange's market data distribution engine to the cabinets of a 
competing consolidator, self-aggregator, or other direct recipient of 
market data; (2) the distribution from a competing consolidator's 
cabinet out of an exchange's data center to equipment (e.g., wireless 
or fiber equipment) for distribution to subscribers (described as the 
``egress leg''); (3) the receipt of market data from an away exchange 
for delivery to co-located customers in the exchange's data center 
(described as the ``ingress leg''); (4) the delivery of data from a 
competing consolidator's cabinet of market data received from away 
markets to the competing consolidator's subscribers that are located in 
the same data center (described as the ``delivery to subscriber leg''); 
and (5) the transmission of data from an exchange data center to be 
received at other exchange data centers and/or for distribution to non-
co-located market participants (described as the ``transit leg''). This 
commenter stated that these considerations are important to determining 
when and where competition begins in providing consolidated market data 
and that it believes that competition should begin when market data 
leaves those areas over which an exchange or its affiliates exercise 
direct or indirect control.\820\
---------------------------------------------------------------------------

    \818\ See McKay Letter at 6.
    \819\ See id. at 7. The commenter suggested that ``indirect 
control'' means the use of the exchange or its affiliate's 
influence, weight or pressure to create an advantage or disadvantage 
in exchange connectivity to select market participants. Further, the 
commenter described several different forms of direct or indirect 
control, including ``requiring market participants to connect to a 
meet me room, specifying the types of cross connects that may be 
used, restricting the use of certain frequencies to certain market 
participants, through the use of one or more affiliates or select 
third parties to create advantages, or pursuant to formal and 
informal arrangements with the data center operator.'' Id. at 8-9.
    \820\ See id. at 10.
---------------------------------------------------------------------------

    Rule 603(b) requires that the exchanges provide their NMS 
information, including all data necessary to generate consolidated 
market data, in the same manner and using the same methods as such 
exchange provides any information to any person. As discussed above, 
this language encompasses the provision of data by an exchange at one 
data dissemination location co-located near each exchange's matching 
engine to allow competing consolidators and self-aggregators to receive 
data at that location at the same speeds, and with the same access 
options, as the exchange offers its market data. The SROs are required 
to use the same latency-neutralization processes for competing 
consolidators and self-aggregators as they offer to subscribers of 
proprietary data such that all participants within the exchange's data 
center, regardless of their location or status within the data center, 
would receive the data at the same time.\821\ In the Proposing Release, 
the Commission described latency neutralization protocols that 
exchanges could adopt, such as equal cable length protocols where cable 
lengths from network equipment to customer cabinets are harmonized for 
equal access. Any differential treatment of competing consolidators in 
the transmission of consolidated market data within a data center 
controlled by an exchange must be filed with the Commission as a 
proposed rule change pursuant to Section 19(b) of the Exchange Act and 
Rule 19b-4 thereunder and satisfy statutory requirements, such as not

[[Page 18656]]

being designed to permit unfair discrimination \822\ nor impose a 
burden on competition.\823\
---------------------------------------------------------------------------

    \821\ See Proposing Release, 85 FR at 16771. For example, 
exchanges could adopt equal cable length protocols (i.e., where 
cross-connect cable lengths from network equipment to customer 
cabinets are harmonized for equal access) and ports of the same 
bandwidth (i.e., 1G, 10G, and 40G) to ensure that all of the 
exchange's data center connections provide market data 
simultaneously to market participants located within a data center.
    \822\ Section 6(b)(5) of the Exchange Act, 15 U.S.C. 78f(b)(5).
    \823\ Section 6(b)(8) of the Exchange Act, 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

(e) Comments on SRO Costs
    One commenter, FINRA, stated that the ADF would be required to 
connect and provide data to all competing consolidators and self-
aggregators.\824\ FINRA said that it potentially could incur 
significant costs to establish and maintain this required connectivity, 
despite minimal fee revenue from data disseminated from the ADF given 
the low volume of regularly reported trades and lack of quoting 
participants.\825\ FINRA stated in its comment letter that the ADF has 
a low volume of over-the-counter (``OTC'') trades and no quotes. 
Therefore, the connectivity options would not need to support much data 
capacity, which should limit the amount of costs incurred by FINRA to 
establish such connectivity. However, FINRA could seek to recoup any 
costs associated with establishing and maintaining connectivity to 
competing consolidators and self-aggregators by proposing connectivity 
fees pursuant to Section 19(b) of the Exchange Act.\826\ Information 
about OTC quotations and trades in NMS stocks are an important 
component of SIP data today and will continue to be important in 
consolidated market data. This OTC information must be collected, 
consolidated, and disseminated in the decentralized consolidation 
model.
---------------------------------------------------------------------------

    \824\ See FINRA Letter at 4.
    \825\ See id.
    \826\ Connectivity to the data underlying consolidated market 
data would be a new data service because such service does not 
currently exist. The SROs will have to file with the Commission any 
proposed new fees for connectivity to their individual data that 
underlies consolidated market data pursuant to Section 19(b) of the 
Exchange Act and Rule 19b-4 thereunder, and any proposed 
connectivity fee must satisfy the statutory standards, including 
being fair and reasonable, being not unreasonably discriminatory, 
and reflecting an equitable allocation of reasonable fees. See 
Sections 6(b)(4) and 15A(b)(5) of the Exchange Act. See also infra 
note 1158 and accompanying text and Section III.E.2(c).
---------------------------------------------------------------------------

(f) Interpretation of Rule 603(a)
    Currently, Rule 603(a) requires that SROs distribute NMS 
information on terms that are fair and reasonable and not unreasonably 
discriminatory.\827\ The Commission stated in the Regulation NMS 
Adopting Release that Rule 603(a) would prohibit an SRO from making its 
core data available to vendors on a more timely basis than it makes 
such data available to the exclusive SIPs.\828\ In particular, the 
Commission said that ``independently distributed data could not be made 
available on a more timely basis than core data is made available to a 
Network processor. Stated another way, adopted Rule 603(a) prohibits an 
SRO or broker-dealer from transmitting data to a vendor or user any 
sooner than it transmits data to a Network processor.'' \829\ Today, 
latency differentials of any measurable amount are meaningful for 
certain market participants and their trading strategies. The 
Commission believes that Rule 603(a) prohibits an SRO from making NMS 
information available to any person on a more timely basis (i.e., by 
any time increment that could be measured by the SRO \830\) than it 
makes such data available to the existing exclusive SIPs and as 
amended, competing consolidators and self-aggregators. When it adopted 
Regulation NMS, the Commission did not provide a de minimis exception 
to the timeliness of data availability in Rule 603(a). If an SRO can 
measure the timeliness of data transmission in a specific increment, 
such increment generally should be utilized for determining whether 
such data has been transmitted on a more timely basis to persons other 
than an existing exclusive SIP, competing consolidators, or self-
aggregators.
---------------------------------------------------------------------------

    \827\ See Rule 603(a)(2) of Regulation NMS, 17 CFR 
242.603(a)(2).
    \828\ See Regulation NMS Adopting Release, supra note 7, at 
37569. Specifically, the Commission stated, ``Rule 603(a)(2) 
requires that any SRO, broker, or dealer that distributes market 
information must do so on terms that are not unreasonably 
discriminatory. These requirements prohibit, for example, a market 
from making its `core data' (i.e., data that it is required to 
provide to a Network processor) available to vendors on a more 
timely basis than it makes available the core data to a Network 
processor.'' Id.
    \829\ Id. at 37567.
    \830\ For example, latency is currently measured for SIP data in 
microsecond increments. See CTA Key Operating Metrics of Tape A&B 
U.S. Equities Securities Information Processor (CTA SIP), available 
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf (last accessed Nov. 27, 2020).
---------------------------------------------------------------------------

10. Calculation of the National Best Bid and National Best Offer Under 
Rule 600(b)(50)
(a) Proposal
    The Commission proposed to amend the definition of national best 
bid and national best offer to reflect that competing consolidators and 
self-aggregators, rather than the exclusive SIPs, would be calculating 
the NBBO in the proposed decentralized consolidation model. In 
addition, to accommodate this proposed decentralized consolidation 
model, the Commission proposed to bifurcate the NBBO definition between 
NMS stocks and other NMS securities (i.e., listed options) to reflect 
that the proposed decentralized consolidation would apply only with 
regard to NMS stocks, and therefore the plan processor for options 
would continue to be responsible for calculating and disseminating the 
NBBO in listed options. The proposed changes to the definition of NBBO 
would not impact the manner in which the NBBO is calculated for NMS 
stocks.\831\
---------------------------------------------------------------------------

    \831\ The NBBO will reflect the new round lot sizes. See supra 
Section II.D.2.
---------------------------------------------------------------------------

(b) Comments on Complexity and Confusion Resulting From Multiple NBBOs
    The Commission received multiple comments with respect to the 
proposed definition of NBBO, with commenters expressing concerns about 
multiple NBBOs and the impact on market participants and investors. 
Commenters stated that confusion could result from multiple NBBOs being 
available to market participants.\832\ One commenter stated that retail 
investors do not have experience with multiple NBBOs.\833\ The 
commenter further noted that multiple NBBOs would make broker-dealers' 
Rule 605 reports difficult to compare because broker-dealers could be 
using different NBBOs.\834\ The commenter questioned whether a broker-
dealer would be responsible for execution quality and compliance with 
the Vendor Display Rule if the competing consolidator that the broker-
dealer is using miscalculates the NBBO.\835\
---------------------------------------------------------------------------

    \832\ See TD Ameritrade Letter at 12 (``In the present-day 
structure, SIPs provide a `gold copy' standard of the NBBO which can 
be used for comparison when meeting the regulatory requirements of 
best execution and the Vendor Display Rule . . . The industry may 
have as many NBBO quotes as there are [competing consolidators] and 
self-aggregators.''); Healthy Markets Letter I at 4 (``We have 
significant concerns that by creating multiple, alternative SIPs, 
that market participants may cherry-pick the data feed that costs 
them the least or makes them look the best.''); Nasdaq Letter IV at 
12; Fidelity Letter at 10-11.
    \833\ See TD Ameritrade Letter at 12-13 (``Furthermore, even if 
proprietary feeds disseminate a different quote than the NBBO, such 
quote has never been permitted for purposes of use in the Vendor 
Display Rule, meaning the retail investor has not previously 
experienced a multiple NBBO environment.''). See also Fidelity 
Letter at 10-11 (``Under the Proposal, retail customers placing 
orders in the same security at two different brokerage firms may 
receive two different prices depending upon which competing 
consolidator each firm uses.''). This scenario could happen today. 
The Commission does not believe the decentralized consolidation 
model will introduce confusion for retail investors. Retail 
investors will continue to be able to see the NBBO provided by their 
broker-dealer, whether it is calculated by their broker-dealer or a 
competing consolidator.
    \834\ See TD Ameritrade Letter at 13.
    \835\ See id. The commenter further questioned whether 
regulators would grant relief when reviewing execution quality on an 
order by order basis, when different competing consolidators are 
calculating NBBOs differently.

---------------------------------------------------------------------------

[[Page 18657]]

    Other commenters noted that a lack of a single NBBO as calculated 
by the existing SIPs could impact the market in a variety of ways, such 
as a lack of a single benchmark to determine trade quality; curtailing 
the Commission's surveillance efforts; potentially creating a multi-
tiered system where some traders can access faster NBBOs; \836\ and 
adding significant complexity, confusion, and uncertainty to best 
execution analysis.\837\ One commenter said that it is unlikely the 
NBBOs produced by competing consolidators and their associated 
timestamps would ever be synchronized and that the NBBOs calculated by 
competing consolidators and self-aggregators will never align. The 
commenter said that the different versions of market data would impact 
broker-dealer compliance with market conduct rules.\838\
---------------------------------------------------------------------------

    \836\ See Nasdaq Letter IV at 7 (``Shedding the single NBBO--
which has long been investors' `North Star' for price discovery--in 
favor of multiple NBBOs would further complicate market structure, 
confuse investors as to whether they are actually seeing the best 
price, and hinder market surveillance and enforcement efforts.'').
    \837\ See FINRA Letter at 6.
    \838\ See id. at 3-4.
---------------------------------------------------------------------------

    Another commenter noted that multiple NBBOs would make comparison 
of broker-dealer performance difficult, as broker-dealers may decide 
which NBBO to use depending on which NBBO costs the least or makes 
their execution quality look better.\839\ The commenter acknowledged 
that while there is no clear NBBO today, the exclusive SIPs do 
calculate and disseminate a NBBO.\840\ Commenters questioned how 
execution quality would be judged if each competing consolidator 
provided a different NBBO.\841\ Another commenter believed that 
multiple NBBOs will impact liquidity.\842\ One commenter said that 
latency arbitrage would be required to ``keep markets in line,'' 
estimating an increase of almost $3 billion in latency arbitrage 
profits as a result of the multiple NBBOs introduced by the 
proposal.\843\ This commenter said that multiple NBBOs would also 
reduce investor confidence that trades will be executed at the best 
price \844\ and believed that multiple NBBOs would negatively impact 
market quality, complicate best execution compliance by broker-dealers, 
and overall hurt investor confidence in the markets.\845\ Another 
commenter requested clarity that a single competing consolidator could 
produce multiple NBBOs at different locations at any given point of 
time, since some competing consolidators may co-locate at more than one 
exchange data centers.\846\
---------------------------------------------------------------------------

    \839\ See Healthy Markets Letter I at 4.
    \840\ See id.
    \841\ See Schwab Letter at 6; NYSE Letter II at 24; WFE Letter 
at 1.
    \842\ See Data Boiler Letter I at 3. The commenter did not 
describe how it thought multiple NBBOs would impact liquidity. As 
discussed, the current market operates with multiple NBBOs. The 
Commission believes that the NBBOs that will be calculated in the 
decentralized consolidation model better reflect current market 
conditions due to the improvements in latencies and therefore, will 
be more prompt, accurate, and reliable. The enhanced and faster 
consolidated market data resulting from the proposal should allow 
market participants access to more up-to-date market data (including 
NBBO data) than provided by the SIP, permitting them to more readily 
find liquidity than before.
    \843\ Nasdaq Letter III at 8. Many firms that aggregate 
proprietary feeds today likely have different aggregation times and 
are likely already exposed to latency arbitrage. It is unclear why 
the use of latency arbitrage would increase as a result of the 
proposal, especially since the existence of multiple NBBOs would not 
represent a change from current market practices.
    \844\ See Nasdaq Letter IV at 11.
    \845\ See id. at 3.
    \846\ See McKay Letter at 10-11 (``. . . many market 
participants are colocated at one or more of the major exchange 
datacenters in New Jersey and receive their market data at such 
colocated points of presence. If a competing consolidator seeks to 
provide market participants with the fastest and most efficient 
consolidated market data possible, the result would be a slightly 
different NBBO at each exchange datacenter.'').
---------------------------------------------------------------------------

    In the decentralized consolidation model, competing consolidators 
will replace the exclusive SIPs in generating the NBBO as defined in 
Rule 600. Therefore, there will be NBBOs generated by each competing 
consolidator, as well as self-aggregators, based upon the data content 
received from the SROs pursuant to Rule 603(b). While commenters 
expressed concerns about the loss of an NBBO generated by a single plan 
processor--the exclusive SIPs--the Commission believes that market 
participants will adjust to not having an NBBO generated by a single 
plan processor. ``Multiple NBBOs'' already exist today.\847\ Some 
market participants obtain the NBBO from the exclusive SIPs, and some 
market participants generate their own NBBO by aggregating multiple 
proprietary data feeds. Some market participants that generate their 
own NBBO use third party aggregation software or services to do so. The 
NBBO seen by market participants depends on the systems used to 
generate the NBBO and the systems used by the market participants to 
receive and view it. Market participants are therefore already 
accustomed to a market environment in which there are ``multiple 
NBBOs'' generated by different parties, at different speeds, in 
different locations. They are accustomed to performing best execution 
analysis and providing execution quality statistics in the current 
environment. Therefore, the Commission does not believe that the 
generation of NBBOs by multiple competing consolidators will add 
complexity or confusion to the markets.
---------------------------------------------------------------------------

    \847\ See also infra Section V.B.2(f).
---------------------------------------------------------------------------

    Moreover, neither the amended definition of NBBO, nor the 
decentralized consolidation model more generally, mandates the 
consumption of multiple NBBOs from multiple competing consolidators. 
So, while different competing consolidators may calculate and 
disseminate unique NBBOs or single competing consolidators may 
calculate different NBBOs at separate data center locations under the 
decentralized consolidation model, the Commission does not believe that 
this should cause confusion for market participants, who already 
consider market data from multiple sources. Finally, the amended 
definition of NBBO does not change the methodology by which the NBBO 
for a particular NMS stock is calculated, which will help to ensure 
consistency in the NBBO calculation. The Commission is therefore 
adopting the amendments to the definition of NBBO as proposed.
(c) Comments on Impact of Multiple NBBOs on Best Execution Obligations
    With respect to best execution, commenters stated that the 
Commission did not sufficiently discuss the best execution implications 
of multiple NBBOs.\848\ Commenters stated that eliminating the single 
NBBO, and requiring broker-dealers to choose among multiple NBBOs, 
would complicate and increase the cost of compliance with best 
execution

[[Page 18658]]

obligations.\849\ However, another commenter stated that it ``does not 
believe the existence of multiple NBBOs will create problems for market 
participants or the market as a whole at a level that would warrant not 
moving forward with the decentralized, competitive model. . . .'' \850\ 
Additionally, one commenter stated that expanding core data generally 
would facilitate best execution.\851\
---------------------------------------------------------------------------

    \848\ See, e.g., Nasdaq Letter IV at 3, 12-13; Clearpool Letter 
at 8 (``[W]hile the proposal states that the existence of multiple 
NBBOs does not impact a broker's best execution obligations, we 
believe that ``fragmenting'' the NBBO could lead to several problems 
around such obligations, which would need to be addressed and 
clarified by the Commission prior to implementation.''); Healthy 
Markets Letter I at 4-5 (``Could a market participant seek to 
deliberately subscribe to an inferior data feed? . . . We urge the 
Commission to establish objective standards, including policies, 
procedures, and documentation requirements for brokers regarding 
their selection and usage of competing data feeds.''); FINRA Letter 
at 5 (``[T]he Commission may also want to consider providing 
guidance on whether a broker-dealer would, or should, be evaluated--
by the Commission, FINRA, or others--on its decision of which 
competing consolidator(s) to receive consolidated market data from, 
what factors a broker-dealer should consider in evaluating its 
choice of a competing consolidator(s) (both initially and on an 
ongoing basis), and how a broker-dealer's choice of a competing 
consolidator(s) might affect the broker-dealer's best execution 
obligations.'').
    \849\ See Nasdaq Letter IV at 3, 42, 49; Joint CRO Letter at 2; 
STANY Letter II at 6; TD Ameritrade Letter at 12-13.
    \850\ Clearpool Letter at 8; see also Capital Group Letter at 4 
(``We also support the proposed commercial competing consolidators. 
Different users have different needs with regards to data complexity 
(e.g., what data elements are included or excluded), latency and 
price. We do not see this as the creation of `multiple truths' or 
`multiple markets.' Because the data will also be available for post 
trade analysis, market participants will be able to analyze outcomes 
using the difference between the originating venue timestamps and 
the consolidator timestamps to determine if best execution 
obligations were fulfilled and if the speed they chose to pay for 
meets their needs.'').
    \851\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    As described above, ``multiple NBBOs'' already exist today. The 
amended definition of NBBO will not significantly alter this state of 
affairs; rather, it adjusts the definition of NBBO to accommodate the 
decentralized consolidation model to reflect that NBBOs will be 
calculated and disseminated by competing consolidators and calculated 
by self-aggregators. As is the case today, broker-dealers must act 
reasonably to obtain pricing information in carrying out their duty to 
seek to obtain the most favorable terms reasonably available under the 
circumstances for the execution of customer orders.\852\
---------------------------------------------------------------------------

    \852\ See supra Section I.E.
---------------------------------------------------------------------------

(d) Comments on Impact of Multiple NBBOs on Surveillance and 
Enforcement
    While some commenters expressed concern about the proposed 
decentralized consolidation model's impact on regulation,\853\ several 
commenters more specifically opined that the multiple NBBOs resulting 
from the proposed model would undermine exchange surveillance and 
enforcement,\854\ and raised questions about how market participants 
should consider multiple NBBOs in trade-through prevention and locked 
and crossed markets.\855\ One commenter said that the proposal did not 
fully consider the impact of multiple NBBOs on surveillance and 
compliance with investor protection rules \856\ and that multiple NBBOs 
would affect surveillances that detect broker-dealer market access 
controls deficiencies and fraud and manipulation.\857\ The commenter 
also stated that the proposed model would make it almost impossible to 
monitor for locked and crossed markets and to conduct trade-through 
surveillance due to the multiple competing consolidator feeds.\858\ In 
addition, the commenter stated that regulators and market participants 
will have different views of the market depending on the NBBO they use, 
which would allow bad actors to take advantage of the resulting 
regulatory loopholes and inefficiencies.\859\ The commenter stated that 
multiple NBBOs could create false positives, more investigations and 
data requests, as well as false negatives.\860\
---------------------------------------------------------------------------

    \853\ See supra Section III.B.8.
    \854\ See Joint CRO Letter at 2, 3; Nasdaq Letter IV at 12; NYSE 
Letter II at 24; see also TechNet Letter II at 2 (stating that 
multiple NBBOs would undermine effective regulation and investor 
confidence).
    \855\ See Joint CRO Letter at 2, 3, 4; Nasdaq Letter IV at 3, 
12, 36, 49.
    \856\ See Joint CRO Letter at 2, 4.
    \857\ See id. at 3.
    \858\ See id. at 4. The commenter stated that reprogramming its 
systems to comply with and surveil for compliance with the locked 
and crossed and order protection rules would be an ``extensive 
undertaking.'' Id. See also Nasdaq Letter IV at 12, 36, 49.
    \859\ See Joint CRO Letter at 3.
    \860\ See id. at 2, 3.
---------------------------------------------------------------------------

    Additionally, one commenter stated that the multiple NBBOs that 
will be produced by competing consolidators and self-aggregators under 
the proposed decentralized consolidation model will increase costs for 
exchanges to enforce their rules \861\ and increase the risk of market 
manipulation.\862\ This commenter also said that regulations could be 
inconsistently applied due to variations in consolidated market data 
from different competing consolidators,\863\ and that the proposal 
would result in more frequent enforcement investigations, expansive 
data requests, and delays in concluding investigations.\864\ Another 
commenter stated that the proposed decentralized consolidation model 
would hurt Rule 605 compliance because the baseline NBBO used by each 
market center for comparisons would vary.\865\
---------------------------------------------------------------------------

    \861\ See Nasdaq Letter IV at 12, 37. See also Joint CRO Letter 
at 4.
    \862\ See Nasdaq Letter IV at 12.
    \863\ See id. The commenter also stated that the proposal would 
lead to confusion and inconsistent application if adopted. See id. 
at 12-13.
    \864\ See id. at 37.
    \865\ See NYSE Letter II at 24.
---------------------------------------------------------------------------

    These issues are not new or unique to the decentralized 
consolidation model. As discussed earlier,\866\ SRO surveillance and 
regulatory programs currently need to consider different sources of 
market data, including different ``NBBOs'' calculated by different 
market participants as well as the NBBO calculated by exclusive SIPs 
pursuant to Rule 600(b)(50). While there may be an increased number of 
data sources in a decentralized consolidation model, the issues 
described by these commenters are currently dealt with by SRO market 
surveillance and enforcement staff today. Broker-dealers have 
considered multiple data sources in complying with trade-through and 
locked and crossed markets in the context of Regulation NMS. The 
Commission believes that the amended definition of NBBO should not 
cause increased exchange enforcement costs or an increase in alerts or 
false positives because the surveillance and regulatory process will 
continue as it does today.
---------------------------------------------------------------------------

    \866\ See supra Section III.B.8.
---------------------------------------------------------------------------

    Currently, SROs already must decide among data sources to use for 
their surveillance and regulatory systems. SROs must also handle the 
different data sources used by market participants for regulatory 
compliance. Market participants may use SIP data, proprietary data, or 
a combination. Market participants also may calculate their own NBBOs. 
The data used by market participants today may differ from the data 
used by the SROs for their surveillance and regulatory systems. Broker-
dealers are not required to use a particular source of market data for 
regulatory compliance. Because broker-dealers may rely on different 
sources of data--data sources that may not be used by SRO regulatory 
staff to generate alerts--SRO investigators typically request data from 
broker-dealers to evaluate whether an alert has discovered an actual 
violation of the Federal securities laws and exchange rules. This 
dynamic will not change in a decentralized consolidation model. SROs 
may decide to use a consolidated market data product generated by a 
competing consolidator, or they may decide to self-aggregate data to 
generate consolidated market data for purposes of their surveillance 
and regulatory systems. SROs will not be required to purchase every 
consolidated feed to conduct enforcement or surveillance, just as they 
are not required to purchase all direct proprietary feeds used by 
market participants. Therefore, SROs should not incur higher 
enforcement costs because the regulatory process will continue to 
operate as it does currently.\867\
---------------------------------------------------------------------------

    \867\ See infra Section V.C.2(d); notes 1757-1760 and 
accompanying text.
---------------------------------------------------------------------------

    Furthermore, even if SRO surveillance and regulatory programs used 
the same data source as a broker-dealer, SROs

[[Page 18659]]

would still have to request information from such broker-dealer due to 
potential data differences--such as geographic latencies, access 
options, or processing options--to evaluate whether there is a 
potential violation. Therefore, the Commission believes that the 
existence of multiple NBBOs should not present any problems that the 
SROs have not previously handled.

C. Competing Consolidators

    The Commission believes that the introduction of competing 
consolidators as the entities responsible for the collection, 
consolidation, and dissemination of consolidated market data products 
will update and modernize the national market system and provide market 
participants and investors with benefits. As noted above, the 
Commission received many comments that supported the goals of the 
decentralized consolidation model and the potential positive impacts 
this model would have on the provision of consolidated market 
data.\868\ However, some comments raised concerns about the 
introduction of competing consolidators and their impact on the 
national market system, which are discussed below.
---------------------------------------------------------------------------

    \868\ See supra Section III.B.1; BlackRock Letter, Fidelity 
Letter, State Street Letter, Wellington Letter, ICI Letter, Virtu 
Letter, AHSAT Letter, FIA PTG Letter, IntelligentCross Letter, 
Committee on Capital Markets Regulation Letter, BestEx Research 
Letter, Wharton Letter, MEMX Letter, Clearpool Letter; T. Rowe Price 
Letter; Capital Group Letter; DOJ Letter; ACS Execution Services 
Letter; IEX Letter; Steinmetz Letter (commenting on the entire 
proposal); SIFMA Letter; ACTIV Financial Letter; MFA Letter; Better 
Markets Letter.
---------------------------------------------------------------------------

1. Definition of ``Competing Consolidator'' Under Rule 600(b)(16)
(a) Proposal
    The Commission proposed to amend Regulation NMS to introduce 
competing consolidators as the entities responsible for the collection, 
consolidation, and dissemination of consolidated market data. Under 
proposed Rule 600(b)(16) of Regulation NMS, a competing consolidator 
would be defined as ``a securities information processor required to be 
registered pursuant to Rule 614 or a national securities exchange or 
national securities association that receives information with respect 
to quotations for and transactions in NMS stocks and generates 
consolidated market data for dissemination to any person.''
(b) Final Rule and Response to Comments
    The Commission received one comment supporting the proposed 
definition of competing consolidator.\869\ The Commission, however, is 
revising the definition to reflect that competing consolidators are not 
required to generate a complete consolidated market data product.\870\ 
Rule 600(b)(16) defines a competing consolidator as ``a securities 
information processor required to be registered pursuant to Rule 614 or 
a national securities exchange or national securities association that 
receives information with respect to quotations for and transactions in 
NMS stocks and generates a consolidated market data product for 
dissemination to any person.''
---------------------------------------------------------------------------

    \869\ Data Boiler Letter I at 46.
    \870\ See supra Section II.B.2. See also infra Section 
III.C.8(a)(ii) for a discussion of the revisions to the 
responsibilities of competing consolidators resulting from this 
change.
---------------------------------------------------------------------------

    Regarding the consolidated market data that must be generated by 
competing consolidators, the Commission asked in the Proposing Release 
whether competing consolidators should be required to develop a 
consolidated market data product that contained all of the elements 
provided under the proposed definition of consolidated market 
data.\871\ As proposed, competing consolidators would have had the 
flexibility to offer different products but were also required to offer 
a full consolidated market data product. One commenter stated that 
competing consolidators should not be required to include depth-of-book 
in the products they sell, as including such data would increase 
latency and complexity.\872\ The commenter stated that not mandating 
the provision of depth-of-book data would encourage competition further 
and reduce data costs for all consumers.\873\ Another commenter stated 
that the requirement that competing consolidators develop a 
consolidated market data product that contained all of the elements of 
consolidated market data, regardless of demand, along with other 
proposed competing consolidator requirements, including registration 
and Regulation SCI, imposed costs on competing consolidators that would 
serve as a barrier to entry to potential competing consolidators.\874\ 
Another commenter suggested that only a single competing consolidator 
should be obligated to provide a consolidated market data product, not 
all competing consolidators.\875\ One commenter suggested that 
competing consolidators should have the flexibility to compete with 
proprietary data offerings and decide what products to offer to their 
subscribers.\876\
---------------------------------------------------------------------------

    \871\ See Proposing Release, 85 FR at 16782.
    \872\ See BestEx Research Letter at 2, 5. The commenter said the 
result would be consumers that prefer depth over latency would be 
able to find the right products, as would those that prefer latency 
over depth.
    \873\ See id. at 5.
    \874\ See NYSE Letter II at 14-15.
    \875\ Data Boiler Letter I at 52.
    \876\ BlackRock Letter at 2-3.
---------------------------------------------------------------------------

    The Commission agrees with the comments that objected to requiring 
that all competing consolidators sell a product containing all of the 
specified elements of consolidated market data \877\ because forcing 
higher fixed costs and a mandatory product offering across all 
competing consolidators potentially would make it more difficult for 
competing consolidators to enter the market and to tailor their 
services and product offerings while recouping expenses. The Commission 
believes that allowing competing consolidators to generate their own 
set of product offerings, tailored to the needs of their subscriber 
base or otherwise differentiated, will lower the fixed costs of those 
competing consolidators that elect to specialize in targeted products 
that do not contain all of the elements of consolidated market data. 
Specifically, these competing consolidators can offer such products 
without acquiring the underlying data and developing the technological 
capability necessary to calculate and consolidate all elements of 
consolidated market data. This reduction in fixed costs will enable 
these competing consolidators to offer products that do not contain all 
elements of consolidated market data and do so in a more cost-effective 
manner, which should enhance their ability to meet the specific data 
needs of various market participants. In addition, increased 
participation by more streamlined competing consolidators that operate 
with fewer constraints and potentially fewer fixed costs, or costs 
tailored to their own unique product offerings, would promote 
competition in the market.
---------------------------------------------------------------------------

    \877\ See BestEx Research Letter at 2, 5; NYSE Letter II at 14-
15; BlackRock Letter at 2-3; Data Boiler Letter I at 52.
---------------------------------------------------------------------------

    The Commission recognizes that competing consolidators are the only 
entities that will generate and disseminate consolidated market data 
products in the national market system, and acknowledges the 
possibility that competing consolidators may not offer consolidated 
market data products that do not contain all of the elements of 
consolidated market data. However, consistent with the views expressed 
by a variety of market participants regarding the importance of the

[[Page 18660]]

individual elements of consolidated market data, the Commission 
believes that there will be widespread demand for a product that 
contains all elements of consolidated market data, and particularly for 
the additional information included in core data.\878\ Specifically, 
because this additional data will provide useful information that will 
assist in order routing and placement decisions and achieving improved 
executions for customer orders,\879\ many broker-dealers that execute 
customer orders will acquire a product containing all elements of 
consolidated market data to compete effectively for customer 
business.\880\ Consolidated market data includes information that the 
Commission believes is necessary to disseminate under the rules of the 
national market system and useful for a broad-cross section of market 
participants. Accordingly, the Commission believes that there should be 
demand for products containing all elements of consolidated market data 
even though, as adopted, Rule 614 will not require competing 
consolidators to offer them.
---------------------------------------------------------------------------

    \878\ See supra note 112 and accompanying text (noting that 
multiple Roundtable panelists and commenters supported the inclusion 
of odd-lot information, depth of book data, and auction 
information); supra notes 152-153 and accompanying text (describing 
comments expressing support for the expansion of consolidated market 
data and core data); 242-244 (describing comments expressing support 
for the inclusion of smaller-sized orders in higher-priced stocks); 
386-388 (describing comments expressing support for the inclusion of 
depth of book data); 462-464 (describing comments expressing support 
for the inclusion of auction information).
    \879\ See Proposing Release, 85 FR at 16754 (describing how 
depth of book data can assist Smart Order Routers and electronic 
trading systems with the optimal placement of orders across 
markets); 16759 (explaining how information regarding the size and 
side of order imbalances can indicate the direction a stock's price 
might move, inform decisions on where to price an auction order and 
what order type to use, and improve execution quality). See also 
supra Sections II.C.2(b)-II.D.2 (explaining how aggressively priced 
odd-lots will be included in core data through the definitions of 
odd-lot information and round lot); II.F.2; II.G.2.
    \880\ See supra Section II.C.2(a).
---------------------------------------------------------------------------

    With respect to the receipt of data by competing consolidators, 
Rule 603(b), as adopted, requires each SRO to provide its NMS 
information, including all data necessary to generate consolidated 
market data, to competing consolidators. In accordance with Rule 
603(b), competing consolidators will receive each SRO's market data 
that is necessary to generate consolidated market data. One commenter 
stated that competing consolidators, their subscribers, and self-
aggregators should be permitted to receive data elements or products 
based on need.\881\ As discussed above, competing consolidators will be 
permitted to develop different types of consolidated market data 
products based on the demands of their customers.\882\ Accordingly, 
competing consolidators will not be required to receive all of the data 
content underlying consolidated market data. Rather, competing 
consolidators can receive the data they need to generate the 
consolidated market data products they decide to offer, but the 
Commission notes that competing consolidators that are SIPs required to 
be registered pursuant to Rule 614 must comply with the Vendor Display 
Rule when offering consolidated market data products and therefore must 
receive, at a minimum, the data necessary to satisfy the Vendor Display 
Rule.\883\
---------------------------------------------------------------------------

    \881\ See SIFMA Letter at 11.
    \882\ See supra Section II.B.2 discussing the definition of 
consolidated market data product.
    \883\ The Vendor Display Rule requires a SIP that provides a 
display of quotation and transaction information with respect to an 
NMS stock, in the context of which a trading or order-routing 
decision can be implemented, to also provide a consolidated display 
for that stock. Rule 603(c) of Regulation NMS, 17 CFR 242.603(c). 
See also supra note 97; FINRA, Regulatory Notice 15-46, 1, 3 n. 12 
(2015) (``The exercise of reasonable diligence to ascertain the best 
market under prevailing market conditions can be affected by the 
market data, including specific data feeds, used by a firm. For 
example, a firm that regularly accesses proprietary data feeds, in 
addition to the consolidated SIP feed, for its proprietary trading, 
would be expected to also be using these data feeds to determine the 
best market under prevailing market conditions when handling 
customer orders to meet its best execution obligations.'').
---------------------------------------------------------------------------

    Competing consolidators will also have the ability to select for 
themselves, from among the options offered by the SROs, how to access 
the data underlying consolidated market data (e.g., with different 
latencies, throughput capacities, and data-feed protocols) and consider 
costs and complexities related to each option. The Commission believes 
that these provisions will provide competing consolidators with 
flexibility to develop their consolidated market data products business 
in a way that best suits their capabilities and their subscribers' 
needs.
2. Comments on Resiliency
    The Commission received several comments with respect to the impact 
of competing consolidators on the resiliency of the markets.\884\ Some 
commenters stated that competing consolidators could add resiliency to 
the markets.\885\ One commenter said that competing consolidators would 
strengthen resiliency because there would no longer be a single point 
of failure that could cause ``stock market paralysis.'' \886\ 
Similarly, another commenter said that competition could reduce the 
risk of a single point of failure,\887\ and another commenter said that 
the decentralized consolidation model would eliminate the SIP as a 
single point of failure.\888\ Two commenters said that having a 
``sufficient number of competing consolidators will be important to 
ensure resiliency and backup in the collection, consolidation, and 
distribution of consolidated market data.'' \889\
---------------------------------------------------------------------------

    \884\ See Committee on Capital Markets Regulation Letter at 3; 
BestEx Research Letter at 1; BlackRock Letter at 5; ACS Execution 
Services Letter at 5; Clearpool Letter at 7-8; Cboe Letter at 25; 
TechNet Letter II at 2; NYSE Letter II at 24; Data Boiler Letter I 
at 48; Data Boiler Letter II at 1; NBIM Letter at 6; NovaSparks 
Letter at 1. The Commission also received one comment that urged the 
Commission to focus on cybersecurity in upgrading the infrastructure 
for market data. Temple University Letter at 2. The Commission is 
amending Rule 1000 of Regulation SCI to make competing consolidators 
exceeding a threshold ``SCI entities.'' See infra Section III.F.
    \885\ See Committee on Capital Markets Regulation Letter at 3; 
BestEx Research Letter at 1; BlackRock Letter at 5; ACS Execution 
Services Letter at 5; Clearpool Letter at 7-8; MEMX Letter at 3, 8; 
ACTIV Financial Letter at 1 (stating that competition could 
``provide investors with a . . . higher reliability framework for 
determining accurate pricing of NMS securities''); NovaSparks Letter 
at 1 (``The competitive nature of the new model will encourage 
Competing Consolidators to deliver excellent reliability, 
functionality and performance.'').
    \886\ Committee on Capital Markets Regulation Letter at 3.
    \887\ See BestEx Research Letter at 1. This commenter also said 
that competing consolidators would reduce reliance on a single SIP 
vendor. Id. at 5.
    \888\ See BlackRock Letter at 5.
    \889\ ACS Execution Services Letter at 5; Clearpool Letter at 7-
8. However, with respect to business continuity planning and 
disaster recovery, one commenter said that having a single 
competitor to the SIP would be sufficient to address concerns about 
a single point of failure. See Data Boiler Letter I at 48.
---------------------------------------------------------------------------

    Commenters also argued that introducing competing consolidators 
could weaken the national market system by increasing a risk of 
failure,\890\ or that competing consolidators would not address 
concerns about a single point of failure.\891\ One commenter stated 
that introducing competing consolidators would, in fact, introduce 
multiple opportunities of failure.\892\ This commenter said that a 
competing consolidator with ``a significant

[[Page 18661]]

customer base'' could even cause market-wide trading halts if it had 
system problems and urged caution in making any changes that could 
``imperil the resiliency of the U.S. equities market.'' \893\ Another 
commenter said that competing consolidators would continue the risk of 
a single point of failure because customers of a single competing 
consolidator that failed would lose access to its consolidated market 
data, and unlike when an exclusive SIP fails and impacts all market 
participants, only customers of the competing consolidator would be 
disadvantaged.\894\ To mitigate the risk of failure, the commenter said 
that subscribers would have to subscribe to at least two competing 
consolidators and incur the costs of doing so.\895\ This commenter 
stated that the Commission did not provide evidence to support its 
conclusion that the proposed decentralized consolidation model would 
improve the stability of the market data system for data 
consumers.\896\ Another commenter said that there may be high-risk 
competing consolidators that enter the market (such as cheaper or 
slower competing consolidators) and their subscribers may not be able 
to avoid harm quickly enough if technological issues occur.\897\ 
Another commenter said that competing consolidators would add technical 
complexity, which would reduce resilience.\898\
---------------------------------------------------------------------------

    \890\ See Cboe Letter at 25; TechNet Letter II at 2. One 
commenter noted an inverse relationship between data connection 
speed and reliability. The commenter stated that exchanges and 
competing consolidators would need to create a protocol for 
conditional use of slower, reliable consolidated market data feeds 
to ensure reliability of such feeds. See NBIM Letter at 6. Competing 
consolidators will be required to comply with operational capability 
and resiliency obligations to help ensure that the provision of 
proposed consolidated market data remains reliable. See infra 
Section III.F.
    \891\ See NYSE Letter II at 24; Data Boiler Letter I at 48; Data 
Boiler Letter II at 1.
    \892\ See Cboe Letter at 25.
    \893\ Id.
    \894\ See NYSE Letter II at 24. Another commenter stated, ``. . 
. if either of the SIPs experiences a systems issue affecting the 
quality or availability of market data, all market participants are 
affected equally by the issue. However, under the competing 
consolidator model, if one competing consolidator is impaired, it 
could severely disadvantage that competing consolidator's 
subscribers and their investor clients.'' FINRA Letter at 4.
    \895\ See NYSE Letter II at 24.
    \896\ See id.
    \897\ See Nasdaq Letter IV at 8, 35.
    \898\ See TechNet Letter II at 2.
---------------------------------------------------------------------------

    The Commission does not believe that competing consolidators will 
expose the national market system to an increased risk of failure \899\ 
or propagate the risk of a single point of failure.\900\ The Commission 
believes that the decentralized consolidation model will improve the 
resiliency of national market system by eliminating single points of 
failure that exist in the current system. Today, SIP data for Tapes A 
and B is only provided by the exclusive SIP for the CTA/CQ Plan and SIP 
data for Tape C is only provided by the exclusive SIP for the Nasdaq 
UTP Plan. These are single points of failure. In the decentralized 
consolidation model, there will be multiple entities--competing 
consolidators--collecting, consolidating, and disseminating 
consolidated market data products, which will enhance the resiliency of 
the national market system. Competing consolidators also will be 
subject to requirements that are designed to support their resiliency. 
For example, competing consolidators will be required to disclose 
publicly, on a monthly basis, their system availability.\901\ This will 
encourage competing consolidators to invest in their systems to make 
sure that they have high rates of system ``up-time.'' The monthly 
disclosures will help support systems resiliency by imposing 
competitive pressures on competing consolidators to ensure that their 
systems are resilient, as market participants can use the monthly 
disclosures to assess and compare the performance of a competing 
consolidator. Competing consolidators that cannot generate and 
disseminate consolidated market data products reliably likely will not 
attract or retain subscribers. Furthermore, competing consolidators 
will be subject to requirements that are designed to support their 
operational resiliency, including, as appropriate, Regulation SCI. The 
Commission is also adopting changes to Regulation SCI to help to ensure 
the integrity and resiliency of competing consolidators.\902\ The 
Commission believes that it is important to impose requirements to help 
ensure that the technology systems of competing consolidators are 
reliable and resilient, consistent with the policy goals of Regulation 
SCI. These requirements are designed to address concerns that competing 
consolidators will become multiple points of failure in the 
decentralized consolidation model.
---------------------------------------------------------------------------

    \899\ See Cboe Letter at 25; TechNet Letter II at 2.
    \900\ See NYSE Letter II at 24; Data Boiler Letter I at 48.
    \901\ See 17 CFR 242.614(d)(6) (Rule 614(d)(6)).
    \902\ See infra Section III.F.
---------------------------------------------------------------------------

    One commenter urged the Commission to issue standards for when a 
market participant would have to subscribe to multiple competing 
consolidators to mitigate the risk that its primary competing 
consolidator fails.\903\ As noted above,\904\ the Commission is not 
requiring market participants to have back-up competing consolidators, 
whether such market participants subscribe to SCI competing 
consolidators or competing consolidators that are not SCI entities, 
though some may choose to do so in light of their own business needs. 
The Commission believes that having multiple competing consolidators 
collect, consolidate, and disseminate consolidated market data products 
would eliminate a single point of failure that would weaken the entire 
national market system because if one competing consolidator's 
operations experiences a failure, its impact on the markets will be 
minimized due to the presence of other competing consolidators that can 
perform the same functions.
---------------------------------------------------------------------------

    \903\ See FINRA Letter at 4.
    \904\ See supra text accompanying notes 756-757.
---------------------------------------------------------------------------

3. Comments on Data Quality
    Several commenters supported the introduction of competing 
consolidators because of the potential enhancements to the quality of 
consolidated market data.\905\ Three commenters believed that 
competition would improve the quality of consolidated market data.\906\
---------------------------------------------------------------------------

    \905\ See Committee on Capital Markets Regulation Letter at 3; 
RBC Letter at 5-6; State Street Letter at 3.
    \906\ See Committee on Capital Markets Regulation Letter at 3; 
RBC Letter at 5-6; Susquehanna Letter at 1.
---------------------------------------------------------------------------

    However, three commenters questioned the proposal's impact on data 
quality, stating that the effects were uncertain and that competition 
could harm data quality and accuracy, including through attracting 
untested vendors who provide cheaper but potentially less reliable 
service.\907\ One of these commenters stated that competing 
consolidators could produce varying NBBOs and cheap data products that 
would limit market information to non-self-aggregating market 
participants.\908\ The commenter stated that the Commission will likely 
have to create additional regulations to set minimum standards ensuring 
the quality, availability, and accessibility of consolidated market 
data produced by competing consolidators.
---------------------------------------------------------------------------

    \907\ See TD Ameritrade Letter at 13; Nasdaq Letter IV at 4, 7, 
35; STANY Letter II at 6.
    \908\ See Nasdaq Letter IV at 26.
---------------------------------------------------------------------------

    The Commission believes that the definitions in Rule 600, as well 
as the registration and disclosure requirements of Rule 614, will help 
to ensure the data quality of consolidated market data. All competing 
consolidators will register with the Commission and become regulated 
entities (if not already SROs) and will be required to generate 
consolidated market data products in a manner that is consistent with 
the definitions set forth in Rule 600.
    Further, the Commission believes that competition in the 
decentralized consolidation model will also support high quality 
consolidated market data. Competing consolidators will be required to 
produce public monthly reports on their performance and other metrics, 
which should incentivize

[[Page 18662]]

competing consolidators to perform at a high level in order to attract 
and maintain a subscriber base. A competing consolidator that does not 
produce accurate, high quality consolidated market data products would 
risk losing customers to other competing consolidators.\909\
---------------------------------------------------------------------------

    \909\ Competing consolidators would also be subject to 
Commission oversight under Rule 614. See infra Section III.C.7.
---------------------------------------------------------------------------

4. Comments on Competing Consolidator Products
    Commenters offered suggestions on the types of products to be sold 
by competing consolidators.\910\ Two commenters suggested products that 
should be offered by competing consolidators.\911\ One of the 
commenters said that competing consolidators should provide 
consolidated market data at no charge to a registered academic 
aggregator to act as an intermediary for the academic community.\912\ 
The other commenter stated that competing consolidators should be 
required to sell a regulatory data-only feed at a fair and reasonable 
price (relative to the cost of that data as part of consolidated market 
data), and/or exchanges should be allowed to sell a regulatory data 
proprietary market data feed.\913\ One commenter requested 
clarification as to the ability of a competing consolidator to offer 
separate co-location offerings as part of its competitive 
services.\914\
---------------------------------------------------------------------------

    \910\ See Wharton Letter at 4; MFA Letter at 3, 9; McKay Letter 
at 11.
    \911\ See Wharton Letter at 4; MFA Letter at 3, 9.
    \912\ See Wharton Letter at 4.
    \913\ See MFA Letter at 3, 9.
    \914\ See McKay Letter at 11.
---------------------------------------------------------------------------

    The Commission is not requiring competing consolidators to offer 
reduced cost or free services, but competing consolidators could 
develop such products if they so desired. In addition to consolidated 
market data products, competing consolidators will be able to offer 
other products, such as academic products or regulatory data products. 
Further, the Operating Committee of the effective national market 
system plan(s) for NMS stocks could develop reduced fees for the data 
content underlying consolidated market data for the academic community 
or for regulatory data, or the exchanges could develop and propose, 
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder, similar products.
5. Comments on Selection of a Competing Consolidator
    Several commenters raised questions concerning the selection of 
competing consolidators by broker-dealers.\915\ The Commission believes 
that a broker-dealer will be responsible for selecting its competing 
consolidator(s) and will be required to perform its own due diligence 
to ensure that the competing consolidator(s) it chooses will be able to 
assist the broker-dealer in meeting its regulatory obligations and its 
obligations to its customers, including best execution.\916\
---------------------------------------------------------------------------

    \915\ See Healthy Markets Letter I at 4-5 (urging the Commission 
to establish objective standards for brokers regarding their 
selection and usage of competing consolidator feeds); FINRA Letter 
at 6 (stating that a broker-dealer's best execution obligations 
would prevent it from selecting a more advantageous source of market 
data for its proprietary activities than it uses for its clients); 
Fidelity Letter at 10 (suggesting that regulators examine why a 
broker-dealer would choose one competing consolidator over another).
    \916\ See supra Section I.E.
---------------------------------------------------------------------------

    One commenter sought clarification of a broker-dealer's 
responsibility for problems caused by its choice of competing 
consolidator.\917\ This commenter asked if a broker-dealer could be 
held liable for its competing consolidator's systems issues if such 
issues negatively impact its customers. The commenter also suggested 
that the Commission provide guidance for broker-dealers that compliance 
with rules dependent on the availability of accurate market data be 
assessed based on the data provided by a broker-dealer's competing 
consolidator or received directly by a self-aggregator.\918\
---------------------------------------------------------------------------

    \917\ See FINRA Letter at 4-5.
    \918\ See id. at 5-6.
---------------------------------------------------------------------------

    Broker-dealers have obligations to their customers (e.g., a duty of 
best execution) as well as regulatory obligations (e.g., Rule 603(c), 
Rule 611, Regulation SHO). Broker-dealers need high quality data to 
satisfy their obligations. The choice of a competing consolidator will 
be relevant to a broker-dealer's receipt of market data and therefore, 
a broker-dealer should assess, both upon its initial selection and on 
an ongoing basis, the quality of data received from a competing 
consolidator. The Commission believes that the selection of a competing 
consolidator can impact a broker-dealer's services to its customers as 
well as the broker-dealer's ability to comply with its regulatory 
obligations, such as providing best execution for its customers.\919\ 
Broker-dealers will need to conduct their own analysis and perform 
their own due diligence in choosing and periodically assessing 
competing consolidators that meet their regulatory needs and the needs 
of their customers.
---------------------------------------------------------------------------

    \919\ See supra Section I.E.
---------------------------------------------------------------------------

6. Comments on a Standardized Consolidation Process
    Two commenters recommended standardizing aspects of the operation 
of competing consolidators, including the consolidation process and the 
content and distribution mechanism, arguing that standardization could 
make it easier for subscribers to switch to other competing 
consolidators and provide consistency across data sets.\920\
---------------------------------------------------------------------------

    \920\ See BlackRock Letter at 5; MEMX Letter at 8. See also RBC 
Letter at 6 (suggesting that the Commission provide guidance on the 
minimum specifications for methods and processes of delivery for 
competing consolidators to avoid having multiple methods and 
processes, which could result in a tiered system of market data and 
reduced competition); MIAX Letter at 2 (suggesting that the 
Commission require all competing consolidators to utilize the same 
transport protocols (i.e., multicast) when transmitting data to 
market participants).
---------------------------------------------------------------------------

    The Commission is not standardizing the competing consolidator 
consolidation and dissemination processes. The Commission believes 
competing consolidators are in the best position to develop technical 
standards for themselves. Furthermore, the Commission believes that 
competing consolidators should have the flexibility to design the 
consolidation and delivery services that their subscribers need.\921\
---------------------------------------------------------------------------

    \921\ The Commission will monitor issues related to the 
implementation of the decentralized consolidation model, including 
whether standardization of the competing consolidator consolidation 
or dissemination processes would benefit market participants.
---------------------------------------------------------------------------

7. Registration and Responsibilities of Competing Consolidators: Rule 
614
    The Commission proposed Rule 614 to require SIPs that wish to act 
as competing consolidators to register with the Commission and publicly 
disclose certain information about their organization, operations, and 
products. Under proposed Rule 614, competing consolidators would be 
subject to certain obligations and would be required to regularly 
publish certain performance statistics on a monthly basis on their 
respective websites.
(a) Competing Consolidator Registration: Rule 614(a)
(i) Rule 614(a)(1)(i): Proposal
    Proposed Rule 614(a)(1)(i) would prohibit any person, other than an 
SRO, from (A) receiving directly from a national securities exchange or 
national securities association information with respect to quotations 
for and transactions in NMS stocks; and (B) generating the proposed 
consolidated market data for dissemination to any person (i.e., acting 
as a competing consolidator by disseminating data to external parties) 
unless that person files

[[Page 18663]]

with the Commission an initial Form CC and the initial Form CC has 
become effective pursuant to proposed Rule 614(a)(1)(v).\922\
---------------------------------------------------------------------------

    \922\ If a self-aggregator disseminated consolidated market data 
to any person, it would be acting as a competing consolidator and 
would be required to register pursuant to proposed Rule 614 and 
comply with the requirements applicable to competing consolidators.
---------------------------------------------------------------------------

(ii) Rule 614(a)(1)(i): Final Rule and Response to Comments
    The Commission is revising proposed Rule 614(a)(1)(i) to address a 
comment relating to market data vendors, as discussed below. Rule 
614(a)(1)(i)(A), as adopted, will provide: ``No person other than a 
national securities exchange or a national securities association . . . 
may receive directly, pursuant to an effective national market system 
plan, from a national securities exchange or national securities 
association information with respect to quotations for and transactions 
in NMS stocks'' (addition in italics). This new language is intended to 
clarify the entities that will be required to register as a competing 
consolidator.
    The Commission requested comment on the proposed registration 
process, including whether competing consolidator registration should 
be subject to Commission approval and/or additional or different 
regulation.\923\ The Commission received several comments regarding 
proposed Rule 614(a)(1)(i). A few commenters described the proposed 
registration process as ``onerous,'' ``overly burdensome'' and a 
``barrier to entry.'' \924\ However, other commenters supported the 
registration process and urged regulating competing consolidators 
``with the same rigor and governance applied to the SIP plans today.'' 
\925\
---------------------------------------------------------------------------

    \923\ See Proposing Release, 85 FR at 16778.
    \924\ NYSE Letter at 14; ACTIV Financial Letter at 2-3; Nasdaq 
Letter II at 37.
    \925\ WFE Letter at 1. See also MIAX Letter at 5.
---------------------------------------------------------------------------

    While the registration of competing consolidators is a new 
regulatory process that will be required of entities that may not be 
regulated today, as discussed below, the registration process is 
necessary and does not unduly burden potential competing consolidators. 
While there are costs and burdens associated with the registration 
process,\926\ the Commission believes that such costs and burdens are 
justified by the benefits of Commission oversight and the disclosure of 
competing consolidator operations for market participants. As discussed 
in the Proposing Release, the regulatory regime and responsibilities of 
competing consolidators are designed to collect relevant information 
about competing consolidators and to require competing consolidator 
performance data, data quality issues, and system issues to be made 
publicly available through a relatively streamlined process that 
imposes appropriate burdens on entities likely to register as competing 
consolidators. The Commission designed the competing consolidator 
registration process to provide the Commission with information 
necessary for it to perform its regulatory oversight of these important 
market participants without imposing burdensome regulatory requirements 
on registrants.\927\
---------------------------------------------------------------------------

    \926\ See infra Section V.C.3.
    \927\ The Form CC filing process is a notice-based registration 
process and is similar to other notice-based filing processes 
required by the Commission. See Securities Exchange Act Release No. 
40760 (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) (``Regulation ATS 
Adopting Release'').
---------------------------------------------------------------------------

    Further, the registration process for competing consolidators was 
designed to limit the burdens on competing consolidators, commensurate 
with their role. The competing consolidator regime is less burdensome 
than the registration process applicable for exclusive processors. As 
described in the Proposing Release, the registration process for 
exclusive processors is set forth in Section 11A of the Exchange Act 
\928\ and requires the Commission to grant applications or institute 
proceeding to determine whether a registration should be denied.\929\ 
The Commission, however, proposed a more streamlined and limited 
process. As part of this process, the Commission will not approve Form 
CC and amendments to Form CC. Rather, the Commission is adopting a 
process in which a potential competing consolidator's registration will 
become effective unless the Commission issues an order declaring its 
Form CC ineffective. The Commission believes that this registration 
process will allow potential competing consolidators to begin operating 
relatively quickly, while still allowing the Commission to review Form 
CC for non-compliance with Federal securities laws and the rules and 
regulations thereunder, and for material deficiencies with respect to 
accuracy, currency, or completeness.
---------------------------------------------------------------------------

    \928\ 15 U.S.C. 78k-1.
    \929\ See Proposing Release, 85 FR at 16778.
---------------------------------------------------------------------------

    Section 11A(b)(1) of the Exchange Act \930\ provides that a SIP not 
acting as the ``exclusive processor'' \931\ of any information with 
respect to quotations for or transactions in securities is exempt from 
the requirement to register with the Commission as a SIP unless the 
Commission, by rule or order, determines that the registration of such 
SIP ``is necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
[Section 11A].'' A SIP that proposes to act as a competing consolidator 
would not engage on an exclusive basis on behalf of any national 
securities exchange or registered securities association in collecting, 
processing, or preparing for distribution or publication any 
information with respect to quotations for or transactions in 
securities; therefore, a competing consolidator would not fall under 
the statutory definition of ``exclusive processor.'' Section 11A(b)(1) 
of the Exchange Act provides the Commission with authority to require 
the registration of a SIP not acting as an exclusive processor by rule 
or order. Under the adopted rules, competing consolidators will play a 
vital role in the national market system by collecting, consolidating, 
and disseminating consolidated market data. Because the availability of 
prompt, accurate, and reliable consolidated market data is essential to 
investors and other market participants, the Commission believes that 
it is necessary and appropriate in the public interest and for the 
protection of investors to require each SIP that wishes to act as a 
competing consolidator to register with the Commission as a SIP 
pursuant to Rule 614. The Commission is thus exercising this authority 
by adopting Rule 614 to establish the process by which SIPs that wish 
to act as competing consolidators will be required to register with the 
Commission.
---------------------------------------------------------------------------

    \930\ 15 U.S.C. 78k-1(b)(1).
    \931\ See Section 3(b)(22)(B) of the Exchange Act for the 
definition of exclusive processor.
---------------------------------------------------------------------------

    The registration process for exclusive SIPs under Section 11A 
requires the Commission to publish notice of an exclusive SIP's 
application for registration and, within 90 days of publication of 
notice of the application, by order grant the application or institute 
proceedings to determine whether the registration should be 
denied.\932\ At the conclusion of the proceedings, the Commission must, 
by order, grant or deny the registration.\933\ Section 11A(b)(1) of the 
Exchange Act also authorizes the Commission, by rule or by order, upon 
its own motion or by application, to exempt conditionally or 
unconditionally any SIP or class of SIPs from any provision of Section 
11A or the rules or regulations thereunder if the Commission finds that 
such exemption

[[Page 18664]]

is consistent with the public interest, the protection of investors, 
and the purposes of Section 11A, including the maintenance of fair and 
orderly markets in securities and the removal of impediments to and 
perfection of the mechanisms of a national market system.
---------------------------------------------------------------------------

    \932\ See Section 11A(b)(3).
    \933\ See Section 11A(b)(3)(B).
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the public 
interest, the protection of investors, and the purposes of Section 11A 
to use its authority under Section 11A(b)(1) to exempt SIPs that wish 
to act as competing consolidators from the registration process 
established in Section 11A(b)(3) of the Exchange Act \934\ and to allow 
such competing consolidators to register pursuant to a process that is 
more streamlined and limited than the process described in Section 
11A(b)(3). The process specified in Section 11A(b)(3) of the Exchange 
Act was developed for exclusive SIPs and reflects the heightened need 
to review and analyze exclusive processors. In contrast, SIPs that do 
not act as exclusive SIPs are exempt from registration unless the 
Commission ``finds that the registration of such securities information 
processor is necessary or appropriate in the public interest, for the 
protection of investors, or for the achievement of the purposes of 
[Section 11A].'' The Commission does not believe that this process for 
exclusive processors in necessary for competing consolidators. The 
Commission believes that the registration process in Rule 614 will 
provide the Commission with the information necessary to oversee 
competing consolidators and help ensure that relevant information 
regarding such competing consolidators is available to the Commission 
and to the public. The streamlined registration process is also 
designed to reduce regulatory burdens and encourage entities to 
register as competing consolidators.
---------------------------------------------------------------------------

    \934\ 15 U.S.C. 78k-1(b)(3).
---------------------------------------------------------------------------

    In addition, the Commission believes that it is consistent with the 
public interest, the protection of investors, and the purposes of 
Section 11A to use its exemptive authority under Section 11A(b)(1) of 
the Exchange Act to exempt those SIPs that act as competing 
consolidators from Section 11A(b)(5) of the Exchange Act,\935\ which 
requires a registered SIP to notify the Commission if the SIP prohibits 
or limits any person with respect to access to its services. Section 
11A(b)(5) allows any person aggrieved by a prohibition or limitation of 
such access to the SIP's services to petition the Commission to review 
the prohibition or limitation of access. Exclusive SIPs, by definition, 
engage on an exclusive basis in collecting, processing, or preparing 
data. In contrast, the competing consolidators will not engage in 
collecting, processing, or preparing data on an exclusive basis. 
Therefore, the Commission believes that the protections of Section 
11A(b)(5) of the Exchange Act, including the ability of an aggrieved 
person to petition the Commission for review of a SIP's prohibition or 
limitation of access to the SIP's services, are not necessary for 
competing consolidators. The Commission believes that the decentralized 
consolidation model with multiple competing consolidators will reduce 
the likelihood that a subscriber will not be able to access 
consolidated market data. Subscribers will be able to obtain such data 
from another competing consolidator. Accordingly, the Commission 
believes that it will be consistent with the protection of investors 
and the public interest to exempt competing consolidators from Section 
11A(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \935\ Section 11A(b)(5) of the Exchange Act, 15 U.S.C. 78k-
1(b)(5), requires a SIP promptly to notify the Commission if the 
registered SIP prohibits or limits any person in respect of access 
to services offered, directly or indirectly, by the registered SIP. 
The notice must be in the form and contain the information required 
by the Commission. Any prohibition or limitation on access to 
services with respect to which a registered SIP is required to file 
notice is subject to review by the Commission on its own motion, or 
upon application by any person aggrieved by the prohibition or 
limitation.
---------------------------------------------------------------------------

(iii) Comments on Data Vendors
    Two commenters expressed concern that current market data vendors 
would have to register as competing consolidators to continue receiving 
consolidated market data directly from SROs.\936\ One of the commenters 
stated that proposed Rule 614(a)(1)(i) appeared to require market data 
vendors that generate and disseminate consolidated market data in NMS 
stocks based on information received directly from SROs to register as 
competing consolidators.\937\ The commenter further stated that the 
discussion of market data vendors in the Proposing Release created 
uncertainty regarding whether the Commission intended to require market 
data vendors to register as competing consolidators to continue 
engaging in their current businesses.\938\ The other commenter said the 
proposal stated that data vendors that want to continue to receive 
proprietary data that included data content underlying consolidated 
market data from an SRO would have to register as competing 
consolidators, or they would have to subscribe to a competing 
consolidator to purchase this data. The commenter said the price of 
this data could increase, causing a data vendor's customer base to 
decrease.\939\
---------------------------------------------------------------------------

    \936\ See IDS Letter I at 3, 4; NYSE Letter II at 18.
    \937\ See IDS Letter I at 3, 4.
    \938\ See id. at 3.
    \939\ See NYSE Letter II at 18.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that vendors would 
still be able to operate in the decentralized consolidation model. 
Vendors would be able to receive proprietary market data directly from 
the SROs as they do today or they would be able to receive consolidated 
market data from a competing consolidator in a manner that is similar 
to how they receive SIP data today without being required to register 
as a competing consolidator. However, if a vendor wished to receive 
directly from the SROs information with respect to quotations for and 
transactions in NMS stocks at the prices established by the effective 
national market system plan(s) and generate consolidated market data 
for dissemination, such vendor would be required to register as a 
competing consolidator. Thus, only competing consolidators and self-
aggregators would be able to directly receive the NMS information that 
is necessary to generate consolidated market data from the SROs at the 
prices established by the effective national market system 
plan(s).\940\
---------------------------------------------------------------------------

    \940\ See Proposing Release, 85 FR at 16770, n. 434.
---------------------------------------------------------------------------

    The Commission agrees that Rule 614(a)(1)(i), as proposed, could 
create uncertainty with respect to whether market data vendors would be 
able to continue their current businesses without being required to 
register as competing consolidators. Accordingly, the Commission is 
revising proposed Rule 614(a)(1)(i) to provide that no person, other 
than a national securities exchange or a national securities 
association, ``[m]ay receive directly, pursuant to an effective 
national market system plan, from a national securities exchange or 
national securities association information with respect to quotations 
for and transactions in NMS stocks'' and ``[g]enerate consolidated 
market data products for dissemination to any person unless the person 
files with the Commission an initial Form CC and the initial Form CC 
has become effective pursuant to paragraph (a)(1)(v)'' (italicized to 
show changes to the proposed language).\941\
---------------------------------------------------------------------------

    \941\ This provision is also updated to reflect the new 
definition of consolidated market data product. See supra Section 
II.B.

---------------------------------------------------------------------------

[[Page 18665]]

    The Commission believes that adopted Rule 614(a)(1) makes clear 
that only entities that receive information with respect to quotations 
for and transactions in NMS stocks directly pursuant to an effective 
national market system plan from a national securities exchange or 
national securities association, and generate consolidated market data 
products for dissemination, will be required to register as competing 
consolidators. A market data vendor that purchases proprietary data 
feeds from an SRO or SROs, or that purchases data from a competing 
consolidator, and aggregates and disseminates such data to its 
customers, will not be required to register as a competing 
consolidator. However, vendors that do not register as competing 
consolidators would not be permitted to purchase the NMS information 
necessary to generate consolidated market data from the SROs at prices 
established by an effective national market system plan.
    The commenter also argued that the proposal fails to assess the 
cost of the proposed changes on market data vendors.\942\ The 
commenter's primary concern with respect to the proposal's potential 
costs to market data vendors arose from the assumption that market data 
vendors would be required to register as competing consolidators. As 
stated above, a market data vendor is not required to register as 
competing consolidator unless it wishes to purchase information with 
respect to quotations for and transactions in NMS stocks directly from 
a national securities exchange or national securities association 
pursuant to an effective national market system plan, and generate 
consolidated market data products for dissemination, i.e., act as 
competing consolidator. Accordingly, the adopted rules do not 
necessarily increase costs for market data vendors.
---------------------------------------------------------------------------

    \942\ See IDS Letter I at 5-6.
---------------------------------------------------------------------------

    The commenter further stated that the primary impact of the 
proposal on a market data vendor that does not register as a competing 
consolidator (and therefore does not purchase data directly from the 
SROs at prices established by the effective national market system 
plan(s)) would come from changes in the prices that the SROs charge for 
their proprietary data feeds, which the commenter describes as 
``unregulated.'' \943\ The Commission acknowledges this assessment but 
clarifies that proprietary data fees are regulated, although such fees 
are not subject to this rulemaking nor are they subject to the same 
regulatory process that is used for effective national market system 
plan(s) fees.\944\ The exchanges are required to file all proposed fees 
for their proprietary data products with the Commission pursuant to 
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder and the 
proposed fees must satisfy the standards under the Exchange Act, 
including Section 6(b)(4) and Section 15A(b)(5).\945\
---------------------------------------------------------------------------

    \943\ Id. at 5.
    \944\ See Effective-Upon-Filing Adopting Release, supra note 17. 
NMS Plan amendments are subject to Rule 608 of Regulation NMS, 17 
CFR 242.608.
    \945\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act require 
that the rules of a national securities exchange or national 
securities association provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and 
issuers and other persons using its facilities.
---------------------------------------------------------------------------

(iv) Comments on Competing Consolidators Affiliated With Exchanges
    In the Proposing Release, the Commission stated that because 
Section 3(a)(22)(A) of the Exchange Act excludes SROs from the 
definition of SIP they would not have to register as a competing 
consolidator pursuant to proposed Rules 614(a) through (c) and proposed 
Form CC.\946\ The Commission stated that an SRO could either operate a 
competing consolidator under its SRO as a facility or could operate a 
competing consolidator in a separate affiliated entity, not as a 
facility of the SRO.\947\
---------------------------------------------------------------------------

    \946\ See Proposing Release, 85 FR at 16779, n. 537.
    \947\ See Proposing Release, 85 FR at 16779, n. 537.
---------------------------------------------------------------------------

    Several commenters addressed this topic. One commenter, arguing 
that SRO obligations are not a substitute for the competing 
consolidator requirements, stated that an SRO or its affiliate that 
acts as a competing consolidator should be registered as such and 
should be subject to the same disclosure and other requirements as 
other competing consolidators.\948\
---------------------------------------------------------------------------

    \948\ See IEX Letter at 8-9.
---------------------------------------------------------------------------

    Two commenters questioned the proposal's assumption that SROs or 
their affiliates would be willing to become competing 
consolidators.\949\ Three commenters stated that a competing 
consolidator that was a facility of a national securities exchange 
would be at a competitive disadvantage to competing consolidators that 
were not exchange facilities.\950\ One commenter noted that a competing 
consolidator that was not an exchange facility could change its 
products and their associated fees in response to competitive forces, 
while a competing consolidator that was a facility of an exchange would 
be required to file a proposed rule change with the Commission pursuant 
to Section 19(b) of the Exchange Act to make the same changes.\951\ 
Another commenter stated that the proposal established a two tiered 
system, with competing consolidators that are not affiliated with an 
exchange subject to the relatively streamlined Form CC regime and 
exchange facility competing consolidators subject to the more stringent 
framework, including the 19b-4 rule filing process.\952\ A third 
commenter suggested that to alleviate this disparity the Commission 
should subject both SROs and non-SROs that seek to become competing 
consolidators to the same regulatory standards by subjecting the Form 
CC, and any amendment thereto, to Commission review and approval.\953\
---------------------------------------------------------------------------

    \949\ See NYSE Letter II at 17-18; IDS Letter I at 15-21.
    \950\ See NYSE Letter II at 17-18; IDS Letter I at 19-21; MIAX 
Letter at 5.
    \951\ See NYSE Letter II at 17-18.
    \952\ See IDS Letter I at 21. Another commenter stated that 
disparate treatment of exchanges as competing consolidators violates 
the APA, explaining that exchanges acting as competing consolidators 
would be subject to Sections 6(b) and 19(d) of the Exchange Act, 
while non-facility competing consolidators would not be subject to 
these requirements. The commenter stated that non-facility competing 
consolidators would enjoy a ``significant competitive advantage over 
exchange competing consolidators by having greater pricing 
flexibility and not being subject to the denial of access process.'' 
See Nasdaq Letter IV at 44.
    \953\ See MIAX Letter at 5. The commenter also expressed concern 
that an exchange-operated competing consolidator with an unregulated 
affiliate that provides access and connectivity services could use 
the networks of the non-regulated affiliate to offer pricing 
discounts or other incentives to encourage market participants to 
purchase the competing consolidator's consolidated market data. The 
commenter asserted that an affiliate of an exchange that provides 
access and connectivity to exchange systems is a facility of the 
exchange because it is a ``system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange.'' Id. at 4.
---------------------------------------------------------------------------

    Two commenters also stated that the Proposal did not explain how a 
competing consolidator affiliated with an exchange could avoid being a 
facility of the exchange.\954\ One commenter stated that the absence of 
guidance with respect to when an affiliated competing consolidator 
would be a facility of an exchange substantially reduces the likelihood 
that entities affiliated with SROs would create competing 
consolidators.\955\ The commenter further asserted that the failure to 
address this important issue for potential competing consolidators made 
it impossible to comment adequately and comprehensively on the 
proposal.\956\ Another commenter stated that the Commission should 
consider issuing interpretive guidance to provide

[[Page 18666]]

additional clarity around the definition of a facility of an 
exchange.\957\
---------------------------------------------------------------------------

    \954\ See NYSE Letter II at 17; IDS Letter I at 17.
    \955\ See IDS Letter I at 21.
    \956\ See id. at 18.
    \957\ See McKay Brothers Letter at 2.
---------------------------------------------------------------------------

    The questions raised by commenters relate to the Commission's 
application of the terms ``exchange'' and ``facility'' of an exchange, 
defined in Sections 3(a)(1) and (2) of the Exchange Act, to the 
activities of competing consolidators affiliated with exchanges. 
Section 3(a)(1) defines an ``exchange'' to include ``an organization, 
association, or group of persons, whether incorporated or 
unincorporated,'' that maintains a ``market place'' for ``bringing 
together purchasers and sellers of securities.'' \958\ Section 3(a)(2) 
defines a ``facility'' of an exchange to include the exchange's 
premises, tangible or intangible property whether on the premises or 
not, or any right to the use of such premises or property or any 
service thereof for the purpose of effecting or reporting a transaction 
on an exchange.\959\ Section 3(a)(2) specifically includes services 
such as systems of communication to or from the exchange.\960\ The 
Commission has observed that the determination of whether a service is 
a facility of an exchange requires an analysis of the particular facts 
and circumstances.\961\
---------------------------------------------------------------------------

    \958\ Section 3(a)(1) of the Exchange Act defines ``exchange'' 
as any organization, association, or group of persons, whether 
incorporated or unincorporated, which constitutes, maintains, or 
provides a market place or facilities for bringing together 
purchasers and sellers of securities or for otherwise performing 
with respect to securities the functions commonly performed by a 
stock exchange as that term is generally understood, and includes 
the market place and the market facilities maintained by such 
exchange. 15 U.S.C. 78c(a)(1). See also 17 CFR 240.3b-16.
    \959\ Section 3(a)(2) of the Exchange Act defines the term 
``facility'' when used with respect to an exchange includes its 
premises, tangible or intangible property whether on the premises or 
not, any right to the use of such premises or property or any 
service thereof for the purpose of effecting or reporting a 
transaction on an exchange (including, among other things, any 
system of communication to or from the exchange, by ticker or 
otherwise, maintained by or with the consent of the exchange), and 
any right of the exchange to the use of any property or service. 15 
U.S.C. 78c(a)(2).
    \960\ See id. See also Securities Exchange Act Release No. 90209 
(October 15, 2020), 85 FR 67044, 67048 (October 21, 2020) (SR-NYSE-
2020-05; SR-NYSE-2020-11 et al.) (``NYSE Wireless Order'').
    \961\ See Securities Exchange Act Release No. 76127 (October 9, 
2015), 80 FR 62584, 62586 n. 9 (October 16, 2015) (SR-NYSE-2015-36) 
(Order Approving Proposed Rule Change amending Section 907.00 of the 
Listed Company Manual).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that an exchange 
could choose whether to operate a competing consolidator (1) as a 
facility of the exchange, or (2) as a separate affiliate, not as a 
facility, registered as a competing consolidator.\962\ The application 
of the definition of ``facility'' of an exchange does not turn on which 
particular entity directly holds a particular asset, including the 
national securities exchange license.\963\ Accordingly, whether a 
competing consolidator affiliated with a national securities exchange 
is a facility of that exchange does not depend solely on corporate 
structure, but rather on a facts-and-circumstances analysis of the 
functions provided by the affiliated competing consolidator and its 
relationship with the exchange.\964\
---------------------------------------------------------------------------

    \962\ Proposing Release, 85 FR at n. 537.
    \963\ See NYSE Wireless Order, supra note 960, at 67047. Cf. 
Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR 
70844, 70852 (Dec. 22, 1998) (``Regulation ATS Adopting Release'') 
(stating, in the context of entities providing trading systems that 
function as ATSs, that ``[t]he Commission will attribute the 
activities of a trading facility to a system if that facility is 
offered by the system directly or indirectly (such as where a system 
arranges for a third party or parties to offer the trading 
facility). . . . In addition, if an organization arranges for 
separate entities to provide different pieces of a trading system . 
. . , the organization responsible for arranging the collective 
efforts will be deemed to have established a trading facility.'').
    \964\ A particular function provided by an organization, 
association, or group of persons, whether incorporated or 
unincorporated, may fall within the statutory definition of 
``exchange'' when business activities performed across the group 
constitute part of that market place for bringing together 
purchasers and sellers. See NYSE Wireless Order, supra note 960, at 
67047. An entity's mere affiliation with an exchange, without more, 
is not solely determinative of whether a function is a facility of 
an exchange. See Securities Exchange Act Release No. 44983 (Oct. 25, 
2001), 66 FR 55225 (Nov. 1, 2001) (SR-PCX-00-25).
---------------------------------------------------------------------------

    The Commission would expect that the activities of a competing 
consolidator affiliated with a national securities exchange would be 
likely to fall within the statutory definitions. The Commission also 
understands that the facts and circumstances with respect to each 
exchange and competing consolidator relationship may be different, 
including that there are different corporate structures under which an 
exchange could operate a competing consolidator. Therefore, to address 
the concerns raised by commenters and to foster a level competitive 
playing field for competing consolidators that are facilities of an 
exchange, the Commission believes that an exemption from certain 
regulatory requirements, subject to the conditions set forth below, 
would be appropriate in the public interest and consistent with the 
protection of investors.
    Section 36(a)(1) of the Exchange Act authorizes the Commission, 
subject to certain limitations, to conditionally or unconditionally 
exempt any person, security, or transaction, or any class thereof, from 
any provision of the Exchange Act or rule thereunder, if necessary or 
appropriate in the public interest and consistent with the protection 
of investors.\965\ The limited exemption would exempt a national 
securities exchange with respect to its competing consolidator 
activities from (i) the rule filing requirements in Section 19(b)(1) of 
the Exchange Act and Rule 19b-4 thereunder, (ii) the denial of access 
provisions in Section 19(d) of the Exchange Act, (iii) the requirements 
in Section 6(b) of the Exchange Act; and (iv) the requirements in 
Regulation SCI applicable to SCI SROs (unless the competing 
consolidator is otherwise subject to Regulation SCI as Regulation SCI 
would be applied to a competing consolidator).
---------------------------------------------------------------------------

    \965\ 15 U.S.C. 78mm(a)(1).
---------------------------------------------------------------------------

    As a condition of the exemptive relief, the competing consolidator 
must be registered under Rule 614 and be in compliance with all 
regulatory requirements applicable to competing consolidators under 
Rule 614, including the requirement to file Form CC. To promote a level 
playing field, and as required by Rule 603(b), the national securities 
exchange must not provide any latency, content, connectivity, cost or 
other competitive advantages with respect to the provision of the 
content underlying the consolidated market data to the affiliated 
competing consolidator.\966\ As a further condition of the exemption, 
and to ensure that the national securities exchange does not leverage 
exchange products and services to establish an unfair competitive 
advantage, a national securities exchange would not be permitted to 
link the pricing for or condition availability for services of the 
affiliated competing consolidator to any products or services of the 
exchange, including transactions, connectivity and data.\967\
---------------------------------------------------------------------------

    \966\ Rule 603(b) requires a national securities exchange to 
provide its NMS information, including all data necessary to 
generate consolidated market data, to all competing consolidators 
and self-aggregators in the same manner and using the same methods, 
including all methods of access and the same format, as the national 
securities exchange makes available any information to its 
affiliated competing consolidator.
    \967\ This condition is based on the particular risk, given the 
special position of exchanges in the market and the regulatory 
requirements applicable to exchanges, posed by allowing exchanges to 
link services and pricing with those of the competing consolidator.
---------------------------------------------------------------------------

    Such limited exemptive relief is appropriate and in the public 
interest to foster the successful implementation of the decentralized 
consolidation model. The limited exemptive relief is designed to help 
foster a competitive environment premised on a level regulatory playing 
field. In particular, it will facilitate the entry of competing 
consolidators that are affiliated with national securities exchanges 
into the market for the consolidation and

[[Page 18667]]

dissemination of consolidated market data products thereby increasing 
competition for those services as contemplated by the decentralized 
consolidation model. This exemptive relief will not place any burdens 
on, or otherwise disadvantage, non-affiliated competing consolidators.
    The limited exemptive relief is also consistent with the protection 
of investors. Rule 19b-4 requires an SRO to file a proposed rule change 
with respect to any ``material aspect'' of the operation of its 
facilities that is then subject to Commission review and approval.\968\ 
Section 6(b), among other things, requires the rules of an exchange to 
provide for equitable allocation of reasonable fees, not permit unfair 
discrimination between customers, and not impose any unnecessary or 
inappropriate burden on commerce. Section 19(d) of the Exchange Act, 
among other things, limits the denial of access to SRO services. The 
registration, disclosure and other regulatory requirements for 
competing consolidators in Rule 614 and Form CC, including the 
potential that such forms could be declared ineffective and the 
requirement to make consolidated market data products available to 
subscribers on terms that are not unreasonably discriminatory, help 
ensure appropriate transparency and oversight for the protection of 
investors. In addition, competing consolidators that are affiliated 
with national securities exchanges that elect the exemption will be 
subject to the same Regulation SCI requirements applicable to other 
competing consolidators, which will help ensure systems integrity, 
reliability, and resiliency to protect the interests of investors.
---------------------------------------------------------------------------

    \968\ 17 CFR 240.19b-4. Section 19(b)(1) of the Exchange Act 
defines a ``proposed rule change'' as ``any proposed rule, or any 
proposed change in, addition to, or deletion from the rules of'' a 
self-regulatory organization. 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    This exemptive relief will promote a level playing field among the 
various types of competing consolidators. The exemptive relief and the 
conditions for that relief serve to subject competing consolidators 
that are affiliated with a national securities exchange to the same 
regulatory framework that applies to other competing consolidators to 
eliminate competitive advantages and foster a competitive environment 
for all competing consolidators. This exemptive relief thus addresses 
the concerns raised by commenters that competing consolidators that are 
affiliated with a national securities exchange will be at a 
disadvantage to other competing consolidators.\969\
---------------------------------------------------------------------------

    \969\ See IDS Letter I at 21 and Nasdaq Letter IV at 44 
(comments discussed supra note 952).
---------------------------------------------------------------------------

    The Commission intends to monitor the activities of all registered 
competing consolidators, including those that are affiliated with a 
national securities exchange, through the notification and filing 
requirements in Rule 614 and Form CC, and other requirements applicable 
to competing consolidators. In addition, the Commission will monitor 
the activities of competing consolidators that are facilities of an 
exchange through its examinations of both the national securities 
exchange and the competing consolidator.
    This exemptive relief is limited to the regulatory requirements 
described above. The Commission will consider requests for additional 
exemptive relief from specific regulatory provisions to address any 
remaining concerns about creating and maintaining an equal playing 
field. The Commission will consider such requests based on the 
particular facts and circumstances at hand, and grant such a request if 
necessary or appropriate in the public interest and consistent with the 
protection of investors. This limited exemptive relief does not affect 
any regulatory obligations that apply to any other functions, products 
or services provided by exchanges or facilities thereof, including the 
provision, distribution and transport of proprietary market data feeds 
and other market data, communication systems that convey order 
information to and from the exchange, or connectivity to those 
communication systems.
(v) Minimum Standards for Competing Consolidators
    Two commenters recommended that the Commission establish uniform 
baseline standards that all competing consolidators would be required 
to meet continuously to avoid possible ``conflation,'' which, according 
to the commenters, may occur when an exchange or other market 
participant provides only its most-recent quote or trade to the SIPs 
and skips or removes prior quotes due to system capacity constraints or 
by purposefully shaping bandwidth to remain below certain capacity 
thresholds.\970\ The commenters stated that the absence of uniform 
standards could allow a competing consolidator to offer a lower-cost 
product that would often be conflated and incomplete and that could 
conceal potential abuses.\971\ One commenter identified minimum 
standards that it believed the Commission should require a competing 
consolidator to satisfy.\972\
---------------------------------------------------------------------------

    \970\ See MIAX Letter at 2; Healthy Markets Letter II at 2.
    \971\ See id.
    \972\ See MIAX Letter at 2. The commenter recommended that the 
Commission do the following: ``set forth reasonable minimum 
bandwidth requirements for Competing Consolidators to ensure that 
conflation does not occur due to capacity constraints, including 
during times of increased market volatility; set forth minimum 
performance requirements for Competing Consolidators that allow for 
a reasonable amount of conflation; require all Competing 
Consolidators to utilize the same transport protocols (i.e., 
Multicast) when transmitting data to market participants; likewise 
require that each national securities exchange utilize these same 
transfer protocols when transmitting core data to a Competing 
Consolidator; and require each national securities exchange to 
sequence the message fields in the same manner when transmitting 
their core data to a Competing Consolidator or via their proprietary 
data products, with any supplemental information (i.e., data 
regarding exchange specific programs) sequenced behind core data.'' 
See MIAX Letter at 2.
---------------------------------------------------------------------------

    Rule 614(d) requires each competing consolidator to calculate and 
generate consolidated market data products and make consolidated market 
data products available to its subscribers. This means that competing 
consolidators must be able to accept all of the data content that 
encompasses the consolidated market data products they offer. In 
addition, competing consolidators will be subject to operational 
capability, systems integrity, and resiliency obligations,\973\ and 
Rule 614(d)(5) requires each competing consolidator to publish certain 
system performance metrics on its website each month. As stated 
above,\974\ these disclosures should help to facilitate a broker-
dealer's ability to achieve and analyze best execution because they 
provide information regarding the timeliness, completeness, and 
accuracy of the market data offered by competing consolidators.\975\ 
These disclosures also provide statistics on capacity, network delay 
and latency, offering additional insight into the technical 
capabilities and expected performance of a competing consolidator. This 
information will assist a broker-dealer in selecting an appropriate 
competing consolidator, which in turn impacts the broker-dealer's 
ability to obtain ``the most favorable terms reasonably available under 
the circumstances'' for its customer orders. The Commission believes 
that these requirements will help to ensure that competing 
consolidators have adequate system capacity to meet the needs of 
different types of subscribers and will ensure an accurate record of 
quotes and trades for

[[Page 18668]]

subscribers. Accordingly, the Commission does not believe that it is 
necessary, at this time, to mandate minimum capacity or other minimum 
standards for competing consolidators.\976\
---------------------------------------------------------------------------

    \973\ See infra Section III.F.
    \974\ See supra notes 104-105 and accompanying text.
    \975\ See supra note 90 and accompanying text.
    \976\ The Commission will monitor the performance of competing 
consolidators, including whether there is a need to establish 
minimum standards for competing consolidators.
---------------------------------------------------------------------------

(vi) Potential Advantage of Incumbent Exclusive SIPs
    One commenter asserted that the incumbent exclusive SIPs would have 
a significant advantage over other entities seeking to become competing 
consolidators because they could use their existing infrastructure to 
operate a competing consolidator that could charge lower fees than new 
entrants because they would not incur the upfront capital expenditures 
required to build a competing consolidator.\977\ The commenter 
suggested that the Commission consider ways to require the incumbent 
exclusive SIPs to reimburse each Plan's Participants their 
proportionate share of their costs paid and used to build and support 
each exclusive SIP's systems as a means to allowing each exclusive SIP 
to purchase its existing infrastructure to use to act as a competing 
consolidator.\978\
---------------------------------------------------------------------------

    \977\ MIAX Letter at 2-3.
    \978\ Id. at 3.
---------------------------------------------------------------------------

    Any determinations regarding payments to Participants or the 
disposition of the assets of the exclusive SIPs would be made by the 
Participants of the Equity Data Plans.\979\ If the operators of the 
exclusive SIPs (i.e., SIAC and Nasdaq) decide to become competing 
consolidators and to operate their competing consolidator business 
using existing infrastructure of the exclusive SIPs, the Commission 
does not believe that they will have a significant advantage over other 
potential competing consolidators. The current operators of the 
exclusive SIPs would need to reach an agreement with the Participants 
of the Equity Data Plans regarding the disposition of the assets of the 
exclusive SIPs and would need to modify existing systems to produce 
consolidated market data products, which as described above, may 
contain more information than what the exclusive SIPs currently provide 
as SIP data. In addition, the exclusive SIPs will have to make changes 
to their systems to accommodate the changes to regulatory data. The 
exclusive SIPs also might find it necessary to upgrade the performance 
of the existing systems to compete effectively against market data 
vendors that currently utilize superior technology and may register to 
become competing consolidators.
---------------------------------------------------------------------------

    \979\ If the Participants determine that the effective national 
market system plan(s) needs to be amended for this purpose, such 
amendment would have to be filed with the Commission pursuant to 
Rule 608 of Regulation NMS.
---------------------------------------------------------------------------

(b) Rule 614(a)(1)(ii): Electronic Filing and Submission
(i) Proposal
    Proposed Rule 614(a)(1)(ii) would require any reports required 
under new Rule 614 to be filed electronically on Form CC, include all 
of the information as prescribed in Form CC and the instructions to 
Form CC, and contain an electronic signature. The proposal contemplated 
the use of an online filing system through which competing 
consolidators would file a completed Form CC. The system, known as the 
electronic form filing system (``EFFS''), is used by SROs to file 
proposed rules and rule changes and by SCI entities to file Forms 
SCI.\980\ Other potential methods of electronic filing of Form CC were 
also described, including the use of secure file transfer through 
specialized electronic mailbox or through the Electronic, Data 
Gathering, Analysis and Retrieval (``EDGAR'') system, or directly 
through SEC.gov via a simple HTML form.
---------------------------------------------------------------------------

    \980\ See Securities Exchange Act Release No. 50486 (Oct. 4, 
2004), 69 FR 60287 (Oct. 8, 2004) (adopting EFFS for use in filing 
Form 19b-4).
---------------------------------------------------------------------------

(ii) Final Rule and Response to Comments
    The Commission requested comment on the electronic filing 
requirement and asked whether EFFS or another system would be efficient 
for purposes of filing Form CC. One commenter supported the use of 
EFFS.\981\ The Commission believes that an electronic filing process is 
efficient and cost effective. The Commission has used EFFS for many 
years for proposed SRO rules and rule changes filed pursuant to Section 
19(b) of the Exchange Act and Rule 19b-4 thereunder, as well as 
Regulation SCI and the Commission believes that this system will be 
appropriate for registering competing consolidators. Further, the 
Commission believes that it will be easier and cost effective for 
competing consolidators and the Commission to use one system for 
competing consolidator filings. Competing consolidators that are SCI 
entities will have to submit filings pursuant to Regulation SCI via 
EFFS.\982\ Therefore, for those competing consolidators it would be 
easier and cost effective to use one filing system to submit filings 
with the Commission.\983\ The use of EFFS for all competing 
consolidators' filings will also be cost effective for the Commission.
---------------------------------------------------------------------------

    \981\ See Data Boiler Letter I at 50.
    \982\ See 17 CFR 242.1006 (Rule 1006) of Regulation SCI 
(relating to electronic filing and submission).
    \983\ See infra Section V.C.3(a).
---------------------------------------------------------------------------

(c) Rule 614(a)(1)(iii): Commission Review Period
(i) Proposal
    Proposed Rule 614(a)(1)(iii) would provide that the Commission may, 
by order, declare an initial Form CC filed by a competing consolidator 
ineffective no later than 90 calendar days from filing with the 
Commission.\984\ The Commission believed that 90 calendar days would 
provide the Commission with adequate time to carry out its oversight 
functions with respect to its review of an initial Form CC, including 
its responsibilities to protect investors and maintain fair, orderly, 
and efficient markets.\985\
---------------------------------------------------------------------------

    \984\ See also proposed Rule 17 CFR 242.614(a)(1)(iv)(B) (Rule 
614(a)(1)(iv)(B)).
    \985\ See Proposing Release, 85 FR at 16779.
---------------------------------------------------------------------------

(ii) Final Rule and Response to Comments
    The Commission did not receive any comments on this proposed rule. 
The Commission believes that the review period provides adequate time 
for the Commission to evaluate an initial Form CC. Therefore, the 
Commission is adopting the rule as proposed.
(d) Rule 614(a)(1)(iv): Withdrawal of Initial Form CC
(i) Proposal
    Proposed Rule 614(a)(1)(iv) would require a competing consolidator 
to withdraw an initial Form CC that has not become effective if any 
information disclosed in the initial Form CC is or becomes inaccurate 
or incomplete. The competing consolidator would be able to refile an 
initial Form CC pursuant to proposed Rule 614(a)(1).
(ii) Final Rule and Response to Comments
    The Commission did not receive any comments on this proposed rule. 
The Commission believes that competing consolidators should withdraw an 
initial Form CC that becomes inaccurate or incomplete to ensure that 
the Commission's review is based upon complete and accurate 
information. Therefore, the Commission is adopting the rule as 
proposed.
(e) Rule 614(a)(1)(v): Effectiveness; Ineffectiveness Determination
(i) Proposal
    Proposed Rule 614(a)(1)(v)(A) would provide that an initial Form CC 
would

[[Page 18669]]

become effective, unless declared ineffective, no later than the 
expiration of the review period provided in paragraph (a)(1)(iii) and 
upon publication of the initial Form CC pursuant to proposed Rule 
614(b)(2)(i). Proposed Rule 614(a)(1)(v)(B) would provide that the 
Commission would declare ineffective an initial Form CC if it finds, 
after notice and opportunity for hearing, that such action is necessary 
or appropriate in the public interest and is consistent with the 
protection of investors.
(ii) Final Rule and Response to Comments
    The Commission requested comment on whether the proposal to allow 
an initial Form CC to become effective by operation of the rule without 
a Commission issuing an order would provide sufficient notice that an 
initial Form CC has become effective.\986\ One commenter stated, 
without more, that ``an official order would be nice to have.'' \987\
---------------------------------------------------------------------------

    \986\ See Proposing Release, 85 FR at 16780.
    \987\ See Data Boiler Letter I at 50.
---------------------------------------------------------------------------

    The Commission is adopting Rule 614(a)(1)(v) as proposed. The 
Commission believes that if it finds, after notice and opportunity for 
hearing, that one or more disclosures reveal noncompliance with Federal 
securities laws or the rules or regulations thereunder, an initial Form 
CC should be declared ineffective. The Commission will make such a 
declaration if it finds, for example, that one or more disclosures on 
the initial Form CC were materially deficient with respect to their 
accuracy, currency, or completeness. If the Commission declares an 
initial Form CC ineffective, the applicant will be prohibited from 
operating as a competing consolidator, but will be able to file a new 
Form CC to address any disclosure deficiencies or other issues that 
caused the initial Form CC to be declared ineffective.
    While one commenter suggested without articulating a reason that 
the Commission issue an order declaring a Form CC effective, the 
Commission does not believe that such an order is necessary in this 
context because all effective Form CCs will be published by the 
Commission on the Commission's website, which will provide notice to 
market participants that a competing consolidator has an effective Form 
CC and is permitted to operate.
(f) Rule 614(a)(2): Form CC Amendments
(i) Proposal
    Proposed Rule 614(a)(2) would provide the requirements for amending 
an effective Form CC. Proposed Rule 614(a)(2)(i) would require a 
competing consolidator to amend an effective Form CC in accordance with 
the instructions therein: (i) Prior to the date of implementation of a 
material change to the pricing, connectivity, or products offered (a 
``Material Amendment''); and (ii) no later than 30 calendar days after 
the end of each calendar year to correct information, whether material 
or immaterial, that has become inaccurate or incomplete for any reason 
(``Annual Report'') (each a ``Form CC Amendment'').\988\
---------------------------------------------------------------------------

    \988\ See proposed Rules 614(a)(1)(i) and (a)(2)(i) and (ii).
---------------------------------------------------------------------------

(ii) Final Rule 614(a)(2) and Response to Comments
    The Commission received several comments regarding proposed Rule 
614(a)(2). One commenter questioned how far ahead of implementing a new 
service or fee a competing consolidator would be required to file a 
Form CC amendment.\989\ The commenter also questioned whether the 
Commission or its staff could object to a new service or fee.\990\
---------------------------------------------------------------------------

    \989\ See IDS Letter I at 10.
    \990\ See id.
---------------------------------------------------------------------------

    One commenter stated that the requirement to file a Material 
Amendment, along with information relating to operational capability, 
market data products fees, co-location, and related services, would 
reduce the variety of products offered.\991\ The commenter asserted 
that this information would change frequently as a competing 
consolidator improved and modified its services to meet the needs of 
different customers.\992\ The commenter further stated that market 
participants would find other ways to select competing consolidators, 
making it unnecessary to report this information publicly.\993\ One 
commenter raised no objection to the proposed requirement to prepare an 
Annual Report because interested persons may be interested in learning 
about changes in ownership.\994\
---------------------------------------------------------------------------

    \991\ See NovaSparks Letter at 2.
    \992\ See id.
    \993\ See id.
    \994\ See Data Boiler Letter I at 51.
---------------------------------------------------------------------------

    The Commission is adopting Rule 614(a)(2) as proposed. The 
Commission acknowledges the commenter's concern that the requirement to 
file a Material Amendment, along with information relating to 
operational capability, market data products fees, co-location, and 
related services, could reduce the variety of products offered. 
However, the Commission believes that the required Form CC amendments, 
including Material Amendments and Annual Reports, and the process by 
which they are filed, properly balances this concern with the need to 
provide market participants with necessary information regarding a 
competing consolidator's organization, operational capability, 
consolidated market data products, fees, and co-location and related 
services to determine whether to subscribe, or continue subscribing, to 
a competing consolidator. As required by Rule 614(a)(2)(i), a competing 
consolidator must file a Material Amendment, which is defined as a 
material change to the pricing, connectivity, or products offered, 
prior to such change's implementation. The Commission will review all 
Form CC amendments for completeness, clarity, and conformance with the 
requirements of Rule 614 and Form CC. The instructions to Form CC state 
that an incomplete or deficient filing may be returned to the competing 
consolidator and any filing so returned will be deemed not to have been 
filed with the Commission. However, the Commission will not 
affirmatively approve amendments to Form CC, including Material 
Amendments, which should streamline the process. Although some 
competing consolidators may frequently file amendments to Form CC to 
respond to subscriber demand, these amendments would not be subject to 
Commission approval before effectiveness.
    The information in Form CC amendments will assist market 
participants in evaluating which products and services of the competing 
consolidator will be most useful to them. This information is also 
designed to ensure that the Commission has specified information 
regarding entities acting as competing consolidators, to facilitate the 
Commission's oversight of competing consolidators, and help to ensure 
the resiliency of a competing consolidator's systems. Given these 
intended uses, the Commission believes that it is important for a 
competing consolidator to be required to maintain an accurate, current, 
and complete Form CC.
    The Commission disagrees with the commenter's assertion that it is 
unnecessary to make the information required in the initial Form CC and 
in Material Amendments publicly available. The information reported in 
the initial Form CC and in Material Amendments will help to ensure that 
all

[[Page 18670]]

market participants have access to the same information regarding 
competing consolidators, the products and services they offer, and the 
fees for those products and services, and that that information remains 
current. Although the filing of Form CC and Material Amendments will 
create an administrative requirement for competing consolidators, the 
Commission does not believe that these filing requirements will unduly 
limit the products that a competing consolidator is able to offer.
(g) Rule 614(a)(3): Notice of Cessation
(i) Proposal
    Proposed Rule 614(a)(3) required a competing consolidator to file 
notice of its cessation of operations on Form CC at least 30 business 
days before the date the competing consolidator ceases to operate as a 
competing consolidator. The notice of cessation will cause the Form CC 
to become ineffective on the date designated by the competing 
consolidator.
(ii) Final Rule 614(a)(3) and Response to Comments
    The Commission received one comment regarding proposed Rule 
614(a)(3), which stated that the 30-day time period in proposed Rule 
614(a)(3) was too long and that 15 days would provide sufficient time 
for a broker-dealer to switch to a different service provider.\995\
---------------------------------------------------------------------------

    \995\ See Data Boiler Letter I at 51.
---------------------------------------------------------------------------

    The Commission is revising proposed Rule 614(a)(3) to require a 
competing consolidator to provide 90 calendar days' notice of its 
cessation of operations.\996\ The Commission believes that 90 calendar 
days' notice will help to ensure that the subscribers of a competing 
consolidator that ceases operations will have adequate time to identify 
and transition to a new competing consolidator, including making any 
necessary systems changes and establishing connectivity to the new 
market data provider. While one commenter stated that firms would only 
need 15 days to switch to a new competing consolidator, the Commission 
believes that firms will likely need more time to switch effectively to 
another competing consolidator. As discussed above, competing 
consolidators may generate different consolidated market data products 
and use different formats. Firms will likely need to make systems 
changes and perform testing of a new competing consolidator if the 
competing consolidator they use decides to cease operations. The 
Commission believes that firms should be provided with sufficient time 
to make necessary systems changes and conduct performance testing 
before losing the services of a competing consolidator so that they are 
able to have continuity of consolidated market data services.
---------------------------------------------------------------------------

    \996\ Rule 614(a)(3), as adopted, will provide: Notice of 
cessation. A competing consolidator shall notice its cessation of 
operations on Form CC at least 90 calendar days prior to the date 
the competing consolidator will cease to operate as a competing 
consolidator. The notice of cessation shall cause the Form CC to 
become ineffective on the date designated by the competing 
consolidator.
---------------------------------------------------------------------------

(h) Rule 614(a)(4): Date of Filing
(i) Proposal
    The Commission proposed to define ``business day'' for purposes of 
proposed Rule 614 to comport with provisions contained in Rule 19b-4 
and to specify the conditions under which filings required pursuant to 
proposed Rule 614 are deemed to have been made on a particular business 
day. Specifically, the Commission proposed to define ``business day'' 
in the same manner in which it is defined in Rule 19b-4(b)(2).\997\
---------------------------------------------------------------------------

    \997\ See Rule 19b-4(b)(2), 17 CFR 240.19b-4(b)(2). Proposed 
Rule 614(a)(ii) provided that if the conditions of proposed Rule 614 
and proposed Form CC are otherwise satisfied, all filings submitted 
electronically on or before 5:30 p.m. Eastern Standard Time or 
Eastern Daylight Saving Time, whichever is currently in effect, on a 
business day, shall be deemed filed on that business day, and all 
filings submitted after 5:30 p.m. Eastern Standard Time or Eastern 
Daylight Saving Time, whichever is currently in effect, shall be 
deemed filed on the next business day.
---------------------------------------------------------------------------

(ii) Final Rule and Response to Comments
    The Commission did not receive any comments on proposed Rule 
614(a)(4). The Commission is adopting the rule as proposed. The 
Commission believes that the provisions providing a date-of-filings 
standard would facilitate the ability of competing consolidators to 
comply with the requirements of Rule 614 and facilitate the ability of 
the Commission to effectively receive, review, and make public the 
filings required under Rule 614.
(i) Rule 614(b): Public Disclosures
(i) Proposal
    Proposed Rule 614(b) would require the publication of all Form CC 
reports and other information filed by competing consolidators. 
Proposed Rule 614(b)(1) stated that every Form CC filed pursuant to 
Rule 614 shall constitute a ``report'' within the meaning of sections 
11A, 17(a), 18(a), and 32(a) of the Exchange Act (15 U.S.C. 78k-1, 
78q(a), 78r(a), and 78ff(a)), and any other applicable provisions of 
the Exchange Act. Proposed Rule 614(b)(2) stated that the Commission 
would publish on its website each (1) effective initial Form CC, as 
amended; (2) order of ineffective initial Form CC; (3) Form CC 
amendment no later than 30 calendar days from the date of filing 
thereof; and (4) notice of cessation.
(ii) Final Rule and Response to Comments
    The Commission requested comment on proposed Rule 614(b). One 
commenter stated without more that it had ``no objection'' to the 
publication of the Form CC on the Commission's website.\998\ The 
Commission is adopting this provision as proposed but with one addition 
to the items that will be published by the Commission on its website 
pursuant to Rule 614(b)(2). Specifically, the Commission will publish 
on its website a list of the names of each potential competing 
consolidator that files with the Commission an initial Form CC and the 
date of filing.\999\ This list would be updated upon each filing of an 
initial Form CC by a potential competing consolidator. The Commission 
believes that publishing a regularly updated list of potential 
competing consolidators that have filed to register with the Commission 
may encourage other potential competing consolidators to register for 
the ``first wave'' of the transition period.\1000\ The Commission 
believes that making the information detailed in Rule 614(b) available 
will assist market participants in evaluating a particular competing 
consolidator as a potential source of consolidated market data, as well 
as motivate potential competing consolidators to enter the market by 
signaling interest in the market.
---------------------------------------------------------------------------

    \998\ See Data Boiler Letter I at 52.
    \999\ See Adopted Rule 614(b)(2).
    \1000\ See infra Section III.H.2 for a discussion of the 
transition period.
---------------------------------------------------------------------------

(j) Rule 614(c): Posting of Hyperlink to the Commission's Website
(i) Proposal
    Proposed Rule 614(c) would require each competing consolidator to 
make public via posting on its website a direct URL hyperlink to the 
Commission's website that contains each (1) effective initial Form CC, 
as amended; (2) order of ineffective initial Form CC; (3) Form CC 
amendment no later than 30 calendar days from the date of filing 
thereof; and (4) notice of cessation (if applicable).

[[Page 18671]]

(ii) Final Rule and Response to Comments
    The Commission received one comment on proposed Rule 614(c) from a 
commenter who stated that it did not oppose the proposal.\1001\ The 
Commission is adopting this provision as proposed.\1002\ The Commission 
believes that this requirement will make it easier for market 
participants to review a competing consolidator's Form CC filings. This 
provision provides an additional means for market participants to 
locate Form CC filings that are posted on the Commission's website.
---------------------------------------------------------------------------

    \1001\ See Data Boiler Letter I at 52.
    \1002\ The Commission notes that Rule 614(c) is being updated to 
reflect a change to the numbering of Rule 614(b)(2). The 
requirements of Rule 614(c) are not changing and are adopted as 
proposed.
---------------------------------------------------------------------------

8. Responsibilities of a Competing Consolidator
    The Commission proposed Rule 614(d) to establish the 
responsibilities applicable to all competing consolidators, including 
competing consolidators that are affiliated with SROs and those that 
are not, under the decentralized consolidation model. Under proposed 
Rule 614(d), all competing consolidators would be required to perform 
many of the obligations currently performed by the existing exclusive 
SIPs. Proposed Rule 614(d) also would require all competing 
consolidators to disclose performance metrics and other information 
that would facilitate Commission oversight of competing consolidators 
and assist market participants in evaluating and choosing competing 
consolidators.
(a) Rules 614(d)(1) Through (3): Collection, Calculation, and 
Dissemination of Consolidated Market Data
(i) Proposal
    Proposed Rules 614(d)(1) through (3) would require competing 
consolidators to collect, consolidate, and disseminate consolidated 
market data. Proposed Rule 614(d)(1) would require each competing 
consolidator to collect from each national securities exchange and 
national securities association, either directly or indirectly, the 
information with respect to quotations for and transactions in NMS 
stocks as provided in Rule 603(b). Proposed Rule 614(d)(2) would 
require each competing consolidator to calculate and generate 
consolidated market data, as defined in proposed Rule 600(b)(19), from 
the information collected in proposed Rule 614(d)(1). This proposed 
rule would require competing consolidators to develop a complete 
consolidated market data product that contained all of the data 
elements specified in the proposed definition of consolidated market 
data.\1003\ Proposed Rule 614(d)(3) would require competing 
consolidators to make the proposed consolidated market data available 
to subscribers on a consolidated basis and on terms that are not 
unreasonably discriminatory, with the timestamps required by proposed 
Rules 614(d)(4) and (e)(1)(ii), as discussed below.
---------------------------------------------------------------------------

    \1003\ See Proposing Release, 85 FR at 16782.
---------------------------------------------------------------------------

(ii) Final Rule and Response to Comments
    The Commission received several comments regarding proposed Rules 
614(d)(1) through (3).\1004\ One commenter strongly supported requiring 
competing consolidators to be subject to appropriate standards, such as 
providing fair access to market participants.\1005\ Two commenters 
criticized the proposed rules. One commenter stated that incorporating 
aggregated odd-lot quotes into the NBBO calculation would cause 
confusion and suggested instead that the NBBO be based on exchange BBOs 
``to minimize any calculation or interference/influences'' by competing 
consolidators.\1006\ With respect to proposed Rule 614(d)(2), one 
commenter said that because the Commission did not define what it meant 
by ``generate'' proposed consolidated market data, it was unclear what 
types of activity would warrant registration by competing 
consolidators.\1007\ The commenter also argued that the Commission did 
not describe the meaning of ``unreasonably discriminatory'' in proposed 
Rule 614(d)(3),\1008\ the consequences for competing consolidators that 
make data available on an unreasonably discriminatory basis, the 
``costs of the mechanisms and consequences for application and 
enforcement of the unreasonably discriminatory requirement for both the 
relevant competing consolidator and its clients,'' and whether 
agreements between a competing consolidator and its subscribers that 
limit the competing consolidator's liability would be deemed 
``unreasonably discriminatory.'' \1009\
---------------------------------------------------------------------------

    \1004\ See Clearpool Letter at 7; Data Boiler Letter I at 52; 
IDS Letter I at 10-11.
    \1005\ See Clearpool Letter at 7.
    \1006\ Data Boiler Letter I at 52. This commenter also suggested 
that only a single competing consolidator should be obligated to 
provide a consolidated market data product, not all competing 
consolidators. See supra Section III.C.1(b).
    \1007\ IDS Letter I at 11.
    \1008\ The commenter said that data vendors are currently not 
held to an ``unreasonably discriminatory'' standard. Because the 
commenter believed the Commission did not explain how it would apply 
this standard, the commenter said that commenters cannot assess the 
standard's burden on potential competing consolidators, including 
data vendors. Id. at 10.
    \1009\ Id. at 10-11.
---------------------------------------------------------------------------

    As discussed above,\1010\ the Commission is not requiring competing 
consolidators to sell a full consolidated market data product and is 
amending proposed Rules 614(d)(1) through (3) to reflect this change. 
Rule 614(d)(1), as amended, requires each competing consolidator to 
collect from each national securities exchange and national securities 
association, either directly, or indirectly, only the information 
required under Rule 603(b) that is necessary for the competing 
consolidator to create the particular consolidated market data 
product(s) it chooses to sell. Rule 614(d)(2), as amended, requires 
each competing consolidator to calculate and generate a consolidated 
market data product from the data collected pursuant to Rule 614(d)(1). 
Rule 614(d)(3), as amended, requires each competing consolidator to 
make the consolidated market data product(s) available to subscribers 
on terms that are not unreasonably discriminatory, and timestamped as 
required by Rule 614(d)(4) and including the national securities 
exchange and national securities association generated timestamp as 
required by Rule 614(e)(2).
---------------------------------------------------------------------------

    \1010\ See supra Section II.B.2; see also supra Section 
III.C.1(b). The Commission is adopting a definition for 
``consolidated market data product'' in Rule 600(b)(20).
---------------------------------------------------------------------------

    With respect to the comment that the NBBO should be based on 
exchange BBOs and that incorporation of aggregated odd-lot quotes would 
cause confusion,\1011\ the Commission believes that requiring the 
exchanges to calculate their BBOs before sending them to the competing 
consolidators for calculation into NBBOs would add latency to the 
collection, consolidation, and dissemination of consolidated market 
data products. One of the goals of the introduction of competing 
consolidators is the reduction of latencies. Any exchange processing of 
the data content underlying consolidated market data will add latency 
in the collection, calculation, and dissemination of consolidated 
market data. Further, the exchanges currently aggregate odd-lot quotes 
into their BBOs, which are used to calculate the NBBO. Therefore, the 
Commission does not believe that this

[[Page 18672]]

provision will cause confusion.\1012\ The Commission believes that 
aggregating odd-lots into the BBO provides market participants with a 
more complete view of the market for each security.
---------------------------------------------------------------------------

    \1011\ See Data Boiler Letter I at 52.
    \1012\ See supra Section III.B.10.
---------------------------------------------------------------------------

    In response to the comment that only one competing consolidator 
should be obligated to provide a consolidated market data 
product,\1013\ the Commission is not requiring all competing 
consolidators to provide all consolidated market data. Competing 
consolidators may sell a consolidated market data product comprising 
some or all components of consolidated market data.\1014\ The 
Commission believes that competing consolidators should have the 
flexibility to tailor their market data products to their subscribers' 
needs. Not requiring competing consolidators to sell a product that 
contains all of the data elements of full consolidated market data 
should enhance competition among competing consolidators by providing 
more parameters (e.g., products) upon which they can compete.
---------------------------------------------------------------------------

    \1013\ See Data Boiler Letter I at 52.
    \1014\ See Rule 600(b)(20).
---------------------------------------------------------------------------

    With respect to the comment that requested clarification of the use 
of the term ``generate'' in proposed Rule 614(d)(2), competing 
consolidators will be required to calculate and generate a consolidated 
market data product from the individual data streams made available by 
the SROs pursuant to Rule 603(b). For example, competing consolidators 
that choose to sell a consolidated market data product that includes 
the NBBO will calculate the NBBO as set forth in Rule 600(b)(50) and 
disseminate the NBBO in the consolidated market data product. Competing 
consolidators that sell a consolidated market data product that 
includes depth-of-book data will generate depth-of-book data by 
considering the NBBO and then determining the five price levels above 
(below) the NBBO from the quotation information provided by the SROs. 
The ``calculate and generate'' description refers to the processes that 
competing consolidators will use to create a consolidated market data 
product from the individual SRO quotation and transaction information 
they receive. Competing consolidators that receive transaction and 
quotation information from the individual SROs pursuant to Rule 603(b) 
and calculate and generate a consolidated market data product for 
dissemination must register pursuant to Rule 614.
    ``Unreasonably discriminatory'' is a term used in Section 
11A(c)(1)(D) of the Exchange Act.\1015\ Section 11A(c)(1)(D) of the 
Exchange Act states that all exchange members, brokers, dealers, SIPs, 
and, subject to such limitations that the Commission may impose as 
necessary or appropriate for the protection of investors or maintenance 
of fair and orderly markets, all other persons may obtain on terms that 
are not unreasonably discriminatory such information with respect to 
quotations for and transactions in any security, other than an exempted 
security, as is published or distributed by any SRO or SIP. The term 
``unreasonably discriminatory'' in Rule 614(d)(3) has the same meaning 
as in Section 11A(c)(1)(D). With respect to the comment asking about 
the applicability of this term,\1016\ while such determinations are 
facts and circumstances-based and specific to each individual 
situation, a competing consolidator should have a reasonable basis for 
providing a consolidated market data product on different terms to 
different customers.
---------------------------------------------------------------------------

    \1015\ 15 U.S.C. 78k-1(c)(1)(D). See also Bloomberg Order, supra 
note 22.
    \1016\ See IDS Letter I at 10-11.
---------------------------------------------------------------------------

(b) Rule 614(d)(4): Timestamping of Consolidated Market Data
(i) Proposal
    Proposed Rule 614(d)(4) would require each competing consolidator 
to timestamp the information collected in proposed Rule 614(d)(1): (i) 
Upon receipt from each national securities exchange and national 
securities association at the exchange's or association's data center; 
(ii) upon receipt of such information at its aggregation mechanism; and 
(iii) upon dissemination of consolidated market data to customers.
(ii) Final Rule and Response to Comments
    The Commission received several comments regarding proposed Rule 
614(d)(4).\1017\ Three commenters supported the timestamp requirement 
of the proposed Rule.\1018\ One commenter said that market participants 
could use the originating venue timestamp and the consolidator 
timestamps to gauge whether the latency meets their needs and whether 
their best-execution obligations were met.\1019\ Another commenter 
suggested a time granularity of +/- 50 milliseconds or in sub-
milliseconds.\1020\
---------------------------------------------------------------------------

    \1017\ See Capital Group Letter at 4; IEX Letter at 8; Data 
Boiler Letter I at 53; TD Ameritrade Letter at 13.
    \1018\ See Capital Group Letter at 4; IEX Letter at 8; Data 
Boiler Letter I at 53.
    \1019\ See Capital Group Letter at 4.
    \1020\ See Data Boiler Letter I at 53.
---------------------------------------------------------------------------

    One commenter, however, stated that the proposed rule could create 
confusion.\1021\ This commenter said that multiple quotes with the same 
timestamp could cause sequencing confusion and suggested that the 
Commission provide more specificity to address this concern.\1022\
---------------------------------------------------------------------------

    \1021\ See TD Ameritrade Letter at 13.
    \1022\ See id.
---------------------------------------------------------------------------

    The Commission believes that timestamps are of particular 
importance in a decentralized consolidation model because competing 
consolidators will be generating consolidated market data products 
individually. Market participants must be able to understand the market 
at the time their orders are represented and executed. Further, 
timestamps help to ensure that competing consolidators are accurately 
calculating and disseminating consolidated market data products. 
Therefore, the Commission is adopting these requirements as proposed.
    The exclusive SIPs' timestamp information is similar to what is 
required of competing consolidators under Rules 614(d)(4)(i) and (iii). 
The timestamp requirement will allow subscribers to ascertain how 
quickly the competing consolidator can receive data from the exchanges, 
transmit that data between the exchange's data center and its 
aggregation center, and aggregate and disseminate its consolidated 
market data product to subscribers (its realized latency). The 
Commission also believes that this information will provide 
transparency that should help subscribers evaluate a potential 
competing consolidator or determine whether an existing competing 
consolidator continues to meet their needs.
    The Commission does not think that the addition of timestamps on 
competing consolidators' consolidated market data products will cause 
sequencing confusion. Rule 614(d)(4) requires each competing 
consolidator to affix its own timestamps to the information collected 
in Rule 614(d)(1): (i) Upon receipt from each SRO at the exchange's or 
association's data center; (ii) upon receipt of such information at its 
aggregation mechanism; and (iii) upon dissemination of consolidated 
market data to customers. As noted above, currently, the exclusive SIPs 
similarly timestamp information. The timestamp requirement should not 
introduce any new sequencing confusion. Instead, this timestamping 
requirement should help subscribers

[[Page 18673]]

understand a competing consolidator's performance in generating 
consolidated market data products. Competing consolidators will have 
different systems to collect, calculate, and disseminate the data they 
receive from the SROs and their timestamps will help market 
participants measure latencies.
(c) Rules 614(d)(5) and (6): Monthly Website Publication of Performance 
and Operational Information
(i) Proposal
    Proposed Rule 614(d)(5) required each competing consolidator to 
publish prominently on its website, within 15 calendar days after the 
end of each month, certain performance metrics. All information posted 
pursuant to proposed Rule 614(d)(5) must be publicly posted in 
downloadable files and must remain free and accessible (without any 
encumbrances or restrictions) by the general public on the website for 
a period of not less than three years from the initial date of posting.
    In particular, proposed Rule 614(d)(5) required the publication of 
the following performance metrics: (i) Capacity statistics (such as 
system tested capacity, system output capacity, total transaction 
capacity, and total transaction peak capacity); (ii) message rate and 
total statistics (such as peak output rates on the following bases: 1-
millisecond, 10-millisecond, 100-millisecond, 500-millisecond, 1-
second, and 5-second); (iii) system availability statistics (for 
example, whether system up-time has been 100% for the month and 
cumulative amount of outage time); (iv) network delay statistics (for 
example, today under a TCP-IP network, network delay statistics would 
include quote and trade zero window size events, quote and trade TCP 
retransmit events, and quote and trade message total); and (v) latency 
statistics (with distribution statistics up to the 99.99th percentile) 
for (1) when a national securities exchange or national securities 
association sends an inbound message to a competing consolidator 
network and when the competing consolidator network receives the 
inbound message; (2) when the competing consolidator network receives 
the inbound message and when the competing consolidator network sends 
the corresponding consolidated message to a subscriber; and (3) when a 
national securities exchange or national securities association sends 
an inbound message to a competing consolidator network and when the 
competing consolidator network sends the corresponding consolidated 
message to a subscriber.
    Proposed Rule 614(d)(6) required each competing consolidator to 
publish prominently on its website, within 15 calendar days after the 
end of each month, information on: (i) Data quality issues (such as 
delayed message publication, publication of duplicative messages, and 
message inaccuracies); (ii) system issues (such as processing, 
connectivity, and hardware problems); (iii) any clock synchronization 
protocol utilized; (iv) for the clocks used to generate the timestamps 
described in Rule 614(d)(4), clock drift averages and peaks and number 
of instances of clock drift greater than 100 microseconds; and (v) 
vendor alerts (such as holiday reminders and testing dates). All 
information posted pursuant to proposed Rule 614(d)(6) must be publicly 
posted and must remain free and accessible (without any encumbrances or 
restrictions) by the general public on the website for a period of not 
less than three years from the initial date of posting.
(ii) Final Rule and Response to Comments
    The Commission received several comments regarding proposed Rules 
614(d)(5) and (6).\1023\ Five commenters supported the proposed 
Rules.\1024\ One commenter objected to the proposed rules.\1025\ One 
commenter requested guidance from the Commission relating to broker-
dealers' use of the required information.\1026\
---------------------------------------------------------------------------

    \1023\ See Clearpool Letter at 9; IntelligentCross Letter at 5; 
IEX Letter at 8; ACS Execution Services Letter at 6; Data Boiler 
Letter I at 53; STANY Letter II at 6; FINRA Letter at 5.
    \1024\ See Clearpool Letter at 9; IntelligentCross Letter at 5; 
IEX Letter at 8; ACS Execution Services Letter at 6; Data Boiler 
Letter I at 53.
    \1025\ See STANY Letter II at 6.
    \1026\ See FINRA Letter at 5.
---------------------------------------------------------------------------

    Several commenters supported requiring competing consolidators to 
disclose the information required by the proposed rules,\1027\ and some 
commenters said this information would be useful in choosing a 
competing consolidator.\1028\ One commenter said that such transparency 
could help keep costs down,\1029\ and another commenter stated that the 
publication of performance metrics, in combination with competition, 
would ``advance the objective of promoting useful and widely available 
market data for a range of market participants.'' \1030\ One commenter 
indicated that the information and frequency with which it would be 
provided were acceptable but suggested benchmark testing instead of 
information disclosures.\1031\ The commenter said that benchmark tests 
would better demonstrate a competing consolidator's capabilities 
without revealing proprietary information.\1032\
---------------------------------------------------------------------------

    \1027\ See Clearpool Letter at 9; IntelligentCross Letter at 5; 
IEX Letter at 8.
    \1028\ See IntelligentCross Letter at 5; ACS Execution Services 
Letter at 6.
    \1029\ See ACS Execution Services Letter at 6.
    \1030\ IEX Letter at 8.
    \1031\ See Data Boiler Letter I at 53. This commenter did not 
elaborate on benchmark testing.
    \1032\ See id. The performance and operational information to be 
provided as required by Rules 614(d)(5) and (6) do not require the 
disclosure of proprietary information. Rules 614(d)(5) and (6) 
require the reporting of data that demonstrates how competing 
consolidators are actually operating which should be directly 
pertinent to subscribers and potential subscribers of competing 
consolidators. If competing consolidators believe that benchmark 
testing would be worthwhile, they can decide on their own to 
establish benchmark criteria and publish the results of testing, in 
addition to complying with the requirements of Rules 614(d)(5) and 
(6).
---------------------------------------------------------------------------

    One commenter believed that the requirement to disclose performance 
statistics as well as provide transparency into the performance of 
competing consolidator systems would deter potential competing 
consolidators from registration.\1033\ Another commenter asked the 
Commission to issue guidance outlining a broker-dealer's obligations 
with respect to review of the monthly performance metrics prior to and 
after selection of a competing consolidator, and reevaluation of its 
chosen competing consolidator based on such metrics or other 
information.\1034\
---------------------------------------------------------------------------

    \1033\ See STANY Letter II at 6-7.
    \1034\ See FINRA Letter at 5.
---------------------------------------------------------------------------

    The Commission is adopting Rules 614(d)(5) and (6) as 
proposed.\1035\ The Commission believes that this information will be 
useful to market participants in evaluating competing consolidators. 
The Commission believes that the public disclosure of this 
information--particularly the system availability and network delay 
statistics and data quality and system issues--will encourage competing 
consolidators to provide consolidated market data products in a stable 
and resilient manner and will allow market participants to hold them 
accountable for their performance metrics.
---------------------------------------------------------------------------

    \1035\ The Commission is adopting Rules 614(d)(5) and (6) with 
minor technical changes to cite more specifically to the information 
that must be published by a competing consolidator to its website on 
a monthly basis.
---------------------------------------------------------------------------

    The Commission does not believe that these disclosures will deter 
potential competing consolidators from registering because the 
disclosures should help competing consolidators to market themselves to 
potential subscribers. This information will be used by market 
participants to evaluate

[[Page 18674]]

competing consolidator performance. Competing consolidators could also 
use these disclosures to evaluate their competitors, which could 
motivate them to make changes to better serve their subscribers or 
attract new ones.
    Finally, the Commission believes that the information disclosed 
under these provisions--such as performance statistics, system 
availability, and data quality issues--can help a broker-dealer assess 
whether a potential competing consolidator can meet the broker-dealer's 
performance and operational needs and should help to facilitate a 
broker-dealer's ability to achieve and analyze best execution.\1036\ 
For these reasons, the Commission encourages these disclosures to be 
provided in a manner facilitating comparison across competing 
consolidators and their consolidated market data products.
---------------------------------------------------------------------------

    \1036\ See supra notes 104-105 and accompanying text.
---------------------------------------------------------------------------

(d) Rules 614(d)(7) and (8): Maintenance and Provision of Information 
for Regulatory Purposes
(i) Proposal
    Proposed Rule 614(d)(7) required each competing consolidator to 
keep and preserve at least one copy of all documents, including all 
correspondence, memoranda, papers, books, notices, accounts, and such 
other records as shall be made or received by it in the course of its 
business as such and in the conduct of its business.\1037\ The proposed 
rule required competing consolidators to keep these documents for a 
period of no less than five years, the first two years in an easily 
accessible place.
---------------------------------------------------------------------------

    \1037\ See Section 17(a)(1) of the Exchange Act, 15 U.S.C. 
78q(a)(1).
---------------------------------------------------------------------------

    Proposed Rule 614(d)(8) required each competing consolidator to, 
upon request of any representative of the Commission, promptly furnish 
to the possession of such representative copies of any documents 
required to be kept and preserved by it.\1038\
---------------------------------------------------------------------------

    \1038\ In this context, ``promptly'' or ``prompt'' means making 
reasonable efforts to produce records that are requested by the 
staff during an examination without delay. The Commission believes 
that in many cases a competing consolidator could, and therefore 
will be required to, furnish records immediately or within a few 
hours of a request. The Commission expects that only in unusual 
circumstances would a competing consolidator be permitted to delay 
furnishing records for more than 24 hours. Accord Regulation 
Crowdfunding, Securities Act Release No. 9974, Securities Exchange 
Act Release No. 76324 (Oct. 30, 2015), 80 FR 71387, 71473 n. 1122 
(Nov. 15, 2015) (similarly interpreting the term ``promptly'' in the 
context of Regulation Crowdfunding Rule 404(e)); Security Based Swap 
Data Repository Registration, Duties, and Core Principles, 
Securities Exchange Act Release No. 74246 (Feb. 11, 2015), 80 FR 
14438, 14500, n. 846 (Mar. 19, 2015) (similarly interpreting the 
term ``promptly'' in the context of Exchange Act Rule 13n-7(b)(3)); 
Registration of Municipal Advisors, Securities Exchange Act Release 
No. 70462 (Sept. 20, 2013), 78 FR 67468, 67578-79 n. 1347 (Nov. 12, 
2013) (similarly interpreting the term ``prompt'' in the context of 
Exchange Act Rule 15Ba1-8(d)).
---------------------------------------------------------------------------

(ii) Final Rule and Response to Comments
    The Commission received two comments on proposed Rules 614(d)(7) 
and (8) from the same commenter.\1039\ The commenter stated that the 
document retention and recording time periods of proposed Rule 
614(d)(7) were acceptable.\1040\ In response to proposed Rule 
614(d)(8), the commenter suggested that the Commission require 
benchmark testing instead of paper documents.\1041\
---------------------------------------------------------------------------

    \1039\ See Data Boiler Letter I at 54.
    \1040\ Id.
    \1041\ Id.
---------------------------------------------------------------------------

    The Commission is adopting Rules 614(d)(7) and (8) as proposed. 
These requirements will facilitate the Commission's oversight of 
competing consolidators and the national market system. These 
provisions are similar to those used by the Commission in other 
contexts.\1042\ The Commission does not believe that ``benchmark 
testing'' is applicable to the Commission's record retention 
requirements because these requirements address the records to retain, 
how long to retain them, and to whom the records should be furnished, 
not how competing consolidators should demonstrate the capability of 
their systems.\1043\
---------------------------------------------------------------------------

    \1042\ See Section 17(a)(1) of the Exchange Act, 15 U.S.C. 
78q(a)(1).
    \1043\ See supra note 1032.
---------------------------------------------------------------------------

(e) Form CC
(i) Proposal
    The Commission proposed Form CC to require competing consolidators 
to provide information and/or reports in narrative form to the 
Commission and to make such information public. The proposed form 
required a competing consolidator to indicate the purpose for which it 
is filing the form (i.e., initial report, material amendment, annual 
amendment, or notice of cessation) and to provide information in four 
categories: (1) General information, along with contact information; 
(2) business organization; (3) operational capability; and (4) services 
and fees. The Commission explained that the requested information would 
assist the Commission in understanding the competing consolidator's 
overall business structure, technological reliability, and services 
offered, and would better ensure consistent disclosures across 
competing consolidators.
(ii) Final Rule and Response to Comments
    The Commission received multiple comments from one commenter on 
proposed Form CC. In response to the Commission's question as to 
whether the instructions to Form CC were sufficiently clear, one 
commenter asked when a Form CC needed to be filed ``in order to give 
[the] regulator sufficient time to review before authorizing it to 
operate?'' \1044\ Under Rule 614(a)(1)(i), no competing consolidator 
may receive the data content underlying consolidated market data and 
generate a consolidated market data product for dissemination unless an 
initial Form CC has been filed with the Commission and become 
effective. Therefore, Form CC needs to be filed prior to a competing 
consolidator beginning operations. Further, as described in Rule 
614(a)(1)(iii), the Commission may declare an initial Form CC 
ineffective no later than 90 calendar days from the date of filing with 
the Commission.
---------------------------------------------------------------------------

    \1044\ See Data Boiler Letter I at 55.
---------------------------------------------------------------------------

    The Commission also asked whether competing consolidators would 
bundle their products and/or services and if so, whether this should be 
required to be disclosed on Form CC. One commenter responded that 
bundling would be likely but did not specify whether it should be 
disclosed on Form CC.\1045\ Two commenters stated that the Commission 
should not to allow competing consolidators to link their pricing to 
other areas of business.\1046\
---------------------------------------------------------------------------

    \1045\ See id. at 56.
    \1046\ See Clearpool Letter at 4; ACS Execution Services Letter 
at 6.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that the 
information in Section V of Form CC--which includes Exhibit F (a 
description of all consolidated market data products), Exhibit G (a 
description and identification of any fees or charges for the use of 
the competing consolidator with respect to consolidated market data), 
and Exhibit H (a description of any co-location and related services, 
and the terms and conditions for co-location, connectivity and related 
services)--would assist market participants in determining whether to 
become a subscriber of a competing consolidator by requiring the 
availability of information regarding the services offered and fees 
charged for consolidated market data. The Form CC disclosures will 
require the disclosure of fees and services related to consolidated 
market data products that

[[Page 18675]]

may be bundled by a competing consolidator. The Commission does not 
believe that competing consolidators should be prohibited from linking 
their pricing of consolidated market data products to other areas of 
their business.\1047\ The Commission believes that the transparency 
resulting from the disclosures provided on Form CC will facilitate 
competition across similar products and/or services and help to protect 
market participants from unfair and unreasonable pricing.
---------------------------------------------------------------------------

    \1047\ In this regard, concerns regarding linked pricing or 
conditioning availability could exist in the context of a competing 
consolidator affiliated with a registered broker-dealer that offers 
execution services to broker-dealer clients. For example, if the 
registered broker-dealer linked the pricing for, or conditioned the 
availability of the services of an affiliated competing consolidator 
to, the execution services offered by the registered broker-dealer 
to a broker-dealer client, and the registered broker-dealer was an 
execution venue included on the broker-dealer client's report 
required by Rule 606(a) of Regulation NMS, the material aspects of 
such an arrangement must be disclosed by the broker-dealer client 
pursuant to Rule 606(a)(1)(iv) of Regulation NMS. See also 
Securities Exchange Act Release No. 84528, 83 FR 58338, 58376 n. 397 
and accompanying text. In addition, in such a scenario, the broker-
dealer client of the registered broker-dealer with an affiliated 
competing consolidator would continue to be obligated to seek the 
best execution for its customers' orders. See supra Section I.E.
---------------------------------------------------------------------------

    Further, the Commission asked whether Form CC should require any 
additional information or whether any proposed items should be removed. 
One commenter responded that the NBBO should not be interfered with or 
influenced by competing consolidators ``with ties to foreign government 
officials'' and that Form CC should have disclosure of any such 
ties.\1048\ Form CC requires specific information about the owners and 
operators of a competing consolidator. If a ``foreign government 
official'' were an owner of 10 percent or more of a competing 
consolidator's stock or directly or indirectly controls the management 
of policies of the competing consolidator, such person would have to be 
identified in Exhibit A to Form CC. If a ``foreign government 
official'' were an officer, director, governor, or other person 
performing similar functions for a competing consolidator, such person 
would have to be identified in Exhibit B to Form CC. These exhibits 
would provide disclosure of such ties. Further, as discussed above, all 
competing consolidators will be required to calculate the NBBO as set 
forth in Rule 600(b)(50).\1049\ Competing consolidators could not 
calculate a NBBO in another manner. All competing consolidators will be 
regulated entities subject to inspection by Commission staff, which 
should deter the development of inaccurate NBBOs.
---------------------------------------------------------------------------

    \1048\ Data Boiler Letter I at 4.
    \1049\ See supra Section III.B.10.
---------------------------------------------------------------------------

    This commenter also suggested a requirement that ``all procedures'' 
in the section on Operational Capability should exclude proprietary 
techniques of a competing consolidator.\1050\ Exhibit E to Form CC 
requires a narrative description of each consolidated market data 
service or function, including connectivity and delivery options for 
subscribers and a description of all procedures utilized for the 
collection, processing, distribution, publication, and retention of 
information with respect to quotations for and transactions in 
securities. The information provided in Form CC relating to operational 
capability should contain information that will allow market 
participants to evaluate potential competing consolidators. It does not 
require the public disclosure of proprietary information.
---------------------------------------------------------------------------

    \1050\ Data Boiler Letter I at 55.
---------------------------------------------------------------------------

    The Commission is adopting Form CC substantially as proposed, with 
modifications to provide for the reporting of systems disruptions or 
intrusions, as required under Rule 614(d)(9).\1051\ Form CC, as 
adopted, will include new Section VI, which will require a competing 
consolidator to promptly report whether a systems disruption or 
intrusion (or both) has occurred, and to provide information regarding 
the time and duration of the event, the date and time when the 
competing consolidator had a reasonable basis to conclude that a 
systems disruption/intrusion had occurred, whether and when the event 
had been resolved, whether and when the investigation had been closed, 
and the name of the system(s) involved. The revised Form CC also 
requires the competing consolidator to attach as Exhibit J all other 
information regarding the systems disruption or intrusion as required 
by Rule 614(d)(9)(iii) (including a detailed description, an assessment 
of those systems potentially affected, a description of the progress of 
corrective action, and when the event has been or is expected to be 
resolved). As discussed further below, Rule 614(d)(9) requires a 
competing consolidator that is not required to comply with Regulation 
SCI to publicly disseminate certain information regarding systems 
disruptions and notify the Commission of systems disruptions and 
systems intrusions.\1052\ Exhibit J to Form CC would be publicly 
available, although Form CC provides for a competing consolidator to 
request confidential treatment for information relating to a systems 
intrusion.
---------------------------------------------------------------------------

    \1051\ See infra Section III.F.
    \1052\ See infra Section III.F and text accompanying notes 1302-
1312.
---------------------------------------------------------------------------

    In addition, Form CC, as adopted, has been modified to accommodate 
filing by competing consolidators that are affiliated with an 
exchange.\1053\ Section II of Form CC requires a competing consolidator 
to report whether it is affiliated with an exchange. Section III of 
Form CC specifies Form 1 exhibits related to the ownership and 
leadership of an exchange that may be provided by an exchange-
affiliated competing consolidator in lieu of filing Exhibits A and B of 
Form CC. Specifically, Section III states that a competing consolidator 
that is affiliated with an exchange may provide Exhibit K of Form 1 
relating to owners, shareholders, or partners that are not also members 
of the exchange in lieu of Exhibit A of Form CC, and Exhibit J of Form 
1 relating to officers, governors, members of all standing committees, 
or persons performing similar functions in lieu of Exhibit B of Form 
CC. If the competing consolidator chooses not to file Exhibits A and B 
of Form CC or Exhibits J and K of Form 1, it must certify that the 
information requested under Exhibits A and B of Form CC is available on 
an internet website and provide the URL. The Commission believes that 
permitting the filing of Exhibit J and K of Form 1 would lessen the 
burden of registration for an exchange-affiliated competing 
consolidator since this information has already been prepared and 
reported to the Commission with the affiliated exchange's Form 1.
---------------------------------------------------------------------------

    \1053\ See supra Section III.C.7(a)(iv).
---------------------------------------------------------------------------

(iii) Comments on Fees Charged by Competing Consolidators
    Under Form CC, competing consolidators are required to disclose the 
fees they charge to their subscribers for the consolidated market data 
product services. The Commission received several comments on the fees 
competing consolidators would charge for their consolidated market data 
products.\1054\ One commenter said that it is unclear how competing 
consolidators will price their data and whether such prices will be 
``reliable, resilient or well-regulated.'' \1055\ One commenter stated 
that the Commission should treat competing consolidator fees similar to 
SRO proposed fee changes and should publish on its website each 
amendment to a competing

[[Page 18676]]

consolidator's fees no later than 30 days after the amendment was 
filed.\1056\ Another commenter suggested requiring competing 
consolidator price transparency for investors.\1057\
---------------------------------------------------------------------------

    \1054\ See Clearpool Letter at 4; ACS Execution Services Letter 
at 5, 6; RBC Letter at 6; TechNet Letter II at 1-2.
    \1055\ TechNet Letter II at 1-2.
    \1056\ See Clearpool Letter at 4. See also ACS Execution 
Services Letter at 5 (stating that requiring competing consolidator 
fees to be subject to Commission approval would potentially reduce 
uncertainty about the cost of consolidated market data).
    \1057\ See RBC Letter at 6.
---------------------------------------------------------------------------

    Fees set by competing consolidators for the consolidated market 
data services they offer will be transparent as they must be disclosed 
on Exhibit G of Form CC. The Commission expects that competing 
consolidator fees will reflect the services they provide relating to 
consolidated market data products, such as collecting, consolidating, 
generating, and disseminating the products that contain the data 
underlying consolidated market data. The Commission, however, is not 
implementing an approval process for competing consolidator fees. 
Competing consolidators are not SROs and therefore not subject to 
Section 19(b) of the Exchange Act with respect to their services or 
fees. The Commission believes that competition, along with disclosure, 
should be sufficient to establish a fee structure based on market 
forces. On the other hand, the fees for the data content underlying 
consolidated market data must be proposed by the effective national 
market system plan(s) and are required to be submitted to the 
Commission pursuant to Rule 608.\1058\ These fees will be published for 
public comment and will not become effective until the Commission 
approves them by order.\1059\
---------------------------------------------------------------------------

    \1058\ See infra Section III.E.
    \1059\ See Effective-Upon-Filing Adopting Release, supra note 
17.
---------------------------------------------------------------------------

D. Self-Aggregators

1. Proposal
    The Commission proposed to amend Regulation NMS to permit broker-
dealers to ``self-aggregate'' consolidated market data under the 
decentralized consolidation model. Under proposed Rule 600(b)(83), a 
self-aggregator was defined as ``a broker or dealer that receives 
information with respect to quotations for and transactions in NMS 
stocks, including all data necessary to generate consolidated market 
data, and generates consolidated market data solely for internal use. A 
self-aggregator may not make consolidated market data, or any subset of 
consolidated market data, available to any other person.''
    Under proposed Rule 603(b), the SROs would make available to self-
aggregators the data necessary to generate proposed consolidated market 
data in the same manner and using same methods, including all methods 
of access and the same format, as other persons, including competing 
consolidators.\1060\ A self-aggregator that limits its use of SRO data 
to the creation of proposed consolidated market data would be charged 
only for proposed consolidated market data pursuant to the fee 
schedules set forth by the effective national market system 
plan(s).\1061\ A self-aggregator that uses an exchange's proprietary 
data (e.g., full depth of book data) would be charged separately for 
the proprietary data use pursuant to the individual exchange's fee 
schedule.\1062\
---------------------------------------------------------------------------

    \1060\ See supra Section III.B.9.
    \1061\ See infra Section III.E. for a discussion of the 
effective national market system plan(s).
    \1062\ SRO fees for market data other than the proposed 
consolidated market data would be subject to the rule filing process 
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    For the reasons discussed below, the Commission is revising the 
definition of self-aggregator. Adopted Rule 600(b)(83) defines a self-
aggregator as a broker or dealer, national securities exchange, 
national securities association, or investment adviser registered with 
the Commission that receives information with respect to quotations for 
and transactions in NMS stocks, including all data necessary to 
generate consolidated market data, and generates consolidated market 
data solely for internal use. A self-aggregator may make consolidated 
market data available to its affiliates that are registered with the 
Commission for their internal use. Except as provided in the preceding 
sentence, a self-aggregator may not disseminate or otherwise make 
available consolidated market data, or components of consolidated 
market data, as provided in Sec.  242.600(b)(20), to any person.
(a) Scope of the Definition of Self-Aggregator
(i) National Securities Exchanges and National Securities Associations
    The Commission requested comment on several questions relating to 
self-aggregators, including whether entities other than broker-dealers 
should be allowed to act as self-aggregators.\1063\ One commenter 
argued that exchanges should be permitted to act as self-aggregators of 
consolidated market data because they use data to aid in matching 
trades or routing orders to other markets through their affiliated 
routing brokers.\1064\ Another commenter stated that exchanges must 
receive and process data to comply with Regulation NMS and that 
allowing exchanges to act as self-aggregators would provide exchanges 
with flexibility to use NMS data made available by the SROs or exchange 
proprietary data products.\1065\
---------------------------------------------------------------------------

    \1063\ See Proposing Release, 85 FR at 16791.
    \1064\ See IEX Letter at 9. See also NYSE Letter II at 18 
(stating that the Commission had not explained why SROs would not be 
permitted to continue to consolidate data obtained directly from 
other SROs).
    \1065\ See MEMX Letter at 7.
---------------------------------------------------------------------------

    The national securities exchanges are SROs registered with and 
overseen by the Commission. The national securities exchanges currently 
aggregate market data obtained from the exclusive SIPs and from 
proprietary data feeds to perform several exchange functions, including 
order handling and execution, order routing, and regulatory 
compliance.\1066\ Among other things, exchanges must determine 
protected quotations on other markets for purposes of complying with 
order protection requirements of Rule 611 and the locked and crossed 
markets prohibition in Rule 610(d), including identifying where to 
route intermarket sweep orders.\1067\ Exchanges also must know the NBBO 
for purposes of order types that are priced based on the NBBO, and must 
determine the NBB for purposes of complying with Rule 201 of Regulation 
SHO. To help exchanges perform these functions, the Commission believes 
that national securities exchanges should be permitted to act as self-
aggregators. As self-aggregators, national securities

[[Page 18677]]

exchanges will have the flexibility to determine the optimal means for 
obtaining the market data they require to fulfill their regulatory 
obligations.
---------------------------------------------------------------------------

    \1066\ See, e.g., Securities Exchange Act Release Nos. 72685 
(July 28, 2014), 79 FR 44889 (Aug. 1, 2014) (notice of filing and 
immediate effectiveness of File No. SR-BATS-2014-082); 72687 (July 
28, 2014), 79 FR 44926 (Aug. 1, 2014) (notice of filing and 
immediate effectiveness of BYX-2014-012); 72684 (July 28, 2014), 79 
FR 44956 (Aug. 1, 2014) (notice of filing and immediate 
effectiveness of File No. SR-NASDAQ-2014-072); and 72708 (July 29, 
2014), 79 FR 45572 (Aug. 5, 2014) (notice of filing and immediate 
effectiveness of File No. SR-NYSEArca-2014-82). See also IEX Rule 
Series 11.400.
    \1067\ An intermarket sweep order is a limit order for an NMS 
stock that meets the following requirements: (i) When routed to a 
trading center, the limit order is identified as an intermarket 
sweep order; and (ii) Simultaneously with the routing of the limit 
order identified as an intermarket sweep order, one or more 
additional limit orders, as necessary, are routed to execute against 
the full displayed size of any protected bid, in the case of a limit 
order to sell, or the full displayed size of any protected offer, in 
the case of a limit order to buy, for the NMS stock with a price 
that is superior to the limit price of the limit order identified as 
an intermarket sweep order. These additional routed orders also must 
be marked as intermarket sweep orders. See 17 CFR 242.600(b)(38) 
(Rule 600(b)(38)) of Regulation NMS.
---------------------------------------------------------------------------

    One commenter recommended that exchanges be permitted to act as 
self-aggregators for purposes of consolidated market data used to aid 
in matching trades or routing orders to other markets through their 
affiliated routing brokers.\1068\ The Commission believes that national 
securities exchanges may route orders to away markets, primarily 
through affiliated brokers that act as a facilities of the exchange and 
are subject to exchange rules.\1069\ Because a broker-dealer used by an 
exchange for order routing is a facility of the exchange, an exchange's 
use of consolidated market data to route orders through an affiliated 
broker-dealer generally would be an ``internal use'' of consolidated 
market data by the exchange. An exchange that routes orders using an 
unaffiliated broker-dealer would not provide that unaffiliated broker-
dealer with consolidated market data. The Commission understands that 
the exchange would either send the routing broker a directed order or 
would allow the broker to make the routing decision. In either case, 
the exchange would not provide the unaffiliated routing broker with 
consolidated market data for purposes of routing orders.
---------------------------------------------------------------------------

    \1068\ The commenter noted that routing broker-dealers do not 
aggregate data themselves but receive it from their affiliated 
exchanges. See IEX Letter at 9.
    \1069\ A broker-dealer that an exchange uses for outbound order 
routing generally is regulated as a facility of the exchange. See 
Securities Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 
69792, 69799 (Nov. 15, 2010) (stating that, in general, the outbound 
order routing service provided to exchanges by broker-dealers is 
regulated as a facility of the exchange).
---------------------------------------------------------------------------

    Like the national securities exchanges, FINRA is an SRO registered 
with and overseen by the Commission. FINRA requires market data to 
perform its regulatory oversight functions, including surveillance of 
the U.S. equity and options markets. The Commission believes that FINRA 
should have the same flexibility as the national securities exchanges 
to determine how it will obtain consolidated market data. Accordingly, 
the Commission is modifying the proposed definition of self-aggregator 
to include national securities associations as well as national 
securities exchanges.
(ii) Investment Advisers and Other Market Participants
    Some commenters argued that entities other than broker-dealers 
should be permitted to be self-aggregators.\1070\ One commenter, a 
proprietary trading firm, stated that because self-aggregated data 
would only be used internally, it did not appear to be necessary for a 
self-aggregator to be a broker-dealer.\1071\ The commenter further 
stated that ``the primary ability needed to act as a self-aggregator is 
technical skill, whereas the qualifications of a broker dealer are 
primarily financial, regulatory, and legal.'' \1072\ The commenter also 
suggested that permitting additional entities to act as self-
aggregators would help to promote competitive forces.\1073\ One 
commenter stated that preventing registered investment advisers and 
other non-broker-dealer direct consumers of market data from acting as 
self-aggregators would be as disruptive to the current market data 
infrastructure as preventing broker-dealers from self-aggregating 
market data for their own use.\1074\ This commenter further stated that 
many non-broker-dealer market participants currently subscribe directly 
to proprietary data feeds from exchanges to facilitate their trading 
activity and reduce latency.\1075\
---------------------------------------------------------------------------

    \1070\ See, e.g., MFA Letter; AHSAT Letter.
    \1071\ See AHSAT Letter at 3.
    \1072\ Id.
    \1073\ See id. See also IEX Letter at 9 (stating that the 
ability of broker-dealers to self-aggregate will spur innovation by 
competing consolidators, which will be motivated to differentiate 
their services and deliver market data as efficiently as possible).
    \1074\ See MFA Letter at 3-4.
    \1075\ See id. at 4.
---------------------------------------------------------------------------

    Market participants that currently self-aggregate consolidated 
market data using the exchanges' proprietary data feeds will be able to 
continue to do so under the adopted rules. Broker-dealers were not 
proposed to be permitted to act as self-aggregators because of their 
technical ability to consolidate market data but because of the 
important functions they perform in the national market system. Broker-
dealers are the only entities that can be members and direct customers 
of exchanges. Broker-dealers execute customer orders and are subject to 
specific requirements under Regulation NMS related to the routing and 
execution of orders in the national market system, including Rules 611 
and 610(d). In addition, broker-dealers are subject to the duty of best 
execution, which requires a broker-dealer to seek to obtain the most 
favorable terms available under the circumstances for its customer 
orders.\1076\ Broker-dealers also are subject to FINRA rules requiring 
them to use reasonable diligence to ascertain the best market for a 
security and to buy or sell in that market so that the resultant price 
to the customer is as favorable as possible under prevailing market 
conditions.\1077\ Broker-dealers use consolidated market data to 
fulfill these regulatory obligations, and allowing broker-dealers to 
act as self-aggregators could assist them in fulfilling these 
obligations.
---------------------------------------------------------------------------

    \1076\ See Securities Exchange Act Release No. 51808 (June 5, 
2005), 70 FR 37496, 37537-38. See also Securities Exchange Act 
Release No. 37619A (Sept. 6, 1996), 61 FR 48290 (Sept. 12, 1996); 
supra Section I.E.
    \1077\ See FINRA Rule 5310, ``Best Execution and 
Interpositioning.''
---------------------------------------------------------------------------

    With respect to the commenter's assertion that allowing additional 
non-registered entities to act as self-aggregators would promote 
competitive forces, the Commission believes that the presence of 
competing consolidators will foster a competitive environment for 
consolidated market data. However, the Commission believes that certain 
non-broker-dealers should also be permitted to act as self-aggregators, 
including RIAs and, as discussed above, SROs. Today, some RIAs may 
aggregate consolidated market data to facilitate their electronic 
trading systems or strategies. The Commission believes that RIAs, which 
are subject to Commission oversight and examination, should continue to 
be allowed to act as self-aggregators to enable them to continue to 
consolidate data for their trading strategies if they so choose.\1078\
---------------------------------------------------------------------------

    \1078\ In addition, RIAs are fiduciaries to their advisory 
clients, with a fundamental obligation to act in the best interests 
of their clients and to provide investment advice in their clients' 
best interests. RIAs also must seek to obtain the best price and 
execution for the securities transactions of their advisory clients.
---------------------------------------------------------------------------

(iii) Self-Aggregators and Market Data Vendors
    The Proposing Release stated that ``[a] vendor providing hardware, 
software, and/or other services for the purposes of self-aggregation 
would not be a competing consolidator unless it collected and 
aggregated proposed consolidated market data in a standardized format 
within its own facility (e.g., not that of a broker-dealer customer) 
and resold that configuration of proposed consolidated market data to a 
customer.'' \1079\ One commenter stated that the definition of self-
aggregator could be flawed.\1080\ The commenter asked whether 
aggregating consolidated market data in a public cloud would be a self-
aggregator's own facility, what constituted a standard format, and 
whether reselling a variated version of consolidated market data would 
be permitted.\1081\ The commenter suggested that competing 
consolidators might not be able to earn a reasonable return on their 
investment and that the proposal was unfair to competing

[[Page 18678]]

consolidators and biased towards self-aggregators.\1082\ The commenter 
also questioned whether market data vendors would be self-aggregators 
and urged the Commission to respect the commercial autonomy of private 
data vendors.\1083\
---------------------------------------------------------------------------

    \1079\ Proposing Release, 85 FR at 16790.
    \1080\ See Data Boiler Letter I at 59.
    \1081\ See id.
    \1082\ See id.
    \1083\ See id. at 60.
---------------------------------------------------------------------------

    Under Rule 600(b)(83), as adopted, a self-aggregator may use 
consolidated market data solely for its internal use. A market data 
vendor could not be a self-aggregator because its function is to 
disseminate data to its subscribers.\1084\ With respect to the 
commenter's question regarding the sale of a variated version of 
consolidated market data, as discussed in the Proposing Release, a 
self-aggregator that redistributed or re-disseminated consolidated 
market data, or any subset of proposed consolidated market data, would 
be performing the functions of a competing consolidator and would be 
required to register as a competing consolidator.\1085\ With respect to 
the commenter's question regarding whether a vendor aggregating 
consolidated market data in a public cloud would be using its own 
facility, the Commission believes it would to the extent the vendor is 
contracting for its own use of the public cloud, but not if the vendor 
is contracting on behalf of individual self-aggregator customers. 
However, the determination of whether a vendor is facilitating its 
customer's self-aggregation or is acting as a competing consolidator 
will depend on an assessment of the individual facts and circumstances 
of its business and its arrangements with its customers. In this 
regard, the Commission believes that a key factor in this determination 
will be the degree of customization in the product or service that the 
vendor provides because a highly customized product or service would 
suggest that the vendor is fulfilling the highly specialized and 
specific needs of its client. Thus, a vendor that provides meaningfully 
customized products or services to its customers likely would be 
facilitating its customer's self-aggregation and not acting as a 
competing consolidator.\1086\ A vendor that provides a standardized 
consolidated market data product to its customers, however, likely 
would be acting as a competing consolidator. With respect to the 
comment regarding a competing consolidator's ability to make a return 
on its investment, the viability of the decentralized model is 
discussed in Section III.B.3, supra.
---------------------------------------------------------------------------

    \1084\ See also supra Section III.C.7(a)(iii) for a discussion 
of data vendors and competing consolidator registration.
    \1085\ See Proposing Release, 85 FR at 16790.
    \1086\ See Proposing Release, 85 FR at 16790.
---------------------------------------------------------------------------

(b) Permitted Uses of Self-Aggregated Data
(i) Sharing Consolidated Market Data With Affiliates
    The Commission requested comment on whether the restriction 
preventing self-aggregators from providing consolidated market data or 
a subset thereof to customers or affiliates reflected a significant 
departure from current practices.\1087\ One commenter stated that 
broker-dealers that self-aggregate typically share consolidated market 
data with affiliates,\1088\ and another stated that requiring self-
aggregators either to register as competing consolidators or to 
maintain separate and redundant market data sets for each affiliated 
entity could be costly and disruptive.\1089\ Some commenters 
recommended that the Commission allow self-aggregators to share market 
data with affiliated entities to avoid significant changes to how firms 
currently consume and manage data.\1090\ One commenter stated that the 
proposal would raise costs for firms affiliated with a self-
aggregator,\1091\ and another stated that requiring each affiliated 
entity to aggregate and build its own market data systems would be a 
needless drain of resources.\1092\ This commenter further stated that 
self-aggregators should be permitted to share self-aggregated data with 
their affiliates because a market maker should be able to know when 
facilitating interest for an agency affiliate that its view of the 
quoted market is consistent with that of the affiliate.\1093\ Another 
commenter suggested that the Commission allow self-aggregators to use 
consolidated market data in handling and routing orders on behalf of 
the broker-dealer's customers, including in cases where customer 
business is conducted through an affiliate, without being required to 
pay separate fees for that purpose.\1094\ However, one commenter stated 
that permitting a self-aggregator to disseminate consolidated market 
data to its affiliates would allow the self-aggregator to perform the 
function of a competing consolidator without the burdens of being a 
competing consolidator.\1095\
---------------------------------------------------------------------------

    \1087\ See id. at 16791.
    \1088\ See SIFMA Letter at 12.
    \1089\ See FIA-PTG Letter at 1-2. See also SIFMA Letter at 12 
(broker-dealers should be able to continue their established 
practice of sharing consolidated market data with affiliated 
entities rather than being required to register as competing 
consolidators or to develop and maintain redundant consolidated data 
sets for each affiliate user within the organization); Susquehanna 
Letter at 5 (precluding self-aggregating broker-dealers from sharing 
market data with affiliates would be a ``significant departure from 
current practices'' and ``unnecessarily disruptive to the current 
market data infrastructure landscape'').
    \1090\ See SIFMA Letter at 12. See also STANY Letter II at 7 
(stating that self-aggregators should include broker-dealer 
affiliated organizations to avoid significant changes to how firms 
currently consume and manage data).
    \1091\ See MFA Letter at 5.
    \1092\ See Susquehanna Letter at 5. In addition, the commenter 
argued that ``self-aggregator organizations should not be faced with 
the disruptive and needlessly costly and burdensome choice of (1) 
developing and maintaining redundant consolidated data sets for each 
respective user within the organization, (2) registering as a CC and 
assum[ing] the related obligations and liabilities even though it 
never wanted to be in that business, or (3) subscribing to the 
outside services of registered CCs (again on a redundant basis for 
each entity within the organization), whose quality and/or cost 
efficiency may be less, and over whom such organization would have 
less control to customize or improve services, or to remediate 
problems.'' Id. at 6.
    \1093\ See Susquehanna Letter at 4.
    \1094\ See IEX Letter at 9. One commenter expressed the view 
that sharing consolidated market data within a single affiliated 
entity organization, under common beneficial ownership and senior 
hierarchical management, is not performing the functions of a 
competing consolidator because the consolidated market data is not 
intended for public dissemination in connection with commercial 
competition of exchange data feeds. See Susquehanna Letter at 5-6.
    \1095\ See Data Boiler Letter I at 60.
---------------------------------------------------------------------------

    The Commission believes that self-aggregators should be permitted, 
as an internal use, to make consolidated market data available to their 
affiliates that are registered with the Commission. A broker-dealer or 
RIA that is affiliated with a self-aggregator may require consolidated 
market data to fulfill its regulatory obligations, as described above. 
In addition, as noted above, the Commission has the authority to 
examine the registered affiliated entities of a self-aggregator and 
would be able to determine how the self-aggregator provides 
consolidated market data to a registered affiliate and how the 
registered affiliate uses that data. Therefore, a self-aggregator will 
be permitted to share consolidated market data only with affiliates 
that are registered with the Commission.
    An affiliate of a self-aggregator that is not registered with the 
Commission, however, may not have the same regulatory obligations as 
registered entities,\1096\ and the Commission does not have the 
authority to examine a self-aggregator's unregistered affiliates. In

[[Page 18679]]

addition, as discussed above, the Commission believes the widespread 
dissemination of consolidated market data must be subject to Commission 
oversight and, accordingly, must be performed by competing 
consolidators. Competing consolidators will be subject to the 
registration, disclosure, and other regulatory requirements in Rule 614 
and Form CC.\1097\
---------------------------------------------------------------------------

    \1096\ For example, broker-dealers execute customer orders and 
must comply with Regulation NMS related to the routing and execution 
of orders in the national market system, including Rules 611 and 
610(d). In addition, broker-dealers are subject to the duty of best 
execution. RIAs and SROs also have regulatory obligations, as 
discussed above in Sections III.D.2(a)(ii) and III.D.2(a)(i), 
respectively.
    \1097\ See supra Section III.C.7(a)(iv).
---------------------------------------------------------------------------

(ii) Sharing Consolidated Market Data With Customers
    Several commenters stated that broker-dealers that self-aggregate 
should be permitted to display their self-aggregated data to their 
customers without registering as a competing consolidator or becoming a 
Regulation SCI entity.\1098\ One commenter stated that if brokers are 
not permitted to share consolidated market data with their customers, 
proprietary traders and high frequency firms would add to their 
significant data cost advantage over retail investors and the two-
tiered data system would be preserved.\1099\ The commenter further 
stated that the Commission should allow self-aggregators to display 
consolidated market data to their customers to encourage competition 
among the competing consolidators, enable retail investor access to 
data with the least amount of latency without additional cost, and 
allow broker-dealers to share with their customers the same view of the 
same core data.\1100\ Another commenter stated that registered broker-
dealers should be allowed to share self-aggregated consolidated market 
data with their brokerage clients without registering as competing 
consolidators, noting that the benefits of Regulation SCI compliance 
are ``inherent in the registered broker-dealer regulatory regime for 
continuity of operations and display of the data.'' \1101\
---------------------------------------------------------------------------

    \1098\ See SIFMA Letter at 12 (stating that broker-dealers that 
self-aggregate should be permitted to display their data to their 
customers, subject to the requirements of the Vendor Display Rule, 
without being required to register as a competing consolidator or 
Regulation SCI entity); TD Ameritrade Letter at 12 (stating that 
registered broker-dealers should be allowed to use self-aggregated 
consolidated market data for display to their brokerage clients, 
without further sale or redistribution to unaffiliated third 
parties; the proposal would require a broker-dealer self-aggregator 
that wishes to provide its self-aggregated data to its clients to 
invest time and resources into becoming a competing consolidator 
compliant with Regulation SCI requirements, or to buy consolidated 
market data from competing consolidators for display purposes); 
Schwab Letter at 2, 6-7 (stating that self-aggregators should be 
allowed to share consolidated data with their customers on a not-
for-profit and non-redistribution basis, but not with external 
parties, and should not be required to comply with Regulation SCI 
because they are not holding themselves out as a ``public 
utility'').
    \1099\ See Schwab Letter at 7. See also TD Ameritrade Letter at 
11-12 (stating that the internal-use limitation on self-aggregated 
data could disadvantage retail investors because a broker-dealer 
would be compelled to purchase consolidated data from a competing 
consolidator, and those able to pay the competing consolidator for 
faster speeds could ``get to the market'' more quickly).
    \1100\ See Schwab Letter at 6.
    \1101\ TD Ameritrade Letter at 12. The commenter noted that 
broker-dealers are subject to FINRA Rule 4370 (establishing 
requirements for designing business continuity plans which require 
data backup and recovery, mission critical systems, and alternate 
location requirements, among others) and FINRA Rule 4380 (requiring 
mandatory participation in FINRA business continuity and disaster 
recovery (``BC/DR'') Testing under Regulation SCI if determined 
necessary by FINRA). See id. at n. 36.
---------------------------------------------------------------------------

    Under the amendments, self-aggregators will not be permitted to 
disseminate or otherwise share or make available consolidated market 
data to any persons, including their customers or clients.\1102\ The 
dissemination of consolidated market data entails a different process 
from self-aggregating consolidated market data for internal uses (e.g., 
for order handling, routing, and execution). Self-aggregators are not 
subject to the regulatory regime established for competing 
consolidators, which is designed to ensure that consolidated market 
data is reliable, resilient, and accurate. The Commission believes that 
entities that deliver consolidated market data to third parties should 
be subject to such standards.\1103\
---------------------------------------------------------------------------

    \1102\ The Commission has revised the definition of self-
aggregator to further clarify that a self-aggregator may not 
disseminate or otherwise make available consolidated market data, or 
components of consolidated market data, as provided in Sec.  
242.600(b)(20), to any person other than an affiliate that is 
registered with the Commission.
    \1103\ Competing consolidators will be registered with the 
Commission and will be subject to systems integrity and operational 
capability standards that will help to ensure the accuracy and 
availability of the consolidated market data that they produce. See 
infra Section III.F. Competing consolidators also will have certain 
responsibilities and obligations, including obligations to disclose 
publicly operational information and performance metrics, which will 
help to ensure transparency, accountability, and oversight, and 
obligations to ensure the integrity, quality, and resiliency of 
consolidated market data. See supra Section III.C.8. Self-
aggregators, by contrast, will not be subject to similar 
requirements in the collection, consolidation, or generation of 
consolidated market data because they will not disseminate 
consolidated market data or otherwise make consolidated market data 
available to persons other than affiliates registered with the 
Commission.
---------------------------------------------------------------------------

    The Commission believes that investors and other non-registered 
entities should receive consolidated market data from entities that are 
subject to a regulatory regime that is designed to ensure the data they 
receive is reliable, resilient, and accurate and that they are able to 
assess such reliability, resiliency, and accuracy on an ongoing basis. 
Self-aggregators are not subject to such standards or requirements and 
therefore will not be permitted to disseminate or otherwise make 
available self-aggregated consolidated market data with customers, 
clients, or non-registered affiliates.
(c) Self-Aggregators and Market Data Fees
    One commenter stated that exchanges seeking the business of self-
aggregators might offer ``enterprise license'' pricing packages that 
would allow a firm and all of its affiliates to receive proprietary 
data for one price, effectively allowing the self-aggregator to share 
data with its affiliates.\1104\ An exchange seeking to establish 
``enterprise license'' pricing packages for proprietary data would be 
required to file those proposed fees with the Commission pursuant to 
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, and such 
fees must satisfy the statutory standards of being an equitable 
allocation of reasonable fees, dues, and other charges,\1105\ not being 
unfairly discriminatory,\1106\ and not an undue burden on 
competition.\1107\
---------------------------------------------------------------------------

    \1104\ Nasdaq Letter IV at 57, n. 80.
    \1105\ Section 6(b)(4) of the Exchange Act.
    \1106\ Section 6(b)(5) of the Exchange Act. See also Rule 603 of 
Regulation NMS.
    \1107\ Section 6(b)(8) of the Exchange Act.
---------------------------------------------------------------------------

(d) Two-Tiered Market and Potential Advantages of Self-Aggregators
    The Commission requested comment on the potential latency advantage 
of self-aggregators.\1108\ One commenter stated that self-aggregators' 
latency advantage would not be material.\1109\ In contrast, another 
commenter stated that the latency advantage would not be minor, given 
the time increments currently used in the market and the likelihood of 
finer increments over time.\1110\ The commenter questioned whether the 
Commission had considered eliminating the self-aggregator category and 
requiring all market participants to receive data from one or more 
competing consolidators, or requiring SROs to delay the provision of 
data to match the latencies introduced by competing 
consolidators.\1111\ One

[[Page 18680]]

commenter stated that, because of ``the additional inherent latency in 
third-party aggregation,'' it is unlikely that broker-dealer algorithms 
would be competitive without self-aggregation.\1112\ Another commenter 
stated that the proposal would create a tiered market in which broker-
dealers have systematically better and more timely access to market 
data than registered investment advisers and noted that self-
aggregators would have both a speed and potential cost advantage over 
those who receive consolidated market data from competing 
consolidators.\1113\ Other commenters similarly argued that the 
proposal would create a two-tiered market data system comprising self-
aggregators and those who receive data from competing 
consolidators.\1114\
---------------------------------------------------------------------------

    \1108\ See Proposing Release, 85 FR at 16791.
    \1109\ See Clearpool Letter at 10.
    \1110\ See FINRA Letter at 8. See also Data Boiler Letter I at 
59 (stating that the latency advantage would be material).
    \1111\ See FINRA Letter at 8-9. See also Angel Letter at 8 
(suggesting that the Commission embargo the exchanges from releasing 
any data until the consolidators have had sufficient time to process 
the data to create a more level playing field); Healthy Markets 
Letter at 3 (suggesting that the Commission remove the latency 
advantage of exchange proprietary data feeds by requiring all market 
participants to receive data from SIP distributors).
    \1112\ See NBIM Letter at 4.
    \1113\ The commenter stated that self-aggregators would be able 
to receive the data necessary to generate consolidated market data 
at the price established by the effective national market system 
plan(s), while market participants that receive consolidated market 
data from competing consolidators might have to pay a premium over 
that amount to compensate the competing consolidator for its 
services. See MFA Letter at 4.
    \1114\ See, e.g., FINRA Letter at 8; NYSE Letter II at 23 
(stating that the proposal would continue the two-tiered structure, 
with participants that can afford to act as self-aggregators able to 
obtain and use that data faster than those relying on competing 
consolidators); STANY Letter II at 6 (stating that the proposal 
would replace the existing two-tiered structure between SIPs and 
proprietary data feeds with, at minimum, a different two-tiered 
structure between self-aggregators and competing consolidators); 
Nasdaq Letter IV at 3 (stating that self-aggregation would add 
market-wide disparities in terms of data content and speed).
---------------------------------------------------------------------------

    The Commission acknowledges that, unlike self-aggregators, 
competing consolidators would need to transmit consolidated market data 
to their customers, but does not believe that this would lead to the 
development of a two-tiered market. Latency sensitive customers of 
competing consolidators are likely to be co-located in the same data 
centers as their competing consolidators, so the transmission time 
between the servers of the competing consolidator and its customer will 
be exceedingly small. In many cases, self-aggregators may be located in 
the same data centers, and the potential latency differential between a 
self-aggregator and competing consolidator resulting from the extra hop 
that competing consolidators add to the process of data consolidation 
and dissemination could amount only to the period of time it takes to 
send a message from one server (i.e., a competing consolidator's 
server) that is located in close proximity to another server (i.e., a 
subscriber's server) and connected via a cross connect.
    The Commission expects that market participants that elect to 
aggregate consolidated market data, whether competing consolidators or 
self-aggregators, will innovate and compete aggressively on the 
efficiency and cost-effectiveness of their aggregation technologies. 
The Commission believes that the development and implementation of the 
technology to collect, consolidate, and generate consolidated market 
data will create opportunities for latency efficiencies that are of 
substantially greater magnitude than the transmission time between the 
server of a competing consolidator and its customer. Competing 
consolidators, for example, may benefit from economies of scale that 
allow them to offer a very low-latency product more cost effectively 
that an individual self-aggregator. In some cases, a competing 
consolidator may have a latency or cost advantage, and in others a 
self-aggregator may have such advantages.\1115\ Competition may also 
impact the efficiency of choices.\1116\ Therefore, the Commission does 
not believe that self-aggregators would necessarily have a systematic 
latency advantage over customers of competing consolidators.
---------------------------------------------------------------------------

    \1115\ Self-aggregators could have a cost advantage over market 
participants that receive consolidated market data from a competing 
consolidator because self-aggregators will not be required to 
compensate a competing consolidator for its services. At the same 
time, a self-aggregator will need to have the systems capability to 
collect, consolidate, and generate consolidated market data, and it 
may use a vendor to establish connectivity to an SRO or to perform 
aggregation or other functions necessary for generating consolidated 
market data. As a result, any potential cost advantage of a self-
aggregator over market participants that purchase consolidated 
market data from competing consolidators may not be significant.
    \1116\ See infra Section V.C.4(b).
---------------------------------------------------------------------------

(e) Fees Charged by Competing Consolidators
    One commenter recommended that the Commission implement a mechanism 
for it to review or abrogate fees charged by competing consolidators to 
ensure that consolidated market data is available on terms that are 
fair and reasonable (i.e., reasonably related to costs) if non-broker-
dealers are not permitted to act as self-aggregators.\1117\ As 
discussed above, competing consolidator fees will be disclosed on 
Exhibit G to Form CC. The Commission believes that competition among 
competing consolidators, along with disclosure, will help to ensure 
that the fees charged by competing consolidators are fair and 
reasonable. The fees for the data content underlying consolidated 
market data established by the Equity Data Plan(s) will be filed under 
Rule 608 and must comply with statutory standards.\1118\
---------------------------------------------------------------------------

    \1117\ See MFA Letter at 5.
    \1118\ See infra Section III.E.2(c).
---------------------------------------------------------------------------

E. Amendment to the Effective National Market System Plan(s) for NMS 
Stocks Under Rule 614(e)

    The effective national market system plan(s) for NMS stocks will 
continue to play an important but modified role in the provision of 
consolidated market data to market participants.\1119\ Today, the 
Equity Data Plans operate the exclusive SIPs and therefore, directly 
collect, consolidate, and disseminate SIP data. Under the decentralized 
consolidation model, the effective national market system plan(s) for 
NMS stocks will no longer operate the exclusive SIPs and therefore, 
will not be directly responsible for collecting, consolidating, and 
disseminating consolidated market data. The plan(s) will, however, 
continue to develop and oversee the national market system for 
consolidated market data.
---------------------------------------------------------------------------

    \1119\ See Governance Order, infra note 1128.
---------------------------------------------------------------------------

1. Proposal
    The Commission proposed Rule 614(e), to require the participants to 
the effective national market system plan(s) for NMS stocks to file an 
amendment to such plan(s) to reflect the decentralized consolidation 
model and the new role and functions of the plan(s). The Commission 
proposed several specific provisions to be included in the amendment, 
including (1) the proposed fees to be charged by the plan(s) for the 
data content underlying consolidated market data, (2) a requirement 
under the plan(s) for the application of timestamps by the SROs to the 
data content underlying consolidated market data, (3) a requirement 
under the plan for the completion of annual assessments by the plan 
participants of the performance of competing consolidators, and (4) a 
requirement for the development a list of the primary listing markets 
for each NMS stock. In addition, under proposed Rule 614(d)(5), the 
plan(s) would be required to develop the monthly performance metrics 
for competing consolidators. As proposed, the participants would be 
required to file this amendment pursuant to Rule 608 within 60 calendar 
days from the effective date of Rule 614.
2. Final Rule and Response to Comments
    The Commission continues to believe in the importance of the use of 
effective

[[Page 18681]]

national market system plan(s) in the planning, development, operation, 
and regulation of the national market system for the dissemination of 
consolidated market data. The Commission believes that joint 
consideration by the SROs and other market participants on the 
Operating Committee of such plan(s) will help to foster a consolidated 
market data national market system that is prompt, accurate, reliable, 
and fair and furthers the goal of helping to ensure that the 
consolidated market data remains useful to investors in the future.
    The Commission received several comments on proposed Rule 614(e) 
and the role of the effective national market system plan(s) in the 
decentralized consolidation model.\1120\ One commenter questioned the 
need for the effective national market system plan(s) saying that 
retention of the plan(s) was ``illogical'' as the SROs would no longer 
be responsible for jointly disseminating data.\1121\ This commenter 
described the current responsibility of the Operating Committees to 
include ``entering into agreements with the exclusive processors, 
overseeing the operation of the exclusive processors, establishing the 
fees for the consolidated data disseminated by the exclusive 
processors, and overseeing the functions of the Administrators, which 
manage the subscriber agreements, collect fees and distribute revenue 
to SROs.'' \1122\ Another commenter stated that the proposal would 
increase the power of the Operating Committee over the ``market for 
market data.'' \1123\
---------------------------------------------------------------------------

    \1120\ See NYSE Letter II; Nasdaq Letter IV; Better Markets 
Letter.
    \1121\ NYSE Letter II at 26.
    \1122\ Id. at 27.
    \1123\ Nasdaq Letter IV at 34. This commenter stated that the 
Operating Committee would set fees for ``the sale of any proprietary 
data products of the exchanges that provide any of the newly defined 
`core data.' '' Id. The Operating Committee will not be setting fees 
for proprietary data products. The Operating Committee will be 
required to develop the fees for data content underlying 
consolidated market data and subsets of consolidated market data. 
Subject to Section 19(b) of the Exchange Act and Rule 19b-4 
thereunder, each exchange would be responsible for establishing fees 
for its proprietary market data. While some proprietary DOB products 
may be provided by the exchanges to competing consolidators and 
self-aggregators for purposes of complying with Rule 603(b), the 
exchanges will have to develop fees for their proprietary data and 
the Operating Committee will have to develop the fees for the data 
content underlying consolidated market data. See also supra Section 
III.B.9(b).
---------------------------------------------------------------------------

    The Commission continues to believe that the SROs should have joint 
responsibilities and should continue to have an important role in 
developing, operating, and regulating the national market system for 
the dissemination of consolidated market data. Therefore, Rule 603(b) 
requires the SROs to act jointly pursuant to one or more effective 
national market system plans for the dissemination of consolidated 
market data. As noted, the plan(s) will be responsible for: (1) 
Developing the fees for the data content underlying consolidated market 
data; (2) the billing and the audit process; (3) establishing the 
multiple installations, single users (``MISU'') policy; \1124\ (4) 
allocating revenue to the SRO participants that is collected for the 
data content underlying consolidated market data; (5) considering 
additional regulatory, administrative, or self-regulatory organization-
specific program data elements that may be included as consolidated 
market data in the future; \1125\ (6) developing the list of primary 
listing exchanges; (7) developing the monthly performance metrics for 
competing consolidators; (8) assessing the operation of the 
decentralized consolidation model; and (9) developing an annual report 
that assesses competing consolidator performance for provision to the 
Commission. The Operating Committee is equipped under the plan(s) to 
develop the policies and rules necessary for developing, operating, and 
regulating the national market system for the dissemination of 
consolidated market data to market participants, subject to Commission 
oversight under Rule 608.
---------------------------------------------------------------------------

    \1124\ MISU policies seek to ensure that a single device fee is 
applied to a data user that receives consolidated market data on 
multiple display devices. See, e.g., CTA, CTA Multiple Installations 
for Single Users (MISU) Policy (Apr. 2016), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Policy%20-%20MISU%20with%20FAQ.pdf. MISU policies will need to be 
conformed in the decentralized consolidation model to reflect that 
consolidated market data users may seek to receive consolidated 
market data through more than one competing consolidator and/or 
access through multiple devices.
    \1125\ See 17 CFR 242.600(b)(19)(v) (Rule 600(b)(19)(v)).
---------------------------------------------------------------------------

    While the SROs may not be acting jointly in operating the exclusive 
SIPs, they will continue to act jointly in planning, developing, and 
regulating the national market system for the provision of consolidated 
market data. These are important responsibilities for the operation of 
the national market system and the Commission believes that the 
national market system plan structure continues to be an efficient and 
necessary mechanism. Section 11A(a)(3)(B) of the Exchange Act 
authorizes the Commission, by rule or order, to require the SROs to act 
jointly with respect to matters as to which they share authority in 
planning, developing, operating, or regulating a national market system 
(or subsystem thereof) or one or more facilities thereof to facilitate 
the establishment of a national market system.
    Rule 614(e) requires the effective national market system plan(s) 
to file an amendment to conform the plan(s) to the decentralized 
consolidation model, including several specified provisions.\1126\ The 
Commission is extending the date of the filing for the participants to 
the effective national market system plan(s) to file the amendment to 
the plan from within 60 calendar days to within 150 calendar days, 
after the effectiveness of Rule 614. The additional time will allow the 
Operating Committee of the existing Equity Data Plans or of the New 
Consolidated Data Plan (if it has replaced the existing plans) to 
develop and file the plan amendment.
---------------------------------------------------------------------------

    \1126\ The amendment required by Rule 614(e) does not require 
the plan(s) to include provisions to decommission the exclusive 
SIPs. The exclusive SIPs will continue to collect, consolidate and 
disseminate SIP data through the transition period. See infra 
Section III.H.
---------------------------------------------------------------------------

    The Commission is adopting Rule 614(e) substantially as proposed 
with modifications to account for the establishment of a Regulation SCI 
competing consolidator threshold, which is discussed below,\1127\ to 
require the SROs to apply time stamps to the data content underlying 
consolidated market data, and for the Commission to make public the 
annual assessment on the Commission's website. Further, the Commission 
received other comments on Rule 614(e) and the required amendment. 
These comments are discussed below.
---------------------------------------------------------------------------

    \1127\ See infra Section III.F (discussing amendment to Rule 
1000 of Regulation SCI to apply to competing consolidators exceeding 
a specified threshold and the adoption of Rule 614(d)(9) 
establishing a tailored set of operational capability and resiliency 
obligations to all competing consolidators during the transition 
period and to other competing consolidators below a threshold 
thereafter).
---------------------------------------------------------------------------

(a) Governance Order
    On May 6, 2020, the Commission issued an order directing the SROs 
to develop and file with the Commission a new effective national market 
system plan that would combine the existing three Equity Data Plans 
into single national market system plan, the New Consolidated Data 
Plan.\1128\ The New Consolidated Data Plan was filed with the 
Commission pursuant to Rule 608 on August 11, 2020, and contains 
several provisions related to its governance that are not in the 
existing Equity Data Plan, including establishing a new Operating 
Committee structure

[[Page 18682]]

with non-SRO members, a new voting structure for SRO members as well as 
non-SRO members, new conflicts of interest and confidentiality 
policies, the retention of an independent plan administrator, and the 
use of executive sessions by the Operating Committee.\1129\ The 
Commission received several comments regarding commenters' views of the 
relationship between the Governance Order and the Market Data 
Infrastructure Proposing Release, with several commenters supporting 
the Governance Order,\1130\ but others stating that the Governance 
Order and the Proposing Release are contradictory or 
inconsistent.\1131\ The Governance Order and the Proposing Release are 
not contradictory or inconsistent. Rather, the two proposals address 
distinct aspects of the exclusive SIPs and the national market system 
for NMS information. The Governance Order addresses the governance 
structure of the Equity Data Plans and particularly concerns about 
certain conflicts of interest and the allocation of voting power with 
respect to these Plans. The amendments address the content of NMS 
information and the manner in which it is collected, consolidated, and 
disseminated under the rules of the national market system.
---------------------------------------------------------------------------

    \1128\ See Securities Exchange Act Release No. 88827 (May 6, 
2020), 85 FR 28702 (May 13, 2020) (``Governance Order'').
    \1129\ New Consolidated Data Plan Notice, supra note 40.
    \1130\ See Clearpool Letter; Fidelity Letter; MFA Letter; RBC 
Letter; Schwab Letter; State Street Letter.
    \1131\ See letter from Joan C. Conley, Senior Vice President and 
Corporate Secretary, Nasdaq, to Vanessa Countryman, Secretary, 
Commission, dated Feb. 28, 2020, (``Nasdaq Letter I''); Cboe Letter 
at 4; NYSE Letter II at 12.
---------------------------------------------------------------------------

(b) Comments on the Plan's Role in Developing Fees for Data Content 
Underlying Consolidated Market Data
    While the effective national market system plan(s) will no longer 
operate the exclusive SIPs, the Operating Committee of the effective 
national market system plan(s) for NMS stocks will continue to develop 
and file with the Commission the fees associated with the NMS 
information that is required to be collected, consolidated, and 
disseminated, i.e., the data content underlying consolidated market 
data. Specifically, the Operating Committee will need to propose the 
new fees that will be charged for the quotation and transaction 
information that is necessary to generate consolidated market data that 
is required to be made available by the SROs under Rule 603(b) to 
competing consolidators and self-aggregators.\1132\ The proposed new 
fees will need to reflect the following: (i) That consolidated market 
data includes additional new content (i.e., depth of book data, auction 
information, and additional information on orders of sizes smaller than 
100 shares); (ii) that the effective national market system plan(s) is 
no longer operating the exclusive SIPs and is no longer performing 
collection, consolidation, and dissemination functions; and (iii) that 
the SROs are no longer responsible for the connectivity and 
transmission services required for providing data to the exclusive SIPs 
from the SROs' data centers.\1133\ The proposed new fees for the data 
underlying consolidated market data must be fair and reasonable and not 
unfairly discriminatory \1134\ and must be filed with the Commission 
pursuant to Rule 608 under the Exchange Act.
---------------------------------------------------------------------------

    \1132\ The fees for the data content underlying consolidated 
market data will be proposed and filed with the Commission under 
Rule 608 of Regulation NMS. The effective national market system 
plan(s) will not develop fees for individual SRO data. If competing 
consolidators wish to receive SRO data that is beyond what is 
required to be provided by the SROs pursuant to Rule 603(b), they 
will have access to such data pursuant to individual SRO rules and 
fees.
    \1133\ Under Rule 603(b), each SRO must provide its NMS 
information, including all data necessary to generate consolidated 
market data, to all competing consolidators and self-aggregators in 
the same manner and using the same methods, including all methods of 
access and the same format, as such SRO makes available any 
information to any other person. The competing consolidators and 
self-aggregators would be responsible for establishing the 
connectivity and transmission services they use to connect to the 
SROs.
    \1134\ See Rule 603(a) of Regulation NMS, 17 CFR 242.603(a). See 
infra Section III.E.2(c) for a discussion of the statutory standards 
for the data content underlying consolidated market data.
---------------------------------------------------------------------------

    Several commenters supported the proposal to retain the use of the 
effective national market system plan(s) to propose fees for the data 
content underlying consolidated market data in the decentralized 
consolidation model.\1135\ One commenter suggested that the effective 
national market system plan(s) also propose fees for connectivity ``in 
order to avoid the imposition of fees that are substantially 
disproportionate to the cost of providing these connectivity methods.'' 
\1136\
---------------------------------------------------------------------------

    \1135\ See IEX Letter at 8. See also Clearpool Letter at 3 
(stating that it hoped the new governance structure of the effective 
national market system plan(s) would provide additional checks into 
controlling market data costs and help to ensure the reasonableness 
of such fees).
    \1136\ IEX Letter at 8. This commenter also suggested 
alternatives such as clarifying that the exchanges would not be 
permitted to impose a separate set of connectivity fees to competing 
consolidators and self-aggregators or charge fees for connectivity 
that are different than those charged to proprietary data customers. 
Connectivity fees will be developed by the exchanges. The SROs will 
need to develop new connectivity fees for competing consolidators 
and self-aggregators to receive the data necessary to generate 
consolidated market data. New connectivity fees will have to reflect 
that the SROs are only providing data to competing consolidators and 
self-aggregators with such connectivity. Further, as discussed 
below, the fees proposed by the SROs should not contain 
redistribution fees for competing consolidators because this would 
hinder their ability to compete.
---------------------------------------------------------------------------

    Four commenters questioned the role of the Operating Committee of 
the effective national market system plan(s) in developing fees for the 
data content underlying consolidated market data.\1137\ One commenter 
stated that the exchanges would ``continue to have pricing power over a 
fundamental component of the NMS.'' \1138\ Two commenters argued that 
such a responsibility would be inconsistent with Section 19(b) of the 
Exchange Act.\1139\ Specifically, one commenter stated that fees for 
exchange facilities, including proprietary market data products, are 
considered part of the SROs' rules and subject to the Section 19(b) 
rule filing process.\1140\ The other commenter stated that the Exchange 
Act authorizes the exchanges to set their own fees for market data 
products.\1141\ One of the commenters further pointed out that an SRO 
would run afoul of the Exchange Act if it charged certain classes of 
customers a price for its proprietary products that is different from 
the pricing established pursuant to its effective fee schedule.\1142\
---------------------------------------------------------------------------

    \1137\ See NYSE Letter II at 28; Nasdaq Letter IV at 34; Cboe 
Letter at 27; ACTIV Financial Letter at 3. One commenter offered 
suggestions as to the governance of the effective national market 
system plan(s). See Better Markets Letter at 7. The Commission has 
not proposed further governance changes in this release.
    \1138\ ICI Letter at 11.
    \1139\ See Cboe Letter at 27; Nasdaq Letter IV at 10.
    \1140\ The commenter stated that ``as a practical matter order-
by-order depth-of-book products are likely the only way to enable 
the creation of consolidated market data.'' Cboe Letter at 28.
    \1141\ See Nasdaq Letter IV at 10.
    \1142\ See Cboe Letter at 28.
---------------------------------------------------------------------------

    The Commission believes that the effective national market system 
plan(s) should continue to have an important role in the operation, 
development, and regulation of the national market system for the 
collection, consolidation, and dissemination of consolidated market 
data. The development, and proposal under Rule 608, of the fees for the 
data underlying consolidated market data, along with the other 
responsibilities described above, are critical for the successful 
operation of the national market system. The development of the fees 
for information required to be made available by the SROs pursuant to 
Rule 603(b) of Regulation NMS to competing consolidators and self-
aggregators is an integral component of the national market 
system.\1143\
---------------------------------------------------------------------------

    \1143\ The Commission believes that the use of effective 
national market system plan(s), along with the new governance 
structure required by the Governance Order, will help to ensure 
broad participation in the development, operation, and regulation of 
the national market system. See infra note 1185 and accompanying 
text.

---------------------------------------------------------------------------

[[Page 18683]]

    The Equity Data Plans have been developing fees for SIP data for 
many years. It is one of their main responsibilities. The Commission 
disagrees with comments that the plan(s) will be developing fees for 
exchange data and that the development of fees by the plan(s) will be 
inconsistent with Sections 6 and 19 of the Exchange Act. The Commission 
is exercising its authority under Section 11A of the Exchange Act to 
expand the content of core data to include new data elements that the 
Commission believes are necessary to enhance the usefulness of the NMS 
information that is disseminated within the national market system. 
Therefore, the fees for data content underlying consolidated market 
data, as now defined, are subject to the national market system process 
that has been established--specifically the effective national market 
system plan(s) will develop the fees for data content underlying 
consolidated market data and seek Commission approval for such fees 
pursuant to the notice and comment process under Rule 608. The amended 
rules, however, do not permit the plan(s) to develop fees for 
connectivity to the individual SROs. These fees must be filed by 
individual SROs with the Commission and approved pursuant to Section 
19(b) of the Exchange Act and Rule 19b-4 thereunder, and are subject to 
the substantive requirements of Sections 6 and 15A of the Exchange Act, 
respectively for exchanges and national securities associations, as 
well as Section 19(b) of the Exchange Act.
    The plan(s) will not be developing fees for an SRO's proprietary 
data products.\1144\ As the Commission discussed in the Proposing 
Release, the SROs may continue to develop proprietary data products and 
must propose fees for such products subject to the requirements of 
Sections 6(b), 15A(b), and 19(b) of the Exchange Act.
---------------------------------------------------------------------------

    \1144\ One commenter stated that the Operating Committee would 
be establishing fees for exchange proprietary data products, which 
the commenter stated would greatly increase the power of the 
Operating Committee. See Nasdaq Letter IV at 34. However, the 
Operating Committee will only be developing fees for data content 
underlying consolidated market data products, not the exchanges' 
fees for proprietary data products.
---------------------------------------------------------------------------

    One commenter expressed concern about the ability of the SROs, some 
of which may become competing consolidators, to develop fees.\1145\ 
This commenter noted the new governance provisions on voting but stated 
that if the SROs could arbitrarily set fees charged to their 
competitors and ``jam them through'' the Operating Committee then no 
firm would be able to compete effectively and it would be doubtful that 
any firm would become a competing consolidator without assurances that 
the fees would be fair, reasonable, and do not unduly benefit one 
participant.\1146\
---------------------------------------------------------------------------

    \1145\ See ACTIV Financial Letter at 3.
    \1146\ Id. See also Schwab Letter at 6 (stating that competing 
consolidators would be unlikely to commit to a business without 
confidence that the prices charged do not put then at a competitive 
disadvantage); ICI Letter at 11.
---------------------------------------------------------------------------

    The fees for data content underlying consolidated market data will 
be filed with the Commission pursuant to Rule 608. These fees will be 
subject to the procedure set forth in Rule 608(b)(1) and (2), including 
an opportunity for public comment and Commission approval by order 
before such fees can become effective. This regulatory process set 
forth in Rule 608 allows commenters to provide their views about any 
proposed fee before they are charged and allows the Commission to 
consider commenters' views before such fees becomes effective.\1147\
---------------------------------------------------------------------------

    \1147\ See Effective-Upon-Filing Adopting Release, supra note 
17.
---------------------------------------------------------------------------

    One commenter stated that the Operating Committee would have no 
experience in undertaking a cost allocation between the data underlying 
consolidated market data and proprietary data.\1148\ This commenter 
stated that directing the Operating Committee to engage in cost 
allocation without standards is arbitrary because the Operating 
Committee would be unable to predict whether its cost allocation 
decisions and permissible rates of return would be consistent with the 
Exchange Act.\1149\
---------------------------------------------------------------------------

    \1148\ See Nasdaq Letter IV at 34. This commenter also suggested 
that the Operating Committee would reduce fees for proprietary 
market data, which the commenter stated would limit access to new 
proprietary data products. The commenter continued that this would 
be inconsistent with Section 11A(a)(2) of the Exchange Act by 
undermining the public interest and protection of investors. The 
Operating Committee would not be establishing fees for proprietary 
data products.
    \1149\ See Nasdaq Letter IV at 34.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter that the Operating 
Committee is ill-suited to allocate costs to develop fees for the data 
content underlying consolidated market data or that the exchanges 
cannot develop reasonable fees for proprietary data products that 
contain data content underlying consolidated market data. The Operating 
Committee(s) have plenty of experience in developing fees for SIP data 
that contain different cost elements, and any future Operating 
Committee, which will comprise many of the same participants, should be 
well-suited to develop fees for the data content underlying 
consolidated market data, with the expectation that the Operating 
Committee can leverage the experience and knowledge from operating 
today's Equity Data Plans. The SROs and the Equity Data Plans each 
develop fees for market data--the SROs develop fees for proprietary 
data and the Equity Data Plans develop fees for SIP data. The Operating 
Committees have to evaluate, develop, and propose SIP data fees and the 
exchanges have to evaluate, develop, and propose proprietary data fees 
for the proprietary data products that they decide to offer. This 
dynamic will not change in the decentralized consolidation model. The 
effective national market system plan(s) will develop fees for the data 
content underlying consolidated market data,\1150\ and the SROs will 
develop fees for proprietary data, each of which may contain some of 
the same underlying data content.
---------------------------------------------------------------------------

    \1150\ As described below, the proposed new fees for the data 
content underlying consolidated market data must be fair and 
reasonable and not unfairly discriminatory and must be filed with 
the Commission pursuant to Rule 608 under the Exchange Act. See 
Section III.E.2(c).
---------------------------------------------------------------------------

    One commenter stated that the proposal to retain the use of the 
effective national market system plan(s) is at odds with how the 
Commission considered a competing consolidator model in the context of 
adopting Regulation NMS.\1151\ Another commenter suggested that the 
Commission rethink the use of effective national market system plan(s) 
and instead allow the exchanges to develop their individual fees for 
data content underlying consolidated market data.\1152\ This commenter 
questioned the need for the effective national market system plan(s) 
because the SROs would no longer be jointly operating an exclusive SIP 
and therefore no longer involved in the collection, consolidation, or 
dissemination of consolidated market data. The commenter stated that it 
would be more efficient and would eliminate the need for the plan(s) to 
determine fees for a competitor's data.\1153\
---------------------------------------------------------------------------

    \1151\ See Cboe Letter at 29.
    \1152\ See NYSE Letter II at 27.
    \1153\ Id.
---------------------------------------------------------------------------

    As to the questions about the Commission's past analysis of a 
competing consolidator model that was discussed in the context of 
adopting Regulation NMS, the Commission was analyzing a different 
competing consolidator model--one that would have eliminated the use of 
effective national market system plan(s). The

[[Page 18684]]

Regulation NMS competing consolidator alternative eliminated the use of 
effective national market system plans, and the Commission expressed 
concerns about the lack of competitive forces in setting data fees 
because each SRO would be establishing its own individual fees for NMS 
information. The Commission stated that payment of every SRO's fees 
would be mandatory and would afford little room for competitive forces 
to influence the level of fees. Further, the Commission stated that 
such a model would require it to review ``at least ten separate fees'' 
for the individual SROs and that it was unlikely that any SRO would 
voluntarily propose to lower its own fees. The Commission also had 
stated that the fees established under the Equity Data Plans reflected 
broad industry consensus and that such ``consensus underlying a single 
fee for a Network's stream of data would be lost'' \1154\ in the 
competing consolidator model that it was then analyzing.
---------------------------------------------------------------------------

    \1154\ See Securities Exchange Act Release No. 49325 (Feb. 26, 
2004), 69 FR 11126, 78 (Mar. 9, 2004) (``Regulation NMS Proposing 
Release'').
---------------------------------------------------------------------------

    In contrast, the decentralized consolidation model that the 
Commission proposed, and as adopted, retains the effective national 
market system plan structure. The Commission believes today, as it did 
when it was considering Regulation NMS, that elimination of the use of 
an effective national market system plan(s) would not further the goals 
of the national market system because the Commission still believes 
that the effective national market system plan structure is the 
appropriate method for developing, operating, and regulating the 
national market system. The suggestion that the Commission eliminate 
the effective national market system plan(s) structure and allow the 
SROs to develop individual fees for their data content that is used to 
develop consolidated market data was dismissed by the Commission when 
it considered the competing consolidator proposal in the context of 
Regulation NMS. The Commission believes that the same shortcomings, 
described above, will occur similarly today if the plan(s) were not 
developing the fees for the data underlying consolidated market data.
(c) Comments on Fees for Consolidated Market Data
    There will be several fee components related to the collection, 
consolidation and dissemination of consolidated market data and 
consolidated market data products. The effective national market system 
plan(s) will propose and file with the Commission, pursuant to Rule 
608, the fees for the data content underlying consolidated market data. 
The fees for the data content underlying consolidated market data must 
satisfy the statutory standards of being fair, reasonable and not 
unreasonably discriminatory.\1155\ As described further below, the 
Commission has historically assessed fees for data such as the data 
content underlying consolidated market data using a reasonably related 
to cost standard.
---------------------------------------------------------------------------

    \1155\ Sections 11A(c)(1)(C) and 11A(c)(1)(D) and Rule 603(a) of 
Regulation NMS.
---------------------------------------------------------------------------

    Further, the SROs will have to develop and propose their own fees 
for connectivity. Individual SRO connectivity fees must be filed with 
the Commission pursuant to Section 19(b) of the Exchange Act and Rule 
19b-4 thereunder and satisfy the statutory requirements under Sections 
6 and 15A of the Exchange Act.\1156\ Connectivity to all of the SROs 
for purposes of receiving the data content underlying consolidated 
market data is necessary under Rule 603(b) and the SROs are the sole 
providers of such access. Because of the mandatory nature of 
connectivity to all of the SROs for purposes of providing the 
information necessary to generate consolidated market data,\1157\ the 
Commission believes that one method for demonstrating that such fees 
are fair and reasonable and not unreasonably discriminatory is by 
demonstrating that they are reasonably related to costs.\1158\
---------------------------------------------------------------------------

    \1156\ See also supra note 826.
    \1157\ See Rule 603(b) of Regulation NMS.
    \1158\ Historically, the Commission has stated that one method 
for assessing the fairness and reasonableness of fees charged by an 
exclusive processor, as defined in Exchange Act Section 3(a)(22)(B), 
is to show a reasonable relation to the costs. See Market 
Information Concept Release, supra note 22, at 70627 (``[T]he fees 
charged by a monopolistic provider (such as the exclusive processors 
of market information) need to be tied to some type of cost-based 
standard in order to preclude excessive profits if fees are too high 
or underfunding or subsidization if fees are too low.''). See also 
Proposing Release at 16770, note 439 and accompanying text. Several 
exchanges have filed proposed connectivity fees and have provided 
information about costs related to such connectivity to demonstrate 
compliance with statutory standards. Cf. Securities Exchange Act 
Release Nos. 86626 (Aug. 9, 2019), 84 FR 41793 (Aug. 15, 2019) (SR-
IEX-2019-07); 87875 (Dec. 31, 2019), 85 FR 770 (Jan. 7, 2020) (SR-
MIAX-2019-51); 87876 (Dec. 31, 2019), 85 FR 757 (Jan. 7, 2020) (SR-
PEARL-2019-36); 87877 (Dec. 31, 2019), 85 FR 738 (Jan. 7, 2020) (SR-
EMERALD-2019-39); 88161 (Feb. 11, 2020), 85 FR 8968 (Feb. 18, 2020) 
(SR-BOX-2020-03).
---------------------------------------------------------------------------

    Finally, competing consolidators will establish fees for their 
consolidated market data products. These fees will be disclosed on 
Exhibit G of Form CC. Competing consolidators' fees for their services 
related consolidated market data products may include fees for 
aggregation and generation of consolidated market data products and 
transmission of such products to subscribers. Competing consolidators' 
fees may include the fees for the data content underlying consolidated 
market data as well as fees for connectivity to the SROs, or the fees 
for data content underlying consolidated market data may be charged 
directly to the end users.
    The Commission received several comments on the anticipated fees 
for the data content underlying consolidated market data.\1159\ Some 
commenters stated that understanding the anticipated fees for data 
content underlying consolidated market data is necessary to analyzing 
the implications of the decentralized consolidation model \1160\ and 
necessary to evaluating whether entities would decide to make the 
business decision to act as a competing consolidator.\1161\ Two 
commenters argued that the failure to describe anticipated fees 
violates the APA by denying commenters the ability to assess the 
proposal and impairing the Commission in its ability to conduct a cost-
benefit analysis.\1162\
---------------------------------------------------------------------------

    \1159\ See, e.g., SIFMA Letter; Nasdaq Letter IV; Cboe Letter; 
NYSE Letter II; BlackRock Letter; Fidelity Letter; State Street 
Letter; Schwab Letter; ICI Letter; MFA Letter; Citadel Letter; Virtu 
Letter; AHSAT Letter; Proof Trading Letter; Wharton Letter; ACTIV 
Financial Letter; Clearpool Letter; STANY Letter II.
    \1160\ See, e.g., STANY Letter II; NYSE Letter II; Cboe Letter; 
Schwab Letter; IDS Letter I; ACTIV Financial Letter.
    \1161\ See STANY Letter II; IDS Letter I; ACTIV Financial 
Letter.
    \1162\ See NYSE Letter II; Cboe Letter.
---------------------------------------------------------------------------

    The Commission disagrees. Fees proposed by the plan(s) for the data 
content underlying consolidated market data will be a fixed cost that 
will be imposed on all competing consolidators and self-aggregators. 
These entities can develop business plans on whether to enter this 
business based on other information, such as the technology that will 
be necessary to aggregate, generate, and disseminate consolidated 
market data, and their expected subscribers. The Commission believes 
that there is sufficient information available to potential entrants to 
assess the costs and benefits of acting as a competing 
consolidator.\1163\
---------------------------------------------------------------------------

    \1163\ See supra note 649 and accompanying text.
---------------------------------------------------------------------------

    Further, in the Proposing Release, the Commission described the 
anticipated new fees for the data underlying consolidated market data 
as needing to reflect the following: (i) That consolidated market data 
includes new content described above, including depth of book data, 
auction information,

[[Page 18685]]

and additional information on orders of sizes smaller than 100 shares; 
\1164\ (ii) that the effective national market system plan(s) for NMS 
stocks is no longer operating an exclusive SIP and is no longer 
performing aggregation and other operational functions; and (iii) that 
the SROs are no longer responsible for the connectivity and 
transmission services required for providing data to the exclusive SIPs 
from the SROs' data centers since the exclusive SIPs will no longer be 
operated by the effective national market system plan(s) for NMS 
stocks.
---------------------------------------------------------------------------

    \1164\ See supra Section II.B.
---------------------------------------------------------------------------

    In addition, the Commission believes that the fees for the data 
content underlying consolidated market data should not include 
redistribution fees for competing consolidators.\1165\ Competing 
consolidators will take the place of the exclusive SIPs in the 
dissemination of consolidated market data, which today do not pay 
redistribution fees for the consolidation and dissemination of SIP 
data. The Commission believes imposing redistribution fees on data 
content underlying consolidated market data that will be disseminated 
by competing consolidators would be difficult to reconcile with 
statutory standards of being fair and reasonable and not unreasonably 
discriminatory in the new decentralized model.\1166\ Under the new 
decentralized consolidation model, self-aggregators also will directly 
receive the data content necessary for generating consolidated market 
data from the SROs and, because by definition they are limited to using 
the data for internal purposes, would not be subject to fees for 
redistributing such consolidated market data. If the plan(s) proposed 
to impose redistribution fees on the data content underlying 
consolidated market data, the Commission would be concerned that 
competing consolidators could be subject to unreasonable discrimination 
as they would be required to pay higher fees for such data than self-
aggregators would pay for the same data. The Equity Data Plans have not 
imposed redistribution fees on the exclusive SIPs and the Commission 
believes that such plan(s) should not impose such fees on the entities 
that will distribute consolidated market data in the decentralized 
consolidation model, i.e., competing consolidators.
---------------------------------------------------------------------------

    \1165\ See AHSAT Letter (``The Commission should take care that 
SROs do not design their fee structure to unduly target competing 
consolidators in practice, especially when SROs are likely to 
operate their own competing consolidators . . . In this way profit-
motivated SROs that are allowed to charge competing consolidators 
might find ways to make them uneconomic, thereby eliminating the 
competitiveness presented by the new consolidated data feeds.'').
    \1166\ See infra note 1172 and accompanying text.
---------------------------------------------------------------------------

    Several commenters stated that the Commission should scrutinize SRO 
fees for market data.\1167\ Some commenters requested the Commission 
review market data fees to help to ensure that they are fair and 
reasonable,\1168\ while a few stated that market data fees should be 
cost-based.\1169\ One commenter, however, stated that the proposal 
establishes a rate-making board and would impose cost-based regulation 
on the sale of consolidated market data.\1170\ This commenter stated 
that the proposal failed to provide guidance on how to determine the 
cost of market data especially in light of exchange practices of 
allocating costs across products.\1171\
---------------------------------------------------------------------------

    \1167\ See BlackRock Letter; Fidelity Letter; State Street 
Letter; ICI Letter; Virtu Letter; SIFMA Letter.
    \1168\ See BlackRock Letter; ICI Letter.
    \1169\ See Schwab Letter; ICI Letter; SIFMA Letter; AHSAT 
Letter. One commenter argued that current market data fees have no 
relationship to cost and that the proposal provided no mechanism to 
connect SIP fees to cost. See Proof Trading Letter.
    \1170\ See Nasdaq Letter IV at 9, 22.
    \1171\ Id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that it seeks to 
ensure that consolidated market data is widely available for reasonable 
fees.\1172\ The Commission must assess the proposed fees for data 
content underlying consolidated market data and determine whether they 
are fair and reasonable, and not unreasonably discriminatory.\1173\ To 
do this, the Commission must have ``sufficient information before it to 
satisfy its statutorily mandated review function''--that the fees meet 
the statutory standard.\1174\ The Commission stated that fees for 
consolidated SIP data can be shown to be fair and reasonable if they 
are reasonably related to costs.\1175\ The Commission cited the Market 
Information Concept Release, in which the Commission stated ``the fees 
charged by a monopolistic provider (such as the exclusive processors of 
market information) need to be tied to some type of cost-based standard 
in order to preclude excessive profits if fees are too high or 
underfunding or subsidization if fees are too low. The Commission 
therefore believes that the total amount of market information revenues 
should remain reasonably related to the cost of market information.'' 
\1176\ The Commission later explained in the context of approving an 
SRO fee filing that, because core data must be purchased, their fees 
are less sensitive to competitive forces; \1177\ therefore, a 
reasonable relation to costs has since been the principal method 
discussed by the Commission for assessing the fairness and 
reasonableness of such fees for core data, with the recognition that 
``[t]his does not preclude the Commission from considering in the 
future the appropriateness of another guideline to assess the fairness 
and reasonableness of core data fees in a manner consistent with the 
Exchange Act.'' \1178\ The Commission then stated that the proposal did 
not change the mandatory nature of the provision of the data necessary 
to generate consolidated market data by the SROs.\1179\
---------------------------------------------------------------------------

    \1172\ Currently, the exclusive SIPs are subject to Exchange Act 
Section 11A(c)(1)(C) (as implemented by Rule 603(a)(1)), which 
requires that exclusive processors (which include the exclusive SIPs 
and SROs when they distribute their own data) must assure that all 
securities information processors may obtain on fair and reasonable 
terms information with respect to quotations for and transactions in 
securities, which includes consolidated market data. See 15 U.S.C. 
78k-1(c)(1)(C). See also 17 CFR 242.603(a)(1). Section 11A(c)(1)(D), 
in turn (as implemented by Rule 603(a)(2)), requires that the SROs 
provide such data to broker-dealers and others on terms that are not 
unreasonably discriminatory. See 15 U.S.C. 78k-1(c)(1)(D). See also 
17 CFR 242.603(a)(2). As competing consolidators will be securities 
information processors, Exchange Act Section 11(A)(c)(1)(C) will 
continue to apply. Similarly, self-aggregators are broker-dealers, 
SROs, or RIAs (i.e., others) and thus Exchange Act Section 
11A(c)(1)(D) will continue to apply.
    \1173\ See 15 U.S.C. 78k-1(c). See also Rules 603(a)(1) and (2), 
608 of Regulation NMS, 17 CFR 242.603(a)(1) and (2), 608; Bloomberg 
Order, supra note 22, at 11-12.
    \1174\ Bloomberg Order, supra note 22, at 15; cf. 17 CFR 
201.700, Rule of Practice 700 (providing that the burden of 
demonstrating that a proposed rule change satisfies statutory 
standards is on the self-regulatory organization that proposed the 
rule change).
    \1175\ See Proposing Release, 85 FR at 16770.
    \1176\ Market Information Concept Release, supra note 22, at 
70627. An ``exclusive processor'' is defined in Section 3(a)(22)(B) 
of the Exchange Act and includes any national securities exchange or 
registered securities association, which engages on an exclusive 
basis on its own behalf, in collecting, processing, or preparing for 
distribution or publication any information with respect to 
quotations or transactions on or effected or made by means of any 
facility of such exchange or quotations distributed or published by 
means of any electronic system operated or controlled by such 
association.
    \1177\ See Securities Exchange Act Release No. 59039 (Dec. 2, 
2008), 73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR-NYSEArca-2006-
21).
    \1178\ Bloomberg Order, supra note 22, at 15 & n. 63.
    \1179\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    These standards have been previously articulated by the Commission; 
they are not new. The Commission was not proposing a ``new cost-based 
regulation'' or a new ``rate-making board.'' The Equity Data Plans have 
been establishing fees for SIP data for many years. The Commission 
proposed to utilize the current plan mechanism for establishing fees, 
subject to applicable statutory standards and

[[Page 18686]]

regulatory requirements.\1180\ Under Rule 603(b), the SROs are required 
to make available all data that is necessary to generate consolidated 
market data. The Commission has determined that it is necessary to 
disseminate this data within the national market system. The Commission 
believes that consolidated market data will significantly enhance the 
ability of market participants to trade competitively and efficiently 
and will indirectly benefit investors, even if they do not directly 
consume all of the new data elements of consolidated market data, by 
facilitating executing broker-dealers' access to information.
---------------------------------------------------------------------------

    \1180\ See supra notes 1173-1179 and accompanying text.
---------------------------------------------------------------------------

    One commenter cautioned the Commission to ensure that fee 
structures are not designed to unduly target competing consolidators in 
practice, especially if one or more SROs become competing 
consolidators.\1181\ All fees for the data underlying consolidated 
market data must satisfy the statutory standards, including not being 
unreasonably discriminatory. A fee that unduly ``targets'' competing 
consolidators in an unfair or unreasonable manner would not satisfy 
statutory requirements.
---------------------------------------------------------------------------

    \1181\ See AHSAT Letter at 2.
---------------------------------------------------------------------------

    One commenter stated that it hoped that in a new competitive model 
that overall costs for broker-dealers would be lower. The commenter, 
however, stated that broker-dealers would still need to purchase 
proprietary data to get information that is not included in 
consolidated market data. Therefore, the commenter suggested that the 
Commission ensure that safeguards are in place to keep exchanges from 
increasing market data prices to recoup revenue lost from the 
requirement to provide new core data to competing consolidators.\1182\ 
The Commission will analyze fees for data content underlying 
consolidated market data consistent with the standards set forth above. 
The new governance structure required by the Governance Order,\1183\ as 
well as the recently adopted Effective-Upon-Filing Amendments,\1184\ 
will provide additional opportunities for interested market 
participants to participate in establishing effective national market 
system plan fees. In the Governance Order, the Commission stated that 
``a more diverse set of perspectives from full voting members of the 
operating committee of the New Consolidated Data Plan would improve the 
governance structure of the SIPs and help to ensure that the 
[O]perating [C]ommittee benefits from these views before it takes 
action or files plan amendments with the Commission.'' \1185\ Further, 
pursuant to the Effective-Upon-Filing Amendments, fees established and 
proposed by the effective national market system plan(s) are no longer 
effective upon filing but must be published for public comment and 
approved by the Commission before they can take effect.
---------------------------------------------------------------------------

    \1182\ See Clearpool Letter at 3 (``It will therefore be 
important for the Commission to ensure that robust safeguards are in 
place under the new regime to control market data costs and prevent 
exchanges from just increasing market data prices to make up for any 
loss of revenue due to the proposed requirement to provide the new 
core data to competing consolidators.'').
    \1183\ See Governance Order, supra note 1128.
    \1184\ See Effective-Upon-Filing Adopting Release, supra note 
17.
    \1185\ Governance Order, supra note 1128.
---------------------------------------------------------------------------

    Several commenters discussed whether market data fees would be 
lower in a decentralized consolidation model.\1186\ One commenter 
suggested that if competitive forces fail to materialize and drive fees 
for consolidated market data down that the Commission should adopt a 
rule to enable it to review consolidated market data fees for fairness, 
reasonableness, and non-discriminatory pricing.\1187\ Another commenter 
stated that the New Consolidated Data Plan, the Effective-Upon-Filing 
Amendments,\1188\ the Commission's continued scrutiny of exchange fee 
proposals, and public disclosure of SRO costs were necessary predicates 
to control market data costs.\1189\ Fees for the data content 
underlying consolidated market data must be filed with the Commission 
pursuant to Rule 608 and must satisfy statutory standards.
---------------------------------------------------------------------------

    \1186\ See Clearpool Letter; Schwab Letter; Fidelity Letter; 
Nasdaq Letter IV; Citadel Letter.
    \1187\ See Schwab Letter at 6.
    \1188\ See Effective-Upon-Filing Adopting Release, supra note 
17.
    \1189\ See Fidelity Letter at 8.
---------------------------------------------------------------------------

    In addition, one commenter stated that the Commission failed to 
analyze how exchanges have incentives to cut trading fees in order to 
win market share and increase market data revenues. The commenter 
stated that the proposal would eliminate the incentive to reduce 
trading fees. Further, this commenter argued that the Commission failed 
to consider the all-in price of trading.\1190\ However, another 
commenter stated that market data fees comprise ``a larger-than-ever 
share'' of overall transaction costs and urged the Commission to ensure 
that any new fees are consistent with the Exchange Act.\1191\
---------------------------------------------------------------------------

    \1190\ See Nasdaq Letter IV at 29.
    \1191\ ICI Letter at 11.
---------------------------------------------------------------------------

    The Commission is not considering the proposed fees for data 
content underlying consolidated market data in this release; they have 
not been developed or filed with the Commission, as required pursuant 
to Rule 608. The effective national market system plan(s) will have to 
develop and file such proposed fees with the Commission pursuant to 
Rule 608 within 150 days of the effectiveness of Rule 614, as noted 
above \1192\ and they must satisfy statutory standards.\1193\
---------------------------------------------------------------------------

    \1192\ See infra Section III.H.2.
    \1193\ See supra note 1172 and accompanying text. In the Market 
Information Concept Release, the Commission said that ``the total 
amount of market information revenues should remain reasonably 
related to the cost of market information.'' Market Information 
Concept Release, supra note 22, at 28.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that there will be 
downward pressure on the fees for the data content underlying 
consolidated market data as compared to fees for proprietary data. The 
proposed new fees for the data content underlying consolidated market 
data, while needing to reflect additional new content, will be 
evaluated by the Commission for compliance with statutory standards and 
one way to assess compliance is to show they are reasonably related to 
costs.\1194\ In addition, proposed SRO connectivity fees will have to 
satisfy statutory standards in a similar manner to reflect the 
mandatory nature of such connectivity. Finally, the fees established by 
competing consolidators for their consolidated market data products 
will be subject to competitive market forces in the aggregation and 
transmission of such data.
---------------------------------------------------------------------------

    \1194\ See Proposing Release, 85 FR at 16770; supra note 1172 
and accompanying text. See also supra note 1158.
---------------------------------------------------------------------------

    One commenter stated its ``strong opinion'' that ``the regulated 
privilege of order protection [pursuant to Rule 611] be accompanied by 
a requirement to openly disseminate information regarding those orders 
at no revenue to the SRO or liquidity provider.'' \1195\ This commenter 
stated that this could lead to ``higher net transaction fees or even 
order placement fees,'' but the commenter said that ``competitive 
forces are working better with respect to net transaction fees than 
market data fees.'' \1196\ In the alternative, the commenter suggested 
that competing consolidators pay the SROs their marginal cost to 
disseminate data but also acknowledged that marginal costs may be 
difficult to calculate. Further, the commenter stated that ``[t]he 
marginal cost is likely to strictly focus on the modest networking 
costs of an additional multicast recipient, and to

[[Page 18687]]

exclude SRO software development or broader marketplace costs.'' \1197\
---------------------------------------------------------------------------

    \1195\ AHSAT Letter at 2.
    \1196\ Id.
    \1197\ Id.
---------------------------------------------------------------------------

    This comment relates to a future proposed fee amendment. The 
Commission has not proposed to modify the revenue formula or set fees 
for data content underlying consolidated market data.
(d) Comments on Transparency of Market Data Fees
    Several commenters stated that there should be enhanced 
transparency around market data fees.\1198\ One commenter suggested 
that the Commission require exchanges to publicly disclose, on a 
periodic basis, the cost of the equity market data content that they 
sell to competing consolidators in order to allow the Commission and 
the public to ensure that the fees for this data are fair and 
reasonable.\1199\
---------------------------------------------------------------------------

    \1198\ See Fidelity Letter; State Street Letter; Schwab Letter; 
SIFMA Letter; Committee on Capital Markets Letter; ACTIV Financial 
Letter at 3.
    \1199\ See Committee on Capital Markets Regulation Letter at 3.
---------------------------------------------------------------------------

    The Commission has reviewed these comments and reiterates that any 
fees for data content underlying consolidated market data, including 
subsets of consolidated market data, will be set pursuant to fees that 
will be proposed and filed by the effective national market system 
plan(s) pursuant to Rule 608.\1200\
---------------------------------------------------------------------------

    \1200\ See supra note 1174 and accompanying text.
---------------------------------------------------------------------------

(e) Comments on Fees for Different Consolidated Market Data Offerings
    In the Proposing Release, the Commission stated that the plan(s) 
would develop and file with the Commission fees for SRO data content 
required to be made available by each SRO to competing consolidators 
and self-aggregators for the creation of proposed consolidated market 
data and could also develop fees for data content underlying other 
consolidated market data offerings that contain subsets of the 
components of consolidated market data.\1201\ The Commission believed 
that the effective national market system plan(s) could develop 
different fees for data content underlying market data offerings that 
contain subsets of the data content underlying consolidated market data 
based upon the needs of market participants and cited a NYSE proposal 
to develop different levels of SIP data products.\1202\ Thus, in 
addition to developing a fee for data content underlying a consolidated 
market data offering that contains all of the data content underlying 
consolidated market data,\1203\ the plan could develop a fee for data 
content underlying a consolidated market data offering that contains 
only TOB information, regulatory data, and administrative data, or the 
plan could develop a fee for depth of book data, regulatory data, and 
administrative data but not auction information. As described, the 
proposed new fee schedule would include proposed new fees for the data 
content underlying consolidated market data, as well as any proposed 
new fees for consolidated market data offerings that reflect only a 
subset of consolidated market data.
---------------------------------------------------------------------------

    \1201\ See Proposing Release, 85 FR at n. 616 and accompanying 
text.
    \1202\ See, e.g., NYSE Equities Insights, Stock Quotes and Trade 
Data: One Size Doesn't Fit All (Aug. 22, 2019), available at https://www.nyse.com/data-insights/stock-quotes-and-trade-data-one-size-doesnt-fit-all. The NYSE proposed offering different levels of 
services based on the needs of market participants (``NYSE SIP Tiers 
Proposal''). The Operating Committee could develop different 
products that utilize consolidated market data components and 
propose the relevant fees for such products. See also Feb. NYSE 
Letter.
    \1203\ As described above, the Commission is adopting a new 
definition of consolidated market data products, which will allow 
competing consolidators to develop market data product offerings 
that contain all consolidated market data or subset thereof. See 
Rule 600(b)(20); Section II.B.2.
---------------------------------------------------------------------------

    One commenter challenged the view that the plan(s) would develop 
different fees for different subsets of the data content underlying 
consolidated market data.\1204\ The commenter stated that the 
Commission could not assume that the Operating Committee would develop 
such fees.\1205\ The Commission notes that this commenter had developed 
a proposal similar to the suggestion for SIP data.\1206\ The commenter 
had acknowledged in its proposal that a ``one-size-fits-all'' SIP data 
product was not meeting the needs of market participants \1207\ and 
recommended that the Operating Committee establish different content 
products that would be designed to serve the needs to specific types of 
investors.\1208\ The Commission believes that the Operating Committee 
will consider the needs of investors and the different use cases for 
consolidated market data when developing the proposed fees for the data 
content underlying consolidated market data. The Commission recently 
has taken steps to help to ensure that the needs of investors are 
considered in the national market system in addition to the adopted 
rules. For example, the New Consolidated Data Plan is required to 
contain a new governance structure that has a broader representation of 
market participants involved in the operation of the plan,\1209\ and 
the Commission adopted amendments to the filing and review process for 
plan fees.\1210\
---------------------------------------------------------------------------

    \1204\ See NYSE Letter II at 4.
    \1205\ See id.
    \1206\ See NYSE SIP Tiers Proposal, supra note 1202.
    \1207\ Id.
    \1208\ Id.
    \1209\ See Governance Order, supra note 1128.
    \1210\ See Effective-Upon-Filing Adopting Release, supra note 
17.
---------------------------------------------------------------------------

    One commenter, however, suggested that competing consolidators, not 
the Operating Committee, should be able to develop competing products 
that contain consolidated market data.\1211\ This commenter said that 
competing consolidators could develop products to satisfy the needs of 
market participants.\1212\ Competing consolidators will develop 
consolidated market data products that their end users desire. However, 
the Commission believes that the Operating Committee of the effective 
national market system plan(s) needs to develop the fees associated 
with the data content underlying any consolidated market data product 
or subset thereof. The Operating Committee is well-situated to develop 
and propose such fees. However, competing consolidators could convey 
their subscribers' market data needs to the Operating Committee and 
suggest new offerings as necessary, as could any person. Further, 
competing consolidators could communicate via the public comment 
process for effective national market system plan(s)' proposed data 
content underlying consolidated market data fees that must be filed 
with the Commission pursuant to Rule 608.
---------------------------------------------------------------------------

    \1211\ See MEMX Letter at 8.
    \1212\ See id.
---------------------------------------------------------------------------

(f) Comments on Collection of Fees for Data Content Underlying 
Consolidated Market Data and Allocation of Revenues
    The effective national market system plan(s) would be responsible 
for collecting the fees for the data content underlying consolidated 
market data and underlying any consolidated market data offerings that 
contain subsets of the components of consolidated market data. The 
effective national market system plan(s) also would be responsible for 
allocating revenues among the SRO participants.
    One commenter stated that the Commission failed to address the 
revenue allocation formula in the Proposing Release and how it would 
work under the decentralized consolidation model, if at all.\1213\ The

[[Page 18688]]

commenter stated these issues are needed to evaluate the proposed rules 
and that failure to address the revenue allocation formula was 
arbitrary and capricious. The revenue allocation formula was adopted in 
Regulation NMS, and the Commission stated that ``the language added to 
the Plans by the Allocation Amendment can be adjusted in the future 
pursuant to the normal process of Commission approved amendments.'' 
\1214\ The Commission believes that the Operating Committee is best 
placed to evaluate whether and, if so, how the revenue allocation 
formula needs to be amended to reflect the new content of data that is 
included in the definition of consolidated market data as well as the 
new responsibilities of the primary listing exchanges in collecting and 
calculating Regulatory Data. Any plan amendment would be developed by 
the Operating Committee and filed with the Commission pursuant to Rule 
608.
---------------------------------------------------------------------------

    \1213\ See Nasdaq Letter IV at 37. See also id. at 39-40 and 60, 
n. 149 (stating that the proposal fails to address how the revenue 
allocation formula adopted as part of Regulation NMS and the new 
framework for disseminating and pricing market data would work 
together, and that abandoning the revenue allocation formula would 
be arbitrary and capricious and therefore violate the APA).
    \1214\ Regulation NMS Adopting Release, supra note 7, at 37561-
62.
---------------------------------------------------------------------------

(g) Comments on Accounts and Audits
    As proposed, the plan(s) would be responsible for overseeing 
accounts and conducting audits for purposes of billing, among other 
things. The plan(s) generally would also have to develop a harmonized 
approach to data billing protocols, including with respect to any 
unified MISU policy.\1215\
---------------------------------------------------------------------------

    \1215\ See supra note 1124.
---------------------------------------------------------------------------

    One commenter stated that the proposal did not specify how 
contracting for data would occur under the plan(s), including who would 
enter into contracts with, collect fees from, and resolve disputes with 
customers.\1216\ This commenter questioned whether ``(a) the SROs would 
charge data fees to the competing consolidators and then the competing 
consolidators would pass through the cost of data to their customers, 
(b) the SROs would charge competing consolidators' customers directly 
for the SROs data, or (c) the NMS Plans would charge data fees to the 
competing consolidators and their customers.'' \1217\
---------------------------------------------------------------------------

    \1216\ See IDS Letter I at 12.
    \1217\ Id.
---------------------------------------------------------------------------

    As stated in the Proposing Release, the effective national market 
system plan(s) would charge the fees for the data content underlying 
consolidated market data, collect the revenue, oversee accounts and 
billing, and develop billing protocols, including any MISU policies. 
The proposal set forth the responsibilities of the effective national 
market system plan(s) as to billing. The SROs would not be responsible 
for charging competing consolidators or their customers directly for 
consolidated market data.
    The Commission believes that the licensing, billing, and audit 
processes under the decentralized consolidation model could be similar 
to existing processes that are in place under the Equity Data Plans. 
For example, while today the Equity Data Plans provide a data feed to 
market participants, the fees and billing for that data are not based 
simply upon the receipt of the data feed. Rather, broker-dealers and 
other market participants who receive SIP data are billed based upon 
both the type of user (e.g., professional vs. non-professional) and 
specific use cases for the data (e.g., display vs. non-display). 
Purchasers of SIP data provide the administrator of the Equity Data 
Plans with information and attestations about the number and type of 
users and specific use cases, and the administrator (or its auditor) 
audit and assess this information to determine appropriate billing for 
SIP data purchasers.
    As discussed above, the SROs can comply with their obligation under 
Rule 603(b) to make all data necessary to generate consolidated market 
data available by providing their existing proprietary data feeds that 
contain this information to competing consolidators and self-
aggregators.\1218\ These data feeds may contain information that goes 
beyond what is necessary to generate consolidated market data, but 
competing consolidators and self-aggregators will not be billed based 
upon the data feed that they receive. Similar to the current billing, 
reporting and audit processes, the administrator of the effective 
national market system plan(s) could be expected to license and bill 
and, when required, employ an audit process to assess the usage of the 
data content made available to competing consolidators and self-
aggregators under Rule 603(b) for billing purposes.\1219\
---------------------------------------------------------------------------

    \1218\ See supra Section III.B.9(b).
    \1219\ See supra Section III.E.2(e).
---------------------------------------------------------------------------

(h) Comments on Timestamps
    As proposed, Rule 614(e)(1)(ii) required that the amendment to the 
effective national market system plan(s) for NMS stocks include 
provisions requiring the application of timestamps by the SRO 
participants on all consolidated market data, at the time the 
consolidated market data component was generated by the SRO participant 
and at the time the SRO participant made the consolidated market data 
available to competing consolidators and self-aggregators.\1220\
---------------------------------------------------------------------------

    \1220\ The SROs currently submit timestamped data under the 
Equity Data Plans and the National Market System Plan Governing the 
Consolidated Audit Trail (``CAT NMS Plan''). See, e.g., CTA Plan, 
supra note 10, at Section VI.(c); Nasdaq UTP Plan, supra note 10, at 
Section VIII; CAT NMS Plan at Sections 6.3(d), 6.8, available at 
https://www.catnmsplan.com/sites/default/files/2020-02/CAT-2.0-Consolidated-Audit-Trail-LLC%20Plan-Executed_%28175745081%29_%281%29.pdf (last accessed Nov. 27, 2020). 
See also 17 CFR 242.613; Securities Exchange Act Release No. 78318 
(Nov. 15, 2016), 81 FR 84696, (Nov. 23, 2016) (``CAT NMS Plan 
Approval Order''). The CAT NMS Plan was Exhibit A to the CAT NMS 
Plan Approval Order. However, the limited liability company 
agreement of a new limited liability company named Consolidated 
Audit Trail, LLC now serves as the CAT NMS Plan. See Securities 
Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR 52905 (Oct. 
3, 2019).
---------------------------------------------------------------------------

    One commenter stated that the proposal would require the effective 
national market system plan(s) participants to apply timestamps to 
consolidated market data even though they were not consolidating and 
disseminating consolidated market data.\1221\ The Commission has 
modified the language of Rule 614(e)(1)(ii) to require the SRO 
participants to apply timestamps to all information with respect to 
quotations for and transactions in NMS stocks that is necessary to 
generate consolidated market data and not to consolidated market data 
as the proposed rule required. Specifically, the timestamps applied by 
the SROs must be to the individual components of data content 
underlying consolidated market data, i.e., all of the individual 
components of data content underlying core data, regulatory data, 
administrative data, self-regulatory organization-specific program 
data, and additional elements defined as ``consolidated market data.''
---------------------------------------------------------------------------

    \1221\ See NYSE Letter II at 21.
---------------------------------------------------------------------------

    This commenter also criticized the proposal for underestimating the 
burdens of adding timestamps.\1222\ The Commission disagrees with the 
commenter regarding the burden of adding timestamps. The SROs currently 
add timestamps to all elements of consolidated market data and thus, 
the Commission does not believe that ensuring that timestamps are 
applied in a consistent manner going forward would impose significant, 
if any, costs to the SROs. Timestamps are important for market 
participants as they provide the ability to measure latency and ensure 
accurate sequencing of data. The application of timestamps may also 
incentivize the SROs to make available their consolidated market data 
as quickly as possible. Therefore, the

[[Page 18689]]

application of timestamps needs to be consistent and reliable.\1223\
---------------------------------------------------------------------------

    \1222\ See id.
    \1223\ SRO timestamps will also assist market participants in 
their ability to assess latencies in the provision of consolidated 
market data. Under Rule 614(d)(3), competing consolidators are 
required to make available consolidated market data products that 
include timestamps assigned by the SROs as well as competing 
consolidators. Competing consolidators will be required to timestamp 
the data underlying consolidated market data at specific intervals: 
(1) Upon receipt from an SRO at the SRO data center, (2) upon 
receipt at its aggregation mechanism, and (3) upon dissemination of 
consolidated market data to customers. See supra Section III.C.8(a) 
and the discussion of Rule 614(d)(4).
---------------------------------------------------------------------------

(i) Comments on Annual Assessment
    As proposed, Rule 614(e)(1)(iii) required the amendment to the 
effective national market system plan(s) for NMS stocks to reflect that 
the participants are required to conduct an annual assessment of the 
overall performance of competing consolidators--including speed, 
reliability, and cost of data provision--and provide the Commission 
with a report of such assessment on an annual basis. The Equity Data 
Plans play an important role in governing the operation of the national 
market system. The Commission believes that the effective national 
market system plan(s) for NMS stocks should continue in this important 
role by monitoring the overall performance of the provision of 
consolidated market data by competing consolidators to seek to ensure 
that the decentralized consolidation model is operating soundly and is 
therefore adopting this provision, as proposed, with one modification.
    As described in the Proposing Release, the plan must assess several 
key factors of the operation of the decentralized consolidation model, 
including: (1) The speed of competing consolidators in receiving, 
calculating, and disseminating consolidated market data products; (2) 
the reliability of the transmission of consolidated market data 
products; and (3) a detailed cost analysis of the provision of 
consolidated market data products. The effective national market system 
plan(s) would base their assessments on the information made publicly 
available by competing consolidators, including the information that 
each competing consolidator is required to make available under Rule 
614.
    One commenter supported requiring the filing of a proposed plan 
amendment to mandate an annual assessment and suggested that the annual 
assessment be made public to further assist broker-dealers in selecting 
competing consolidators.\1224\ One commenter stated that ``the Proposal 
does not indicate whether the results of particular assessments will be 
made publicly available to firms and what, if any, actions broker-
dealers will be required to make in response to such assessments.'' 
\1225\ One commenter suggested that the annual report not review 
individual competing consolidator performance ``in silo'' by also 
reviewing at the competition.\1226\
---------------------------------------------------------------------------

    \1224\ See Clearpool Letter at 9.
    \1225\ TD Ameritrade Letter at 13. This commenter asked several 
questions about the expectations on broker-dealers in response to 
the annual report. See id. at 13-14. As discussed above, the annual 
report will not be a report on individual competing consolidators 
but rather a report on the operational status of the whole 
decentralized consolidation model.
    \1226\ See Data Boiler Letter I at 64 (``How CC beat their 
competition among peers, and the overall industry rely less on 
Exchanges' PP and SAs' services are the best key performance 
indicators (KPIs).'').
---------------------------------------------------------------------------

    The Commission is adopting the rule, with the addition that the 
annual report would be made publicly available by the Commission. The 
Commission believes that the annual report should be made publicly 
available to provide transparency to investors as to the operation of 
the national market system. The Commission believes that the annual 
report can assist the Commission in monitoring and evaluating the 
operation of the national market system and decentralized consolidation 
model. The annual report, however, is not an assessment of individual 
competing consolidators but of the overall performance of the provision 
of consolidated market data by competing consolidators. Market 
participants that want to evaluate the individual performance of a 
competing consolidator can utilize the individual competing 
consolidator's disclosures on its Form CC and the monthly performance 
metrics published by each competing consolidator.
    Another commenter stated that the SROs would incur costs associated 
with assessing competing consolidators although the effective national 
market system plan(s) would not have a role in selecting or monitoring 
competing consolidators.\1227\ The SROs currently incur costs in 
overseeing the national market system and some of these costs may 
change in the decentralized consolidation model, including the new 
costs associated with conducting an assessment and developing the 
annual report. The Commission does not believe that the costs should be 
overly burdensome. As stated above, the Operating Committee can use 
public reports of competing consolidator performance as well as any 
pertinent information that the plan(s) believe would be useful to 
assess competing consolidators and develop the annual report. Further, 
the Commission believes that the Operating Committee is well-suited to 
perform this assessment. The SROs will be making the data content 
underlying consolidated market data available to competing 
consolidators and establishing the necessary connectivity to competing 
consolidators, and as stated, the effective national market system 
plan(s) will continue to have important responsibilities in developing, 
operating, and regulating the national market system. The Commission 
believes that the Operating Committee should develop the annual report 
as a means to monitor the overall performance of competing 
consolidators and to seek to ensure that the national market system is 
operating soundly.
---------------------------------------------------------------------------

    \1227\ See NYSE Letter II at 28.
---------------------------------------------------------------------------

(j) Comments on List of Primary Listing Exchanges
    Finally, proposed Rule 614(e)(1)(iv) required the amendment to the 
effective national market system plan(s) for NMS stocks to include a 
list of the primary listing exchanges for each NMS stock.\1228\ The 
primary listing exchanges will be required to collect, calculate, and 
make available regulatory data to competing consolidators and self-
aggregators. Therefore, each primary listing exchange must be 
identified to determine who is responsible for collecting, calculating, 
and making regulatory data available. One commenter agreed with 
developing a list identifying the primary listing exchange.\1229\ One 
commenter suggested that the Commission develop this list.\1230\ The 
Commission believes that the plan(s) are best suited to develop the 
list and to ensure that it is kept current and readily accessible. The 
Commission is modifying the language of Rule 614(e)(1)(iv) to require 
that the plan(s) develop, maintain, and publish the list. The 
Commission believes that the list of primary listing exchanges should 
be maintained and published so that market participants will know which 
exchange is responsible for providing regulatory data. Further, 
competing consolidators and self-aggregators will need to know which 
exchange will be making regulatory data available.
---------------------------------------------------------------------------

    \1228\ The term ``primary listing exchange'' is defined in Rule 
600(b)(68).
    \1229\ See Data Boiler Letter I at 64.
    \1230\ See NYSE Letter II at 28.
---------------------------------------------------------------------------

(k) Regulation SCI
    The Commission is modifying Rule 614(e) to accommodate the new 
definition of SCI competing

[[Page 18690]]

consolidator classification under Regulation SCI. Specifically, new 
paragraph (v) of Rule 614(e) will require the participants to the 
effective national market system plan(s) for NMS stocks to file with 
the Commission an amendment that requires the plan(s) to calculate and 
publish on a monthly basis the consolidated market data gross revenues 
for NMS stocks as specified by: (1) Listed on the NYSE; (2) listed on 
Nasdaq; and (3) listed on exchanges other than NYSE or Nasdaq. The 
Commission believes that the plan(s) are best suited to calculate and 
publish this information because, as noted above, the effective 
national market system plan(s) will charge the fees for the data 
content underlying consolidated market data, collect the revenue, and 
oversee accounts and billing. Competing consolidators will use the 
calculation and publication of consolidated market data gross revenues 
to assess whether they have reached the 5% threshold described in Rule 
1000 for SCI competing consolidators. As discussed below, the 
Commission believes that competing consolidators that reach these 
thresholds should be held to higher systems resiliency and integrity 
standards as required under Regulation SCI than competing consolidators 
that are below this threshold.\1231\
---------------------------------------------------------------------------

    \1231\ See infra Section III.F.
---------------------------------------------------------------------------

F. Systems Capability: Amendment to Rule 1000 of Regulation SCI To 
Expand ``SCI Entities'' Definition To Include ``SCI Competing 
Consolidator''; Adoption of Rule 614(d)(9): Systems Integrity

    In the Proposing Release, the Commission stated its preliminary 
belief that competing consolidators should be subject to the 
requirements of Regulation SCI.\1232\ The Commission adopted Regulation 
SCI in November 2014 to strengthen the technology infrastructure of the 
U.S. securities markets, reduce the occurrence of systems issues in 
those markets, improve their resiliency when technological issues 
arise, and establish an updated and formalized regulatory framework, 
thereby helping to ensure more effective Commission oversight of such 
systems.\1233\ The key market participants that are currently subject 
to Regulation SCI are called ``SCI entities'' and include certain SROs 
(including stock and options exchanges, registered clearing agencies, 
FINRA, and the Municipal Securities Regulatory Board) (``SCI SROs''); 
alternative trading systems that trade NMS and non-NMS stocks exceeding 
specified volume thresholds (``SCI ATSs''); the exclusive SIPs (``plan 
processors''); and certain exempt clearing agencies.\1234\
---------------------------------------------------------------------------

    \1232\ See Proposing Release, 85 FR at 16785-89.
    \1233\ See Securities Exchange Act Release No. 73639 (Nov. 19, 
2014), 79 FR 72252 (Dec. 5, 2014) (``SCI Adopting Release''), at 
72252-56 for a discussion of the background of Regulation SCI.
    \1234\ See Rule 1000.
---------------------------------------------------------------------------

    As the Commission stated in the Proposing Release, competing 
consolidators, as sources of consolidated market data, would serve an 
important role in the national market system. The Commission explained 
that, as it had stated when adopting Regulation SCI, ``both 
consolidated and proprietary market data systems are widely used and 
relied upon by a broad array of market participants, including 
institutional investors, to make trading decisions, and . . . if a 
consolidated or a proprietary market data feed became unavailable or 
otherwise unreliable, it could have a significant impact on the trading 
of the securities to which it pertains, and could interfere with the 
maintenance of fair and orderly markets.'' \1235\ For these reasons, 
Regulation SCI applies to both the exclusive providers of consolidated 
market data (i.e., the plan processors) and to proprietary market data 
systems, and is not limited to applicable systems of plan processors, 
but rather also includes the market data systems of any SCI entity, 
including SCI SROs. Taking into consideration the role of competing 
consolidators as providers of consolidated market data feeds that are 
likely to be widely used and relied upon by market participants, the 
Commission proposed to apply Regulation SCI to competing consolidators 
by including them within the definition of ``SCI entity'' and requested 
public comment.\1236\ In particular, among other things, the Commission 
requested comment on whether all of the obligations set forth in 
Regulation SCI should apply to competing consolidators or whether only 
certain requirements should be imposed, such as those requiring written 
policies and procedures, notification of systems problems, business 
continuity and disaster recovery testing (including testing with 
participants/subscribers of a competing consolidator), and penetration 
testing.\1237\
---------------------------------------------------------------------------

    \1235\ See Proposing Release, 85 FR at 16786 (quoting SCI 
Adopting Release, supra note 1233, at 72275).
    \1236\ In addition, the Commission proposed to revise the 
definition of ``critical SCI system'' to account, among other 
things, for the systems of OPRA's plan processor, since the 
competing consolidator model will not apply with respect to trading 
in options. See Proposing Release, 85 FR at 16786-87. The Commission 
is adopting the revision to the definition of ``critical SCI 
system'' as proposed. See infra notes 1315-1316 and accompanying 
text.
    \1237\ See Proposing Release, 85 FR at 16789.
---------------------------------------------------------------------------

    A number of commenters supported applying the requirements of 
Regulation SCI to competing consolidators in some form.\1238\ In 
particular, a few commenters supported application of Regulation SCI to 
competing consolidators as proposed.\1239\ Others argued that competing 
consolidators should be considered to have ``critical SCI systems'' 
like the exclusive SIPs and thus subject to higher requirements than 
proposed.\1240\ Some commenters, however, expressed concern that the 
costs of SCI compliance would be a barrier to entry and could deter 
entities from seeking to become competing consolidators.\1241\ 
Similarly, several commenters, although not citing Regulation SCI 
specifically, expressed general skepticism about the ability to attract 
new entrants to register as competing consolidators, citing among other 
factors, potential lack of economic incentives.\1242\
---------------------------------------------------------------------------

    \1238\ See Cboe Letter at 26; Nasdaq Letter IV at 35-36; Data 
Boiler Letter I at 57; STANY Letter II at 6; FINRA Letter at 4, n. 
14; MEMX Letter at 8; Fidelity Letter at 3, 10; Clearpool Letter at 
9.
    \1239\ See FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity 
Letter at 3, 10. See also Clearpool Letter at 9; STANY Letter II at 
6.
    \1240\ See Cboe Letter at 26; Nasdaq Letter IV at 35-36; Data 
Boiler Letter I at 57; STANY Letter II at 6.
    \1241\ See NYSE Letter II at 15; ACTIV Financial Letter at 2; 
IDS Letter I at 13; STANY Letter II at 6-7; Angel Letter at 19-21. 
See also TD Ameritrade Letter at 13; Nasdaq Letter III at 4.
    \1242\ See also supra notes 626-629 and 641-649 and accompanying 
text (discussing commenters' views that a lack of sufficient 
economic incentives for potential competing consolidators and the 
costs to become a competing consolidator outweigh the benefits).
---------------------------------------------------------------------------

    The Commission continues to believe that competing consolidators, 
as providers of consolidated market data products, will serve an 
important role in the national market system. Thus, consistent with the 
views of many commenters, the Commission believes that it is important 
to impose requirements to help ensure that the technology systems of 
competing consolidators are reliable and resilient, consistent with the 
policy goals of Regulation SCI.\1243\ The Commission is cognizant that 
Regulation SCI entails compliance burdens for new entrants \1244\ and, 
in particular, that

[[Page 18691]]

those costs could serve as a barrier to entry for potential competing 
consolidators and deter some potential entities from becoming competing 
consolidators, as noted by several commenters.\1245\ The Commission is 
adopting a two-pronged approach to competing consolidators with respect 
to Regulation SCI, as described more fully below. The Commission 
estimates that under this approach, due to the threshold levels being 
adopted, the requirements of Regulation SCI \1246\ will apply to most 
competing consolidators following an initial transition period.\1247\ 
In addition, the Commission is adopting a tailored set of operational 
capability and resiliency obligations designed to help ensure that the 
provision of consolidated market data products is prompt, accurate, and 
reliable, that is applicable to all competing consolidators during the 
transition period and to competing consolidators that are below the 
adopted threshold thereafter.
---------------------------------------------------------------------------

    \1243\ See supra note 1233 and accompanying text; Cboe Letter at 
26; Nasdaq Letter IV at 35-36; Clearpool Letter at 9; Data Boiler 
Letter I at 57; FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity 
Letter at 10. See also IntelligentCross Letter at 5, BlackRock 
Letter at 5; ACS Execution Services Letter at 5; Temple University 
Letter at 1-2.
    \1244\ See Proposing Release, 85 FR at 16808-09, 16836-38, 
16845-48 (discussing paperwork burdens, costs, and benefits of 
complying with Regulation SCI). See also Nasdaq Letter III at 4; 
NYSE Letter II at 15; Schwab Letter at 7; TD Ameritrade Letter at 
13; ACTIV Financial Letter at 2; IDS Letter I at 13; STANY Letter II 
at 6-7; Angel Letter at 19-21.
    \1245\ See Nasdaq Letter III at 4; NYSE Letter II at 15; Schwab 
Letter at 7; TD Ameritrade Letter at 13; ACTIV Financial Letter at 
2; IDS Letter I at 13; Angel Letter at 19-21.
    \1246\ As discussed in the Proposing Release, Regulation SCI 
would, among other things, require SCI entities, which would now 
include SCI competing consolidators (as discussed below), to 
establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure that their key automated systems have 
levels of capacity, integrity, resiliency, availability, and 
security adequate to maintain their operational capability and 
promote the maintenance of fair and orderly markets, and that such 
systems operate in accordance with the Exchange Act and the rules 
and regulations thereunder and the entities' rules and governing 
documents, as applicable. See 17 CFR 242.1001 (Rule 1001) of 
Regulation SCI. Broadly speaking, Regulation SCI also requires SCI 
entities to take appropriate corrective action when systems issues 
occur; provide certain notifications and reports to the Commission 
regarding systems problems and systems changes; inform members and 
participants about systems issues; conduct business continuity and 
disaster recovery testing and penetration testing; conduct annual 
reviews of their automated systems; and make and keep certain books 
and records. See Rules 1002-1007 of Regulation SCI.
    \1247\ See infra Section III.H for a discussion of the initial 
transition period.
---------------------------------------------------------------------------

    First, the Commission believes that the inclusion of certain 
competing consolidators in the definition of ``SCI entity'' is 
appropriate. Several commenters supported the Commission's proposal to 
apply the requirements of Regulation SCI to all competing 
consolidators, emphasizing the importance of ensuring the resiliency 
and reliability of the infrastructure for market data 
dissemination.\1248\ However, in recognition of the more limited role 
that certain competing consolidators may play in the securities markets 
and to address the concerns of other commenters who believed that the 
compliance costs of Regulation SCI would be burdensome to potential 
competing consolidators and could pose a significant barrier to entry 
for some potential competing consolidators, the Commission has made 
certain modifications from the proposal.\1249\
---------------------------------------------------------------------------

    \1248\ See FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity 
Letter at 3, 10. See also Clearpool Letter at 9; STANY Letter II at 
6.
    \1249\ See supra notes 1244-1245 and accompanying text.
---------------------------------------------------------------------------

    The Commission is adopting a definition of ``SCI competing 
consolidator'' that will subject competing consolidators to Regulation 
SCI, after a one-year transition period (as discussed below) (``SCI CC 
Phase-In Period''),\1250\ if they are above the adopted 
threshold.\1251\ This approach is similar to that taken regarding the 
definition of ``SCI ATS,'' which applies Regulation SCI to those ATSs 
that meet certain volume thresholds and thus were determined by the 
Commission to play a significant role in the securities markets.\1252\
---------------------------------------------------------------------------

    \1250\ See infra note 1268 and accompanying text (discussing 
that SCI competing consolidators will not be required to comply with 
Regulation SCI until one year after the compliance date of Rule 
614(d)(3)).
    \1251\ The definition of ``SCI entity'' under Rule 1000 of 
Regulation SCI would be amended to include ``SCI competing 
consolidators.''
    \1252\ See Rule 1000 of Regulation SCI (definition of ``SCI 
ATS''). As discussed further below, for those competing 
consolidators, that are either (i) newly registered and operating 
during the initial transition period, or (ii) do not otherwise 
satisfy the SCI entity definition (because they are below the five 
percent threshold for an SCI competing consolidator), a more 
tailored set of safeguards would apply.
---------------------------------------------------------------------------

    Specifically, an ``SCI competing consolidator'' will be defined in 
Rule 1000 of Regulation SCI to mean ``any competing consolidator, as 
defined in Sec.  242.600 which during at least four of the preceding 
six calendar months, accounted for five percent (5%) or more of 
consolidated market data gross revenue paid to the effective national 
market system plan or plans required under Sec.  242.603(b) for NMS 
stocks (1) listed on the New York Stock Exchange LLC, (2) listed on The 
Nasdaq Stock Market LLC, or (3) listed on national securities exchanges 
other than the New York Stock Exchange LLC or The Nasdaq Stock Market 
LLC, as reported by such plan or plans pursuant to the terms thereof.'' 
\1253\
---------------------------------------------------------------------------

    \1253\ See Rule 1000 of Regulation SCI.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission requested comment on 
whether it would be appropriate to set a threshold to determine which 
competing consolidators should be subject to Regulation SCI.\1254\ The 
Commission received one comment addressing the threshold inquiries, 
which expressed support for the adoption of a threshold.\1255\ The 
Commission believes that adopting a threshold to determine which 
competing consolidators are subject to Regulation SCI is responsive 
both to commenters who emphasized the importance of ensuring the 
resiliency, reliability, and integrity of the infrastructure for market 
data dissemination, as well as commenters that expressed concerns about 
barriers to entry. In adopting a threshold in the definition of ``SCI 
competing consolidator,'' the Commission believes it is establishing a 
reasonable scope for the application of Regulation SCI to competing 
consolidators.
---------------------------------------------------------------------------

    \1254\ See Proposing Release, 85 FR at 16789 (requesting comment 
on whether a threshold test would be appropriate for competing 
consolidators subject to Regulation SCI and, if so, what such a 
threshold test should be).
    \1255\ See Data Boiler Letter I at 57 (arguing that because 
compliance with Regulation SCI would be a possible barrier to entry, 
the Commission should adopt a threshold of ten percent for requiring 
compliance and arguing also that those below the threshold should be 
encouraged to voluntarily adopt SCI as ``best practices''). See also 
infra note 1263 and accompanying text.
---------------------------------------------------------------------------

    The adopted threshold level is designed to identify those entities 
which, if they were to experience a systems issue, could potentially 
affect a substantial number of market participants and impact a broad 
swath of the national market system.\1256\ The Commission believes that 
the 5% threshold level is reasonable for assessing materiality both 
generally and in the context of competing consolidated market data 
providers.\1257\ Specifically, the Commission believes that the adopted 
threshold level is not

[[Page 18692]]

so high so as to exclude competing consolidators for which a systems 
issue could have a significant impact on market participants or the 
national market system as a whole and, at the same time, provides an 
opportunity for a competing consolidator to enter and grow its business 
prior to incurring the costs of compliance with Regulation SCI if it 
were to exceed the threshold level.\1258\ Notably, during this time 
competing consolidators will be subject to the requirements of Rule 
614(d)(9) of Regulation NMS, as discussed below. The Commission 
recognizes that this threshold ultimately represents a matter of 
judgment by the Commission relating to the application of Regulation 
SCI to a new decentralized consolidation model and a new category of 
regulated entity. In the exercise of this judgment, the Commission has 
sought to identify a threshold level designed to ease barriers to entry 
for competing consolidators during the SCI CC Phase-In Period and for 
new competing consolidators thereafter.\1259\
---------------------------------------------------------------------------

    \1256\ Further, while the Commission believes that the competing 
consolidator model is designed to result in multiple viable sources 
of consolidated market data, the Commission believes that adopting a 
threshold will ensure that, if the market is largely reliant on a 
small number of competing consolidators for the distribution of 
consolidated market data, such competing consolidators will be 
subject to the safeguards of Regulation SCI. The Commission believes 
that this could arise if only a small number of entities register as 
competing consolidators, if certain competing consolidators dominate 
the market, or if competing consolidators subsequently exit the 
market resulting in a concentration of competing consolidators. See 
also infra notes 1315-1316 and accompanying text (discussing 
``critical SCI systems'' and competing consolidators).
    \1257\ The adopted five percent threshold is consistent with the 
threshold level in the ``Fair Access'' rule (Rule 301(b)(5)) of 
Regulation ATS, as well as one of the volume threshold levels in the 
definition of SCI ATS in Rule 1000 of Regulation SCI.
    \1258\ Basing the threshold on a measure of the consolidated 
market data gross revenue paid to the plan, rather than number of 
subscribers, will reflect the value of the consolidated market data 
as determined by the plan's fees and thus account for those 
competing consolidators that may have fewer subscribers but pay 
higher fees due to having mainly professional subscribers who 
typically trade at significantly higher volumes than retail 
customers, as well as those competing consolidators that may have a 
relatively high number of retail subscribers that pay lower fees.
    \1259\ Competing consolidators not subject to Regulation SCI 
will be subject to Rule 614(d)(9), as discussed below.
---------------------------------------------------------------------------

    The adopted thresholds describe plan revenues by reference to 
current Tapes A, C, and B, respectively.\1260\ Although it is possible 
that the existing definition of tapes may be modified post-
implementation, the thresholds acknowledge that listing exchange status 
has been, and may continue to be, relevant as the plan(s) develop 
pricing for data content underlying consolidated market data because 
Tape A, C, and B encompass securities listed on NYSE, Nasdaq, and 
national securities other than NYSE and Nasdaq, respectively.\1261\ 
Accordingly, this threshold is designed to help ensure that any 
competing consolidator that might have material market share for the 
securities in current Tapes A, B, or C (where a significant number of 
market participants rely on it for such market data, for example, if a 
competing consolidator were to focus or specialize in stocks listed on 
a particular exchange), is subject to the requirements of Regulation 
SCI, even if its market share in stocks listed across all national 
securities exchanges is not as significant.\1262\
---------------------------------------------------------------------------

    \1260\ As discussed below, the Commission is also requiring the 
amendment to the effective national market system plan(s) to include 
a provision that requires the plan(s) to calculate and publish 
information relating to the consolidated market data gross revenues 
on a monthly basis.
    \1261\ Should pricing for consolidated market data become more 
granular than exists today (e.g., by moving from a per-tape basis to 
a per-listing exchange basis), reconsideration of the adopted 
thresholds may be appropriate.
    \1262\ For context, annual tape revenues reported by the CTA and 
Nasdaq UTP plans in 2019 were as follows: $162.9 million, $95.8 
million, and $130.7 million, Tapes A, B, C, respectively. Thus, Tape 
A accounted for 41.8% of total revenues, Tape B accounted for 24.6% 
of total revenues, and Tape C accounted for 33.6% of total revenues. 
Five percent of these annual figures divided by 12 (i.e., per month) 
yield monthly figures as follows: $679,000, $399,000, and $545,000, 
for Tapes A, B, and C, respectively. As illustrated by these 
figures, the notional value of the threshold level in the definition 
of SCI competing consolidator will vary for NMS stocks (i) listed on 
the NYSE, (ii) listed on Nasdaq, or (iii) listed on national 
securities exchanges other than the NYSE or Nasdaq. However, based 
on these 2019 figures, the threshold level for each tape represents 
over 1% of total monthly revenues across all tapes ($324,500). 
Specifically, the threshold for Tape A represents approximately 2.1% 
of total monthly revenues, the threshold for Tape B represents 
approximately 1.2% of total monthly revenues, and the threshold for 
Tape C represents approximately 1.7% of total monthly revenues. See 
CTA, SIP Revenue Allocation Summary, Q1 2020 Quarterly Revenue 
Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_1Q2020.pdf (last accessed Nov. 27, 
2020); UTP, SIP Revenue Allocation Summary, Q1 2020 Quarterly 
Revenue Disclosure, available at http://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q12020.pdf (last accessed Nov. 27, 2020).
---------------------------------------------------------------------------

    Although one commenter suggested that the Commission adopt a ten 
percent threshold for compliance with Regulation SCI,\1263\ the 
Commission believes that such a threshold could exclude competing 
consolidators for which a systems issue or cybersecurity incident could 
have a significant impact on market participants or the national market 
system as a whole. As noted above, the numerical thresholds in the 
definition of ``SCI competing consolidator'' reflect an assessment by 
the Commission of the likely economic consequences of the specific 
numerical threshold included in the definition.
---------------------------------------------------------------------------

    \1263\ See Data Boiler Letter I at 57 (arguing that those below 
the threshold should be encouraged to voluntarily adopt SCI as 
``best practices''). The commenter did not provide further detail as 
to how it believed this threshold should be measured (e.g., total 
subscribers) or provide any rationale as to why this would be an 
appropriate threshold level.
---------------------------------------------------------------------------

    The Commission believes that the time measurement period for 
calculating the threshold (``during at least four of the preceding six 
calendar months''), is appropriate for evaluating the market share of a 
competing consolidator, because it provides a new entrant time to 
develop their business prior to having to incur the costs of complying 
with Regulation SCI,\1264\ and it provides a long enough period of data 
on revenue and subscriber levels to evaluate reasonably a competing 
consolidator's significance to the market.\1265\ It also mitigates a 
possible barrier to entry for some new competing consolidators. 
Further, the Commission believes that this time measurement period will 
help to ensure that competing consolidators meeting the definition of 
SCI competing consolidator are those that have sustained gross revenue 
levels at the threshold warranting the protections of Regulation SCI 
and is less likely to result in competing consolidators moving in and 
out of the scope of the definition than if the Commission were to adopt 
a shorter measurement period.
---------------------------------------------------------------------------

    \1264\ See infra note 1271 (discussing the time period before a 
competing consolidator would be subject to Regulation SCI).
    \1265\ This time measurement period is drawn from the current 
measurement period in the definition of ``SCI ATS.'' See Rule 1000 
of Regulation SCI (definition of ``SCI ATS''). This measurement 
period is also consistent with the measurement period in 17 CFR 
242.301(b)(6) (Rule 301(b)(6) of Regulation ATS).
---------------------------------------------------------------------------

    The adopted definition of ``SCI competing consolidator'' also 
provides that consolidated market data gross revenue paid to the 
effective national market system plan or plans required under Sec.  
242.603(b) for NMS stocks (1) listed on the NYSE; (2) listed on Nasdaq; 
or (3) listed on exchanges other than NYSE or Nasdaq will be ``as 
reported by such plan or plans pursuant to the terms thereof.'' 
Competing consolidators will need information regarding the 
consolidated market data gross revenues to assess whether they meet the 
5% threshold and are required to comply with Regulation SCI. 
Accordingly, as discussed above, Rule 614(e) will provide that the 
amendment to the effective national market system plan(s) will have to 
include a provision that requires the plan(s) to calculate and publish 
total consolidated market data gross revenues for NMS stocks (1) listed 
on the NYSE, (2) listed on Nasdaq, and (3) listed on national 
securities exchanges other than the NYSE or Nasdaq, on a monthly 
basis.\1266\
---------------------------------------------------------------------------

    \1266\ See supra Section III.E.
---------------------------------------------------------------------------

    As noted above, the requirements of Regulation SCI will not apply 
to any competing consolidator \1267\ during an

[[Page 18693]]

initial period of one year after the compliance date of Rule 614(d)(3) 
of Regulation NMS.\1268\ Instead, during this SCI CC Phase-In Period, 
competing consolidators will be subject to the requirements adopted in 
Rule 614(d)(9) of Regulation NMS, as discussed below, which includes 
requirements similar to some of the key provisions of Regulation SCI. 
The Commission believes that this phase-in period will mitigate the 
concerns raised by some commenters regarding potential barriers to 
entry by allowing potential competing consolidators to enter the market 
and develop their business and subscriber base, without requiring them 
to immediately shoulder the costs and burdens of Regulation SCI as SCI 
entities. At the same time, applying the requirements of Rule 614(d)(9) 
of Regulation NMS provides that competing consolidators are immediately 
subject to certain obligations to help ensure the reliability and 
resiliency of their systems during the SCI CC Phase-In Period. In 
addition, during this initial period, the plan processors would still 
be required to operate and would be SCI entities, subject to the 
requirement of Regulation SCI.\1269\
---------------------------------------------------------------------------

    \1267\ National securities exchanges are subject to the 
requirements of Regulation SCI because they are SCI entities. See 
Rule 1000 of Regulation SCI. As discussed above, an exchange 
affiliated competing consolidator may qualify for a conditional 
exemption from certain requirements otherwise applicable to national 
securities exchanges. See supra Section III.C.7(a)(iv). If an 
exchange qualifies for such an exemption, during the SCI CC Phase-In 
Period and, subsequent to such period, if it does not exceed the 
threshold in the definition of ``SCI competing consolidator'' in 
Rule 1000 of Regulation SCI, its exchange-affiliated competing 
consolidator would be subject to the requirements of Rule 614(d)(9) 
of Regulation NMS and not subject to the requirements of Regulation 
SCI.
    \1268\ Rule 614(d)(3) requires competing consolidators to make 
consolidated market data products available to subscribers on a 
consolidated basis on terms that are not unreasonably 
discriminatory. See infra note 1356 and accompanying text.
    \1269\ See infra Section III.H (discussing the transition period 
and compliance dates).
---------------------------------------------------------------------------

    In addition, the Commission believes that it is appropriate to 
provide competing consolidators who enter the market after the SCI CC 
Phase-In Period and meet the revenue threshold in the definition of 
``SCI competing consolidators'' for the first time, a period of time 
before they are required to comply with the requirements of Regulation 
SCI. Thus, Rule 1000 provides that an SCI competing consolidator will 
not be required to comply with the requirements of Regulation SCI until 
six months after satisfying the threshold in the definition of SCI 
competing consolidator for the first time.\1270\ The Commission 
believes that this six-month ``grace'' period is appropriate and 
necessary to allow an SCI competing consolidator the time needed to 
take steps to meet the requirements of the rules, rather than requiring 
compliance immediately upon meeting the threshold level. The Commission 
also believes that this additional period for compliance should give a 
new competing consolidator entrant the opportunity to initiate and 
develop its business by allowing additional time before a new competing 
consolidator must incur the costs associated with compliance with the 
requirements of Regulation SCI.\1271\
---------------------------------------------------------------------------

    \1270\ See Rule 1000 of Regulation SCI (paragraph (b) of 
definition of ``SCI competing consolidator'').
    \1271\ After the SCI CC Phase-In Period discussed above has 
passed (i.e., after which paragraph (c) of the definition of SCI 
competing consolidator will no longer apply), any new competing 
consolidator would have at least ten months, at a minimum, before it 
would be subject to Regulation SCI, because the time measurement 
period within paragraph (a) of the definition of SCI competing 
consolidator (that a competing consolidator will be subject to 
Regulation SCI only if they meet the numerical threshold ``during at 
least four of the preceding six calendar months'') would occur prior 
to the start of the six-month ``grace'' period. For example, if a 
competing consolidator began operating in January of a year after 
the initial one-year SCI CC Phase-In Period, the earliest it would 
satisfy the thresholds in paragraph (a) of the definition of SCI 
competing consolidator for the first time would be May 1st of that 
year (i.e., if such competing consolidator satisfied the threshold 
requirement in each of January, February, March and April). It would 
then have six months from that time to become fully compliant with 
Regulation SCI, and thus would have to comply with the requirements 
of Regulation SCI by November 1st.
---------------------------------------------------------------------------

    Some commenters argued that competing consolidators should not only 
be subject to the standard requirements of Regulation SCI but should be 
held to the heightened requirements imposed on ``critical SCI 
systems.'' \1272\ As the Commission stated in the Proposing Release, 
under the current consolidation model, because the exclusive SIPs 
represent single points of failure, they are all subject to heightened 
requirements as ``critical SCI systems.'' \1273\ However, the competing 
consolidator model is designed to result in multiple viable sources of 
consolidated market data, and the competing consolidator model would 
not be initiated until a transition period is complete. Accordingly, 
the Commission believes that including systems of such competing 
consolidators within the scope of ``critical SCI systems'' is 
unnecessary, because any individual competing consolidator would no 
longer be the sole source of a consolidated market data product, as 
each SIP is today for its respective securities.\1274\ Some commenters 
argued that, even with multiple competing consolidators, due to product 
differentiation, certain consolidators would become uniquely important 
to market participants and such participants would not be able to 
readily switch to another competing consolidator in the event of a 
systems issue.\1275\ As such, commenters argued that each competing 
consolidator could become a single point of failure for its 
customers.\1276\ However, in adopting the definition of ``critical SCI 
systems,'' the Commission explained that the definition is designed to 
``identify those SCI systems that are critical to the operation of the 
markets, including those systems that represent single points of 
failure in the securities markets,'' and that the systems included in 
this category are those that, if they were to experience systems issues 
``would be the most likely to have a widespread and significant impact 
on the securities markets.'' \1277\ The Commission does not dispute 
that a systems issue at an individual SCI competing consolidator could 
have a significant impact on its subscribers, but the Commission does 
not believe that such a systems issue would have the same type of 
widespread impact on the national market system that the Commission had 
contemplated in its definition of ``critical SCI system.'' \1278\
---------------------------------------------------------------------------

    \1272\ See Cboe Letter at 25-26; Nasdaq Letter IV at 35-36; Data 
Boiler Letter I at 57; STANY Letter II at 6.
    \1273\ See Proposing Release, 85 FR at 16786.
    \1274\ Id. at 16786-87.
    \1275\ See Nasdaq Letter IV at 35-36; Cboe Letter at 25-26. See 
also Nasdaq Letter IV at 8.
    \1276\ See Nasdaq Letter IV at 35-36; Cboe Letter at 25-26; see, 
however, e.g., Committee on Capital Markets Regulation Letter at 3 
(``[W]ith multiple competing consolidators, there will no longer be 
a single point for failure capable of inducing stock market-wide 
paralysis, strengthening market resiliency.''). See also NYSE Letter 
II at 24; FINRA Letter at 4.
    \1277\ SCI Adopting Release at 72277.
    \1278\ Some commenters also argued that the Commission's 
proposal not to apply the standards for critical SCI systems to 
competing consolidators was based on the assumption that there will 
be multiple competing consolidators that enter the market. These 
commenters expressed doubt as to whether this would be the case. See 
Nasdaq Letter IV at 35-36; Cboe Letter at 25. See also Angel Letter 
at 20-21. However, the Commission notes that the second prong of the 
definition of ``critical SCI systems'' provides a catch-all for 
systems that ``[p]rovide functionality to the securities markets for 
which the availability of alternatives is significantly limited or 
nonexistent and without which there would be a material impact on 
fair and orderly markets.'' See Rule 1000 of Regulation SCI 
(definition of ``critical SCI system''). As discussed above, the 
competing consolidator model is designed to result in multiple 
viable sources of consolidated market data, would not be initiated 
until a transition period is complete, and thus should not result in 
a single point of failure. However, the second prong of the 
definition of ``critical SCI systems'' would apply in the event that 
availability of alternatives were significantly limited or 
nonexistent in the future.
---------------------------------------------------------------------------

    Second, during the one-year SCI CC Phase-In Period and, 
subsequently, for competing consolidators that are not SCI competing 
consolidators, the Commission believes that a more tailored approach is 
appropriate, and is adopting a framework that imposes requirements 
similar to some of the key provisions of Regulation SCI on these

[[Page 18694]]

entities. The Commission believes that this two-pronged approach will 
help ensure that the automated systems of competing consolidators have 
adequate levels of capacity, integrity, resiliency, availability, and 
security to maintain operational capability, while at the same time 
allowing all competing consolidators to grow their business for an 
initial transition period and subsequently, affording new entrants a 
similar opportunity to do so, taking into consideration their 
functions, potential risks, and the costs and burdens associated with 
the various requirements of Regulation SCI.\1279\
---------------------------------------------------------------------------

    \1279\ See supra note 1271 and accompanying text. While one 
commenter suggested that competing consolidators that do not meet 
the threshold level should be encouraged to voluntarily adopt SCI as 
``best practices,'' see Data Boiler Letter I at 56, the Commission 
believes that because of the importance of ensuring the reliable 
delivery of core market data to market participants in the 
securities markets, a more appropriate approach is to include in 
Rule 614(d)(9) requirements similar to some of the core provisions 
of Regulation SCI for competing consolidators that are not SCI 
competing consolidators.
---------------------------------------------------------------------------

    For those competing consolidators that (i) are newly registered and 
operating during the initial SCI CC Phase-In Period, or (ii) 
subsequently, do not satisfy the SCI entity definition because they are 
below the five percent SCI competing consolidator threshold, new 
paragraph (d)(9) of Rule 614 will apply. The provisions of Rule 
614(d)(9) will subject competing consolidators that are not SCI 
competing consolidators to certain, but not all, obligations that are 
similar to those that apply to SCI entities.\1280\ Paragraph (d)(9)(i) 
of Rule 614 contains certain definitions applicable to Rule 614(d)(9), 
which are discussed below.\1281\ Paragraph (d)(9)(ii) of Rule 614 
relates to the obligations of competing consolidators with respect to 
policies and procedures. Specifically, competing consolidators will be 
required to establish, maintain, and enforce written policies and 
procedures reasonably designed to ensure: That their systems involved 
in the collection and consolidation of consolidated market data, and 
dissemination of consolidated market data products, have levels of 
capacity, integrity, resiliency, availability, and security adequate to 
maintain the competing consolidator's operational capability and 
promote the maintenance of fair and orderly markets; and the prompt, 
accurate, and reliable dissemination of consolidated market data 
products.\1282\ Paragraph (d)(9)(ii)(A)(1) of Rule 614 mirrors the 
broad policies and procedures obligation relating to capacity, 
integrity, resiliency, availability, and security in Rule 1001(a)(1) of 
Regulation SCI, which is core to ensuring the operational capability 
and resiliency of competing consolidators.\1283\
---------------------------------------------------------------------------

    \1280\ Although competing consolidators that are not SCI 
entities would not be subject to the requirements of Regulation SCI, 
because of the similarities between the provisions of Rule 614(d)(9) 
and certain parallel provisions in Regulation SCI (as described 
herein), the Commission notes that competing consolidators can look 
to the Regulation SCI Adopting Release in certain cases for further 
explanation and guidance regarding these provisions. See generally 
SCI Adopting Release, supra note 1233. See also SCI Adopting Release 
at 72289-92 (for a discussion of 17 CFR 242.1001(a)(1) (Rule 
1001(a)(1)) of Regulation SCI).
    \1281\ See infra notes 1295-1297 and accompanying text 
(discussing the definitions of systems disruption and systems 
intrusion).
    \1282\ See 17 CFR 242.614(d)(9)(ii)(A)(1) (Rule 
614(d)(9)(ii)(A)(1)) of Regulation NMS.
    \1283\ In assessing whether its consolidated market data systems 
meet the security standard of Rule 614(d)(9)(ii)(A)(1), a relevant 
consideration would be whether any other systems provide vulnerable 
points of entry to a competing consolidator's consolidated market 
data systems, heightening the risk of a systems intrusion.
---------------------------------------------------------------------------

    This rule does not follow the Regulation SCI approach of requiring 
minimum elements that are required for the operational capability 
policies and procedures of SCI entities.\1284\ For competing 
consolidators that do not meet the definition of SCI competing 
consolidator and pose less risk to the markets as discussed above, the 
Commission believes it is appropriate to take a more flexible approach 
for the required policies and procedures under 17 CFR 242.614(d)(9)(ii) 
(Rule 614(d)(9)(ii)). The rule affords these competing consolidators 
the flexibility to design and tailor their policies and procedures 
based on their own assessment of their policies and procedures 
obligations relating to capacity, integrity, resiliency, availability, 
and security in paragraph (d)(9)(ii)(A)(1). Importantly, paragraph 
(d)(9)(ii)(A)(1) of Rule 614 incorporates into the general policies and 
procedures provision the requirement that a competing consolidator's 
policies and procedures be reasonably designed to ensure the ``prompt, 
accurate, and reliable dissemination of consolidated market data 
products.'' \1285\
---------------------------------------------------------------------------

    \1284\ However, as discussed below, the Commission is 
incorporating into the general policies and procedures requirement 
the minimum element that relates directly to market data in 17 CFR 
242.1001(a)(2)(v) (Rule 1001(a)(2)(v)) of Regulation SCI.
    \1285\ 17 CFR 242.614(d)(9)(ii)(A)(1). See also 17 CFR 
242.1001(a)(2)(vi) (Rule 1001(a)(2)(vi)) of Regulation SCI.
---------------------------------------------------------------------------

    Rule 1001(a)(2)(v) of Regulation SCI, which relates to BC/DR plans, 
specifically requires SCI entities to have BC/DR plans that ``include 
maintaining backup and recovery capabilities sufficiently resilient and 
geographically diverse and that are reasonably designed to achieve next 
business day resumption of trading and two-hour resumption of critical 
SCI systems following a wide-scale disruption.'' \1286\ Like the other 
minimum elements enumerated in Rule 1001(a)(2) of Regulation SCI, the 
Commission is not adopting this requirement for competing consolidators 
who do not meet the thresholds in the definition of SCI competing 
consolidator.
---------------------------------------------------------------------------

    \1286\ Rule 1001(a)(2)(v) of Regulation SCI.
---------------------------------------------------------------------------

    Some commenters noted the impact that the impairment of a competing 
consolidator's data could have on its subscribers and stated the 
importance for subscribers to retain backup competing 
consolidators.\1287\ Competing consolidators that are not SCI entities 
may choose to adhere voluntarily with the provisions in Regulation SCI 
related to BC/DR plans. Many market participants that receive 
consolidated market data products from a competing consolidator, 
whether an SCI competing consolidator or not, will take steps to assess 
the reliability and resilience of the competing consolidator, such as 
understanding the backup capabilities of a competing consolidator, as 
well as reviewing contract terms, due diligence, and monitoring. After 
such an assessment and evaluating the needs of their business and their 
customers, some market participants may choose to maintain connections 
to backup competing consolidators (i.e., from a secondary source) that 
would be able to immediately provide such market participants with 
consolidated market data if their primary competing consolidator was 
unable to do so.
---------------------------------------------------------------------------

    \1287\ See, e.g., FINRA Letter at 4.
---------------------------------------------------------------------------

    Paragraph (d)(9)(ii)(A)(2) of Rule 614 provides that the policies 
and procedures under paragraph (d)(9)(ii)(A)(1) will be deemed to be 
reasonably designed if they are consistent with current industry 
standards, which would be comprised of information technology practices 
that are widely available to information technology professionals in 
the financial sector and issued by an authoritative body that is a U.S. 
governmental entity or agency, association of U.S. governmental 
entities or agencies, or widely recognized organization. Compliance 
with such current industry standards, however, will not be the 
exclusive means to comply with the requirements of paragraph 
(d)(9)(ii)(A) of Rule 614.\1288\ This provision mirrors the safe harbor 
relating to industry

[[Page 18695]]

standards in 17 CFR 242.1001(a)(4) (Rule 1001(a)(4)) of Regulation 
SCI.\1289\
---------------------------------------------------------------------------

    \1288\ See 17 CFR 242.614(d)(9)(ii)(A)(2) (Rule 
614(d)(9)(ii)(A)(2)) of Regulation NMS.
    \1289\ See SCI Adopting Release at 72298-03 (discussing Rule 
1001(a)(4) of Regulation SCI). Concurrent with the adoption of 
Regulation SCI, Commission staff issued guidance providing examples 
of industry standards. See Staff Guidance on Current SCI Industry 
Standards (Nov. 19, 2014), available at http://www.sec.gov/rules/final/2014/staff-guidance-current-sci-industry-standards.pdf.
---------------------------------------------------------------------------

    Competing consolidators will also be required to review 
periodically the effectiveness of the policies and procedures required 
by paragraph (d)(9)(ii)(B) of Rule 614 and take prompt action to remedy 
deficiencies in such policies and procedures.\1290\ This requirement in 
paragraph (d)(9)(ii)(B) of Rule 614 mirrors the requirement for 
periodic review found in 17 CFR 242.1001(a)(3) (Rule 1001(a)(3)) of 
Regulation SCI.\1291\
---------------------------------------------------------------------------

    \1290\ See 17 CFR 242.614(d)(9)(ii)(B) (Rule 614(d)(9)(ii)(B)) 
of Regulation NMS.
    \1291\ See SCI Adopting Release at 72291-92 (discussing Rule 
1001(a)(3) of Regulation SCI).
---------------------------------------------------------------------------

    In addition, competing consolidators will be required to establish, 
maintain, and enforce reasonably designed written policies and 
procedures that include the criteria for identifying responsible 
personnel, the designation and documentation of responsible personnel, 
and escalation procedures to inform quickly responsible personnel of 
potential systems disruptions and systems intrusions; and periodically 
review the effectiveness of the policies and procedures, and take 
prompt action to remedy deficiencies.\1292\ This paragraph 
(d)(9)(ii)(C) of Rule 614 maintains the framework found in 17 CFR 
242.1001(c) (Rule 1001(c)) of Regulation SCI that requires an SCI 
entity to have policies and procedures, including escalation 
procedures, for identifying and designating responsible personnel who 
are responsible for assessing whether systems disruptions or systems 
intrusions have in fact occurred.\1293\
---------------------------------------------------------------------------

    \1292\ See Rule 614(d)(9)(ii)(B) of Regulation NMS. The 
Commission notes that Rule 614(d)(9) does not define responsible 
personnel, as it believes it is likely that a competing consolidator 
would define this and other key terms in its policies and 
procedures, which pursuant to paragraph (d)(9)(ii)(A)(1) must be 
reasonably designed. The Commission also notes that competing 
consolidators may look to the definitions of this and other terms in 
Rule 1000 of Regulation SCI as guidance in developing their own 
definitions.
    \1293\ See SCI Adopting Release at 72314-16 (discussing Rule 
1001(c) of Regulation SCI).
---------------------------------------------------------------------------

    Paragraph (d)(9)(iii) of Rule 614 relates to the obligations of 
competing consolidators with respect to systems disruptions and systems 
intrusions.\1294\ These provisions are similar to the SCI event 
obligations found in 17 CFR 242.1002 (Rule 1002) of Regulation SCI, 
with certain changes as discussed below. Systems disruption is defined 
in 17 CFR 242.614(d)(9)(i) (Rule 614(d)(9)(i)) to mean an event in a 
competing consolidator's systems involved in the collection and 
consolidation of consolidated market data, and dissemination of 
consolidated market data products, that disrupts, or significantly 
degrades, the normal operation of such systems.\1295\ Systems intrusion 
is defined in Rule 614(d)(9)(i) to mean any unauthorized entry into a 
competing consolidator's systems involved in the collection and 
consolidation of consolidated market data and dissemination of 
consolidated market data products.\1296\ These definitions mirror the 
definitions of those terms in Regulation SCI but are narrower in that 
they only focus on a competing consolidator's consolidated market data 
systems.\1297\
---------------------------------------------------------------------------

    \1294\ See Rule 614(d)(9)(iii) of Regulation NMS.
    \1295\ See Rule 614(d)(9)(i) of Regulation NMS.
    \1296\ See id.
    \1297\ See Rule 1000 of Regulation SCI.
---------------------------------------------------------------------------

    As a general matter, Rule 614(d)(9)(iii) only covers systems 
disruptions and systems intrusions and, unlike Rule 1002 of Regulation 
SCI, does not cover systems compliance issues. The Commission believes 
that this is appropriate as the regulatory framework for competing 
consolidators is largely limited to broad operational principles and 
targeted disclosures. One of the goals of imposing obligations related 
to systems compliance issues on SCI entities was to address past 
instances in which self-regulatory rule filings filed by some SCI 
entities were inconsistent with how their technology systems operated 
in practice.\1298\ Systems compliance issues were included within the 
scope of Regulation SCI to help ensure an SCI entity's operational 
compliance with its own rules and governing documents (i.e., to prevent 
systems from operating in a manner inconsistent with the rules and 
governing documents of an entity).\1299\ In contrast, competing 
consolidators will not have similar requirements (e.g., to file 
detailed rule filings) with respect to the operation of their automated 
systems.
---------------------------------------------------------------------------

    \1298\ See Securities Exchange Act Release No. 69077 (Mar. 8, 
2013), 78 FR 18084, 03 (Mar. 25, 2013) (Regulation SCI Proposing 
Release describing examples of systems compliance issues).
    \1299\ See SCI Adopting Release at 72287 (describing the 
definition of ``systems compliance issue), 72304 (discussing the 
requirement to have policies and procedures to achieve systems 
compliance).
---------------------------------------------------------------------------

    Under paragraph (d)(9)(iii)(A) of Rule 614, competing consolidators 
will be required to, upon responsible personnel having a reasonable 
basis to conclude that a systems disruption or systems intrusion of 
consolidated market data systems has occurred, begin to take 
appropriate corrective action which must include, at a minimum, 
mitigating potential harm to investors and market integrity resulting 
from the event and devoting adequate resources to remedy the event as 
soon as reasonably practicable.\1300\ This provision mirrors the 
corrective action obligations of SCI entities found in 17 CFR 
242.1002(a) (Rule 1002(a)) of Regulation SCI, including the obligations 
of responsible personnel in assessing whether or not a systems issue 
has occurred.\1301\
---------------------------------------------------------------------------

    \1300\ See 17 CFR 242.614(d)(9)(iii)(A) (Rule 614(d)(9)(iii)(A)) 
of Regulation NMS.
    \1301\ See SCI Adopting Release at 72316-17 (discussing Rule 
1002(a) of Regulation SCI). See also SCI Adopting Release at 72315-
16 (discussing the triggering standard for SCI event obligations).
---------------------------------------------------------------------------

    In addition, promptly upon responsible personnel having a 
reasonable basis to conclude that a systems disruption (other than a 
system disruption that has had, or the competing consolidator 
reasonably estimates would have, no or a de minimis impact on the 
competing consolidator's operations or on market participants) has 
occurred, a competing consolidator will be required to disseminate 
publicly information relating to the event (including the system(s) 
affected and a summary description); and, when known, promptly publicly 
disseminate additional information relating to the event (including a 
detailed description, an assessment of those potentially affected, a 
description of the progress of corrective action, and when the event 
has been or is expected to be resolved); and until resolved, provide 
regular updates with respect to such information.\1302\ These 
requirements in paragraph (d)(9)(iii)(B) of Rule 614 are broadly 
similar to 17 CFR 242.1002(c) (Rule 1002(c))'s information 
dissemination provisions in Regulation SCI with several important 
distinctions.\1303\ First, unlike in Regulation SCI, the dissemination 
of information requirement in paragraph (d)(9)(iii)(B) of Rule 614 is 
not limited to dissemination to ``members or participants,'' as is the 
case for SCI entities in Rule 1002(c) of Regulation SCI. Instead, 
competing consolidators are required to disseminate ``publicly'' this 
information.\1304\ The Commission

[[Page 18696]]

believes this is appropriate because, as discussed above, market 
participants will be looking to the reliability and resilience of 
respective competing consolidators in deciding which competing 
consolidator(s) to use as its source of consolidated market data 
products. By requiring public dissemination of any systems issues, all 
market participants, whether or not they are ``members or 
participants'' of the competing consolidator, will be able to access 
this information and use it, in combination with the competing 
consolidators' published performance metrics, in assessing the 
reliability and resilience of the various competing consolidators they 
may be considering.
---------------------------------------------------------------------------

    \1302\ See 17 CFR 242.614(d)(9)(iii)(B) (Rule 614(d)(9)(iii)(B)) 
of Regulation NMS.
    \1303\ See SCI Adopting Release at 72331-36 (discussing Rule 
1002(c) of Regulation SCI).
    \1304\ The Commission expects that there are various methods by 
which a competing consolidator may publicly disseminate this 
information including, but not limited to, a ``systems status'' web 
page of the competing consolidator that is easily and clearly 
locatable from the competing consolidator's home web page and 
accessible at no cost to the public, or a messaging service that 
anyone can subscribe to without cost that will provide, without 
delay, alerts to subscribers regarding the competing consolidator's 
systems status.
---------------------------------------------------------------------------

    In addition, the public dissemination requirement in paragraph 
(d)(9)(iii)(B) of Rule 614 contains a simplified framework when 
compared to Rule 1002(c) of Regulation SCI \1305\ and only applies to 
systems disruptions. The Commission believes that this streamlined 
approach is appropriate to limit burdens for these competing 
consolidators (as compared to the parallel requirements for SCI 
competing consolidators), and the Commission believes that the new 
requirements for competing consolidators described above that will 
require public disclosure of metrics and other information--such as 
information on system availability, network delay statistics, data 
quality, and systems issues--help to achieve some of the same goals of 
public transparency and help to ensure the resiliency of competing 
consolidators' systems as the information dissemination provisions of 
Regulation SCI.\1306\ Similar to Regulation SCI's requirements for 
systems disruptions, paragraph (d)(9)(iii)(B) of Rule 614 includes a 
provision that exempts information dissemination for a ``system 
disruption that has had, or the competing consolidator reasonably 
estimates would have, no or a de minimis impact on the competing 
consolidator's operations or on market participants.''
---------------------------------------------------------------------------

    \1305\ For example, paragraph (d)(9)(iii)(B) of Rule 614 
requires only ``an assessment of those potentially affected'' by an 
event, while Rule 1002(c) of Regulation SCI requires an SCI entity's 
``current assessment of the types and number of market participants 
potentially affected by'' an event.
    \1306\ See Proposing Release, 85 FR at 16777, 16781, 16783-84 
(explaining that the required information on Form CC and published 
performance metrics will help the Commission and market participants 
to evaluate the resiliency and technological reliability of a 
competing consolidator's systems); see also supra Sections 
III.C.7(c) and (d).
---------------------------------------------------------------------------

    Concurrent with public dissemination of information relating to a 
systems disruption, competing consolidators will also be required to 
provide the Commission notification of such event, including the 
information required to be publicly disseminated.\1307\ In addition, 
competing consolidators will be required to notify the Commission 
promptly upon responsible personnel having a reasonable basis to 
conclude that a systems intrusion (other than a system intrusion that 
has had, or the competing consolidator reasonably estimates would have, 
no or a de minimis impact on the competing consolidator's operations or 
on market participants) has occurred. Notifications regarding systems 
disruptions and systems intrusions that competing consolidators must 
provide to the Commission under this provision include information 
relating to the event (including the system(s) affected and a summary 
description); when known, additional information relating to the event 
(including a detailed description, an assessment of those potentially 
affected, a description of the progress of corrective action and when 
the event has been or is expected to be resolved); and until resolved, 
regular updates with respect to such information. This is the same 
information that paragraph (d)(9)(iii)(B) of Rule 614 will require 
competing consolidators to disseminate publicly for systems 
disruptions.\1308\ Paragraph (d)(9)(iii)(C) of Rule 614 does not 
require competing consolidators to adhere to the detailed framework for 
notifying the Commission of SCI events under Regulation SCI.\1309\ 
Rather, the rule requires competing consolidators to provide, 
concurrent with public dissemination of information relating to a 
systems disruption, or promptly upon responsible personnel having a 
reasonable basis to conclude that a non-de minimis systems intrusion 
has occurred, the Commission notification of such event and, until 
resolved, updates of such event.
---------------------------------------------------------------------------

    \1307\ See 17 CFR 242.614(d)(9)(iii)(C) (Rule 614(d)(9)(iii)(C)) 
of Regulation NMS.
    \1308\ Rule 614(d)(9)(iii)(B) does not require competing 
consolidators to publicly disseminate information relating to 
systems intrusions. However, Rule 614(d)(9)(iii)(C) requires 
information relating to a system intrusion to be filed with the 
Commission on Form CC, which will be publicly available, though 
competing consolidators may seek confidential treatment for such 
information. See supra note 1052 and accompanying text.
    \1309\ Regulation SCI contains a detailed framework that SCI 
entities must follow to notify the Commission about SCI events, 
including prescribed timelines to provide the Commission with 
initial report, updates, and final reports regarding SCI events. See 
17 CFR 242.1002 (Rule 1002 of Regulation SCI).
---------------------------------------------------------------------------

    The Commission believes that this streamlined Commission 
notification requirement via Form CC, in combination with other 
requirements for competing consolidators that require disclosure of 
other information on Form CC and through performance metrics,\1310\ 
help to achieve the goal of keeping the Commission informed of the 
nature and frequency of issues that occur affecting the systems of 
competing consolidators that are not SCI entities.\1311\
---------------------------------------------------------------------------

    \1310\ See supra Sections III.C.7(c) and (d).
    \1311\ As stated in the Proposing Release and discussed above, 
the requirements to provide information on Form CC and publish 
performance metrics are designed to facilitate the Commission's 
oversight of competing consolidators and help ensure the resiliency 
and technological reliability of a competing consolidator's systems. 
See Proposing Release, 85 FR at 16777, 16781, 16783-84; see also 
supra Sections III.C.7(c) and (d).
---------------------------------------------------------------------------

    Unlike the information that is filed with the Commission on Form 
SCI, which is treated as confidential subject to applicable law, Form 
CC, including any information about systems disruption and systems 
intrusions, will be publicly available. The Commission recognizes that 
information regarding systems intrusions may be sensitive, and making 
such information publicly available could compromise the security of 
the systems or an investigation into the systems intrusion. Because 
Rule 614(d)(9) does not otherwise require public dissemination of such 
events, Form CC will permit competing consolidators to seek 
confidential treatment of Commission notifications related to systems 
intrusions. Unlike Rule 614(d)(9), Regulation SCI requires public 
dissemination of information relating to systems intrusions. However, 
the Commission similarly recognized the potentially sensitive nature of 
information relating to systems intrusions and provided a limited 
exception allowing SCI entities to delay dissemination of any 
information about a systems intrusion if dissemination would compromise 
the security of SCI systems or an investigation into the systems 
intrusion.\1312\
---------------------------------------------------------------------------

    \1312\ See 17 CFR 242.1002(c)(2) (Rule 1002(c)(2)) of Regulation 
SCI; SCI Adopting Release at 72334.
---------------------------------------------------------------------------

    Section 242.614(d)(9)(iv) (Rule 614(d)(9)(iv)) will require 
competing consolidators to participate in the industry- or sector-wide 
coordinated testing of BC/DR plans required of SCI entities pursuant to 
paragraph (c) of 17 CFR 242.1004 (Rule 1004) of Regulation SCI.\1313\ 
Section 242.1004(c) (Rule 1004(c)) of Regulation SCI relates to the

[[Page 18697]]

coordination of BC/DR testing required by Rule 1004 of Regulation SCI 
on an industry- or sector-wide basis with other SCI entities.\1314\ 
Because the consolidated market data, in total, provided by competing 
consolidators is essential to testing the systems of SCI entities, and 
because the SCI entities and their members or participants who are 
designated to participate in the testing required by Rule 1004 of 
Regulation SCI may rely on different competing consolidators to supply 
consolidated market data products, the Commission believes that it is 
appropriate that all competing consolidators be required to participate 
in the industry- or sector-wide testing required by paragraph (c) or 
Rule 1004 of Regulation SCI.
---------------------------------------------------------------------------

    \1313\ See Rule 614(d)(9)(iv) of Regulation NMS.
    \1314\ See SCI Adopting Release at 72354-55 (discussing Rule 
1004(c) of Regulation SCI).
---------------------------------------------------------------------------

    Finally, the Commission proposed certain changes to Rule 1000 of 
Regulation SCI's definition of ``critical SCI system.'' \1315\ These 
changes are being adopted as proposed. First, the Commission proposed 
to revise the phrase ``the provision of consolidated market data'' in 
paragraph (1)(v) of the definition of ``critical SCI systems'' to ``the 
provision of market data by a plan processor.'' In addition, to avoid 
confusion with the term ``consolidated market data,'' that phrase was 
replaced with ``market data'' in the definition of ``critical SCI 
systems.'' The Commission did not receive any comment on the proposed 
revisions to the definition of ``critical SCI system'' and is adopting 
these changes to such definition as proposed for the reasons set forth 
in the proposal.\1316\
---------------------------------------------------------------------------

    \1315\ See Proposing Release, 85 FR at 16786-87.
    \1316\ But see supra notes 1272-1278 and accompanying text 
(discussing commenters concerns that competing consolidators would 
not have critical SCI systems under Regulation SCI, unlike plan 
processors today).
---------------------------------------------------------------------------

G. Effects on the National Market System Plan Governing the 
Consolidated Audit Trail

    In the Proposing Release, the Commission described the anticipated 
effect on the CAT NMS Plan. Specifically, the CAT NMS Plan requires the 
Central Repository \1317\ to ``collect (from a SIP \1318\ or pursuant 
to an NMS Plan \1319\) and retain on a current and continuing basis . . 
. all data, including the following (collectively, `SIP Data').'' 
\1320\ Because consolidated market data includes information beyond 
what is provided in SIP data--such as orders in new round lot sizes, 
depth of book data, and auction information--the scope of the 
consolidated market data collected and retained by the Central 
Repository would increase. In addition, the Central Repository may have 
to collect the data from a different source.
---------------------------------------------------------------------------

    \1317\ The CAT NMS Plan defines ``Central Repository'' as ``the 
repository responsible for the receipt, consolidation, and retention 
of all information reported to the CAT pursuant to SEC Rule 613 and 
this Agreement.'' CAT NMS Plan, supra note 1220, at Section 1.1.
    \1318\ The CAT NMS Plan defines ``Securities Information 
Processor'' or ``SIP'' as having ``the same meaning provided in 
Section 3(a)(22)(A) of the Exchange Act.'' Id. at Section 1.1.
    \1319\ The CAT NMS Plan defines ``NMS Plan'' as having ``the 
same meaning as `National Market System Plan' provided in SEC Rule 
613(a)(1) and SEC Rule 600(b)(43).'' Id. at Section 1.1.
    \1320\ Id. at Section 6.5(a)(ii). Section 6.5(a)(ii) 
specifically enumerates the following ``SIP Data'' elements: ``(A) 
information, including the size and quote condition, on quotes 
including the National Best Bid and National Best Offer for each NMS 
Security; (B) Last Sale Reports and transaction reports reported 
pursuant to an effective transaction reporting plan filed with the 
SEC pursuant to, and meeting the requirements of, SEC Rules 601 and 
608; (C) trading halts, Limit Up/Limit Down price bands, and Limit 
Up/Limit Down indicators; and (D) summary data or reports described 
in the specifications for each of the SIPs and disseminated by the 
respective SIP.'' Id.
---------------------------------------------------------------------------

    The Commission received four comments on the effect of the 
decentralized consolidation model on the CAT NMS Plan.\1321\ One 
commenter stated that significant changes to the content or source of 
data collected by CAT, such as those proposed, could impact the CAT 
implementation timeline, especially if the changes occur while CAT 
implementation is still in progress.\1322\ Therefore, the commenter 
recommended that the expanded content in consolidated market data and 
the decentralized consolidation model be implemented after CAT has been 
fully implemented.\1323\ Another commenter suggested that the 
Commission review the choice of competing consolidator as the Central 
Repository's source of consolidated market data.\1324\
---------------------------------------------------------------------------

    \1321\ See FINRA Letter at 11; TD Ameritrade Letter at 15; 
Fidelity Letter at 11; Data Boiler Letter I at 64-65.
    \1322\ See FINRA Letter at 12.
    \1323\ See id.
    \1324\ Fidelity Letter at 11.
---------------------------------------------------------------------------

    Additionally, in response to a question raised by the Commission in 
the Proposing Release asking whether CAT should receive consolidated 
market data from one, all, or a subset of competing 
consolidators,\1325\ one commenter noted its preliminary belief that 
the Central Repository should receive only consolidated market data 
from one competing consolidator with a connection to an additional 
competing consolidator as a back-up source of data in the event of a 
systems disruption at the selected competing consolidator.\1326\ The 
commenter also stated that whether CAT uses a single or multiple 
competing consolidators would raise concerns about increased 
complexity.\1327\ Another commenter expressed concern about conflicting 
data produced by competing consolidators. Assuming CAT takes in data 
from every competing consolidator, the commenter asked how CAT would 
handle conflicting data it received from the competing consolidators 
and how industry participants would be expected to respond to such 
conflicting data.\1328\
---------------------------------------------------------------------------

    \1325\ See Proposing Release, 85 FR at 16794.
    \1326\ See FINRA Letter at 12.
    \1327\ See id. at n. 50.
    \1328\ TD Ameritrade at 15. Finally, another commenter suggested 
that instead of receiving data from competing consolidators, CAT 
should directly access the ``real-time analytical platform'' of SROs 
and competing consolidators in order to analyze and monitor trading 
in real-time, stating that ``CAT's `T+5 Regulatory Access' is too 
late. . . .'' Data Boiler Letter I at 64. As described above, 
Section 6.5(a)(ii) of the CAT NMS Plan requires the Central 
Repository to collect (from a SIP or pursuant to a NMS plan) all 
data, including SIP data. This requires the Central Repository to 
collect consolidated data, not individual SRO feeds for the Central 
Repository to consolidate. Therefore, the Commission believes this 
comment is beyond the scope of the present rulemaking.
---------------------------------------------------------------------------

    The Commission does not believe that implementation of the 
amendments discussed herein should be delayed until CAT has been fully 
implemented. The systems used by the Central Repository must be 
adaptable to permit incorporation of improved technologies, additional 
order data, and changes in regulatory requirements; \1329\ therefore, 
the Central Repository should be capable of incorporating the changes 
added by the amendments discussed herein. The Commission expects the 
CAT NMS Plan Operating Committee to develop plans for the necessary 
changes to the Central Repository. As discussed in the following 
section, there will be a transition period for switching from the 
exclusive SIPs to the decentralized consolidation model. During this 
time, the CAT NMS Plan Operating Committee can integrate the necessary

[[Page 18698]]

changes into the Central Repository requirements in a manner consistent 
with its change management policies.
---------------------------------------------------------------------------

    \1329\ 17 CFR 242.613(a)(1)(v) (Rule 613(a)(1)(v)) provides that 
the CAT NMS Plan must include ``the flexibility and scalability of 
the systems used by the central repository to collect, consolidate, 
and store consolidated audit trail data, including the capacity of 
the consolidated audit trail to efficiently incorporate, in a cost 
effective manner, improvements in technology, additional capacity, 
additional order data, information about additional securities or 
transactions, changes in regulatory requirements, and other 
developments.'' See also CAT NMS Plan, supra note 1220, at Appendix 
D, Section 1.1. (stating ``The Central Repository must be designed 
and sized to ingest, process, and store large volumes of data. The 
technical infrastructure needs to be scalable, adaptable to new 
requirements and operable within a rigorous processing and control 
environment.'').
---------------------------------------------------------------------------

    With respect to the comment stating that the Central Repository 
should only receive consolidated market data from a single competing 
consolidator, with a connection to a back-up competing consolidator in 
the event of a systems disruption, and the comment asking how CAT would 
reconcile conflicting data across all of the competing consolidators, 
the Commission is not requiring the Central Repository to subscribe to 
multiple competing consolidators. Whether CAT uses a single competing 
consolidator or multiple competing consolidators to receive all of 
consolidated market data is a choice that should be made by the CAT NMS 
Plan Operating Committee in its management of CAT in order to comply 
with its obligations under the CAT NMS Plan.\1330\ In addition, the CAT 
NMS Plan Operating Committee has the experience and is well positioned 
to determine the best and most reliable sources of data while at the 
same time minimizing any costs that may be associated with multiple 
sources. In response to the commenter suggesting that the Commission 
review the Operating Committee's selection of a competing consolidator 
for the Central Repository, the CAT NMS Plan Operating Committee will 
have to select a competing consolidator that would allow it to comply 
with its obligations under the CAT NMS Plan, which is subject to 
Commission oversight.
---------------------------------------------------------------------------

    \1330\ See CAT NMS Plan, supra note 1220, at Article IV.
---------------------------------------------------------------------------

    Notwithstanding the modification to allow competing consolidators 
to develop consolidated market data products that may not contain all 
elements of consolidated market data, the Commission believes that 
because Section 6.5(a)(ii) of the CAT NMS Plan requires the Central 
Repository to collect and retain ``all data'' from ``a SIP or pursuant 
to an NMS Plan,'' the Central Repository will be required to collect 
and retain all elements of consolidated market data. In the Proposing 
Release, the Commission stated that ``the Central Repository would be 
required to collect and retain consolidated market data'' and that 
``the scope of the consolidated data collected and retained by the CAT 
Central Repository would be expanded'' as a result of the proposed 
amendments.\1331\ The requirement in Section 6.5(a)(ii) that the 
Central Repository collect and retain ``all data'' from ``a SIP or 
pursuant to an NMS Plan'' requires the Central Repository to collect 
and retain all elements of consolidated market data. Moreover, the 
Commission is not reducing the scope of information that is required to 
be collected and retained by the Central Repository. Therefore, the 
Central Repository must continue to collect and retain ``all data'' 
that it currently collects and retains, such as information regarding 
quotations and transactions in OTC equity securities that it collects 
pursuant to the Nasdaq UTP Plan.\1332\
---------------------------------------------------------------------------

    \1331\ Proposing Release, 85 FR at 16794.
    \1332\ See supra Section II.C.2(c). Data about OTC equity 
securities is not included in consolidated market data. Therefore, 
as stated in the Proposing Release, the Central Repository may have 
to obtain this data from a different source. Proposing Release, 85 
FR at 16794.
---------------------------------------------------------------------------

H. Transition Period and Compliance Dates

1. Proposal
    In the Proposing Release, the Commission stated that a transition 
period would be necessary to implement the decentralized consolidation 
model. The Commission described the following things that would have to 
occur to implement the decentralized consolidation model: (1) The SROs 
may need development time to create new separate data feeds for 
consolidated market data; \1333\ (2) the SROs would need to make 
adjustments to their data collection and processing systems to 
integrate regulatory data into their new or existing data feeds; (3) 
firms intending to act as competing consolidators or self-aggregators 
would need time to register, develop or modify systems, establish 
pricing, and make other preparations; and (4) market participants would 
need some period of time for implementation and testing of any new data 
feeds, and would need a consistent and reliable source of consolidated 
market data as these changes are being implemented. The Commission 
stated that, during the transition period, the exclusive SIPs should 
continue their operations until such time as the Commission considers 
and approves an effective national market system plan amendment that 
would effectuate a cessation of their operations as exclusive SIPs.
---------------------------------------------------------------------------

    \1333\ The Proposing Release described how the SROs may use 
existing proprietary data feeds to provide consolidated market data 
but that they also may decide to develop new dedicated data feeds.
---------------------------------------------------------------------------

    The Commission stated that to approve this plan amendment, the 
Commission would need to consider the operational readiness of 
competing consolidators and self-aggregators and that sufficient 
operational readiness would only be achieved once consolidated market 
data generated under the decentralized consolidation model is 
demonstrably capable of supporting the various needs of users of 
consolidated market data, including needs for visual display, trading 
activities, and compliance with regulatory obligations, such as under 
Rules 603(c) and Rule 611 under Regulation NMS and best execution. The 
Commission would also consider the state of the market and the general 
readiness of the competing consolidator infrastructure. The Commission 
stated that considerations could include: (1) The status of 
registration, testing, and operational capabilities of multiple 
competing consolidators, self-aggregators, and market participants; (2) 
capabilities of competing consolidators to provide monthly performance 
metrics and other data required to be published pursuant to proposed 
Rules 614(d)(5) and (6); and (3) the consolidated market data products 
offered by competing consolidators.\1334\ The Commission requested 
comment on various aspects of the proposed transition period, 
including, but not limited to, the time period for SROs to make 
necessary changes to provide data content necessary for consolidated 
market data to competing consolidators and self-aggregators, the time 
period for broker-dealers to make any necessary changes, and how long 
the transition period should last.
---------------------------------------------------------------------------

    \1334\ Proposing Release, 85 FR at 16795.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received several comments on the proposed transition 
period. One commenter described the proposed transition period as 
``undefined and indefinite'' and in violation of the APA and as 
granting ``unchecked decision-making authority outside the rulemaking 
process'' to the Commission because market participants would not be 
able to comment on the Commission's evaluation of whether the 
decentralized consolidation model is ready to be implemented.\1335\ 
This commenter stated that the Commission failed to define how it would 
determine ``operational readiness'' necessary to terminate the 
transition period and did not consider what would happen if no 
competing consolidators register.\1336\ Further, the commenter stated 
that the Commission did not place specific parameters around the 
transition period and that potential entrants and market

[[Page 18699]]

participants would incur substantial costs and expenses while the 
Commission waits to see whether competing consolidators will 
emerge.\1337\ Similarly, another commenter stated that the proposed 
transition period incorrectly assumes that competing consolidators 
would form before the Commission approves the NMS plan amendment, 
explaining that market participants would ``have no incentive to expend 
the millions of dollars, time, and effort to create a competing 
consolidator before the Commission approves the NMS plan.'' \1338\ This 
commenter also stated that the lack of a time limit on when the model 
would be implemented would result in competing consolidators, self-
aggregators, and SROs incurring substantial costs to prepare only to be 
``left in limbo'' during a potential unlimited delay.\1339\ One other 
commenter requested clarification on the data that exclusive SIPs would 
be required to produce before competing consolidators have registered, 
and whether exclusive SIPs would be required to continue operating if 
they decide not to register as competing consolidators.\1340\
---------------------------------------------------------------------------

    \1335\ NYSE Letter II at 15-16.
    \1336\ Id. at 16. The commenter also said that the Commission 
has not considered what would happen if the initial implementation 
phase does not create sufficient competition. Id. at 13.
    \1337\ Id. at 16. The commenter also stated that the inability 
to earn returns during the transition period despite the need to 
make substantial investments to become a competing consolidator or 
self-aggregator would make the failure of the decentralized 
consolidation model more likely. Id.
    \1338\ IDS Letter I at 8.
    \1339\ Id. at 9.
    \1340\ RBC Letter at 7.
---------------------------------------------------------------------------

    Two commenters offered suggestions for the timing of the 
implementation of the decentralized consolidation model.\1341\ One of 
the commenters said that the proposal should be implemented in three 
phases.\1342\ The first phase would establish the decentralized 
consolidation model within one year of the approval of the proposed 
amendments.\1343\ In the second phase, which would be implemented 
within six months of the implementation of the first phase, core data 
would be enhanced to include depth of book data, auction information, 
and aggregated odd-lots. The third phase would address the proposed 
definitions of round lot and protected quote and would be completed 
within six months of the completion of the second phase.\1344\ Another 
commenter stated that the proposed changes to the content and speed of 
consolidated market data should be accomplished closely in time.\1345\
---------------------------------------------------------------------------

    \1341\ See Clearpool Letter at 5; RBC Letter at 2.
    \1342\ See Clearpool Letter at 5.
    \1343\ See id.
    \1344\ See id. at 5-6.
    \1345\ See RBC Letter at 2.
---------------------------------------------------------------------------

    The transition period will be an important phase in the 
implementation of the decentralized consolidation model and the 
expansion of NMS information. Several events during the transition 
period will serve as public benchmarks and provide market participants 
with information as to the timing of implementation. During this 
period, there would be at least two effective national market system 
plan(s) amendments submitted. One is required under Rule 614(e) and 
must be submitted within 150 days of Rule 614's effectiveness; the 
other would be filed later to terminate operations of the exclusive 
SIPs. Each of these amendments will be filed pursuant to Rule 608 and 
subject to public comment that will inform Commission action.
    The Commission, however, is providing additional details regarding 
the transition to the decentralized consolidation model and the 
expansion of NMS information, including the sequence of key 
implementation steps, to provide greater clarity to market participants 
and respond to certain concerns raised by commenters. Specifically, as 
discussed further below, the Commission believes today's amendments 
should be implemented in three phases to facilitate an orderly 
transition, to avoid unnecessary stress on the functioning of the 
market, and to avoid unnecessary and duplicative programming and 
development by the existing exclusive SIPs, SROs, and other market 
participants. The phased approach also establishes finite time limits 
for the steps in the transition process based on discrete periods of 
time from key implementation milestones, which addresses comments 
regarding the uncertainty around the details of the proposed transition 
period.\1346\
---------------------------------------------------------------------------

    \1346\ Section 36(a)(1) of the Exchange Act authorizes the 
Commission, subject to certain limitations, to conditionally or 
unconditionally exempt any person, security, or transaction, or any 
class thereof, from any provision of the Exchange Act or rule 
thereunder, if necessary or appropriate in the public interest and 
consistent with the protection of investors. 15 U.S.C. 78mm(a)(1). 
The Commission will monitor the implementation of these amendments 
during the transition period and may exercise this exemptive 
authority, for example, to provide exemptions from the deadlines and 
compliance dates set forth below.
---------------------------------------------------------------------------

    Phase One. During the first phase of the transition period, the 
fees for data content underlying consolidated market data will be filed 
with the Commission, and competing consolidator infrastructure will be 
developed and tested.
    Plan amendments. The first key milestone will be the amendment to 
the effective national market system plan(s) required under Rule 
614(e), which must include the fees proposed by the plan(s) for data 
underlying consolidated market data.\1347\ The proposed amendment must 
be filed with the Commission within 150 days of the effectiveness of 
Rule 614. Within 90 days of the date of publication of the proposed 
amendment, or within such longer period as to which the plan 
participants consent, the Commission shall, by order, approve or 
disapprove the amendment, or institute proceedings to determine whether 
the amendment should be disapproved.\1348\ Such proceedings shall 
include notice of the grounds for disapproval under consideration and 
opportunity for hearing and shall be concluded within 180 days of the 
date of publication of notice of the plan or amendment. At the 
conclusion of such proceedings the Commission shall, by order, approve 
or disapprove the plan or amendment.\1349\ The time for conclusion of 
such proceedings may be extended for up to 60 days (up to 240 days from 
the date of notice publication) if the Commission determines that a 
longer period is appropriate and publishes the reasons for such 
determination or the plan participants consent to the longer 
period.\1350\ The time for conclusion of proceedings to determine 
whether a proposed amendment should be disapproved may be extended for 
an additional period up to 60 days beyond the period set forth in 
paragraph (b)(2)(i) of Rule 608 (up to 300 days from the date of notice 
publication) if the Commission determines that a longer period is 
appropriate and publishes the reasons for such determination or the 
plan participants consent to the longer period.\1351\
---------------------------------------------------------------------------

    \1347\ See supra note 1126 and accompanying text. The Operating 
Committee could also propose a revised revenue allocation formula 
for the fees collected for the data content underlying consolidated 
market data, and exchanges would propose any connectivity fees they 
intend to charge for the data content underlying consolidated market 
data during this time period through the Section 19(b) rule filing 
process.
    \1348\ See 17 CFR 242.608(b)(2)(i) (Rule 608(b)(2)(i)).
    \1349\ See id.
    \1350\ See id.
    \1351\ See 17 CFR 242.608(b)(2)(ii) (Rule 608(b)(2)(ii)).
---------------------------------------------------------------------------

    Initial Registration and Review Period. The next step in the first 
phase of the transition period--the registration of an initial ``first 
wave'' of competing consolidators--will commence on the date the 
Commission approves the amendments to the effective national market 
system plan(s) required under Rule 614(e), including the fees for the 
SRO data content necessary to generate

[[Page 18700]]

consolidated market data.\1352\ Thus, fees for the SRO data content 
necessary to generate consolidated market data will be established 
prior to competing consolidator registration. The Commission believes 
that sequencing the approval of the amendments to the effective 
national market system plan(s) to precede competing consolidator 
registration will address concerns raised by several commenters that 
understanding the fees for data content underlying consolidated market 
data is necessary for competing consolidators and self-aggregators to 
develop business plans and decide whether to enter the market in these 
capacities. It will also allow competing consolidators to understand 
plan data costs for customers relative to proprietary data so that they 
can better assess anticipated market demand.
---------------------------------------------------------------------------

    \1352\ The compliance date for Rule 614(a), which provides the 
Form CC registration process requirements for competing 
consolidators, will thus be the date of the Commission's approval of 
the amendments to the effective national market system plan(s) 
required under Rule 614(e).
---------------------------------------------------------------------------

    The registration period for the first wave of competing 
consolidators will begin on the date that the plan amendments are 
approved by the Commission and will continue for 90 days. Pursuant to 
Rule 614(a)(1)(v), the initial Forms CC filed during this period will 
become effective, unless declared ineffective by the Commission, after 
the 90 calendar day Commission review period set forth in Rule 
614(a)(1)(iii). The Commission believes that establishing a first wave 
process for the initial competing consolidators will provide incentives 
for entities to register because only those competing consolidators 
that register during the first wave will be permitted to participate in 
the testing period discussed below. All other competing consolidators 
will have to wait until the Commission approves the second plan 
amendment to terminate the operation of the exclusive SIPs.\1353\ The 
Commission believes that allowing the entities that register during the 
first wave to operate during the testing period will help ease the 
transition to the decentralized consolidation model and limit the 
potential for systems or other operational problems within the national 
market system.\1354\
---------------------------------------------------------------------------

    \1353\ See infra note 1360 and accompanying text.
    \1354\ As discussed above, some commenters questioned whether 
enough competing consolidators would enter the market to make the 
decentralized consolidation model viable. See supra Section III.B.3. 
The Commission believes that implementing a first wave of 
registrations to encourage entities that wish to act as competing 
consolidators will help to ensure that sufficient numbers of 
entities enter the market. See infra notes 2142-2144 and 
accompanying text.
---------------------------------------------------------------------------

    Development period. Starting with the approval of the plan 
amendments, and simultaneous with the 180 day registration and review 
period, there will be a development period. During this time, the SROs 
would develop the capacity to make the data content necessary to 
generate consolidated market data available from their data centers. 
SROs will be required to make the data content necessary to generate 
consolidated market data available to competing consolidators and self-
aggregators 180 calendar days after the approval of the plan 
amendments.\1355\ Similarly, competing consolidators and self-
aggregators would develop the capacity to receive the SRO data content 
and generate consolidated market data products during this period.
---------------------------------------------------------------------------

    \1355\ The compliance date for the amendments to Rule 603(b), 
which require SROs to make available all data content necessary to 
generate consolidated market data to competing consolidators and 
self-aggregators, will thus be 180 calendar days from the date of 
the Commission's approval of the amendments to the effective 
national market system plan(s) required under Rule 614(e).
---------------------------------------------------------------------------

    Testing period. Following the development period, there will be a 
90 day testing period. During this time, competing consolidators and 
self-aggregators will implement the technological changes made during 
the development period and test capacity with the SROs and potential 
customers.
    Phase One Go-Live. Following the development and testing periods, 
there will be an initial go-live period where competing consolidators 
can go live on a rolling basis and begin to provide consolidated market 
data products to subscribers.\1356\
---------------------------------------------------------------------------

    \1356\ The compliance date for Rule 614(d)(3), which requires 
competing consolidators to make consolidated market data products 
available to subscribers on a consolidated basis on terms that are 
not unreasonably discriminatory, will thus be 270 days from the date 
of the Commission's approval of the amendments to the effective 
national market system plan(s) required under Rule 614(e).
---------------------------------------------------------------------------

    Phase Two. Initial Parallel Operation Period. Following the phase 
one go-live, the decentralized consolidation model will run in parallel 
to the existing exclusive SIP model for an initial parallel operation 
period of 180 calendar days. During this initial parallel operation 
period, the exclusive SIPs will continue to provide the market data 
required under the current effective national market system plan(s). 
The Commission believes that requiring the existing exclusive SIPs to 
continue disseminating the same data that they currently do will 
prevent the imposition of unnecessary costs--namely, any change to the 
data content the SIPs currently disseminate--on the existing exclusive 
SIPs immediately prior to their retirement. Nothing in the rules would 
prevent competing consolidators from providing market data to their 
subscribers during the initial parallel operation period.\1357\ This 
will enable competing consolidators to earn returns and recoup their 
development costs during the transition period.
---------------------------------------------------------------------------

    \1357\ As discussed below, the transition to the new round lot 
sizes would occur later. The consolidated market data products 
offered by competing consolidators during the initial parallel 
operation period would be based on the current definition of round 
lot. In addition, the new revenue allocation formula would be coded 
and tested during phase two.
---------------------------------------------------------------------------

    With respect to regulatory data during the initial parallel 
operation period, the existing SIPs will be required to continue to 
calculate and generate the regulatory data that they do currently--such 
as LULD price bands and messages regarding the triggering of a market-
wide circuit breaker--and will provide this information to the primary 
listing exchanges, who will in turn make this information available to 
competing consolidators and self-aggregators.\1358\ Similarly, the 
primary listing exchanges will continue to calculate and generate 
regulatory data as currently required--such as messages regarding the 
triggering of a short sale circuit breaker and trading halt and pause 
messages--and will make this information available to competing 
consolidators and self-aggregators. The Commission believes that this 
approach, which maintains the current status quo regarding the party 
that calculates and generates regulatory data during the initial 
parallel operation period, will avoid the potential confusion and 
market disruption that could result from multiple parties--i.e., the 
primary listing exchanges and the existing SIPs--generating this 
information. In addition, it would avoid the imposition of unnecessary 
costs on the existing SIPs immediately prior to their retirement that 
would be associated with other approaches, such as shifting the 
calculation and generation of all regulatory data to the primary 
listing exchanges at an earlier stage and requiring the existing SIPs 
to develop the capacity to pass this information through to market 
participants. Furthermore, the primary listing exchanges would develop 
and test the capacity to calculate and generate LULD price bands, 
market-wide circuit breaker trigger messages,

[[Page 18701]]

and other regulatory messages currently generated by the existing 
SIPs--the calculation and generation of which will be shifted to the 
primary listing exchanges pursuant to these amendments \1359\--during 
the initial parallel operation period and prior to the retirement of 
the existing SIPs. After the initial parallel operation period ends, 
the SIPs and competing consolidators will continue to run in parallel 
operation as the Operating Committee and the Commission consider the 
retirement of the exclusive SIPs in the next phase.
---------------------------------------------------------------------------

    \1358\ The Proposing Release describes in detail how the various 
components of regulatory data are currently calculated and 
disseminated, including the specific obligations of the primary 
listing exchanges and the existing SIPs, as well as how these 
processes and responsibilities will be modified under the 
decentralized consolidation model. See Proposing Release, 85 FR at 
16732-33, 16759-63. See also supra Section II.H.2.
    \1359\ See supra Section II.H (describing the regulatory data 
elements that primary listing exchanges will be required to provide 
to competing consolidators and self-aggregators pursuant to these 
amendments).
---------------------------------------------------------------------------

    Continuing parallel operation and retirement of the exclusive SIPs. 
At the end of the initial parallel operation period, the Operating 
Committee of the effective national market system plan(s), in 
consultation with market participants including SROs, broker-dealers, 
vendors, and others that consume market data, will evaluate the 
performance of the decentralized consolidation model during the initial 
parallel operation period. Within 90 days of the end of the initial 
parallel operation period, the Operating Committee will make a 
recommendation to the Commission as to whether the exclusive SIPs 
should be decommissioned. The Commission will consider an effective 
national market system plan amendment to effectuate a cessation of the 
operations of the exclusive SIPs and, if consistent with the 
requirements of Rule 608 and the Exchange Act, approve such an 
amendment. Such an approval order will facilitate the final completion 
of the transition over to the new decentralized consolidation model.
    The Commission does not agree with the comment that the proposal 
failed to define the ``operational readiness'' of the decentralized 
consolidation model that would be necessary to approve the cessation of 
operations of the exclusive SIPs or that the Commission has reserved 
for itself ``unchecked decision-making authority'' over the 
implementation of the decentralized consolidation model. As discussed 
above,\1360\ the Commission described in the Proposing Release the 
elements that the Commission would consider that would inform its 
decision to approve the plan amendment to terminate the centralized 
consolidation model and operation of the exclusive SIPs and allow the 
decentralized consolidation model to operate on its own and solicited 
comment on what additional factors it should consider in reaching this 
decision. Furthermore, as stated above, the termination of the 
exclusive SIPs would be effectuated through the plan amendment process 
under Rule 608 and subject to public comment that will inform 
Commission action.
---------------------------------------------------------------------------

    \1360\ See supra note 1334 and accompanying text.
---------------------------------------------------------------------------

    Phase Three.
    Registration of additional competing consolidators. Following the 
cessation of the operation of the exclusive SIPs, other entities 
interested in becoming a competing consolidator but that did not 
register during the initial ``first wave'' period described above, may 
register as competing consolidators.\1361\
---------------------------------------------------------------------------

    \1361\ Aside from the difference in the timing of registration, 
the registration process and other requirements of Rule 614 will be 
the same for competing consolidators that do not register during the 
first wave.
---------------------------------------------------------------------------

    Round lot testing and implementation. For a period of 90 days 
starting with the date of the cessation of the operation of the 
exclusive SIPs, the changes necessary to implement the new round lot 
sizes will be tested. At the end of the 90 day test period, the new 
round lot sizes will be implemented. The Commission believes that 
sequencing this step after the parallel operation period is important 
to avoid either: (1) Potential confusion and market disruption that 
could result from two different round lot structures operating at the 
same time; or (2) imposing reprogramming costs on the exclusive SIPs 
for a limited time period prior to their retirement.

I. Alternatives to the Centralized Consolidation Model

    In the proposal, the Commission identified several alternative 
approaches to the centralized consolidation model that had been 
suggested both by Roundtable respondents and by several exchanges. 
These suggestions include the distributed SIP model, a single SIP for 
all exchange-listed securities, and a low-latency dedicated connection 
to existing exclusive SIP feeds.
1. Distributed SIP Alternative
    Several commenters suggested that the distributed SIP alternative 
would address the issues that the Commission was trying to address, 
while retaining the resiliency of the centralized consolidation 
model.\1362\ One commenter stated that the Commission should implement 
a distributed SIP model to reduce geographic latency instead of the 
decentralized consolidation model, which the commenter stated would 
reduce the resiliency of critical market infrastructure.\1363\ Another 
commenter said that the Commission only considered the distributed SIP 
using information from the Market Data Roundtable and that market 
participants had implemented undefined changes that rendered the 
Commission's consideration outdated.\1364\ This commenter also 
suggested that a distributed SIP model, with competing SIPs, would be 
subject to the oversight of the effective national market system 
plan(s).\1365\ One commenter described current exclusive SIP latencies 
and suggested that the introduction of a distributed SIP model would 
solve geographic latencies by allowing market participants to receive 
market data from the exclusive SIPs at the location where it is 
produced.\1366\ This commenter stated that competing consolidators 
would be unlikely to offer improvements in processor latency. This 
commenter provided statistics that geographic latency accounts for 96% 
of overall exclusive SIP latency, and therefore, the potential, 
hypothetical latency reduction from a competing consolidator with the 
``best-in-class technology'' would be at most 4%.\1367\ Further, the 
commenter stated that ``it is short sighted to view SIP architecture as 
purely a latency issue'' as the exclusive SIPs have been ``incredibly 
resilient and have an uptime of close to 100%.'' \1368\ The commenter 
said that a distributed SIP would provide significant resiliency 
benefits and would be easier for market participants to 
implement.\1369\ The commenter stated that the distributed SIP would 
provide the benefits of the competing consolidator model but without 
adding resilience concerns.\1370\
---------------------------------------------------------------------------

    \1362\ See Cboe Letter at 3; NYSE Letter II at 9-10; Nasdaq 
Letter II at 35-36, 49; STANY Letter II at 6. Another commenter 
stated that the existence of multiple consolidators is not a unique 
solution compared to an exclusive SIP distributing consolidated 
market data from multiple locations. See Citadel Letter at 5.
    \1363\ See Cboe Letter at 3.
    \1364\ See NYSE Letter II at 26.
    \1365\ See NYSE Letter II at 8-9, n. 26.
    \1366\ See Cboe Letter at 23 (stating the competing consolidator 
model and distributed SIP model could produce the same geographic 
latency benefits).
    \1367\ Id. at 23.
    \1368\ Id. at 24-25.
    \1369\ See id. at 25 (stating that market participants would 
have to code and connect to competing consolidators).
    \1370\ See id. See also note 892 and accompanying text.
---------------------------------------------------------------------------

    Other commenters disagreed. One commenter stated that a distributed 
SIP would not solve the latency issue.\1371\ Another commenter stated 
that it agreed with the Commission that the distributed SIP would 
increase costs and complexity and would not address

[[Page 18702]]

content and latency differentials in a competitive manner.\1372\
---------------------------------------------------------------------------

    \1371\ See Data Boiler Letter I at 66.
    \1372\ See MEMX Letter at 8.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that a 
distributed SIP alternative was suggested as one possible means to 
reduce geographic latency. Under a distributed SIP alternative, each 
exclusive SIP would place an additional processor in other major data 
centers, where the additional processor would separately aggregate and 
disseminate consolidated market data for its respective tape. The SROs 
would submit their quotations and trade information directly to each 
instance of the exclusive SIP in each data center, and each exclusive 
SIP instance would consolidate and disseminate its respective 
consolidated market data feeds to subscribers at those data centers, 
thereby eliminating geographic latency. The benefit of the distributed 
SIP alternative was that consolidated market data would not have to 
travel multiple locations (from an exchange at one location to an 
exclusive SIP at a second location for consolidation and dissemination 
to a subscriber that may be at a third location) before reaching 
subscribers.
    Although the distributed SIP model could reduce the geographic 
latency inherent in the centralized consolidation model, the Commission 
believes that this model does not adequately address the problems with 
the existing model. Specifically, while the plan proposed pursuant to 
the Governance Order will be required to comply with requirements 
designed to mitigate conflicts of interest, it will not eliminate them. 
The SROs will retain sufficient voting power to act jointly on behalf 
of any new NMS data plan, for regulatory purposes. Further, the 
exchanges will continue to be permitted to sell proprietary data in a 
new decentralized consolidation model. Therefore, the Commission 
believes that the distributed SIP model lacks the incentives offered by 
the competing consolidator approach. The lack of incentives may prevent 
the regular upgrade of technology and product offerings and would 
perpetuate the need for end-users to obtain market data from multiple 
sources.\1373\ The distributed SIP model would continue to allow a 
single SIP to have exclusive rights to the dissemination of market data 
for the NMS stocks on a consolidated tape. The Commission does not 
believe that it is necessary for the exchanges to continue to control 
the consolidation and dissemination of consolidated market data. 
Further, because such a model lacks competition, the Commission 
believes the distributed SIP model would be less likely to incorporate 
technological enhancements improving latency and to make available more 
comprehensive and relevant product and service offerings. Furthermore, 
the end-users would still have to obtain market data from multiple SIPs 
because, as it is today, the data would not be consolidated across the 
exclusive SIPs.
---------------------------------------------------------------------------

    \1373\ The Commission notes that the Equity Data Plans started 
considering the distributed SIP model in early 2018 and have not 
submitted any recommendations to the Commission for consideration.
---------------------------------------------------------------------------

    One commenter suggested a distributed SIP model that would allow 
for competition among SIPs subject to the oversight of the effective 
national market system plan(s). The decentralized consolidation model 
with competing consolidators is a similar proposal without the direct 
oversight of competing consolidators by the effective national market 
system plan(s). The Commission believes that the role and functions of 
the plans as outlined above is appropriate for the decentralized 
consolidation model. Further, this model would continue to suffer from 
conflicts of interest by allowing the effective national market system 
plan(s) controlled by the exchanges to oversee the dissemination of 
consolidated market data by competing consolidators.
    As to the comment regarding the provision of different market data 
products offered based on investors' needs, the Commission acknowledged 
this suggestion in the proposal. Further, the Commission stated that 
such an idea could be implemented in a decentralized consolidation 
model. The Commission stated that the Operating Committee could develop 
different levels of fees for different consolidated market data 
products based on the needs of investors. The commenter, however, now 
states that the Commission cannot assume that the Operating Committee 
would create such a product. The Commission believes that if the 
commenter and the Operating Committee believe that such products would 
be useful to investors, then they would consider developing them in the 
decentralized consolidation model.
2. Single SIP Alternative
    The Commission also discussed another suggestion to address latency 
concerns by combining the exclusive SIPs into a single exclusive SIP 
for all exchange-listed securities. The Commission stated that this 
alternative could allow for an upgrade to existing processor technology 
for the CTA/CQ SIP, which continues to lag the performance of the 
Nasdaq UTP SIP, and could eliminate certain inefficiencies in having 
two separate exclusive SIPs for SIP data. The Commission also stated 
that having a single administrator and exclusive SIP could ease these 
burdens and introduce benefits such as a less complex infrastructure 
and greater standardization.
    One commenter stated that a single dedicated SIP could satisfy the 
requirements of the decentralized consolidation model.\1374\ However, 
the commenter acknowledged that the proposal's ``use of competition to 
maintain fair prices and enhance the quality and speed'' is a 
reasonable approach.\1375\
---------------------------------------------------------------------------

    \1374\ See RBC Letter.
    \1375\ Id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that it believed 
that the single SIP alternative suffered several key shortcomings: (1) 
It does not attempt to introduce competitive forces and, therefore, as 
with the distributed SIP alternative, would not necessarily be expected 
to fully address all forms of latency in a competitive data 
environment; and (2) it does not attempt to address geographic latency, 
which, as noted, is believed to be the most significant source of 
latency undermining the viability of the current centralized exclusive 
SIP model. The Commission did not receive any comments offering any 
persuasive reason as to why this conclusion was inadequate. Therefore, 
the Commission continues to believe that the decentralized 
consolidation model is an appropriate means to modernize the national 
market system and address the deficiencies of the current model.
3. Other Alternatives
    Several commenters offered views on alternatives to the 
decentralized consolidation model. One commenter stated that the 
Proposing Release's consideration of alternatives did not evaluate the 
``current state of market data infrastructure.'' \1376\ This

[[Page 18703]]

commenter stated that market participants had implemented changes to 
render the consideration of alternatives outdated.
---------------------------------------------------------------------------

    \1376\ NYSE Letter II at 26. Despite the changes discussed by 
the commenter to reduce latency in the transmission and aggregation 
of SIP data, there is currently no competition in the market for 
consolidated market data. See NYSE Letter II at 10-11. This 
commenter also stated that the Commission did not consider whether 
the changes to data content or the creation of a decentralized 
consolidation model independently would have been sufficient to 
achieve the Commission's goals. As discussed throughout, the 
amendments to the content of NMS information and the means by which 
it is disseminated are designed to better facilitate competition, to 
help ensure the prompt, accurate, reliable, and fair collection of 
information and to help ensure the fairness and usefulness of NMS 
information. The amendments to the content of NMS information and 
the amendments to adopt a decentralized consolidation model address 
different but related issues that together are necessary to update 
and modernize the national market system.
---------------------------------------------------------------------------

    The commenter stated that the Commission failed to consider whether 
the changes addressed in the Governance Order, along with discreet 
changes in the Proposing Release, would be sufficient to achieve the 
Commission's goals in the Proposing Release.\1377\ The commenter stated 
that the Commission did not explain why the governance changes would be 
insufficient and how the Commission could come to such a conclusion 
before the governance changes are implemented.\1378\ This commenter 
stated that the Commission's failure to consider alternatives would 
violate the APA.\1379\ The Governance Order addresses the governance 
structure of the Equity Data Plans and particularly concerns about 
conflicts of interest and the allocation of voting power with respect 
to these Plans. It does not address the content of NMS information and 
the means by which it is disseminated in the national market 
system.\1380\
---------------------------------------------------------------------------

    \1377\ See NYSE Letter II at 25.
    \1378\ See id.
    \1379\ See id.
    \1380\ See supra Section III.E.2(a).
---------------------------------------------------------------------------

    The commenter also stated that the Commission failed to consider an 
alternative that it had set forth in response to the Governance 
Order.\1381\ Specifically, this commenter stated that it had proposed 
creating different levels of SIP data products to match the demands of 
different types of customers.\1382\ The Commission believes that the 
Operating Committee should consider the commenter's proposal for 
different levels of fees for the data content underlying consolidated 
market data.\1383\
---------------------------------------------------------------------------

    \1381\ See NYSE Letter II at 26.
    \1382\ See id. This commenter, however, stated that the 
Operating Committee may not implement a fee schedule with different 
consolidated market data products that could meet the demand of 
investors.
    \1383\ See supra Section III.E.2(c).
---------------------------------------------------------------------------

    Finally, one commenter suggested that a single dedicated SIP could 
also improve core data content and reduce latency but stated that the 
``[p]roposal's use of competition to maintain fair prices and enhance 
quality and speed is an approach that we believe is reasonable.'' 
\1384\ The Commission agrees. The decentralized consolidation model 
will introduce price and latency competition into the national market 
system.
---------------------------------------------------------------------------

    \1384\ RBC Letter at 5-6.
---------------------------------------------------------------------------

IV. Paperwork Reduction Act

    Certain provisions of the rules and rule amendments that the 
Commission is adopting contain ``collections of information 
requirements'' within the meaning of the Paperwork Reduction Act of 
1995 (``PRA'').\1385\ The Commission published a notice requesting 
comment on the collection of information requirements in the Proposing 
Release and submitted relevant information to the Office of Management 
and Budget (``OMB'') for review in accordance with the PRA and its 
implementing regulations.\1386\ The title of the new collection of 
information is ``Market Data Infrastructure and Form CC.'' An agency 
may not conduct or sponsor, and a person is not required to respond to, 
a collection of information unless the agency displays a currently 
valid control number. The Commission has applied for an OMB Control 
Number for this collection of information.
---------------------------------------------------------------------------

    \1385\ 44 U.S.C. 3501 et seq.
    \1386\ 44 U.S.C. 3507; 5 CFR 1320.11.
---------------------------------------------------------------------------

    The Commission requested comment on the collection of information 
requirements in the Proposing Release. The Commission received comments 
on the estimates for the collection of information requirements 
included in the Proposing Release, which are discussed below.

A. Summary of Collection of Information

    The rules and rule amendments include collection of information 
requirements within the meaning of the PRA.
1. Registration Requirements and Form CC
    Under Rule 614(a)(1)(i), each competing consolidator is required to 
register with the Commission by filing Form CC electronically in 
accordance with the instructions contained on the form.\1387\ To file a 
Form CC, a competing consolidator needs to access the Commission's EFFS 
and register each individual who will access EFFS on behalf of the 
competing consolidator. Rule 614(a)(1)(ii) requires any reports 
required under Rule 614 to be filed electronically on Form CC, include 
all of the information as prescribed in Form CC, and contain an 
electronic signature. Rule 614(a)(2)(i) requires competing 
consolidators to amend an effective Form CC and Rule 614(a)(3) requires 
a competing consolidator to provide notice of its cessation of 
operations on Form CC.
---------------------------------------------------------------------------

    \1387\ As explained above, exchanges that wish to rely upon an 
exemption from certain exchange provisions for affiliated competing 
consolidators will be required to register with the Commission on 
Form CC. See supra Section III.C.7(a)(iv).
---------------------------------------------------------------------------

2. Competing Consolidators' Public Posting of Form CC
    Rule 614(c) requires each competing consolidator to make public on 
its website a direct URL hyperlink to the Commission's website that 
contains Form CC.
3. Competing Consolidator Duties and Data Collection
    Rule 614(d)(1) through (3) requires competing consolidators to 
collect from the SROs quotation and transaction information for NMS 
stocks, calculate and generate a consolidated market data product, and 
make the consolidated market data product available on terms that are 
not unreasonably discriminatory to subscribers. Rule 614(d)(4) requires 
competing consolidators to timestamp the information they collect from 
the SROs pursuant to Rule 614(d)(1) upon receipt, upon receipt by its 
aggregation mechanism, and upon dissemination to subscribers.
4. Recordkeeping
    Rule 614(d)(7) requires each competing consolidator to keep and 
preserve at least one copy of all documents, including all 
correspondence, memoranda, papers, books, notices, accounts, and such 
other records as shall be made or received by it in the course of its 
business as such and in the conduct of its business. Rule 614(d)(8) 
requires each competing consolidator, upon request of any 
representative of the Commission to furnish promptly to such 
representative copies of any documents required to be kept and 
preserved by it.
5. Reports and Reviews
    Rule 614(d)(5) requires each competing consolidator, within 15 
calendar days after the end of month, to publish prominently on its 
website monthly performance metrics, as defined by the effective 
national market system plan(s) for NMS stocks.
    Rule 614(d)(6) requires a competing consolidator, within 15 
calendar days after the end of each month, to publish prominently on 
its website certain detailed information about its operations.
6. Amendment to the Effective National Market System Plan(s) for NMS 
Stocks
    Rule 614(e) directs the participants of the effective national 
market system plan(s) for NMS stocks to file with the

[[Page 18704]]

Commission an amendment to such plan(s) within 150 days of the 
effectiveness of Rule 614.
7. Collection and Dissemination of Information by National Securities 
Exchanges and National Securities Associations
    Rule 603(b) requires every national securities exchange on which an 
NMS stock is traded and national securities association to make 
available to all competing consolidators and self-aggregators all 
information with respect to quotations for and transactions in NMS 
stocks, including all data necessary to generate consolidated market 
data, in the same manner and using the same methods, including all 
methods of access and using the same format, as such exchange or 
association makes available any information with respect to quotations 
for and transactions in NMS stocks to any person. Accordingly, the SROs 
will be required to collect and make available to competing 
consolidators and self-aggregators the information necessary to 
generate consolidated market data. In addition, the primary listing 
exchanges are required to collect and make available pursuant to Rule 
603(b) regulatory data as defined in Rule 600(b)(78).

B. Proposed Use of Information

1. Registration Requirements and Form CC
    The information collected under Rule 614(a)(1) and (2) and Form CC 
are used for purposes of registering competing consolidators. The 
information collected on Form CC will be used to help ensure that a 
competing consolidator's disclosures comply with the requirements of 
Rule 614. The information on Form CC would be publicly available and 
therefore could be used by market participants to evaluate the services 
offered by competing consolidators.
2. Competing Consolidators' Public Posting of Form CC
    The collection of information under Rule 614(c)--which requires 
each competing consolidator to make public on its website a direct URL 
hyperlink to the Commission's website that contains the documents 
enumerated in paragraphs (b)(2)(ii) through (v), including each 
effective initial Form CC, each order of ineffective initial Form CC, 
each Form CC amendment to an effective Form CC, and each notice of 
cessation (if applicable)--will help to ensure that such information is 
readily available to the public.
3. Competing Consolidator Duties and Data Collection
    The information collected under Rules 614(d)(1) through (3) 
constitutes the main obligations of competing consolidators: To collect 
data content underlying consolidated market data and to calculate and 
disseminate a consolidated market data product, which will be used by 
market participants for trading. Widespread availability of 
consolidated market data promotes fair and efficient markets and 
facilitates the ability of brokers and dealers to trade more 
effectively and to provide best execution to their customers.
    The information collected under Rule 614(d)(4) would help 
subscribers to determine a competing consolidator's realized latency 
and would assist subscribers in choosing a competing consolidator or in 
deciding whether a chosen competing consolidator continues to meet 
their latency demands.
4. Recordkeeping
    The Commission will use the information collected under Rules 
614(d)(7) and (8) in its oversight of competing consolidators.
5. Reports and Reviews
    The information collected under Rules 614(d)(5) and (6) will 
provide transparency with respect to the services and performance of a 
competing consolidator and allow market participants to evaluate the 
merits of a competing consolidator.
6. Amendment to the Effective National Market System Plan(s) for NMS 
Stocks
    Rule 614(e) requires the participants to the effective national 
market system plan(s) for NMS stocks to file an amendment with the 
Commission, pursuant to Rule 608, that includes several provisions. 
First, Rule 614(e)(1) requires that the amendment conform the plan(s) 
to reflect the provision of information with respect to quotations for 
and transactions in NMS stocks by the SROs to competing consolidators 
and self-aggregators and define the monthly performance metrics that 
competing consolidators must publish pursuant to Rule 614(d)(5). The 
information collected pursuant to this Rule 614(e)(1) will help to 
ensure that the plan(s) accurately reflect the new market data 
dissemination model and will inform market participants of the 
operation of the plan(s). In addition, the information that is 
collected pursuant to Rule 614(e)(1) will facilitate the Commission's 
oversight of the plan(s). Finally, the information collected will 
inform competing consolidators of the monthly performance metrics that 
they are required to develop.
    Second, Rule 614(e)(2) requires that the plan(s) be amended to 
require the application of timestamps by the SROs to all of the 
information that is necessary to generate consolidated market data, 
including the time the information was generated by the applicable SRO 
and the time the SRO made the information available to competing 
consolidators and self-aggregators. Timestamps help to measure 
latencies and sequence information. The timestamp information collected 
will be used by competing consolidators and self-aggregators to 
sequence information properly and measure latencies relating to the 
collection, consolidation, and generation of consolidated market data.
    Third, Rule 614(e)(3) provides that the plan(s) must be amended to 
reflect that the plan(s) must conduct an assessment of competing 
consolidator performance and develop an annual report of such 
assessment to be provided to the Commission. The information collection 
will assist the Commission in overseeing the operation of the national 
market system.
    Fourth, Rule 614(e)(4) provides that the plan(s) must be amended to 
provide for the development, maintenance, and publication of a list 
that identifies the primary listing exchange for each NMS stock. This 
information collection will help to identify which primary listing 
exchange is responsible for making Short Sale Circuit Breaker 
information available pursuant to Rule 201(b)(3).
    Finally, Rule 614(e)(5) provides that the plan(s) must be amended 
to include a requirement to calculate and publish on a monthly basis 
the consolidated market data gross revenues for NMS stocks as specified 
by (1) listed on the New York Stock Exchange (NYSE); (2) listed on 
Nasdaq; and (3) listed on exchanges other than NYSE or Nasdaq. This 
information will be used to determine whether a competing consolidator 
is subject to Regulation SCI.
7. Collection and Dissemination of Information by National Securities 
Exchanges and National Securities Associations
    The information collected pursuant to Rule 603(b) promotes fair and 
efficient markets and facilitates the ability of brokers and dealers to 
trade more effectively and to provide best execution to their 
customers. This information will be used by competing consolidators to 
develop consolidated market data products for market participants and 
by

[[Page 18705]]

self-aggregators to develop consolidated market data that they need to 
make trading decisions.
    In addition, the primary listing exchanges are required to collect 
and make available pursuant to Rule 603(b) regulatory data as defined 
in Rule 600(b)(78). The information collected is necessary for 
compliance with Federal securities laws.

C. Respondents

    The collection of information titled Market Data Infrastructure and 
Form CC will apply to competing consolidators and the national 
securities exchanges and national securities associations. The below 
table summarizes the Commission's initial and adopted estimates of the 
number of respondents for each collection of information requirement:

----------------------------------------------------------------------------------------------------------------
                                                                                      Initial      Estimate for
           Collection of information                 Applicable respondents          estimate      adopted rules
----------------------------------------------------------------------------------------------------------------
Registration Requirements and Form CC.........  Entities that register pursuant                8               8
                                                 to Rule 614 to act as competing
                                                 consolidators.
Competing Consolidators' Public Posting of      Entities that register pursuant               12               8
 Form CC.                                        to Rule 614 to act as competing
                                                 consolidators.
Competing Consolidator Duties and Data          Entities that register pursuant               12               8
 Collection.                                     to Rule 614 to act as competing
                                                 consolidators.
Recordkeeping.................................  Entities that register pursuant               12               8
                                                 to Rule 614 to act as competing
                                                 consolidators.
Reports and Reviews...........................  Entities that register pursuant               12               8
                                                 to Rule 614 to act as competing
                                                 consolidators.
Amendment to the Effective National Market      National securities exchanges                 17              19
 System Plan(s) for NMS Stocks.                  and national securities
                                                 associations that are
                                                 participants to the effective
                                                 national market system plan(s)
                                                 for NMS stocks.
Collection and Dissemination of Information by  National securities exchanges                 17              17
 National Securities Exchanges and National      and national securities
 Securities Associations.                        associations on which NMS
                                                 stocks are traded.
----------------------------------------------------------------------------------------------------------------

1. Initial Estimate
    In the Proposing Release, the Commission estimated that there would 
be 12 persons who may decide to perform the functions of a competing 
consolidator and would have to comply with the information collections 
under Rule 614. In addition, the Commission estimated that the 16 
national securities exchanges and one national securities association 
(the Financial Industry Regulatory Authority, Inc. (``FINRA'')) that 
are members of the effective national market system plan(s) would have 
to comply with the information collection under Rule 614(e).\1388\ 
Furthermore, the Commission estimated that the 16 national securities 
exchanges that trade NMS stocks and one national securities association 
would have to comply with the information collection under Rule 603(b).
---------------------------------------------------------------------------

    \1388\ At the time of the Proposing Release, these national 
securities exchanges were: Cboe BYX Exchange, Inc.; Cboe BZX 
Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; 
Cboe Exchange, Inc.; Investors Exchange LLC; Long-Term Stock 
Exchange, Inc.; Nasdaq BX, Inc.; Nasdaq ISE, LLC; Nasdaq PHLX LLC; 
Nasdaq Stock Market LLC; New York Stock Exchange LLC; NYSE American 
LLC; NYSE Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, Inc. In 
addition, there will be one primary listing exchange for each NMS 
stock responsible for making regulatory data available and such 
primary listing exchange would be identified in the effective 
national market system plan(s).
---------------------------------------------------------------------------

(a) Comments Received on Initial Estimates
    Two commenters suggested that the estimated number of competing 
consolidators was unsupported.\1389\ One commenter argued that the 
different categories of competing consolidators identified by the 
Commission may not become competing consolidators for varying 
reasons.\1390\ Specifically, this commenter stated that large broker-
dealers that currently aggregate proprietary market data would likely 
become self-aggregators, rather than competing consolidators, due to 
increased operational costs and regulatory scrutiny.\1391\ The 
commenter stated that the proposal lacked analysis to support the 
conclusion that existing SROs would become competing consolidators and 
that existing SROs would be subject to ``substantial infrastructure 
costs'' and additional regulatory requirements.\1392\ Finally, the 
commenter stated that there was no evidence that the SROs that operate 
the exclusive SIPs would become competing consolidators because SRO-
affiliated competing consolidators would be subject to Section 19(b) of 
the Exchange Act while other competing consolidators would not.\1393\
---------------------------------------------------------------------------

    \1389\ See NYSE Letter II at 17; Nasdaq Letter IV at 25.
    \1390\ See NYSE Letter II at 17.
    \1391\ Id.
    \1392\ Id.
    \1393\ Id.

---------------------------------------------------------------------------

[[Page 18706]]

(b) Estimate for the Adopted Rules
    The Commission believes that the estimate of 12 persons who could 
decide to perform the functions of a competing consolidator should be 
adjusted downwards to eight persons. This revision reflects reductions 
in (1) the estimated number of competing consolidators associated with 
SROs from four, as proposed, to one; \1394\ and (2) the estimated 
number of competing consolidators that would be broker-dealers that 
aggregate market data for internal uses from two, as proposed, to one. 
While the actual number of entities that decide to register as a 
competing consolidator is unknown at this time because this is a new 
type of entity, the Commission believes that for purposes of estimating 
the paperwork collection costs and burdens that eight is a reasonable 
number.\1395\ Of that number, the Commission estimates that eight of 
those persons will have to file a Form CC to register with the 
Commission as a competing consolidator. All competing consolidators 
will have to comply with the other information collections described 
above under Rule 614.
---------------------------------------------------------------------------

    \1394\ In the Proposing Release, the Commission described 
potential competing consolidators associated with SROs. As discussed 
above, the Commission is exempting exchanges from certain provisions 
of the Exchange Act related to the operation of affiliated competing 
consolidators. See supra Section III.C.7(a)(iv). One condition of 
the exemption is a requirement that such exchange affiliated 
competing consolidator file a Form CC. Accordingly, the adopted PRA 
includes paperwork collection estimates for the filing of Form CC by 
exchange affiliated competing consolidators.
    \1395\ The Commission estimated this number based on its 
knowledge of the different types of entities that currently collect 
and disseminate NMS information as well as from information received 
at the Roundtable and the comment file.
---------------------------------------------------------------------------

    The Commission notes that there are 18 national securities 
exchanges \1396\ and one national securities association that are 
participants in the effective national market system plan(s) for NMS 
stocks and would have to comply with the information collection under 
Rule 614(e). The Commission estimates that there are 16 national 
securities exchanges (the securities exchanges that trade NMS stocks) 
and one national securities association that would have to comply with 
the information collection under Rule 603(b).\1397\
---------------------------------------------------------------------------

    \1396\ Currently, these national securities exchanges are: Cboe 
BYX Exchange, Inc.; Cboe BZX Exchange, Inc.; Cboe EDGA Exchange, 
Inc.; Cboe EDGX Exchange, Inc.; Cboe Exchange, Inc.; Investors 
Exchange LLC; Long-Term Stock Exchange, Inc.; MEMX LLC; MIAX Pearl, 
LLC; Nasdaq BX, Inc.; Nasdaq ISE, LLC; Nasdaq PHLX LLC; Nasdaq Stock 
Market LLC; New York Stock Exchange LLC; NYSE American LLC; NYSE 
Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, Inc.
    \1397\ As noted above, the primary listing exchange for each NMS 
stock responsible for making regulatory data available would be 
identified in the effective national market system plan(s).
---------------------------------------------------------------------------

D. Total Initial and Annual Reporting and Recordkeeping Burden

1. Registration Requirements and Form CC
    Competing consolidators are required to register pursuant to Rule 
614 and Form CC. In addition, competing consolidators are required to 
file amendments to Form CC pursuant to Rule 614(a)(2).
(a) Initial Burden and Costs
    The Commission's adopted estimates for initial burdens and costs 
have been slightly revised from the proposal. The tables below 
summarize these changes.

------------------------------------------------------------------------
                                  Proposed estimates   Adopted estimates
------------------------------------------------------------------------
Completion of the Initial Form
 CC: Number of Respondents:
    Number of Respondents         8 \1398\..........  8.
     Subject to the Registration
     Requirements of Rule 614
     and Form CC.
Completion of the Initial Form
 CC: Number of Hours:
    Number of Hours Needed for    200 \1399\........  200.
     Each Respondents to
     complete an Initial Form CC.
    Number of Hours Needed for    0.3 \1400\........  0.3.
     Each CC to Access EFFS.
        Total Number of Hours     200.3 \1401\......  200.3.
         for Each Respondent to
         Complete Form CC and
         Access EFFS.
Completion of the Initial Form
 CC: Total One-Time Initial
 Registration Burden:
    Total Burden Hours (Number    8 Respondents x     8 Respondents x
     of Respondents x Number of    200.3 Hours =       200.3 Hours =
     Hours to Complete Form CC     1,602.4.            1,602.4.
     and Access EFFS).
    Total Cost to Register All    1,602.4 Hours x     1,602.4 Hours x
     Respondents (Total Number     $467 =              $467 =
     of Hours x Hourly Rate)       $748,320.80.        $748,320.80.
     \1402\.
Completion of the Initial Form
 CC: Digital Signing of Form CC:
    Number of Individuals from    2.................  2.
     Each Respondent Signing
     Form CC.
    Cost of Obtaining a Digital   $25...............  $25.
     ID.
        Total Cost of Digitally   2 Signers x $25 x   2 Signers x $25 x
         Signing Form CC for All   8 Respondents =     8 Respondents =
         Respondents (Number of    $400.               $400.
         Signers x Cost of
         Digital ID x Number of
         Respondents).
Completion of the Amendments to
 Form CC:
    Number of Amendments          2.................  2.
     Expected to be Filed During
     First Year of Form CC
     Effectiveness \1403\.
        Total Estimated Number    6.0...............  6.0.
         of Burden Hours per
         Amendment per
         Respondent.
        Total Cost Associated     2 Amendments x 6    2 Amendments x 6
         with Amendments During    Hours x 8           Hours x 8
         First Year of Form CC     Respondents x       Respondents x
         Effectiveness (Number     $467 = $44,832.     $467 = $44,832.
         of Amendments x Number
         of Hours per Amendment
         x Number of Respondents
         x Attorney Hourly Rate).
------------------------------------------------------------------------

(i) Proposed Estimates--Initial Burden and Costs
---------------------------------------------------------------------------

    \1398\ In the Proposing Release, the Commission preliminarily 
estimated that 12 respondents would decide to perform the functions 
of a competing consolidator, which included four SROs that would not 
be required to file Form CC. Therefore, the Commission estimated 
that eight respondents would be subject to the registration 
requirements of Rule 614 and Form CC.
    \1399\ The Commission based this estimate on the number of hours 
necessary to complete Form SIP because Form CC was generally based 
on Form SIP and incorporated many of the provisions of Form SIP. The 
Commission estimated that completing Form SIP, which includes 20 
exhibits, would take 400 hours. See Securities Exchange Act Release 
No. 63347 (Nov. 19, 2010), 75 FR 77306 (Dec. 10, 2010) (``The 
Commission calculated in 2008 that Form SIP takes 400 hours to 
complete.''). Form CC includes nine exhibits, and the Commission 
estimates that completing proposed Form CC would take 200 hours, 
which is half the time for Form SIP.
    \1400\ The Commission estimated that each competing consolidator 
would initially designate two individuals to access EFFS, with each 
application to access EFFS taking 0.15 hours for a total of 0.3 
hours per competing consolidator.
    \1401\ 200 hours to complete an initial form CC + 0.3 hours to 
access EFFS = 200.3 hours.
    \1402\ The Commission estimated that competing consolidators 
would, as a general matter, prepare Form CC internally and not use 
external service providers to complete the form. The Commission also 
stated that Form CC would likely be prepared by an attorney. The 
Commission based this estimate on the $467 hourly rate as of May 
2019 for an assistant general counsel x 200.3 hours x 8 respondents. 
The Commission derived this estimate based on per hour figures from 
SIFMA's Management & Professional Earnings in the Securities 
Industry 2013, modified by Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead. Burden 
estimates may vary to the extent that competing consolidators 
utilize external service providers or outside counsel. The 
Commission preliminarily believed that competing consolidators would 
use in-house counsel and not use external service providers or 
outside counsel to file the Form CC.
    \1403\ The Commission preliminarily estimated that competing 
consolidators would file two amendments--one Material Amendment and 
one Annual Report--during its first year after the effectiveness of 
its Form CC.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission preliminarily estimated 
the

[[Page 18707]]

number of respondents who would be subject to the registration 
requirements of Rule 614 and Form CC (8), the number of hours for each 
to complete Form CC (200) and the number of hours for each to access 
EFFS (0.3). Based on these, the Commission estimated a one-time initial 
registration burden for all competing consolidators is approximately 
1,602.4 burden hours and a total cost to register all competing 
consolidators would be $748,320.80.
    In addition to this, the Commission estimated the total cost for 
respondents to obtain digital IDs to access EFFS for the purposes of 
signing the Form CC at approximately $400 for all respondents.
    Finally, the Commission estimated the total burden of filing 
amending Form CC in the first year after effectiveness at a total of 96 
hours (for a total cost of $44,832).
(ii) Comments/Responses on Initial Burden and Costs
    One commenter stated that the ``legal requirements would be overly 
burdensome and have little impact on the utility of . . . service to 
the marketplace'' and requested the Commission to reduce the legal cost 
burdens by adopting a formal regulated entity lite regime limited to 10 
hours of legal work.\1404\
---------------------------------------------------------------------------

    \1404\ See ACTIV Financial Letter.
---------------------------------------------------------------------------

    The Commission is not imposing a minimum level of costs, legal or 
otherwise, on competing consolidators. The estimates are those costs 
that the Commission believes that an entity may bear when registering 
as a competing consolidator. The Commission acknowledges that competing 
consolidators will have to bear certain regulatory and legal costs to 
be registered.
(iii) Adopted Estimates--Initial Burden and Costs
    The Commission believes that, for reasons discussed above, the 
initial burden hour estimate included in the Proposing Release 
continues to be an appropriate estimate. The number of competing 
consolidators and the estimates do not need to be modified because the 
Commission is adjusting the total number of competing consolidators 
down from 12 to eight.\1405\ Therefore, the initial burden hour 
estimates, which were calculated using eight competing consolidators, 
remains the same.
---------------------------------------------------------------------------

    \1405\ See supra note 1394.
---------------------------------------------------------------------------

(b) Ongoing Burden and Costs
(i) Proposed Estimates--Ongoing Burden and Costs
    Rule 614(a)(2) requires competing consolidators to amend Form CC 
prior to the implementation of material changes to pricing, 
connectivity, or products offered as well as annually to correct 
information that has become inaccurate or incomplete for any reason. 
These amendments represent the ongoing annual burdens of Form CC and 
proposed Rule 614(a)(2).\1406\ The Commission estimated that the 
ongoing annual burden for complying with the amendment requirements 
would be approximately 6.15 burden hours for each competing 
consolidator per amendment \1407\ (for a total of $2,872.05), and 
approximately 49.2 burden hours for all competing consolidators per 
amendment (for a total of $22,976.40).\1408\
---------------------------------------------------------------------------

    \1406\ In addition, on an ongoing basis, each competing 
consolidator may add one individual to access EFFS. For example, a 
competing consolidator may have to add an individual to access EFFS 
to account for staffing changes. The Commission estimated that the 
ongoing burden would be 0.15 hours per competing consolidator.
    \1407\ The Commission considered the hour burden estimates for 
Form SDR when estimating the hour burdens for amendments to Form CC. 
As noted in the Proposing Release, when Form SDR was adopted in 
2015, the Commission estimated the hour burden for amendments to be 
roughly 3% of the initial burden. Securities Exchange Act Release 
No. 74246, supra note 1038, at 14522. In that release, the initial 
burden was calculated to be 400 hours per respondent and 12 hours 
per respondent for amendments. The Commission used a similar ratio 
to estimate the burdens for filers of Form CC because filers of Form 
SDR, like filers of Form CC, are required to file amendments 
annually as well as when certain information on Form SDR becomes 
inaccurate. Form SDR: General Instructions for Preparing and Filing 
Form SDR, available at https://www.sec.gov/about/forms/formsdr.pdf 
(last accessed Nov. 27, 2020). Thus, the Commission estimated that 
the annual burden of filing one amendment on Form CC will be 3% of 
the 200 hour initial burden, or 6 hours.
    \1408\ See supra note 1402. As with the initial Form CC, the 
Commission believed the competing consolidators would conduct this 
work internally.
---------------------------------------------------------------------------

    The Commission estimated that competing consolidators would have 
one Material Amendment per year and together with the Annual Report, 
the Commission estimated that respondents would be required to file on 
average a total of two amendments per year. The Commission estimated 
that each respondent would have an average annual burden of 12.3 hours 
(for a total of $5,744.10) for a total estimated average annual burden 
for all competing consolidators of 98.4 hours (for a total of 
$45,952.80).\1409\ In addition, the Commission estimated that obtaining 
a digital ID for an individual who signs the Form CC would cost 
approximately $25 each year or approximately $200 for all respondents. 
The Commission estimated that each respondent will have an average 
annual cost of $5,769.10 ($5,744.10 + $25), and for all respondents, a 
total estimated annual cost of $46,152.80 ($5,769.10 * 8).
---------------------------------------------------------------------------

    \1409\ See id.
---------------------------------------------------------------------------

    Rule 614(a)(3) would require a competing consolidator that ceases 
to act as such to file an amendment to Form CC 90 calendar days prior 
to cessation of operations. The Commission described a competing 
consolidator's notice of cessation of acting as a competing 
consolidator on Form CC as substantially similar to its most recently 
filed Form CC, and therefore, since the form would already be complete, 
the burden would not be as great as the burden of filing an application 
for registration on Form CC. The Commission based its estimates for a 
notice of cessation on the estimates for filing an amendment on Form 
CC. The Commission estimated that the one-time burden of filing a Form 
CC notice of cessation would be approximately 2 burden hours (for a 
total of $934).\1410\
---------------------------------------------------------------------------

    \1410\ See id. The Commission estimated that no competing 
consolidators would cease operations in the first three years of the 
rule's effectiveness.
---------------------------------------------------------------------------

(ii) Comments/Responses on Ongoing Burden and Costs
    One commenter stated that competing consolidators would amend their 
fees

[[Page 18708]]

more than once a year.\1411\ An amendment to competing consolidator 
fees would require an amendment to a competing consolidator's Form CC. 
The Commission has considered this comment and is amending its ongoing 
estimate that a competing consolidator will file five amendments a 
year, plus the annual report, for a total of six amendments per year. 
The Commission believes this estimate is reasonable based upon a review 
of amendments of the fee schedules of the SROs.
---------------------------------------------------------------------------

    \1411\ See IDS Letter I at 15 (``In a truly competitive market, 
competing consolidators would amend their fees more often than once 
a year, as they responded to market forces.'').
---------------------------------------------------------------------------

(iii) Adopted Estimates--Ongoing Burden and Costs
    The Commission is amending its ongoing burden hour estimate that a 
competing consolidator will file two amendments per year. Based on the 
comments received, the Commission now estimates that a competing 
consolidator will file six amendments per year.
    The Commission preliminarily estimated that the annual burden of 
filing one amendment on Form CC would be six hours per competing 
consolidator. Since the Commission now estimates that a competing 
consolidator will file six amendments in a year, the Commission 
estimates that the annual burden hours incurred per competing 
consolidator to file six amendments per year would be 36 hours,\1412\ 
for a total estimated average annual burden for all competing 
consolidators of 288 hours.\1413\ The Commission is adopting its annual 
external cost estimates as proposed.\1414\ Finally, the Commission is 
adopting the ongoing burden estimate for filing a notice of cessation 
on Form CC as proposed.
---------------------------------------------------------------------------

    \1412\ 36 annual burden hours = [(6 annual burden hours per 
amendment) x (6 amendments per year)]. The Commission monetized this 
amount to be $16,812. The Commission based this estimate on the $467 
hourly rate as of May 2019 for an assistant general counsel x 36 
hours. The Commission derived this estimate based on per hour 
figures from SIFMA's Management & Professional Earnings in the 
Securities Industry 2013, modified by Commission staff to account 
for an 1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead.
    \1413\ 288 annual burden hours = [(6 annual burden hours per 
amendment) x (6 amendments per year) x (8 competing consolidators)]. 
The Commission monetized this amount to be $133,632. The Commission 
based this estimate on the $467 hourly rate as of May 2019 for an 
assistant general counsel x 36 hours x 8 competing consolidators. 
The Commission derived this estimate based on per hour figures from 
SIFMA's Management & Professional Earnings in the Securities 
Industry 2013, modified by Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead.
    \1414\ See supra note 1394.
---------------------------------------------------------------------------

2. Competing Consolidators' Public Posting of Form CC
    Rule 614(c) requires each competing consolidator to make public on 
its website a direct URL hyperlink to the Commission's website that 
contains each effective initial Form CC, order of ineffective initial 
Form CC, amendments to effective Form CCs, and notice of cessation (if 
applicable).
(a) Initial Burden and Costs
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated an initial 
burden of 0.5 hours per competing consolidator to publicly post the 
Commission's direct URL hyperlink to its website upon filing of the 
initial Form CC,\1415\ for an aggregate initial burden of approximately 
six hours for the competing consolidators to post publicly the direct 
URL hyperlink to the Commission's website on their own respective 
websites.\1416\
---------------------------------------------------------------------------

    \1415\ The Commission based this estimate on a full-time 
Programmer Analyst spending approximately 0.5 hours to publicly post 
the URL hyperlink per competing consolidator. The Commission 
estimated the monetized initial burden for this requirement to be 
$120.50. The Commission derived this estimate based on per hour 
figures from SIFMA's Management & Professional Earnings in the 
Securities Industry 2013, modified by Commission staff to account 
for an 1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead: 
Programmer Analyst at $241 for 0.5 hours = 0.5 initial burden hours 
per competing consolidator and $120.50.
    \1416\ The Commission estimated the monetized initial aggregate 
burden for this requirement to be $1,446. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Programmer Analyst at $241 for 
0.5 hours) x (12 competing consolidators)] = 6 initial burden hours 
across the competing consolidators and $1,446.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    The Commission did not receive any comments on its initial burden 
hour estimate for the competing consolidators to publicly post the 
direct URL hyperlink to the Commission's website on their own 
respective websites.
(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is adopting the initial burden hour per competing 
consolidator estimate as proposed without any changes. However, the 
Commission is revising its aggregate initial burden hour estimate. As 
discussed above, eight competing consolidators would be required to 
file amendments to effective Form CCs. The Commission now estimates an 
aggregate initial burden of approximately four hours for the competing 
consolidators to publicly post the direct URL hyperlink to the 
Commission's website on their own respective websites.\1417\
---------------------------------------------------------------------------

    \1417\ The Commission estimated the monetized initial aggregate 
burden for this requirement to be $964. The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Programmer Analyst at $241 for 
0.5 hours) x (8 competing consolidators)] = 4 initial burden hours 
across the competing consolidators and $964.
---------------------------------------------------------------------------

(b) Ongoing Burden and Costs
(i) Proposed Estimates--Ongoing Burden and Costs
    For the ongoing burden and costs, the Commission estimated that 
each competing consolidator would check the Commission's website 
whenever it files amendments to effective Form CCs to ensure that the 
Commission's direct URL hyperlink that the competing consolidator has 
posted to its own website remains valid. Further, the Commission 
estimated that a competing consolidator will file two amendments per 
year, which would result in each competing consolidator incurring an 
ongoing burden of 0.25 hours per amendment, or 0.5 hours per year, to 
ensure that it has posted the correct direct URL hyperlink to the 
Commission's website on its own website,\1418\ for an aggregate annual 
burden of approximately six hours for

[[Page 18709]]

the competing consolidators to do so.\1419\
---------------------------------------------------------------------------

    \1418\ The Commission based this estimate on a full-time 
Programmer Analyst spending approximately 0.25 hours to check the 
Commission's website when the competing consolidator submits an 
amendment to effective Form CCs to ensure that the Commission's 
direct URL hyperlink that the competing consolidator has posted to 
its own website remains valid. Since the Commission estimated that a 
competing consolidator would file two amendments per year, the 
Commission estimated that each competing consolidator would incur a 
burden of 0.5 hours per year. [(0.25 hours) x (2 amendments per 
year)] = 0.5 hours per year to check the URL hyperlink. The 
Commission estimated the monetized annual burden for this 
requirement to be $120.50. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead: Programmer Analyst at $241 for 0.5 hours = 
0.5 annual burden hours per competing consolidator and $120.50.
    \1419\ The Commission estimated the monetized aggregate annual 
burden for this requirement to be $1,446.00. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Programmer Analyst at $241 for 
0.5 hours) x (12 competing consolidators)] = 6 annual burden hours 
across the competing consolidators and $1,446.00.
---------------------------------------------------------------------------

(ii) Comments/Responses on Ongoing Burden and Costs
    As discussed above, one commenter stated that competing 
consolidators would amend their fees more than once a year.\1420\ An 
amendment to fees would require an amendment to a competing 
consolidator's Form CC. The Commission has considered this comment and 
is amending its ongoing estimate after a review of amendments of the 
fee schedules of the SROs.
---------------------------------------------------------------------------

    \1420\ Specifically, the commenter stated, ``In a truly 
competitive market, competing consolidators would amend their fees 
more often than once a year, as they responded to market forces.'' 
IDS Letter I at 15.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Ongoing Burden and Costs
    As described above,\1421\ the Commission is amending its ongoing 
estimate that a competing consolidator will file two amendments per 
year. The Commission now estimates that a competing consolidator will 
file six amendments per year. The Commission believes a competing 
consolidator will file five amendments a year, plus the annual report, 
for a total of six amendments per year. The Commission believes this 
estimate is reasonable based upon a review of amendments of the fee 
schedules of the SROs. Because the Commission believes that a competing 
consolidator will incur an ongoing burden of 0.25 hours per amendment 
to ensure that it has posted the correct direct URL hyperlink to the 
Commission's website on its own website,\1422\ the Commission now 
estimates that a competing consolidator will incur a total of 1.5 hours 
per year to ensure that it has posted the correct direct URL hyperlink 
to the Commission's website,\1423\ for an aggregate annual burden of 
approximately 12 hours for all competing consolidators to do so.\1424\ 
The Commission is adopting the ongoing burden estimate as amended.
---------------------------------------------------------------------------

    \1421\ See supra Section IV.D.1(b)(iii).
    \1422\ See supra note 1418.
    \1423\ The Commission bases this estimate on a full-time 
Programmer Analyst spending approximately 0.25 hours to check the 
Commission's website when the competing consolidator submits an 
amendment to effective Form CCs to ensure that the Commission's 
direct URL hyperlink that the competing consolidator has posted to 
its own website remains valid. Since the Commission estimates that a 
competing consolidator would file six amendments per year, the 
Commission estimates that each competing consolidator would incur a 
burden of 1.5 hours per year. (0.25 hours) x (6 amendments per year) 
= 1.5 hours per year to check the URL hyperlink. The Commission 
estimated the monetized annual burden for this requirement to be 
$361.50. The Commission derives this estimate based on per hour 
figures from SIFMA's Management & Professional Earnings in the 
Securities Industry 2013, modified by Commission staff to account 
for an 1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead: 
Programmer Analyst at $241 for 1.5 hours = 1.5 annual burden hours 
per competing consolidator and $361.50.
    \1424\ The Commission estimates the monetized aggregate annual 
burden for this requirement to be $2,892. The Commission derives 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Programmer Analyst at $241 for 
1.5 hours) x (8 competing consolidators)] = 12 annual burden hours 
across the competing consolidators and $2,892.
---------------------------------------------------------------------------

3. Competing Consolidator Duties and Data Collection
    Rules 614(d)(1) through (3) require competing consolidators to 
collect from the SROs quotation and transaction information for NMS 
stocks, calculate and generate a consolidated market data product, and 
make the consolidated market data product available to subscribers on a 
consolidated basis on terms that are not unreasonably discriminatory. 
Rule 614(d)(4) requires competing consolidators to timestamp the 
information with respect to quotations and transactions in NMS stocks 
that they collect from the SROs pursuant to Rule 614(d)(1) upon 
receipt, upon receipt by the aggregation mechanism, and upon 
dissemination to subscribers. The Commission estimated that five types 
of entities would register to become competing consolidators and would 
have to build systems, or modify existing systems, to comply with Rules 
614(d)(1) through (4): (1) Market data aggregation firms, (2) broker-
dealers that currently aggregate market data for internal uses, (3) the 
existing exclusive SIPs (CTA/CQ and Nasdaq UTP SIPs), (4) entities that 
would be entering the market data aggregation business for the first 
time (``new entrants''), and (5) SROs. The Commission estimated that, 
apart from the SRO category, two respondents from each category would 
register to become a competing consolidator; the Commission estimated 
that four SROs would register to become competing consolidators.
(a) Comments on Initial Burden and Costs and Annual Burden and Costs 
Generally
    The Commission received two comments that believed the Commission's 
initial or ongoing burdens and costs associated with the operation of 
competing consolidators were too low.\1425\ One commenter said the 
Commission's estimated initial and ongoing costs associated with 
competing consolidators should be comparable to those of the CAT.\1426\ 
The Commission considered this comment and disagrees with its 
assessment because the CAT is a different system in function and 
differs greatly in scope than the systems to be used by competing 
consolidators. Unlike the systems to be operated by competing 
consolidators, which would collect trade and quote information in NMS 
stocks from the SROs, and consolidate and disseminate such information 
to subscribers, the CAT must collect information for the entire 
lifecycle of an order (receipt/origination, routing, receipt of a 
routed order, modification or cancellation, and execution), in both NMS 
stocks and options from SROs as well as broker-dealers, and consolidate 
and store such information in a queryable database made available to 
regulators.
---------------------------------------------------------------------------

    \1425\ Data Boiler Letter I at 46; Data Boiler Letter II at 1; 
IDS Letter I at 13.
    \1426\ Data Boiler Letter I at 46; Data Boiler Letter II at 1.
---------------------------------------------------------------------------

    The other commenter stated that the cost that NYSE incurred to 
build its ``NMS network'' inside one data center to provide access to 
SIAC's NMS feeds ``was substantially greater than the Commission's 
estimation for networks that would extend to four data centers.'' 
\1427\ The commenter said that NYSE's capital expenditure costs to 
build the NMS network were estimated to be $3.8 million, with ongoing 
costs of $215,000 per year.\1428\ The Commission considered this 
comment and believes the NMS network costs are informative but are not 
directly applicable to the costs to be incurred by competing 
consolidators to build or upgrade systems to comply with Rules 
614(d)(1) through (4) because the NMS network is not a system that 
consolidates market data and its costs include the transmission of 
options information, which competing consolidators would not be 
collecting, consolidating, or disseminating. However, upon further 
consideration, the Commission believes that it is likely that competing 
consolidators would incur higher

[[Page 18710]]

technology-related burden hours and external costs associated with 
building as well as operating systems to collect, consolidate, and 
disseminate consolidated market data than the Commission estimated in 
the proposal. The Commission is increasing its estimates accordingly.
---------------------------------------------------------------------------

    \1427\ IDS Letter I at 13, n. 38.
    \1428\ Id.
---------------------------------------------------------------------------

    As adopted, Rules 614(d)(1) through (3) does not require competing 
consolidators to sell a full consolidated market data product.\1429\ 
Competing consolidators that decide to offer a limited consolidated 
market data product may incur fewer burden hours and costs to build and 
maintain a system that does not have to aggregate and disseminate a 
full consolidated market data product. However, the Commission believes 
that there will continue to be demand for a full consolidated market 
data product, which will incentivize some competing consolidators to 
meet this demand.\1430\ Therefore, the Commission is not reducing its 
estimated burden hours and external costs for competing consolidators 
to implement and maintain systems to comply with Rules 614(d)(1) 
through (4) to reflect this change to the data they must make 
available. The Commission acknowledges that these burden hours and 
external costs reflect an upper bound and as incurred may be lower than 
these estimates for those competing consolidators that sell a limited 
consolidated market data product.
---------------------------------------------------------------------------

    \1429\ See supra Section III.C.8(a)(ii). See also supra Sections 
II.B.2; III.C.1(b).
    \1430\ See supra notes 878-880 and accompanying text. See also 
infra Section V.C.1(c).
---------------------------------------------------------------------------

(b) Initial Burden and Costs for Market Data Aggregation Firms
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that each market 
data aggregation firm would incur 900 initial burden hours \1431\ and 
$206,250 in external costs \1432\ to modify its systems to comply with 
Rules 614(d)(1) through (4). Additionally, the Commission estimated 
that an existing market data aggregator would incur initial external 
costs of $14,000 to purchase market data from the SROs,\1433\ and an 
additional initial external cost of $194,000 to co-locate at four 
exchange data centers,\1434\ for a total initial external cost of 
$414,250 per existing market data aggregator,\1435\ and an aggregate 
estimate for two market data aggregators of 1,800 initial burden hours 
\1436\ and $828,500 in initial external costs.\1437\
---------------------------------------------------------------------------

    \1431\ The Commission estimated the monetized initial burden for 
this requirement to be $293,750. Based on discussions with a market 
participant, the Commission reached the following estimates: [(Sr. 
Programmer at $332/hour for 350 hours) + (Sr. Systems Analyst at 
$285/hour for 300 hours) + (Compliance Manager at $310/hour for 100 
hours) + (Director of Compliance at $489/hour for 50 hours) + 
(Compliance Attorney at $366/hour for 100 hours)] = 6 months (900 
burden hours) to upgrade existing systems to comply with Rules 
614(d)(1) through (4). The Commission derived this estimate based on 
per hour figures from SIFMA's Management & Professional Earnings in 
the Securities Industry 2013, modified by Commission staff to 
account for an 1,800-hour work-year and inflation, and multiplied by 
5.35 to account for bonuses, firm size, employee benefits, and 
overhead.
    \1432\ This estimate was based on discussions with a market 
participant and the Commission's understanding of hardware costs.
    \1433\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000).
    \1434\ This estimate was based on an estimated $48,500 in 
initial co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers. The Commission described 
that the market data aggregators would already be co-located at the 
four exchange data centers, which could lower the estimate. See NYSE 
Price List 2020, available at https://www.nyse.com/publicdocs/nyse/markets/nyse/NYSE_Price_List.pdf (last accessed Nov. 27, 2020).
    \1435\ $414,250 = [($206,250 in initial external costs to modify 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 for 
the first month of market data costs) + ($194,000 in initial co-
location costs at four exchange data centers)].
    \1436\ The Commission estimated the monetized initial burden for 
this requirement to be $587,500. Based on discussions with a market 
participant, the Commission reached the following estimates: [(Sr. 
Programmer at $332/hour for 350 hours) + (Sr. Systems Analyst at 
$285/hour for 300 hours) + (Compliance Manager at $310/hour for 100 
hours) + (Director of Compliance at $489/hour for 50 hours) + 
(Compliance Attorney at $366/hour for 100 hours)] x [(2 market data 
aggregation firms)] = 1,800 initial burden hours across the market 
data aggregation firms.
    \1437\ The Commission estimated that the market data aggregation 
firms would incur the following initial external costs: [($206,250 
to modify systems to comply with Rules 614(d)(1) through (4)) + 
($14,000 to purchase market data) + ($194,000 to co-locate within 
four exchange data centers)] x [(2 market data aggregation firms)] = 
$828,500.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    In response to the commenter that believed that the estimated costs 
incurred by potential competing consolidators to build or upgrade 
systems to comply with proposed Rules 614(d)(1) through (4) should be 
increased,\1438\ the Commission is modifying its initial burden and 
cost estimates for market data aggregators, as discussed below.
---------------------------------------------------------------------------

    \1438\ IDS Letter I at 13, n. 38.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is increasing its estimated initial costs and 
associated burden hours for market data aggregators to modify their 
systems to comply with Rules 614(d)(1) through (4). The Commission 
preliminarily believed that market data aggregators would not have to 
extensively modify their systems to comply with Rules 614(d)(1) through 
(4) because the systems used by these firms already collect, 
consolidate, and disseminate more extensive proprietary market data 
than the data that is provided by the exclusive SIPs. However, the 
Commission now understands that these are small firms for which scaling 
out their hardware and personnel needs will be a significant 
undertaking. Most of these firms would have to spend substantial time 
coding for the new technical changes and would likely not have all of 
the components required to comply with Rules 614(d)(1) through (4). 
Additionally, the Commission initially believed that competing 
consolidators would build aggregation systems in a single data center; 
however, the Commission now believes that competing consolidators may 
build systems for aggregating data in more than one data center. The 
Commission believes market data aggregators would likely incur external 
costs greater than the Commission's estimate to buy new technology (for 
example, hardware and network infrastructure).
    The Commission is increasing its estimated burden hours for Sr. 
Programmers and Sr. Systems Analysts employed by market data 
aggregation firms by three times. The Commission initially believed 
that competing consolidators would build aggregation systems in a 
single data center; however, the Commission now believes that competing 
consolidators may build systems for aggregating data in more than one 
data center, so the Commission is increasing the hours for these 
technical job categories by three times because competing consolidators 
may potentially build aggregation systems in three data centers. The 
Commission is also increasing its estimated external costs to be 
incurred by market data aggregation firms to purchase new technology to 
upgrade their systems to comply with Rules 614(d)(1) through (4) by 
three times for the same reason. The Commission estimates that each 
market data aggregation firm would incur 2,200 initial burden hours to 
modify its systems to comply with Rules 614(d)(1) through (4),\1439\ 
and initial external

[[Page 18711]]

costs of $618,750 to purchase the necessary technology to effect such 
modifications,\1440\ $194,000 to establish co-location connectivity to 
the exchange data centers,\1441\ and $14,000 to purchase market data 
from the exchanges,\1442\ for a total external cost to each market data 
aggregator of $826,750.\1443\ The Commission estimates that the total 
initial burden hours for two market data aggregators would be 4,400 
burden hours,\1444\ and that total initial external costs would be 
$1,653,500 for two market data aggregators to modify their systems to 
comply with Rules 614(d)(1) through (4).\1445\
---------------------------------------------------------------------------

    \1439\ The Commission estimated the monetized initial burden for 
this requirement to be $697,150. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 1,050 hours) + 
(Sr. Systems Analyst at $285/hour for 900 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 2,200 initial burden hours to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead.
    \1440\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes competing consolidators may 
potentially build aggregation systems in three data centers.
    \1441\ This estimate is based on an estimated $48,500 in initial 
co-location fees as calculated from NYSE Price List 2020, multiplied 
by four exchange data centers. The Commission believes that the 
market data aggregators would already be co-located at the four 
exchange data centers, which may lower this estimate. See NYSE Price 
List 2020, supra note 1434.
    \1442\ As it did in the Proposing Release, the Commission is 
using the monthly market data access and redistribution fees charged 
by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this estimate 
($14,000).
    \1443\ The Commission estimated that each market data 
aggregation firm would incur the following initial external costs: 
[($618,750 to modify systems to comply with Rules 614(d)(1) through 
(4)) + ($14,000 to purchase market data) + ($194,000 to establish 
co-location connectivity within four exchange data centers)] = 
$826,750.
    \1444\ The Commission estimated the monetized initial burden for 
this requirement to be $1,394,300. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 1,050 hours) + 
(Sr. Systems Analyst at $285/hour for 900 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] x [(2 market data aggregation firms)] = 4,400 initial burden 
hours across the market data aggregation firms.
    \1445\ The Commission estimated that market data aggregation 
firms would incur the following initial external costs: [($618,750) 
to modify systems to comply with Rules 614(d)(1) through (4)) + 
($14,000 to purchase market data) + ($194,000 to establish co-
location connectivity within four exchange data centers)] x [(2 
market data aggregation firms)] = $1,653,500.
---------------------------------------------------------------------------

(c) Initial Burden and Costs for Broker-Dealers That Aggregate Market 
Data
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that each 
broker-dealer that aggregates market data for internal uses that 
chooses to become a competing consolidator would incur burden hours to 
upgrade its systems to comply with Rules 614(d)(1) through (4) as well 
as external costs associated with such upgrades, including co-location 
fees at the exchange data centers and the cost of market data. 
Specifically, the Commission estimated that each broker-dealer would 
incur 900 initial burden hours \1446\ and $206,250 in external costs 
\1447\ to modify its systems to comply with Rules 614(d)(1) through 
(4). Additionally, the Commission estimated that a broker-dealer would 
incur initial external costs of $14,000 to purchase market data from 
the SROs,\1448\ and an additional initial external cost of $194,000 to 
co-locate itself at four exchange data centers,\1449\ for a total 
initial external cost of $414,250 per broker-dealer,\1450\ and an 
aggregate estimate of 1,800 initial burden hours \1451\ and $828,500 in 
initial external costs.\1452\
---------------------------------------------------------------------------

    \1446\ The Commission estimated the monetized initial burden for 
this requirement to be $293,750. The Commission reached the 
following hourly estimates: [(Sr. Programmer at $332/hour for 350 
hours) + (Sr. Systems Analyst at $285/hour for 300 hours) + 
(Compliance Manager at $310/hour for 100 hours) + (Director of 
Compliance at $489/hour for 50 hours) + (Compliance Attorney at 
$366/hour for 100 hours)] = 6 months (900 burden hours) to upgrade 
existing systems to comply with Rules 614(d)(1) through (4). The 
Commission derived this estimate based on discussions with a market 
participant and per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for a 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead.
    \1447\ This estimate was based on discussions with a market 
participant and the Commission's understanding of hardware costs.
    \1448\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000).
    \1449\ This estimate was based on an estimated $48,500 in 
initial co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers. See NYSE Price List 2020, 
supra note 1434.
    \1450\ $414,250 = [($206,250 in initial external costs to modify 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 for 
the first month of market data costs) + ($194,000 in initial co-
location costs at four exchange data centers)].
    \1451\ The Commission estimates the monetized initial burden for 
this requirement to be $587,500. Based on discussions with a market 
participant, the Commission reached the following estimates: [(Sr. 
Programmer at $332/hour for 350 hours) + (Sr. Systems Analyst at 
$285/hour for 300 hours) + (Compliance Manager at $310/hour for 100 
hours) + (Director of Compliance at $489/hour for 50 hours) + 
(Compliance Attorney at $366/hour for 100 hours)] x [(2 broker-
dealers)] = 1,800 initial burden hours across the broker-dealers.
    \1452\ The Commission preliminarily estimates that broker-
dealers would incur the following initial external costs: [($206,250 
to modify systems to comply with Rules 614(d)(1) through (4)) + 
($14,000 to purchase market data) + ($194,000 to co-locate within 
four exchange data centers) x (2 broker-dealers)] = $828,500.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    In response to the commenter that believed that the estimated costs 
incurred by potential competing consolidators to build or upgrade 
systems to comply with proposed Rules 614(d)(1) through (4) should be 
increased,\1453\ the Commission is modifying its initial burden and 
cost estimates for broker-dealers that aggregate market data, as 
discussed below.
---------------------------------------------------------------------------

    \1453\ IDS Letter I at 13, n. 38.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is increasing its estimated initial costs and 
associated burden hours for broker-dealers that aggregate market data 
for internal use to modify their systems comply with Rules 614(d)(1) 
through (4). The Commission preliminarily believed that the initial 
burden hour and external cost estimates for these broker-dealers to 
modify their systems to comply with Rules 614(d)(1) through (4) would 
be similar to market data aggregation firms because, for both types of 
respondents, the scope of the systems changes and costs associated with 
becoming competing consolidators would be comparable. The Commission 
continues to believe this assumption is valid and is increasing its 
estimates for these broker-dealers as it is doing for market data 
aggregation firms. Most of these firms would have to spend substantial 
time coding for the new technical changes and would likely not have all 
of the components required to comply with Rules 614(d)(1) through (4). 
Additionally, the Commission initially believed that competing 
consolidators would build aggregation systems in a single data center; 
however, the Commission now believes that competing consolidators may 
build systems for aggregating data in more than one data center. The 
Commission

[[Page 18712]]

believes broker-dealers that aggregate market data would likely incur 
external costs greater than the Commission's estimate to buy new 
technology (for example, hardware and network infrastructure). The 
Commission is also revising its total initial burden hour and external 
cost estimates across all broker-dealers that aggregate market data to 
reflect a reduction in the number of potential competing consolidators 
that are broker-dealers that aggregate market data.
    As it did for its market data aggregation firm estimates, the 
Commission is increasing its estimated burden hours for Sr. Programmers 
and Sr. Systems Analysts by three times as well as its estimated 
external costs to be incurred by broker-dealers that aggregate market 
data to purchase new technology to upgrade their systems to comply with 
Rules 614(d)(1) through (4). The Commission estimates that each broker-
dealer that aggregates market data would incur 2,200 initial burden 
hours to modify its systems to comply with Rules 614(d)(1) through 
(4),\1454\ and initial external costs of $618,750 to purchase the 
necessary technology to effect such modifications,\1455\ $194,000 to 
establish co-location connectivity to the exchange data centers,\1456\ 
and $14,000 to purchase market data from the exchanges,\1457\ for a 
total external cost to each broker-dealer that aggregates market data 
of $826,750.\1458\ The Commission estimates that the total initial 
burden hours for one broker-dealers that aggregates market data would 
be 2,200 burden hours,\1459\ and that total initial external costs 
would be $826,750 for one broker-dealer that aggregates market data to 
modify its systems to comply with Rules 614(d)(1) through (4).\1460\
---------------------------------------------------------------------------

    \1454\ The Commission estimated the monetized initial burden for 
this requirement to be $697,150. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 1,050 hours) + 
(Sr. Systems Analyst at $285/hour for 900 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 2,200 initial burden hours to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead.
    \1455\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes competing consolidators may 
potentially build aggregation systems in three data centers.
    \1456\ This estimate is based on an estimated $48,500 in initial 
co-location fees as calculated from NYSE Price List 2020, multiplied 
by four exchange data centers. See NYSE Price List 2020, supra note 
1434.
    \1457\ As it did in the Proposing Release, the Commission is 
using the monthly market data access and redistribution fees charged 
by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this estimate 
($14,000).
    \1458\ The Commission estimated that a broker-dealer that 
aggregates market data would incur the following initial external 
costs: [($618,750 to modify systems to comply with Rules 614(d)(1) 
through (4)) + ($14,000 to purchase market data) + ($194,000 to 
establish co-location connectivity within four exchange data 
centers)] = $826,750.
    \1459\ The Commission estimated the monetized initial burden for 
this requirement to be $697,150. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 1,050 hours) + 
(Sr. Systems Analyst at $285/hour for 900 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] x [(1 broker-dealer that aggregates market data)] = 2,200 
total initial burden hours.
    \1460\ The Commission estimated that broker-dealers that 
aggregate market data would incur the following total initial 
external costs: [($618,750) to modify systems to comply with Rules 
614(d)(1) through (4)) + ($14,000 to purchase market data) + 
($194,000 to establish co-location connectivity within four exchange 
data centers)] x [(1 broker-dealer that aggregates market data)] = 
$826,750.
---------------------------------------------------------------------------

(d) Initial Burden and Costs for Exclusive SIPs
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that the 
exclusive SIPs may have to make a greater scope of changes to become 
competing consolidators than market data aggregation firms. For this 
reason, the Commission estimated initial burden hour and external cost 
estimates that were higher than those estimated for market data 
aggregation firms.\1461\ Specifically, the Commission estimated that 
each exclusive SIP would incur 1,800 initial burden hours \1462\ and 
$412,500 in external costs \1463\ to modify its systems to comply with 
Rules 614(d)(1) through (4). Additionally, the Commission estimated 
that an exclusive SIP would incur initial external costs of $14,000 to 
purchase market data from the SROs,\1464\ and an additional initial 
external cost of $194,000 to co-locate itself at four exchange data 
centers,\1465\ for a total initial external cost of $620,500 per 
existing exclusive SIP,\1466\ and an aggregate estimate of 3,600 
initial burden hours \1467\ and $1,241,000 in initial external 
costs.\1468\
---------------------------------------------------------------------------

    \1461\ In the Proposing Release, the Commission doubled its 
initial burden hour and external cost estimates for a market data 
aggregation firm to reach its initial burden hour and external cost 
estimates for an exclusive SIP.
    \1462\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 6 months (900 burden hours) to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for a 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead. As noted above, the Commission 
increased this initial burden hour estimate for the exclusive SIPs. 
Therefore, the Commission estimated that each exclusive SIP will 
incur 1,800 initial burden hours to upgrade its existing systems to 
comply with Rules 614(d)(1) through (4) (or $587,500, as monetized).
    \1463\ As noted above, the Commission estimated the initial 
external cost estimates to comply with Rules 614(d)(1) through (4) 
to be higher for exclusive SIPs than for market data aggregation 
firms. The Commission estimated that each exclusive SIP will incur 
$412,500 in initial external costs to modify its systems to comply 
with Rules 614(d)(1) through (4).
    \1464\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000).
    \1465\ This estimate was based on an estimated $48,500 in 
initial co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers. See NYSE Price List 2020, 
supra note 1434.
    \1466\ The Commission estimated that each exclusive SIP would 
incur the following initial external costs: [($412,500 to modify 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to co-locate within four exchange 
data centers)] = $620,500.
    \1467\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 900 initial burden hours across the market data 
aggregation firms. As noted above, the Commission increased this 
initial burden hour estimate to apply to the exclusive SIPs. 
Therefore, the Commission preliminarily estimated that each 
exclusive SIP will incur 1,800 initial burden hours to upgrade its 
existing systems to comply with Rules 614(d)(1) through (4) (or 
$587,500, as monetized). The aggregate initial burden hour estimate 
for two exclusive SIPs would be [(1,800 initial burden hours) x (2 
exclusive SIPs)] = 3,600 initial burden hours.
    \1468\ The Commission preliminarily estimated that the exclusive 
SIPs would incur the following initial external costs: [($412,500 to 
modify systems to comply with Rules 614(d)(1) through (4)) + 
($14,000 to purchase market data) + ($194,000 to co-locate within 
four exchange data centers)] x [(2 exclusive SIPs)] = $1,241,000.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    In response to the commenter that believed that the estimated costs 
incurred by potential competing consolidators to build or upgrade 
systems to comply with proposed Rules 614(d)(1) through (4) should be 
increased,\1469\ the Commission is

[[Page 18713]]

modifying its initial burden and cost estimates for the exclusive SIPs, 
as discussed below.
---------------------------------------------------------------------------

    \1469\ IDS Letter I at 13, n. 38.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is increasing its estimated initial costs and 
associated burden hours for exclusive SIPs that choose to become 
competing consolidators to upgrade their systems to comply with Rules 
614(d)(1) through (4). The Commission preliminarily believed that the 
exclusive SIPs would have to make a greater scope of changes to become 
competing consolidators than market data aggregation firms. For this 
reason, the Commission preliminarily estimated initial burden hour and 
external cost estimates that were higher than those estimated for 
market data aggregation firms.\1470\ The Commission continues to 
believe that exclusive SIPs will have to make greater changes to their 
systems than market data aggregation firms to comply with Rules 
614(d)(1) through (4). However, like market data aggregation firms, 
exclusive SIPs will have to spend substantial time coding for the new 
technical changes and would likely not have all of the components 
required to comply with Rules 614(d)(1) through (4). Additionally, the 
Commission initially believed that competing consolidators would build 
aggregation systems in a single data center; however, the Commission 
now believes that competing consolidators may build systems for 
aggregating data in more than one data center. The Commission believes 
exclusive SIPs would likely incur external costs greater than the 
Commission's estimate to buy new technology (for example, hardware and 
network infrastructure).
---------------------------------------------------------------------------

    \1470\ See supra note 1461.
---------------------------------------------------------------------------

    As it did for its market data aggregation firm estimates, the 
Commission is increasing its estimated burden hours for Sr. Programmers 
and Sr. Systems Analysts employed by each exclusive SIP by three times, 
as well as its estimated external costs to be incurred by the exclusive 
SIPs to purchase new technology to upgrade their systems to comply with 
Rules 614(d)(1) through (4). The Commission estimates that each 
exclusive SIP would incur 4,400 initial burden hours to modify its 
systems to comply with Rules 614(d)(1) through (4),\1471\ and initial 
external costs of $1,237,500 to purchase the necessary technology to 
effect such modifications,\1472\ $194,000 to establish co-location 
connectivity to the exchange data centers,\1473\ and $14,000 to 
purchase market data from the exchanges,\1474\ for a total external 
cost to each exclusive SIP of $1,445,500.\1475\ The Commission 
estimates that the total initial burden hours for two exclusive SIPs 
would be 8,800 burden hours,\1476\ and that total initial external 
costs would be $2,891,000 for two exclusive SIPs to modify their 
systems to comply with Rules 614(d)(1) through (4).\1477\
---------------------------------------------------------------------------

    \1471\ The Commission estimated the monetized initial burden for 
this requirement to be $1,394,300. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 2,100 hours) + 
(Sr. Systems Analyst at $285/hour for 1,800 hours) + (Compliance 
Manager at $310/hour for 200 hours) + (Director of Compliance at 
$489/hour for 100 hours) + (Compliance Attorney at $366/hour for 200 
hours)] = 4,400 initial burden hours to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead.
    \1472\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes competing consolidators may 
potentially build aggregation systems in three data centers.
    \1473\ This estimate is based on an estimated $48,500 in initial 
co-location fees as calculated from NYSE Price List 2020, multiplied 
by four exchange data centers. See NYSE Price List 2020, supra note 
1434.
    \1474\ As it did in the Proposing Release, the Commission is 
using the monthly market data access and redistribution fees charged 
by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this estimate 
($14,000).
    \1475\ The Commission estimated that each exclusive SIP would 
incur the following initial external costs: [($1,237,500 to modify 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to establish co-location 
connectivity within four exchange data centers)] = $1,445,500.
    \1476\ The Commission estimated the monetized initial burden for 
this requirement to be $1,394,300. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 2,100 hours) + 
(Sr. Systems Analyst at $285/hour for 1,800 hours) + (Compliance 
Manager at $310/hour for 200 hours) + (Director of Compliance at 
$489/hour for 100 hours) + (Compliance Attorney at $366/hour for 200 
hours)] x [(2 exclusive SIPs)] = 8,800 initial burden hours across 
the exclusive SIPs.
    \1477\ The Commission estimated that the exclusive SIPs would 
incur the following initial external costs: [($1,237,500 to modify 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to establish co-location 
connectivity within four exchange data centers)] x [(2 exclusive 
SIPs)] = $2,891,000.
---------------------------------------------------------------------------

(e) Initial Burden and Costs for New Entrants
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that each new 
entrant would incur 3,600 initial burden hours \1478\ and $825,000 in 
external costs \1479\ to build systems to comply with Rules 614(d)(1) 
through (4). Additionally, the Commission estimated that a new entrant 
would incur initial external costs of $14,000 to purchase market data 
from the SROs,\1480\ and an additional initial external cost of 
$194,000 to co-locate itself at four exchange data centers,\1481\ for a 
total initial external cost of $1,033,000 per new entrant,\1482\ and an 
aggregate estimate of 7,200 initial burden

[[Page 18714]]

hours \1483\ and $2,066,000 in initial external costs.\1484\
---------------------------------------------------------------------------

    \1478\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 6 months (900 burden hours) to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead. As noted above, the Commission 
increased this initial burden hour estimate to apply to the new 
entrants. Therefore, the Commission estimated that each new entrant 
would incur 3,600 initial burden hours to build systems to comply 
with Rules 614(d)(1) through (4) (or $1,175,000, as monetized).
    \1479\ As noted above, the Commission increased its initial 
external cost estimates for market data aggregation firms to apply 
to new entrants. In particular, the Commission estimated that each 
new entrant will incur $825,000 in initial external costs to build 
systems to comply with Rules 614(d)(1) through (4).
    \1480\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000).
    \1481\ This estimate was based on an estimated $48,500 in 
initial co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers. See NYSE Price List 2020, 
supra note 1434.
    \1482\ The Commission estimated that each new entrant would 
incur the following initial external costs: [($825,000 to build 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to co-locate within four exchange 
data centers)] = $1,033,000.
    \1483\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 900 initial burden hours. As noted above, the Commission 
increased the per market data aggregation firm initial burden hour 
estimate to apply to the new entrants. The Commission estimated that 
each new entrant would incur 3,600 initial burden hours to build 
systems to comply with Rules 614(d)(1) through (4) (or $1,175,000, 
as monetized). [(3,600 burden hours) x (2 new entrants] = 7,200 
hours (or $2,350,000 as monetized).
    \1484\ The Commission estimated that each new entrant would 
incur the following initial external costs: [($825,000 to build 
systems to comply with Rules 614(d)(1) through (d)(4)) + ($14,000 to 
purchase market data) + ($194,000 to co-locate within four exchange 
data centers) x (2 new entrants)] = $1,033,000. [($1,033,000 in 
initial external costs) x (2 new entrants)] = $2,066,000.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    In response to the commenter that believed that the estimated costs 
incurred by potential competing consolidators to build or upgrade 
systems to comply with proposed Rules 614(d)(1) through (4) should be 
increased,\1485\ the Commission is modifying its initial burden and 
cost estimates for new entrants, as discussed below.
---------------------------------------------------------------------------

    \1485\ IDS Letter I at 13, n. 38.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is increasing its estimated initial costs and 
associated burden hours for new entrants that choose to become 
competing consolidators to build systems to comply with Rules 614(d)(1) 
through (4). The Commission preliminarily estimated initial burden hour 
and external cost estimates for new entrants that are higher than those 
estimated for the potential entities, other than SROs, that may choose 
to become competing consolidators. Because new entrants would be wholly 
new to the business of consolidating market data, the Commission 
continues to believe that new entrants would incur substantially higher 
burden hours and external costs to build new systems to comply with 
Rules 614(d)(1) through (4) than potential competing consolidators that 
already collect and aggregate market data.\1486\ Additionally, the 
Commission initially believed that competing consolidators would build 
aggregation systems in a single data center; however, the Commission 
now believes that competing consolidators may build systems for 
aggregating data in more than one data center. The Commission is 
increasing its estimated initial burden hours for new entrants to build 
systems to comply with Rules 614(d)(1) through (4). The Commission also 
believes new entrants would likely incur external costs greater than 
the Commission's estimate to buy new technology (for example, hardware 
and network infrastructure).
---------------------------------------------------------------------------

    \1486\ The Commission's assumption is supported by a commenter, 
which stated, ``The incumbent SIPs, the Securities Industry 
Automation Corporation (`SIAC') and Nasdaq UTP, will have a 
significant competitive advantage over new entrants should they 
chose [sic] to transition to Competing Consolidators. For example, 
the incumbent SIPs will benefit from utilizing the existing 
infrastructure, which was funded by industry participants, to 
transform to a Competing Consolidator.'' MIAX Letter p. 2-3.
---------------------------------------------------------------------------

    As it did for its market data aggregation firm estimates, the 
Commission is increasing its estimated burden hours for Sr. Programmers 
and Sr. Systems Analysts by three times for new entrants, as well as 
its estimated external costs to be incurred by new entrants to purchase 
new technology to upgrade their systems to comply with Rules 614(d)(1) 
through (4). The Commission estimates that each new entrant would incur 
8,800 initial burden hours to build systems to comply with Rules 
614(d)(1) through (4),\1487\ and initial external costs of $2,475,000 
to purchase the necessary technology to build such systems,\1488\ 
$194,000 to establish co-location connectivity to the exchange data 
centers,\1489\ and $14,000 to purchase market data from the 
exchanges,\1490\ for a total external cost to each new entrant of 
$2,683,000.\1491\ The Commission estimates that the total initial 
burden hours for two new entrants would be 17,600 burden hours,\1492\ 
and that total initial external costs would be $5,366,000 for two new 
entrants to build systems to comply with Rules 614(d)(1) through 
(4).\1493\
---------------------------------------------------------------------------

    \1487\ The Commission estimated the monetized initial burden for 
this requirement to be $2,788,600. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 4,200 hours) + 
(Sr. Systems Analyst at $285/hour for 3,600 hours) + (Compliance 
Manager at $310/hour for 400 hours) + (Director of Compliance at 
$489/hour for 200 hours) + (Compliance Attorney at $366/hour for 400 
hours)] = 8,800 initial burden hours to build systems to comply with 
Rules 614(d)(1) through (4). The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead.
    \1488\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes competing consolidators may 
potentially build aggregation systems in three data centers.
    \1489\ This estimate is based on an estimated $48,500 in initial 
co-location fees as calculated from NYSE Price List 2020, multiplied 
by four exchange data centers. See NYSE Price List 2020, supra note 
1434.
    \1490\ As it did in the Proposing Release, the Commission is 
using the monthly market data access and redistribution fees charged 
by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this estimate 
($14,000).
    \1491\ The Commission estimated that each new entrant would 
incur the following initial external costs: [($2,475,000 to build 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to establish co-location 
connectivity within four exchange data centers)] = $2,683,000.
    \1492\ The Commission estimated the monetized initial burden for 
this requirement to be $5,577,200. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 4,200 hours) + 
(Sr. Systems Analyst at $285/hour for 3,600 hours) + (Compliance 
Manager at $310/hour for 400 hours) + (Director of Compliance at 
$489/hour for 200 hours) + (Compliance Attorney at $366/hour for 200 
hours)] x [(2 new entrants)] = 17,600 initial burden hours across 
the new entrants.
    \1493\ The Commission estimated that the new entrants would 
incur the following initial external costs: [($2,475,000 to build 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to establish co-location 
connectivity within four exchange data centers)] x [(2 new 
entrants)] = $5,366,000.
---------------------------------------------------------------------------

(f) Initial Burden and Costs for SROs \1494\
---------------------------------------------------------------------------

    \1494\ See supra note 1394.
---------------------------------------------------------------------------

(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that each SRO 
would incur 3,600 initial burden hours \1495\ and $825,000 in external 
costs \1496\ to build systems to comply with Rules 614(d)(1) through 
(4). Additionally, the Commission estimated

[[Page 18715]]

that an SRO would incur initial external costs of $14,000 to purchase 
market data from the SROs,\1497\ and an additional initial external 
cost of $194,000 to co-locate itself at four exchange data 
centers,\1498\ for a total initial external cost of $1,033,000 per 
SRO,\1499\ and an aggregate estimate of 14,400 initial burden hours 
\1500\ and $4,132,000 in initial external costs.\1501\
---------------------------------------------------------------------------

    \1495\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 6 months (900 burden hours) to upgrade existing systems to 
comply with Rules 614(d)(1) through (4). The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead. As it did for its new entrant 
estimates, the Commission increased this initial burden hour 
estimate to apply to the SROs. Therefore, the Commission estimated 
that each SRO will incur 3,600 initial burden hours to build systems 
to comply with Rules 614(d)(1) through (4) (or $1,175,000, as 
monetized).
    \1496\ As it did for its new entrant estimates, the Commission 
increased its initial external cost estimates for market data 
aggregation firms to apply to the SROs. Therefore, the Commission 
estimated that each SRO will incur $825,000 in initial external 
costs to build systems to comply with Rules 614(d)(1) through (4).
    \1497\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000).
    \1498\ This estimate was based on an estimated $48,500 in 
initial co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers. See NYSE Price List 2020, 
supra note 1434.
    \1499\ The Commission estimated that each SRO would incur the 
following initial external costs: [($825,000 to build systems to 
comply with Rules 614(d)(1) through (4)) + ($14,000 to purchase 
market data) + ($194,000 to co-locate within four exchange data 
centers)] = $1,033,000.
    \1500\ Based on discussions with a market participant, the 
Commission reached the following estimates for a market data 
aggregation firm: [(Sr. Programmer at $332/hour for 350 hours) + 
(Sr. Systems Analyst at $285/hour for 300 hours) + (Compliance 
Manager at $310/hour for 100 hours) + (Director of Compliance at 
$489/hour for 50 hours) + (Compliance Attorney at $366/hour for 100 
hours)] = 900 initial burden hours. As it did for its new entrant 
estimates, the Commission increased the per market data aggregation 
firm initial burden hour estimate to apply to the SROs. Therefore, 
the Commission estimated that each SRO would incur 3,600 initial 
burden hours to upgrade its existing systems to comply with Rules 
614(d)(1) through (4) (or $1,175,000, as monetized). [(3,600 burden 
hours) x (4 SROs)] = 14,400 hours (or $4,700,000 as monetized).
    \1501\ The Commission estimated that each SRO would incur the 
following initial external costs: [($825,000 to build systems to 
comply with Rules 614(d)(1) through (4)) + ($14,000 to purchase 
market data) + ($194,000 to co-locate within four exchange data 
centers)] = $1,033,000. [($1,033,000 in initial external costs) x (4 
SROs)] = $4,132,000.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    In response to the commenter that believed that the estimated costs 
incurred by potential competing consolidators to build or upgrade 
systems to comply with proposed Rules 614(d)(1) through (4) should be 
increased,\1502\ the Commission is modifying its initial burden and 
cost estimates for SROs, as discussed below.
---------------------------------------------------------------------------

    \1502\ IDS Letter I at 13.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is increasing its estimated initial costs and 
associated burden hours for SROs that choose to become competing 
consolidators to build systems to comply with Rules 614(d)(1) through 
(4).\1503\ The Commission initially believed and continues to believe 
that these entities would have to build new systems to comply with 
Rules 614(d)(1) through (4) and thus would incur initial burden hours 
that are similar to new entrants. Because SROs that do not operate 
exclusive SIPs would be wholly new to the business of consolidating 
market data, these entities would likely incur substantially higher 
burden hours and external costs to build new systems to comply with 
Rules 614(d)(1) through (4) than potential competing consolidators that 
already collect and aggregate market data. Additionally, the Commission 
initially believed that competing consolidators would build aggregation 
systems in a single data center; however, the Commission now believes 
that competing consolidators may build systems for aggregating data in 
more than one data center. The Commission is increasing its estimated 
initial burden hours for SROs to build systems to comply with Rules 
614(d)(1) through (4). The Commission also believes that SROs would 
likely incur external costs greater than the Commission's estimate to 
buy new technology (for example, hardware and network infrastructure). 
The Commission is also revising its total initial burden hour and 
external cost estimates across these entities to reflect a reduction in 
the number of such competing consolidators.
---------------------------------------------------------------------------

    \1503\ See supra note 1394.
---------------------------------------------------------------------------

    As it did for its market data aggregation firm estimates, the 
Commission is increasing its estimated burden hours for Sr. Programmers 
and Sr. Systems Analysts by three times for SROs, as well as its 
estimated external costs to be incurred by SROs to purchase new 
technology to build systems to comply with Rules 614(d)(1) through (4). 
The Commission estimates that each SRO would incur 8,800 initial burden 
hours to build systems to comply with Rules 614(d)(1) through 
(4),\1504\ and initial external costs of $2,475,000 to purchase the 
necessary technology to build such systems,\1505\ $194,000 to establish 
co-location connectivity to the exchange data centers,\1506\ and 
$14,000 to purchase market data from the exchanges,\1507\ for a total 
external cost to each SRO of $2,683,000.\1508\ The Commission estimates 
that the total initial burden hours for one SRO would be 8,800 burden 
hours \1509\ and that total initial external costs would be $2,683,000 
for one SRO to build systems to comply with Rules 614(d)(1) through 
(4).\1510\
---------------------------------------------------------------------------

    \1504\ The Commission estimates the monetized initial burden for 
this requirement to be $2,788,600. These estimates were initially 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 4,200 hours) + 
(Sr. Systems Analyst at $285/hour for 3,600 hours) + (Compliance 
Manager at $310/hour for 400 hours) + (Director of Compliance at 
$489/hour for 200 hours) + (Compliance Attorney at $366/hour for 400 
hours)] = 8,800 initial burden hours to build systems to comply with 
Rules 614(d)(1) through (4). The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead.
    \1505\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes competing consolidators may 
potentially build aggregation systems in three data centers.
    \1506\ This estimate is based on an estimated $48,500 in initial 
co-location fees as calculated from NYSE Price List 2020, multiplied 
by four exchange data centers. See NYSE Price List 2020, supra note 
1434.
    \1507\ As it did in the Proposing Release, the Commission is 
using the monthly market data access and redistribution fees charged 
by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this estimate 
($14,000).
    \1508\ The Commission estimates that each SRO would incur the 
following initial external costs: [($2,475,000 to build systems to 
comply with Rules 614(d)(1) through (4)) + ($14,000 to purchase 
market data) + ($194,000 to establish co-location connectivity 
within four exchange data centers)] = $2,683,000.
    \1509\ The Commission estimates the total monetized initial 
burden for this requirement to be $2,788,600. These estimates were 
initially based on discussions with a market participant, modified 
as discussed above: [(Sr. Programmer at $332/hour for 4,200 hours) + 
(Sr. Systems Analyst at $285/hour for 3,600 hours) + (Compliance 
Manager at $310/hour for 400 hours) + (Director of Compliance at 
$489/hour for 200 hours) + (Compliance Attorney at $366/hour for 400 
hours)] x [(1 SRO)] = 8,800 total initial burden hours.
    \1510\ The Commission estimates that SROs would incur the 
following total initial external costs: [($2,475,000 to build 
systems to comply with Rules 614(d)(1) through (4)) + ($14,000 to 
purchase market data) + ($194,000 to establish co-location 
connectivity within four exchange data centers)] x [(1 SRO)] = 
$2,683,000.
---------------------------------------------------------------------------

(g) Ongoing Burden and Costs for Competing Consolidators
(i) Proposed Estimates--Ongoing Burden and Costs
    In the Proposing Release, the Commission estimated that once a 
competing consolidator's system had been built, all types of entities 
that could become a competing consolidators (i.e., existing market data 
aggregation firms, broker-dealers that aggregate market data, exclusive 
SIPs, new entrants, and SROs) would incur annual ongoing burden hours 
and external costs to operate and maintain their systems to comply with 
Rules 614(d)(1) through (4) and that the annual ongoing burdens would 
be similar for all types of competing consolidators because such 
systems would likely be similar in nature. Therefore, the Commission 
estimated the same annual ongoing burden hours

[[Page 18716]]

and external costs for the five types of entities that the Commission 
anticipated may choose to become competing consolidators.
    Competing consolidators would incur annual ongoing burden hours and 
external costs to operate and maintain their modified systems to comply 
with Rules 614(d)(1) through (4). Specifically, the Commission 
estimated that each entity would incur 540 annual ongoing burden hours 
\1511\ and $123,725 in annual ongoing external costs \1512\ to operate 
and maintain its systems to comply with Rules 614(d)(1) through (4).
---------------------------------------------------------------------------

    \1511\ The Commission estimated that once a competing 
consolidator's infrastructure was in place, the burden of operating 
and maintaining the infrastructure would be less than the burdens 
associated with establishing the infrastructure. The Commission 
estimated the monetized initial burden for this requirement to be 
$176,250. The Commission derived this estimate based on per hour 
figures from SIFMA's Management & Professional Earnings in the 
Securities Industry 2013, modified by Commission staff to account 
for an 1,800-hour work-year and inflation, and multiplied by 5.35 to 
account for bonuses, firm size, employee benefits, and overhead: 
[(Sr. Programmer at $332 for 210 hours) + (Sr. Systems Analyst at 
$285 for 180 hours) + (Compliance Manager at $310 for 60 hours) + 
(Director of Compliance at $489 for 30 hours) + (Compliance Attorney 
at $366 for 60 hours)] = 540 burden hours per entity and $176,250.
    \1512\ This estimate was based on the initial external cost 
estimate for a market data aggregation firm to modify its systems to 
comply with Rules 614(d)(1) through (4), but reduced because the 
Commission estimated that once a competing consolidator's 
infrastructure was in place, the burden of operating and maintaining 
the infrastructure would be less than the burdens associated with 
establishing the infrastructure.
---------------------------------------------------------------------------

    Further, the Commission estimated that each competing consolidator 
would incur annual ongoing external costs of $168,000 to purchase 
market data from the SROs,\1513\ and an additional annual ongoing 
external cost of $4,602,720 to co-locate itself at four exchange data 
centers,\1514\ for a total annual ongoing external cost of $4,894,445 
per entity.\1515\ In the Proposing Release, the Commission estimated 
that there would be two entities per category of potential competing 
consolidators for existing market data aggregators, broker-dealers that 
currently aggregate market data, exclusive SIPs, and new entrants, and 
that for each of these categories, the aggregate estimates would amount 
to estimate of 1,080 annual ongoing burden hours \1516\ and $9,797,530 
in annual ongoing external costs.\1517\ In addition, the Commission 
estimated that there would be four SROs that would become a competing 
consolidator and that the SROs would incur an aggregate estimate of 
2,160 annual ongoing burden hours \1518\ and $19,577,780 in annual 
ongoing external costs.\1519\
---------------------------------------------------------------------------

    \1513\ The Commission used the monthly market data access and 
redistribution fees currently charged by the CTA/CQ SIP and Nasdaq 
UTP SIP as the basis of this estimate ($14,000), multiplied by 12 
months.
    \1514\ This estimate was based on an estimated $95,890 in 
monthly co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers over 12 months. The 
Commission estimated that the market data aggregators would already 
be co-located at the four exchange data centers, which may lower 
this estimate for this category of respondent. See NYSE Price List 
2020, supra note 1434.
    \1515\ $4,894,445 = [($123,725 to operate and maintain systems 
to comply with Rules 614(d)(1) through (4)) + ($168,000 in monthly 
market data fees over 12 months) + ($4,602,720 to co-locate within 
four exchange data centers over 12 months)].
    \1516\ The Commission estimated the monetized annual ongoing 
burden for this requirement to be $352,500. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Programmer at $332 for 210 
hours) + (Sr. Systems Analyst at $285 for 180 hours) + (Compliance 
Manager at $310 for 60 hours) + (Director of Compliance at $489 for 
30 hours) + (Compliance Attorney at $366 for 60 hours)] x [(2 market 
data aggregation firms/broker-dealers that currently aggregate 
market data/exclusive SIPs/new entrants)] = 1,080 annual ongoing 
burden hours and $352,500.
    \1517\ The Commission estimated that the market data aggregation 
firms/broker-dealers that currently aggregate market data for their 
own usage/exclusive SIPs/new entrants would incur the following 
aggregate annual ongoing external costs: [($123,725 to operate and 
maintain systems to comply with Rules 614(d)(1) through (4)) + 
($168,000 in monthly market data fees over 12 months) + ($4,602,720 
to co-locate within four exchange data centers over 12 months)] x 
[(2 entities)] = $9,788,890.
    \1518\ The Commission estimated the monetized initial burden for 
this requirement to be $353,500. The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Programmer at $332 for 210 
hours) + (Sr. Systems Analyst at $285 for 180 hours) + (Compliance 
Manager at $310 for 60 hours) + (Director of Compliance at $489 for 
30 hours) + (Compliance Attorney at $366 for 60 hours)] x [(4 SROs)] 
= 2,160 annual ongoing burden hours across the SROs and $705,000.
    \1519\ The Commission estimated that the SROs would incur the 
following initial external costs: [($123,725 to operate and maintain 
systems to comply with Rules 614(d)(1) through (4)) + ($168,000 in 
monthly market data fees over 12 months) + ($4,602,720 to co-locate 
within four exchange data centers over 12 months)] x [(4 SROs)] = 
$19,577,780 across the SROs.
---------------------------------------------------------------------------

(ii) Comments/Responses on Ongoing Burden and Costs \1520\
---------------------------------------------------------------------------

    \1520\ One commenter stated that the costs to the industry may 
be significantly higher than the ongoing annual costs incurred by 
each competing consolidator because the proposal did not explain the 
fees the competing consolidators would charge investors. See Cboe 
Letter at 24.
---------------------------------------------------------------------------

    No commenters suggested changes to the Commission's estimated 
ongoing burden hours and external costs that competing consolidators 
would incur in maintaining and operating their systems to comply with 
Rules 614(d)(1) through (4). However, one commenter noted that the 
NYSE's ongoing costs associated with the NMS network are $215,000 per 
year,\1521\ which is less than the burden hours and external costs the 
Commission preliminarily estimated a competing consolidator would incur 
for operating and maintaining a system to comply with Rules 614(d)(1) 
through (4). As noted earlier, the Commission does not believe that the 
NMS network costs are directly applicable to the burden hour and cost 
estimates applicable to competing consolidators to build and operate 
systems to comply with Rules 614(d)(1) through (4). However, the 
Commission believes it is reasonable to increase its ongoing burden 
hour and external cost estimates to operate systems to collect, 
consolidate, and disseminate consolidated market data. As it did for 
its initial burden hour and external cost estimates, the Commission is 
increasing its estimated ongoing burden hours for Sr. Programmers and 
Sr. Systems Analysts by three times because competing consolidators may 
potentially build aggregation systems in three data centers, so they 
consequently must maintain these systems, as well as its estimated 
external costs associated with operating and maintaining systems by 
three times, for the same reason.
---------------------------------------------------------------------------

    \1521\ IDS Letter I at 13, n. 38.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Annual Ongoing and Costs
    The Commission continues to believe that all types of competing 
consolidators would incur similar ongoing, annual burdens once their 
systems have been built because such systems would likely be similar in 
nature. As it did for its revised initial burden hour and external cost 
estimates, the Commission is increasing by three times its estimated 
ongoing burden hours for Sr. Programmers and Sr. Systems Analysts and 
external ongoing technology cost estimates because competing 
consolidators may potentially build aggregation systems in three data 
centers, and would have to maintain these systems. The Commission is 
also revising its total ongoing burden hour and external cost estimates 
to reflect a reduction in the number of potential broker-dealers that 
aggregate market data for internal uses and SRO competing 
consolidators.
    The Commission estimates that each competing consolidator would 
incur 1,320 ongoing, annual burden hours \1522\

[[Page 18717]]

and external costs of $371,175 to operate and maintain its systems to 
comply with Rules 614(d)(1) through (4),\1523\ as well as external 
ongoing, annual external costs of $4,602,720 for co-location 
connectivity to the exchange data centers,\1524\ and $168,000 to 
purchase market data from the exchanges,\1525\ for a total ongoing, 
annual external cost to each competing consolidator of 
$5,141,895.\1526\
---------------------------------------------------------------------------

    \1522\ The Commission estimates the monetized annual ongoing 
burden for this requirement to be $418,290. These estimates were 
based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 630 hours) + (Sr. 
Systems Analyst at $285/hour for 540 hours) + (Compliance Manager at 
$310/hour for 60 hours) + (Director of Compliance at $489/hour for 
30 hours) + (Compliance Attorney at $366/hour for 60 hours)] = 1,320 
ongoing, annual burden hours per competing consolidator to operate 
and maintain systems to comply with Rules 614(d)(1) through (4). The 
Commission derived this estimate based on per hour figures from 
SIFMA's Management & Professional Earnings in the Securities 
Industry 2013, modified by Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 5.35 to account for 
bonuses, firm size, employee benefits, and overhead.
    \1523\ This estimate was originally based on discussions with a 
market participant and the Commission's understanding of hardware 
costs. The Commission has increased this estimated cost by three 
times because the Commission believes that competing consolidators 
would have to maintain aggregation systems in three data centers.
    \1524\ This estimate was based on an estimated $95,890 in 
monthly co-location fees as calculated from NYSE Price List 2020, 
multiplied by four exchange data centers over 12 months.
    \1525\ As it did in the Proposing Release, the Commission used 
the monthly market data access and redistribution fees currently 
charged by the CTA/CQ SIP and Nasdaq UTP SIP as the basis of this 
estimate ($14,000), multiplied by 12 months.
    \1526\ The Commission estimates that each market data 
aggregation firm/broker-dealer that aggregates market data/exclusive 
SIP/new entrant/SRO would incur the following ongoing, annual 
external costs: [($371,175 to operate and maintain systems to comply 
with Rules 614(d)(1) through (4)) + ($168,000 to purchase market 
data) + ($4,602,720 for co-location connectivity within four 
exchange data centers)] = $5,141,895.
---------------------------------------------------------------------------

    The Commission estimates that the total ongoing, annual external 
burden hours to be incurred by market data aggregation firms, exclusive 
SIPs and new entrants would be 2,640 burden hours,\1527\ for each of 
these categories of competing consolidator, as well as total ongoing, 
annual external costs of $10,283,790,\1528\ for each of these 
categories of competing consolidator.
---------------------------------------------------------------------------

    \1527\ The Commission estimates the total monetized annual 
ongoing burden for this requirement to be $836,580. These estimates 
were based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 630 hours) + (Sr. 
Systems Analyst at $285/hour for 540 hours) + (Compliance Manager at 
$310/hour for 60 hours) + (Director of Compliance at $489/hour for 
30 hours) + (Compliance Attorney at $366/hour for 60 hours)] x [(2 
market data aggregation firms/exclusive SIPs/new entrants] = 2,640 
total ongoing, annual burden hours to operate and maintain systems 
to comply with Rules 614(d)(1) through (4) for each of these 
categories of competing consolidator. The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead.
    \1528\ The Commission estimates the total annual ongoing 
external cost for market data aggregation firms/exclusive SIPs/new 
entrants would be: [($371,175 to operate and maintain systems to 
comply with Rules 614(d)(1) through (4)) + ($168,000 to purchase 
market data) + ($4,602,720 for co-location connectivity within four 
exchange data centers)] x [(2 market data aggregation firms/
exclusive SIPs/new entrants)] = $10,283,790 for each of these 
categories of competing consolidator.
---------------------------------------------------------------------------

    The Commission estimates that the total ongoing, annual external 
burden hours to be incurred by broker-dealers that aggregate market 
data and SROs would be 1,320 burden hours,\1529\ for each of these 
categories of competing consolidator, as well as total ongoing, annual 
external costs of $5,141,885,\1530\ for each of these categories of 
competing consolidator.
---------------------------------------------------------------------------

    \1529\ The Commission estimates the total monetized annual 
ongoing burden for this requirement to be $418,290. These estimates 
were based on discussions with a market participant, modified as 
discussed above: [(Sr. Programmer at $332/hour for 630 hours) + (Sr. 
Systems Analyst at $285/hour for 540 hours) + (Compliance Manager at 
$310/hour for 60 hours) + (Director of Compliance at $489/hour for 
30 hours) + (Compliance Attorney at $366/hour for 60 hours)] x [(1 
broker-dealer that aggregates market data/SRO)] = 1,320 total 
ongoing, annual burden hours to operate and maintain systems to 
comply with Rules 614(d)(1) through (4) for each of these categories 
of competing consolidator. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead.
    \1530\ The Commission estimates the total annual ongoing 
external cost for broker-dealers that aggregate market data/SROs 
would be: [($371,175 to operate and maintain systems to comply with 
Rules 614(d)(1) through (4)) + ($168,000 to purchase market data) + 
($4,602,720 for co-location connectivity within four exchange data 
centers)] x [(1 broker-dealer that aggregates market data/SRO)] = 
$5,141,885 for each of these categories of competing consolidator.
---------------------------------------------------------------------------

4. Recordkeeping
    Rule 614(d)(7) requires each competing consolidator to keep and 
preserve at least one copy of all documents made or received by it in 
the course of its business and in the conduct of its business. These 
documents must be kept for a period of no less than five years, the 
first two years in an easily accessible place. Rule 614(d)(8) requires 
each competing consolidator to furnish promptly these documents to any 
representative of the Commission upon request.
(a) Initial Burden and Costs
(i) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that these 
requirements would create an initial burden of 40 hours (for a total 
cost of $8,720),\1531\ for a total initial burden of 480 hours for all 
respondents (for a total cost of $104,640). These estimates were based 
on the Commission's experience with recordkeeping costs and consistent 
with prior burden estimates for similar provisions.\1532\
---------------------------------------------------------------------------

    \1531\ The Commission based this estimate on the $218 hourly 
rate as of May 2019 for a paralegal x 40 hours. The Commission 
derived this estimate based on per hour figures from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by Commission staff to account for an 1,800-hour work-year 
and inflation, and multiplied by 5.35 to account for bonuses, firm 
size, employee benefits, and overhead.
    \1532\ See Security Based Swap Data Repository Registration, 
Duties, and Core Principles, Securities Exchange Act Release No. 
74246 (Feb. 11, 2015), 80 FR 14438 (Mar. 19, 2015) at 14541.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    The Commission did not receive any comments on the estimated 
initial burdens and costs of Rules 614(d)(7) and (8).
(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is revising its preliminary estimates to account for 
the downward estimate from 12 competing consolidators to 8 competing 
consolidators. The Commission estimates that the initial burden of 40 
hours (for a total cost of $8,720) for a total initial burden of 320 
hours for all respondents (for a total cost of $69,760) is reasonable 
based upon the Commission's experiences with estimating similar 
provisions.
(b) Ongoing Burden and Costs
(i) Proposed Estimates--Ongoing Burden and Costs
    The Commission estimated that the ongoing annual burden of 
recordkeeping in accordance with Rules 614(d)(7) and (8) would be 20 
hours per respondent (for a total cost of $4,360) and a total ongoing 
annual burden of 240 hours for all respondents (for a total cost of 
$52,320).
(ii) Comments/Responses on Ongoing Burden and Costs
    The Commission did not receive any comments on the estimated 
ongoing burdens and costs of Rules 614(d)(7) and (8).

[[Page 18718]]

(iii) Adopted Estimates--Ongoing Burden and Costs
    The Commission is revising its preliminary estimates to account for 
the downward estimate from 12 competing consolidators to eight 
competing consolidators. The Commission estimates that the ongoing 
burden of 20 hours (for a total cost of $4,360) for a total initial 
burden of 160 hours for all respondents (for a total cost of $34,880) 
is reasonable based upon the Commission's experiences with estimating 
similar provisions.
5. Reports and Reviews
    Rules 614(d)(5) and (6) requires competing consolidators to produce 
monthly reports on performance metrics and systems issues.
(a) Initial Burden and Costs
(i) Proposed Estimates--Initial Burden and Costs
    The Commission estimated that the average one-time, initial burden 
to program systems to produce the monthly reports required by Rules 
614(d)(5) and (6), including keeping the information publicly posted 
and free and accessible (in downloadable files under Rule 614(d)(5)), 
would be 246 hours per competing consolidator (for a total cost of 
$80,507) \1533\ and $800 in external costs.\1534\ The Commission 
estimated that the total initial burden would be 2,952 hours (for a 
total cost of $966,804) \1535\ and a total initial external cost of 
$9,600.\1536\
---------------------------------------------------------------------------

    \1533\ This figure was based on the estimated initial paperwork 
burden for 17 CFR 242.606(a) (Rule 606(a)), which requires each 
broker or dealer to make publicly available on a website a quarterly 
report on its routing of non-directed orders in NMS stocks that are 
submitted on a held basis and of non-directed orders that are 
customer orders in NMS securities. See Securities Exchange Act 
Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018) 
(``Order Handling Disclosure Release''). In the Proposing Release, 
the Commission converted the 10 hour estimate for a quarterly report 
to an estimate for a monthly report. In addition, the Commission 
added the burden of posting the required information to the website. 
The Commission estimated the monetized initial burden for this 
requirement to be $80,507. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead: [(Sr. Programmer at $332 per hour for 160 
hours) + (Sr. Database Administrator at $342 per hour for 20 hours) 
+ (Sr. Business Analyst at $275 per hour for 20 hours) + (Attorney 
at $417 per hour for 4 hours) + (Sr. Operations Manager at $366 per 
hour for 20 hours) + (Systems Analyst at $263 per hour for 16 hours) 
+ ($308.50 blended rate for Sr. Systems Analyst and Sr. Programmer 
for 6 hours)] = 246 initial burden hours per competing consolidator 
and $80,507.
    \1534\ The Commission estimated that each competing consolidator 
would incur an initial external cost of $800 for an external website 
developer to create the website.
    \1535\ The Commission estimated the monetized initial aggregate 
burden for this requirement to be $966,804. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Programmer at $332 per hour 
for 160 hours) + (Sr. Database Administrator at $342 per hour for 20 
hours) + (Sr. Business Analyst at $275 per hour for 20 hours) + 
(Attorney at $417 per hour for 4 hours) + (Sr. Operations Manager at 
$366 per hour for 20 hours) + (Systems Analyst at $263 per hour for 
16 hours) + ($308.50 blended rate for Sr. Systems Analyst and Sr. 
Programmer for 6 hours)] x [(12 competing consolidators)] = 2,952 
initial aggregate burden hours across the competing consolidators 
and $966,804.
    \1536\ $9,600 = ($800 for an external website developer to 
create the website) x (12 competing consolidators).
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    The Commission did not receive any comments on the estimated 
initial burdens and costs of Rules 614(d)(5) and (6).
(iii) Adopted Estimates--Initial Burden and Costs
    The Commission is revising its preliminary estimates to account for 
the downward estimate from 12 competing consolidators to eight 
competing consolidators. The Commission estimates that the initial 
burden of 246 hours per competing consolidator (for a total cost of 
$80,507) \1537\ and $800 in external costs.\1538\ The Commission 
estimates that the total initial burden would be 1,968 hours (for a 
total cost of $644,056) \1539\ and a total initial external cost of 
$6,400.\1540\
---------------------------------------------------------------------------

    \1537\ This figure was based on the estimated initial paperwork 
burden for Rule 606(a), which requires each broker or dealer to make 
publicly available on a website a quarterly report on its routing of 
non-directed orders in NMS stocks that are submitted on a held basis 
and of non-directed orders that are customer orders in NMS 
securities. See Order Handling Disclosure Release, supra note 1533. 
In the Proposing Release, the Commission converted the 10 hour 
estimate for a quarterly report to an estimate for a monthly report. 
In addition, the Commission added the burden of posting the required 
information to the website. The Commission estimated the monetized 
initial burden for this requirement to be $80,507. The Commission 
derived this estimate based on per hour figures from SIFMA's 
Management & Professional Earnings in the Securities Industry 2013, 
modified by Commission staff to account for an 1,800-hour work-year 
and inflation, and multiplied by 5.35 to account for bonuses, firm 
size, employee benefits, and overhead: [(Sr. Programmer at $332 per 
hour for 160 hours) + (Sr. Database Administrator at $342 per hour 
for 20 hours) + (Sr. Business Analyst at $275 per hour for 20 hours) 
+ (Attorney at $417 per hour for 4 hours) + (Sr. Operations Manager 
at $366 per hour for 20 hours) + (Systems Analyst at $263 per hour 
for 16 hours) + ($308.50 blended rate for Sr. Systems Analyst and 
Sr. Programmer for 6 hours)] = 246 initial burden hours per 
competing consolidator and $80,507.
    \1538\ The Commission estimated that each competing consolidator 
would incur an initial external cost of $800 for an external website 
developer to create the website.
    \1539\ The Commission estimates the monetized initial aggregate 
burden for this requirement to be $644,056. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Programmer at $332 per hour 
for 160 hours) + (Sr. Database Administrator at $342 per hour for 20 
hours) + (Sr. Business Analyst at $275 per hour for 20 hours) + 
(Attorney at $417 per hour for 4 hours) + (Sr. Operations Manager at 
$366 per hour for 20 hours) + (Systems Analyst at $263 per hour for 
16 hours) + ($308.50 blended rate for Sr. Systems Analyst and Sr. 
Programmer for 6 hours)] x [(8 competing consolidators)] = 1,968 
initial aggregate burden hours across the competing consolidators 
and $644,056.
    \1540\ $6,400 = ($800 for an external website developer to 
create the website) x (8 competing consolidators).
---------------------------------------------------------------------------

(b) Ongoing Burden and Costs
(i) Proposed Estimates--Ongoing Burden and Costs
    The Commission estimated that each competing consolidator would 
incur an average burden of 11 hours to prepare and make publicly 
available a monthly report in the format required by Rules 614(d)(5) 
and (6) (for a total cost of $3,768.50), or a burden of 132 hours per 
year (for a total cost of $45,222).\1541\ Once a report is posted on an 
internet website, the Commission estimated that there would not be an 
additional burden to allow the report to remain posted for the period 
of time specified in the rules. The Commission estimated the total 
burden per year for all competing consolidators to comply with the 
monthly reporting requirement in Rules

[[Page 18719]]

614(d)(5) and (6) to be 1,584 hours (for a total cost of 
$542,664).\1542\
---------------------------------------------------------------------------

    \1541\ This figure was based on the estimated ongoing paperwork 
burden for Rule 606(a), which requires each broker or dealer to make 
publicly available on a website a report on a quarterly basis. In 
the Paperwork Reduction Act discussion for Rule 606(a), the 
Commission established that the average annual burden for a broker-
dealer to comply with Rules 606(a)(1)(i) through (iii) would be 10 
hours. See Order Handling Disclosure Release, supra note 1533. In 
the Proposing Release, the Commission converted the 10 hour estimate 
for a quarterly report to an estimate for a monthly report. In 
addition, the Commission added the burden of updating the website. 
The Commission estimated the monetized annual burden for this 
requirement to be $3,768.50. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead: [(Sr. Business Analyst at $275 per hour for 
5 hours) + (Attorney at $417 per hour for 5 hours) + ($308.50 
blended rate for Sr. Systems Analyst and Sr. Programmer for 1 hour)] 
x [(12 months)] = 132 initial burden hours per competing 
consolidator and $45,222.
    \1542\ The Commission estimated the monetized annual aggregate 
burden for this requirement to be $542,664. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Business Analyst at $275 per 
hour for 5 hours) + (Attorney at $417 per hour for 5 hours) + 
($308.50 blended rate for Sr. Systems Analyst and Sr. Programmer for 
1 hour)] x [(12 competing consolidators)] x [(12 months)] = 1,584 
aggregate burden hours across the competing consolidators and 
$542,664.
---------------------------------------------------------------------------

(ii) Comments/Responses on Ongoing Burden and Costs
    The Commission did not receive any comments on the estimated 
ongoing burdens and costs of Rules 614(d)(5) and (6).
(iii) Adopted Estimates--Ongoing Burden and Costs
    The Commission is revising its preliminary estimates to account for 
the downward estimate from 12 competing consolidators to eight 
competing consolidators. The Commission estimates that each competing 
consolidator would incur an average burden of 11 hours to prepare and 
make publicly available a monthly report in the format required by 
Rules 614(d)(5) and (6) (for a total cost of $3,768.50), or a burden of 
132 hours per year (for a total cost of $45,222).\1543\ Once a report 
is posted on an internet website, the Commission estimates that there 
would not be an additional burden to allow the report to remain posted 
for the period of time specified in the rules. The Commission estimates 
the total burden per year for all competing consolidators to comply 
with the monthly reporting requirement in Rules 614(d)(5) and (6) to be 
1,056 hours (for a total cost of $361,776).\1544\
---------------------------------------------------------------------------

    \1543\ This figure was based on the estimated ongoing paperwork 
burden for Rule 606(a), which requires each broker or dealer to make 
publicly available on a website a report on a quarterly basis. In 
the Paperwork Reduction Act discussion for Rule 606(a), the 
Commission established that the average annual burden for a broker-
dealer to comply with Rules 606(a)(1)(i) through (iii) would be 10 
hours. See Order Handling Disclosure Release, supra note 1533, at 
58388. In the Proposing Release, the Commission converted the 10 
hour estimate for a quarterly report to an estimate for a monthly 
report. In addition, the Commission added the burden of updating the 
website. The Commission estimated the monetized annual burden for 
this requirement to be $3,768.50. The Commission derived this 
estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Business Analyst at $275 per 
hour for 5 hours) + (Attorney at $417 per hour for 5 hours) + 
($308.50 blended rate for Sr. Systems Analyst and Sr. Programmer for 
1 hour)] x [(12 months)] = 132 initial burden hours per competing 
consolidator and $45,222.
    \1544\ The Commission estimates the monetized annual aggregate 
burden for this requirement to be $361,776. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Sr. Business Analyst at $275 per 
hour for 5 hours) + (Attorney at $417 per hour for 5 hours) + 
($308.50 blended rate for Sr. Systems Analyst and Sr. Programmer for 
1 hour)] x [(8 competing consolidators)] x [(12 months)] = 1,056 
aggregate burden hours across the competing consolidators and 
$361,776.
---------------------------------------------------------------------------

6. Amendment to the Effective National Market System Plan(s) for NMS 
Stocks
    Rule 614(e) requires the participants to the effective national 
market system plan(s) for NMS stocks to file an amendment with the 
Commission, pursuant to Rule 608, that includes several specified 
provisions, including an amendment that conforms the plan(s) to reflect 
the provision of information necessary to generate consolidated market 
data by the SROs to competing consolidators, the application of certain 
timestamps by the SROs, assessment of competing consolidator 
performance and the provision of an annual report, the development of a 
list that identifies the primary listing exchange for each NMS stock 
and the calculation and publication of gross revenues.
(a) Proposed Estimates--Initial Burden and Costs
    In the Proposing Release, the Commission estimated that the 
amendment to the effective national market system plan(s) would impose 
a one-time burden and cost. Specifically, the Commission estimated that 
it would take the participants to the effective national market system 
plan(s) approximately 420 hours to prepare the amendment. The 
preliminary estimate included 210 hours for an SRO to comply with the 
timestamps requirement, including a review and any applicable change to 
technical systems and rules. Each SRO already employs some form of 
timestamping, and the Commission did not necessarily expect that the 
burden to comply with the timestamp requirement would be particularly 
burdensome.\1545\ The preliminary estimate also included 105 hours for 
the participants to compose the form of annual report on competing 
consolidator performance. Finally, the preliminary estimate includes 20 
hours for the participants to compile and confirm the primary listing 
exchange for each NMS stock. The initial burden hours for all 
respondents would be 420 hours x 17 (for a total cost of 
$2,977,380).\1546\
---------------------------------------------------------------------------

    \1545\ Currently, under the Equity Data Plans, the SROs attach 
timestamps to quotation information and transaction information 
provided to the exclusive SIPs. See, e.g., Nasdaq UTP Plan, supra 
note 10, at Section VIII; CQ Plan, supra note 10, at Section VI; CTA 
Plan, supra note 10, at Section VI.
    \1546\ The Commission estimated the monetized burden for this 
requirement to be $130,860. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead: [(Attorney at $417 for (420 x 17) hours)].
---------------------------------------------------------------------------

(b) Comments/Responses on Initial Burden and Costs
    One commenter stated that the SROs would continue to incur costs 
associated with the effective national market system plan, such as 
implementing the application of timestamps and assessing competing 
consolidators and developing an annual report.\1547\ This commenter, 
however, did not provide comment on the Commission's preliminary 
estimates.
---------------------------------------------------------------------------

    \1547\ See NYSE Letter II at 28.
---------------------------------------------------------------------------

(c) Adopted Estimates
    The Commission is modifying the estimates for the initial burden 
and costs to the SROs to file the amendment required pursuant to Rule 
614(e) to eliminate the multiplication of the burden by each SRO 
because the respondents would file this amendment jointly, rather than 
individually, in connection with their status as participants in the 
effective national market system plan(s). Hence, the initial burden 
hours for all respondents would be 420 hours (for a total cost of 
$175,140).
    In addition, the Commission now believes that there would be 
ongoing burden and costs related to the amendment, including 245 hours 
for maintaining the required timestamps, conducting assessments of 
competing consolidators, preparing an annual report, maintaining the 
list of the primary listing exchange for each NMS stock, and 
calculating gross revenues. For the required timestamps, the Commission 
believes that the ongoing burden for such requirement to be minimal 
once the initial timestamping process is established. The Commission 
estimates that the ongoing burden for timestamping to be 50 
hours.\1548\ The Commission estimates the ongoing burden for reviewing 
competing

[[Page 18720]]

consolidator performance and developing the annual report to be 105 
hours.\1549\ The Commission estimates the ongoing burden for 
maintaining the list of the primary listing exchange for each NMS stock 
to be 10 hours annually.\1550\ Finally, the Commission estimates the 
ongoing burden for calculating gross plan revenues to be minimal. The 
Equity Data Plans already calculate and publish revenue figures so the 
Commission believes that establishing a new calculation and publication 
process to be 80 hours.
---------------------------------------------------------------------------

    \1548\ The Commission reduced the initial burden hours by three-
fourths to develop this estimate.
    \1549\ The Commission estimates that the ongoing burden for 
developing the annual report will be the same as the initial burden.
    \1550\ The Commission reduced the initial burden estimate by 
half because the primary listing exchange for an NMS stock does not 
typically change. Accordingly, the Commission believes that the 
ongoing burden of monitoring and updating the list to be minimal.
---------------------------------------------------------------------------

7. Collection and Dissemination of Information by National Securities 
Exchanges and National Securities Associations
    Rule 603(b) requires every national securities exchange on which an 
NMS stock is traded and national securities association to make 
available to all competing consolidators and self-aggregators all 
information with respect to quotations for and transactions in NMS 
stocks, including all data necessary to generate consolidated market 
data, in the same manner and using the same methods, including all 
methods of access and using the same formats, as such exchange or 
association makes available any information with respect to quotations 
for and transactions in NMS stocks to any person. Accordingly, the SROs 
would be required to collect the information necessary to generate 
proposed consolidated market data, which would be required to be made 
available under proposed Rule 603(b). The respondents to this 
collection of information are the 16 national securities exchanges on 
which NMS stocks are traded and the one national securities 
association. The new data elements of consolidated market data that the 
national securities exchanges and national securities associations 
collect and must make available include auction information, depth of 
book data, round lot data, regulatory data (including LULD price 
bands), and administrative data. The national securities exchanges and 
national securities associations currently collect and/or calculate all 
data necessary to generate consolidated market data and provide such 
data necessary to the exclusive SIPs and to subscribers of the 
proprietary data feeds.\1551\ Therefore, as discussed below, the 
Commission believes that the amendments to 603(b) impose minimal 
initial and ongoing burdens on these respondents, including any changes 
to their systems, because they already collect such data.
---------------------------------------------------------------------------

    \1551\ For example, the primary listing exchanges currently 
calculate LULD price bands and related information to generate 
synthetic LULD price bands. See Nasdaq, Equity Trader Alert #2016-
79: NASDAQ Announces Improved Protections for Equity Markets Coming 
Out of Halts (``Leaky Bands'') (Apr. 12, 2016), available at https://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2016-79; NYSE, Trader 
Update: NYSE and NYSE MKT: Enhanced Limit Up Limit Down Procedures 
(Aug. 1, 2016), available at https://www.nyse.com/trader-update/history#110000029205; Securities Exchange Act Release No. 34-78435 
(July 28, 2016), 81 FR 51239 (Aug. 3, 2016) (SR-FINRA-2016-028).
---------------------------------------------------------------------------

(a) Initial Burden and Costs
(i) Proposed Estimates--Initial Burden and Costs
    The Commission estimated that a national securities exchange on 
which an NMS stock is traded or national securities association will 
require an average of 220 \1552\ initial burden hours of legal, 
compliance, information technology, and business operations personnel 
time to prepare and implement a system to collect the information 
necessary to generate consolidated market data (for a total cost per 
exchange or association of $70,865).\1553\
---------------------------------------------------------------------------

    \1552\ The Commission based its estimate on the burden hour 
estimate provided in connection with the adoption of Regulation SHO 
because the requirements are similar to what a national securities 
exchange or national securities association would need to do to 
comply with proposed Rule 603(b). See Commission, Supporting 
Statement for the Paperwork Reduction Act Information Collection 
Submission for Rule 201 and Rule 200(g) of Regulation SHO (Sept. 5, 
2019).
    \1553\ The Commission estimated the monetized initial burden for 
this requirement to be $70,865. The Commission derived this estimate 
based on per hour figures from SIFMA's Management & Professional 
Earnings in the Securities Industry 2013, modified by Commission 
staff to account for an 1,800-hour work-year and inflation, and 
multiplied by 5.35 to account for bonuses, firm size, employee 
benefits, and overhead: [(Compliance Manager at $310 for 105 hours) 
+ (Attorney at $417 for 70 hours) + (Sr. Systems Analyst at $285 for 
20 hours) + (Operations Specialist at $137 for 25 hours)] = 220 
initial burden hours and $70,865.
---------------------------------------------------------------------------

(ii) Comments/Responses on Initial Burden and Costs
    One commenter noted that SROs could incur ``significant cost 
increases'' to connect and transmit data to competing consolidators and 
self-aggregators but did not provide specific comment on the 
Commission's proposed estimates.\1554\ Another commenter argued that 
the Commission did not consider how primary listing exchanges 
responsible for calculating and disseminating certain regulatory data 
(such as LULD bands) would obtain from the other exchanges the 
information needed to perform these calculations, including failing to 
consider the added costs to the exchanges.\1555\
---------------------------------------------------------------------------

    \1554\ See FINRA Letter at 3-4.
    \1555\ See NYSE Letter II at 20-21.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Initial Burden and Costs
    The Commission continues to believe the initial burden and costs it 
estimated in the Proposing Release are accurate based on the 
information it has. First, the Commission does not agree that the costs 
of transmitting data to competing consolidators and self-aggregators 
that the SROs already generate and provide to proprietary subscribers 
would be significant. Specifically, as explained above, the Commission 
does not believe that the cost to provide connectivity to the ADF would 
be significant because there is a low volume of trades and no quotes 
reported to the ADF meaning the connectivity options would not need to 
support much data capacity. Additionally, FINRA could seek to recoup 
costs for connectivity by proposing connectivity fees pursuant to 
Section 19(b) of the Exchange Act.\1556\ Furthermore, the Commission's 
modification of certain elements of the definition of consolidated 
market data,\1557\ the data necessary for the generation of which each 
national securities exchange and national securities association will 
need to make available to competing consolidators and self-aggregators, 
will not increase costs because the national securities exchanges and 
national securities association already collect and/or calculate all 
data necessary to create the adopted definition of consolidated market 
data. Therefore, the Commission is adopting the estimates for the 
initial burden and costs as proposed.
---------------------------------------------------------------------------

    \1556\ See supra note 826 and accompanying text.
    \1557\ See supra Section II.B.
---------------------------------------------------------------------------

    Additionally, as explained in detail above,\1558\ the Commission 
does not believe that collecting, calculating, or providing regulatory 
data will impose significant burdens or costs on primary listing 
exchanges, since primary listing exchanges already obtain the necessary 
data from other exchanges and generate and provide certain regulatory 
information today. In addition, they can be reimbursed for the costs of 
providing regulatory data through fees established by the effective 
national market system plan(s). Therefore, the Commission is

[[Page 18721]]

adopting the estimates for the initial burden and costs as proposed.
---------------------------------------------------------------------------

    \1558\ See supra Section II.H.2(a).
---------------------------------------------------------------------------

(b) Ongoing Burden and Costs
(i) Proposed Estimates--Ongoing Burden and Costs
    The Commission estimated that each national securities exchange on 
which an NMS stock is traded and national securities association would 
incur an annual average burden on an ongoing basis of 396 hours to 
collect the information necessary to generate consolidated market data 
required by Rule 603(b) (for a total cost per exchange or association 
of $128,064).\1559\
---------------------------------------------------------------------------

    \1559\ The Commission estimated the monetized ongoing, annual 
burden for this requirement to be $128,064. The Commission derived 
this estimate based on per hour figures from SIFMA's Management & 
Professional Earnings in the Securities Industry 2013, modified by 
Commission staff to account for an 1,800-hour work-year and 
inflation, and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits, and overhead: [(Compliance Manager at $310 for 
192 hours) + (Attorney at $417 for 48 hours) + (Sr. Systems Analyst 
at $285 for 96 hours)] = 336 initial burden hours and $128,064.
---------------------------------------------------------------------------

(ii) Comments/Responses on Ongoing Burden and Costs
    One commenter noted that SROs could incur ``significant cost 
increases'' to maintain connectivity to competing consolidators and 
self-aggregators but did not provided specific comment on the 
Commission's proposed estimates.\1560\ Another commenter argued that 
the Commission did not consider how primary listing exchanges 
responsible for calculating and disseminating certain regulatory data 
(such as LULD bands) would obtain from the other exchanges the 
information needed to perform these calculations, including failing to 
consider the added costs to the exchanges.\1561\
---------------------------------------------------------------------------

    \1560\ See FINRA Letter at 3-4.
    \1561\ See NYSE Letter II at 20-21.
---------------------------------------------------------------------------

(iii) Adopted Estimates--Ongoing Burden and Costs
    Similar to the initial burden and costs, the Commission continues 
to believe the ongoing burden and costs are accurate based on the 
information it has. First, the Commission does not agree that the costs 
of maintaining connectivity to transmit data to competing consolidators 
and self-aggregators that the SROs already generate and provide to 
proprietary subscribers would be significant because the Commission 
believes that many competing consolidators and self-aggregators will be 
firms that already subscribe to SRO proprietary feeds, and thus, the 
SROs will likely not have a large amount of new data connections to 
service.\1562\ Specifically, as explained above, the Commission does 
not believe that the cost to maintain connectivity to the ADF would be 
significant because there is a low volume of trades and no quotes 
reported to the ADF meaning the connectivity options would not need to 
support much data capacity. Additionally, FINRA could seek to recoup 
costs for maintaining connectivity by proposing connectivity fees 
pursuant to Section 19(b) of the Exchange Act.\1563\ Furthermore, the 
Commission's modification of certain elements of the definition of 
consolidated market data,\1564\ the data necessary for the generation 
of which each national securities exchange and national securities 
association will need to make available to competing consolidators and 
self-aggregators, will not increase ongoing costs because the national 
securities exchanges and national securities association already 
collect and/or calculate all data necessary to create the adopted 
definition of consolidated market data. Therefore, the Commission is 
adopting the estimates for the initial burden and costs as proposed.
---------------------------------------------------------------------------

    \1562\ See infra Section V.C.1(c)(iv).
    \1563\ See supra note 826 and accompanying text.
    \1564\ See supra Section II.B.
---------------------------------------------------------------------------

    Additionally, as explained in detail above,\1565\ the Commission 
does not believe that collecting, calculating, or providing regulatory 
data will impose significant ongoing burdens or costs on primary 
listing exchanges, since primary listing exchanges already obtain the 
necessary data from other exchanges and generate and provide certain 
regulatory information today. In addition, they can be reimbursed for 
the costs of providing regulatory data through fees established by the 
effective national market system plan(s). Therefore, the Commission is 
adopting the estimates for the ongoing burden and costs as proposed.
---------------------------------------------------------------------------

    \1565\ See supra Section II.H.2(a).
---------------------------------------------------------------------------

E. Collection of Information Is Mandatory

    The collection of information discussed above is a mandatory 
collection of information.

F. Confidentiality

1. Registration Requirements and Form CC
    Pursuant to Rule 614(b)(2), the Commission would make public via 
posting on the Commission's website each: (i) Effective initial Form 
CC, as amended; (ii) order of ineffectiveness of a Form CC; (iii) filed 
Form CC Amendment; and (iv) notice of cessation.
2. Competing Consolidator Duties and Data Collection and Maintenance
    The collection of information under Rules 614(d)(1) through (3) 
would be public.
3. Competing Consolidators' Public Posting of Form CC
    The collection of information under Rule 614(c) would be available 
to the public.
4. Recordkeeping
    The collection of information relating to recordkeeping would be 
available to the Commission and its staff and to other regulators.
5. Reports and Reviews
    The collection of information regarding reports and reviews under 
Rules 614(d)(5) and (6) relates to information that would be published 
on competing consolidator websites.
6. Amendment to the Effective National Market System Plan(s) for NMS 
Stocks
    The amendment to the effective national market system plan(s) for 
NMS stocks would be required to be filed with the Commission pursuant 
to Rule 608. Once filed, the Commission will publish the amendment for 
public comment. The timestamps applied by the SROs would be made 
available to competing consolidators and their subscribers. The annual 
report of competing consolidator performance would be submitted to the 
Commission. The list of the primary listing market for each NMS stock 
would be available to the public.
7. Collection and Dissemination of Information by National Securities 
Exchanges and National Securities Associations
    Rule 603(b) would require national securities exchanges and 
national securities associations to collect and provide information to 
the competing consolidators and self-aggregators, not to the 
Commission. Therefore, no assurances of confidentiality are necessary 
because the information will be made available to the public for a fee 
from the competing consolidators.

G. Revisions to Current Regulation SCI Burden Estimates and Adoption of 
Rule 614(d)(9)

1. Proposed Estimates--Burden and Costs
    The Commission proposed to expand the definition of ``SCI 
entities'' under

[[Page 18722]]

Regulation SCI \1566\ to include competing consolidators, which would 
subject them to the requirements of Regulation SCI. The rules under 
Regulation SCI impose ``collection of information'' requirements within 
the meaning of the PRA.\1567\
---------------------------------------------------------------------------

    \1566\ See Rule 1000 of Regulation SCI.
    \1567\ Rule 1001(a) of Regulation SCI requires each SCI entity 
to establish, maintain, and enforce written policies and procedures 
for systems capacity, integrity, resiliency, availability, and 
security. 17 CFR 242.1001(b) (Rule 1001(b)) requires each SCI entity 
to establish, maintain, and enforce written policies and procedures 
to ensure that its SCI systems operate in a manner that complies 
with the Exchange Act, the rules and regulations thereunder, and the 
SCI entity's rules and governing documents, as applicable. Rule 
1001(c) requires each SCI entity to establish, maintain, and enforce 
written policies and procedures for the identification, designation, 
and documentation of responsible SCI personnel and escalation 
procedures. Rule 1002(a) requires each SCI entity to begin to take 
appropriate corrective action upon any responsible SCI personnel 
having a reasonable basis to conclude that an SCI event has 
occurred. 17 CFR 242.1002(b) (Rule 1002(b)) requires each SCI entity 
to notify the Commission of certain SCI events. Rule 1002(c) 
requires each SCI entity, with certain exceptions, to disseminate 
information about SCI events to affected members or participants and 
disseminate information about major SCI events to all members or 
participants. 17 CFR 242.1003(a) (Rule 1003(a)) requires each SCI 
entity to notify the Commission of material systems changes 
quarterly. 17 CFR 242.1003(b) (Rule 1003(b)) requires each SCI 
entity to conduct annual SCI reviews. Rule 1004 requires each SCI 
entity to designate certain members or participants for 
participation in functional and performance testing of the SCI 
entity's business continuity and disaster recovery plans and to 
coordinate such testing with other SCI entities. Rules 1005 and 1007 
set forth recordkeeping requirements for SCI entities. Rule 1006 
requires, with certain exceptions, that each SCI entity 
electronically file required notifications, reviews, descriptions, 
analysis, or reports to the Commission on Form SCI. For a complete 
analysis of Regulation SCI under the PRA, see SCI Adopting Release, 
supra note 1037, at 18141; Proposed Collection; Comment Request; 
Extension: Regulation SCI, Form SCI; SEC File No. 270-653, OMB 
Control No. 3235-0703, 83 FR 34179 (``2018 PRA Extension''). For 
further details regarding the requirements of Regulation SCI, see 
SCI Adopting Release, supra note 1233.
---------------------------------------------------------------------------

    In 2018, there were an estimated 42 entities that met the 
definition of SCI entity and were subject to the collection of 
information requirements of Regulation SCI (``respondents'').\1568\ At 
that time, an estimate of approximately two entities would become SCI 
entities each year, one of which would be an SRO. Accordingly, under 
these estimates, over the following three years, there would be an 
average of approximately 44 SCI entities each year.\1569\
---------------------------------------------------------------------------

    \1568\ See 2018 PRA Extension, supra note 1567, at 34180.
    \1569\ Id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission estimated that there would 
be 12 competing consolidators that would be subject to Regulation SCI 
as SCI entities.\1570\ The Commission noted that some of these entities 
may already be SCI entities and subject to the requirements of 
Regulation SCI. While the Commission estimated that the number of 
respondents would increase as a result of the proposal, the Commission 
estimated that its prior paperwork burden estimates per entity under 
Regulation SCI generally would be applicable to the new competing 
consolidators because they would be subject to the same requirements 
and burdens as other SCI entities.\1571\ At the same time, the 
Commission acknowledged that burden estimates also should take into 
account the extent to which the entities that may register to become 
competing consolidators already comply with the requirements of 
Regulation SCI.
---------------------------------------------------------------------------

    \1570\ See Proposing Release, 85 FR at 16808.
    \1571\ See 2018 PRA Extension, supra note 1567. The Commission 
estimated that six of the 12 entities that may register as competing 
consolidators were already SCI entities. Thus, the Commission 
estimated that there would be an average of approximately 50 SCI 
entities each year.
---------------------------------------------------------------------------

    In particular, the Commission estimated that two of the estimated 
12 competing consolidators may be the existing exclusive SIPs, which 
are currently subject to Regulation SCI as plan processors. Because 
these entities are responsible for collecting, consolidating, and 
disseminating proposed consolidated market data products to market 
participants and thus would be operating a substantially similar 
business and performing a similar function in their role as competing 
consolidators, the Commission estimated that the current ongoing burden 
estimates for existing SCI entities would be applicable and there would 
be no material change in the estimated paperwork burdens for these 
entities under Regulation SCI.\1572\
---------------------------------------------------------------------------

    \1572\ Id. The burden estimates for SCI entity respondents 
included initial burdens for new SCI entities and ongoing burdens 
for all SCI entities.
---------------------------------------------------------------------------

    The Commission also estimated that four of the entities that may 
register to become competing consolidators may be either: (i) An SRO 
currently subject to Regulation SCI; or (ii) an entity affiliated with 
an SCI SRO, formerly subject to Regulation SCI. The burden estimates 
for SCI entity respondents include both initial burdens for new SCI 
entities and ongoing burdens for all SCI entities.\1573\ Because the 
SRO entities that would become competing consolidators are current SCI 
entities and are already required to implement the requirements of 
Regulation SCI with regard to SCI systems that they operate in their 
role as SCI SROs, the Commission estimated that these entities would 
not have initial burdens equivalent to those estimated for new SCI 
entities. At the same time, the Commission estimated that these SROs 
may be a national securities association and/or equities national 
securities exchanges that do not currently operate an exclusive SIP. 
Because these entities would be entering an entirely new business and 
performing a new function with new SCI systems, unlike the current 
exclusive SIPs who may register to become competing consolidators, the 
Commission estimated that the SRO entities would have some initial 
burden that would be a percentage of that which entirely new SCI 
entities would have. In particular, the Commission estimated that the 
initial burdens for existing SCI SROs who register as competing 
consolidators would be 50 percent of the estimated initial burdens for 
entirely new SCI entities. The Commission also estimated that the 
ongoing paperwork burden estimates for all SCI entities would be 
applicable to these entities as well.\1574\
---------------------------------------------------------------------------

    \1573\ Id.
    \1574\ The ongoing paperwork burden estimates in the PRA 
Extension do not distinguish between different categories of SCI 
entities but rather provide an average for all SCI entities.
---------------------------------------------------------------------------

    The Commission estimated that the remaining six estimated competing 
consolidators may be entities that are not currently subject to 
Regulation SCI, such as market data aggregation firms, broker-dealers 
that currently aggregate market data for internal uses, and entities 
that would be entering the market data aggregation business for the 
first time.\1575\ The Commission estimated that these entities would 
have the same estimated initial paperwork burdens as those estimated 
for new SCI entities and the same ongoing paperwork burdens as all 
other SCI entities.\1576\
---------------------------------------------------------------------------

    \1575\ See Proposing Release, 85 FR at 16809.
    \1576\ See 2018 PRA Extension, supra note 1567.
---------------------------------------------------------------------------

2. Comments/Responses on Burden and Costs
    Two commenters stated that the Commission underestimated the costs 
of compliance with Regulation SCI.\1577\ One commenter stated that such 
compliance would require the development of technology environments for 
production, disaster recovery, development/quality assurance, and 
customer testing, and as such, the initial costs would greatly exceed 
the Commission's estimates, possibly by three to four times the 
amount.\1578\ Competing consolidators

[[Page 18723]]

may choose to develop four separate environments in the interest of 
resiliency and redundancy as suggested by this commenter, however, 
Regulation SCI does not prescribe this approach. While Regulation SCI 
does require SCI entities to maintain business continuity and disaster 
recovery plans which would include the development of technology 
environments for disaster recovery, the Commission included paperwork 
burdens related to this requirement in its estimates. In contrast, non-
production systems are excluded from the scope of Regulation SCI \1579\ 
and as such, burden estimates related to such systems are excluded from 
the Commission's burden estimates. Further, as discussed in the 
Proposing Release, the Commission believes that the burdens for 
competing consolidators that are subject to Regulation SCI would be the 
same as those the Commission has previously estimated for other SCI 
entities (or a percentage thereof if already an SCI entity or an 
affiliate thereof as described above), as the requirements are the same 
for all SCI entities. The Commission's 2018 burden estimates were based 
on the Commission's experience over three years subsequent to 
Regulation SCI's adoption in 2014 including, for example, Commission 
staff's experience in conducting examinations of SCI entities and 
receiving and reviewing notifications and reports required by 
Regulation SCI. For these reasons, the Commission does not agree with 
the assertions of this commenter that the estimates of initial burdens 
were underestimated.
---------------------------------------------------------------------------

    \1577\ See IDS Letter I at 13 and STANY Letter II at 6-7. See 
supra note 1572.
    \1578\ IDS Letter I at 13.
    \1579\ See SCI Adopting Release at 72273.
---------------------------------------------------------------------------

    Another commenter stated that the Commission underestimated the 
ongoing cost of compliance with Regulation SCI, citing a reference to 
$68,710 of initial costs and $21,810 of ongoing costs.\1580\ These 
estimates, however, were of non-paperwork related costs and were given 
in regard to a potential alternative that the Commission had considered 
of not extending all of the requirements of Regulation SCI to competing 
consolidators, but instead only imposing a broad policies and 
procedures requirement.
---------------------------------------------------------------------------

    \1580\ See STANY Letter II at 6-7.
---------------------------------------------------------------------------

3. Adopted Estimates--Burden and Costs
    As described above, while the Commission had proposed to apply the 
requirements of Regulation SCI to all competing consolidators, it has 
determined to adopt a two-pronged approach and, following the SCI CC 
Phase-In Period, will apply the requirements of Regulation SCI to those 
competing consolidators that meet the 5% gross revenue threshold (``SCI 
competing consolidators'').\1581\ During the SCI CC Phase-In Period, 
and subsequently, for those competing consolidators that do not meet 
the 5% revenue threshold, a more tailored set of resiliency 
requirements substantially similar to certain of the key provisions in 
Regulation SCI will apply.
---------------------------------------------------------------------------

    \1581\ As described in detail above, an ``SCI competing 
consolidator'' means any competing consolidator, as defined in Sec.  
242.600 which, during at least four of the preceding six calendar 
months, accounted for five percent (5%) or more of consolidated 
market data gross revenue paid to the effective national market 
system plan or plans required under Sec.  242.603(b), for NMS stocks 
(1) listed on the NYSE, (2) listed on Nasdaq, or (3) listed on 
national securities exchanges other than the NYSE or Nasdaq.
---------------------------------------------------------------------------

    As discussed above, the Commission now estimates that there would 
be eight persons who could decide to perform the functions of a 
competing consolidator. In the Proposing Release, the Commission 
estimated that all 12 of the estimated competing consolidators would 
subject to Regulation SCI as SCI entities.\1582\ However, in light of 
the reduction of the estimated competing consolidators to eight and the 
5% revenue threshold that the Commission is adopting in the definition 
of ``SCI competing consolidator,'' the Commission now estimates that 
seven competing consolidators will meet this definition and be subject 
to the requirements of Regulation SCI. The Commission estimates that 
one competing consolidator will not meet the 5% revenue threshold test 
in the definition and will instead be subject to the streamlined 
requirements of Rule 619(d)(9). Of the seven competing consolidators 
subject to the requirements of Regulation SCI, the Commission believes: 
Two may be the existing exclusive SIPs, which are currently subject to 
Regulation SCI as plan processors; one may be an existing SCI SRO or 
entity affiliated with an SCI SRO that is subject to Regulation SCI; 
and four may be entities not currently subject to Regulation SCI, such 
as market data aggregation firms, broker-dealers that currently 
aggregate market data for internal uses, and entities that would be 
entering the market data aggregation business for the first time. The 
Commission is adopting the burden estimates as proposed for the seven 
competing consolidators in these categories that will be subject to the 
requirements of Regulation SCI.\1583\
---------------------------------------------------------------------------

    \1582\ See supra note 1570.
    \1583\ While the burden estimates are not being revised, the 
Commission notes that it has revised the number of entities that may 
become competing consolidators that are not currently subject to 
Regulation SCI. Specifically, the Commission estimates that there 
will be 4 entities not currently subject to Regulation SCI that will 
meet the definition of ``SCI competing consolidator'' and become 
subject to Regulation SCI, as compared to the 6 that the Commission 
estimated would become subject to Regulation SCI previously.
---------------------------------------------------------------------------

    The Commission estimates that one of the eight competing 
consolidators will not meet the definition of ``SCI competing 
consolidator'' and will be subject to the requirements of paragraph 
(d)(9) of Rule 619.
(a) Summary of Collection of Information
    The provisions under Rule 619(d)(9) impose ``collection of 
information'' requirements within the meaning of the PRA. Paragraph 
(d)(9)(ii) of Rule 614 requires competing consolidators to establish, 
maintain, and enforce written policies and procedures reasonably 
designed to ensure: That their systems involved in the collection, 
consolidation, and dissemination of consolidated market data have 
levels of capacity, integrity, resiliency, availability, and security 
adequate to maintain the competing consolidator's operational 
capability and promote the maintenance of fair and orderly markets; and 
the prompt, accurate, and reliable dissemination of consolidated market 
data.\1584\ Competing consolidators will also be required to 
periodically review the effectiveness of the policies and procedures 
required by paragraph (d)(9)(ii)(B) of Rule 614, and take prompt action 
to remedy deficiencies in such policies and procedures. Paragraph 
(d)(9)(ii)(C) of Rule 614 will require competing consolidators to 
establish, maintain, and enforce reasonably designed written policies 
and procedures that include the criteria for identifying responsible 
personnel, the designation and documentation of responsible personnel, 
and escalation procedures to quickly inform responsible personnel of 
potential systems disruptions and systems intrusions; and periodically 
review the effectiveness of the policies and procedures, and take 
prompt action to remedy deficiencies.\1585\ Under paragraph 
(d)(9)(iii)(A) of Rule 614, competing consolidators will be required 
to, upon responsible personnel having a reasonable basis to conclude 
that a systems disruption or systems intrusion of systems involved in 
the collection, consolidation, and dissemination of consolidated market 
data has occurred, begin to take

[[Page 18724]]

appropriate corrective action.\1586\ The Commission believes that 
competing consolidators will likely work to develop a written process 
for ensuring they are prepared to comply with the corrective action 
requirement and are likely also to periodically review this process. 
Rule 614(d)(9)(iii)(B) will require that promptly upon responsible 
personnel having a reasonable basis to conclude that a systems 
disruption (other than a de minimis system disruption) has occurred, a 
competing consolidator will be required to publicly disseminate 
information relating to the event; when known, promptly publicly 
disseminate additional information relating to the event; and until 
resolved, provide regular updates with respect to such 
information.\1587\ Concurrent with public dissemination of information 
relating to a systems disruption, competing consolidators will also be 
required to provide the Commission notification of such event, 
including the information required to be publicly disseminated.\1588\ 
In addition, competing consolidators will be required to notify the 
Commission upon responsible personnel having a reasonable basis to 
conclude that a systems intrusion (other than a de minimis system 
intrusion) has occurred. Notifications regarding systems disruptions 
and systems intrusions that competing consolidators must provide to the 
Commission under this provision include information relating to the 
event; when known, additional information relating to the event; and 
until resolved, regular updates with respect to such information. Rule 
614(d)(9)(iv) will require competing consolidators to participate in 
the industry- or sector-wide coordinated testing of BC/DR plans 
required of SCI entities pursuant to paragraph (c) of Rule 1004 of 
Regulation SCI. The Commission believes this requirement will involve 
notifying market participants and scheduling the coordinated testing.
---------------------------------------------------------------------------

    \1584\ See Rule 614(d)(9)(ii)(A)(1) of Regulation NMS.
    \1585\ See Rule 614(d)(9)(ii)(B) of Regulation NMS.
    \1586\ See Rule 614(d)(9)(iii)(A) of Regulation NMS.
    \1587\ See Rule 614(d)(9)(iii)(B) of Regulation NMS.
    \1588\ See Rule 614(d)(9)(iii)(C) of Regulation NMS.
---------------------------------------------------------------------------

(b) Use of Information
    Paragraph (d)(9)(ii) of Rule 614 should help to advance the goal of 
promoting Commission review and oversight of market data infrastructure 
by requiring a competing consolidator to have policies and procedures 
that are reasonably designed to ensure its operational capability, 
including the ability to maintain effective operations; minimize or 
eliminate the effect of performance degradations; and help ensure the 
prompt, accurate, and reliable dissemination of consolidated market 
data. Because a competing consolidator's operational capability can 
have the potential to impact market participants who rely on such 
competing consolidators for market data, the Commission believes that 
these policies and procedures will help promote the maintenance of fair 
and orderly markets.
    The requirement in paragraph (d)(9)(ii)(C) of Rule 614 to establish 
policies and procedures that include the designation and documentation 
of responsible personnel should help make it clear to all employees of 
the competing consolidator who the designated responsible personnel are 
for purposes of the escalation procedures and so that Commission staff 
can easily identify such responsible personnel in the course of its 
inspections and examinations and other interactions with competing 
consolidators. The Commission also believes that escalation procedures 
to quickly inform responsible personnel of potential systems 
disruptions and systems intrusions helps ensure that the appropriate 
person(s) are provided notice of potential systems issues so that any 
appropriate actions can be taken in accordance with the requirements of 
Rule 614(d)(9) without unnecessary delay.
    Rule 614(d)(9)(iii)(A) should help facilitate competing 
consolidators' responses to systems disruptions and systems intrusions, 
including taking appropriate steps necessary to remedy the problem or 
problems causing such event and mitigate the negative effects of the 
event, if any, on market participants and the securities markets more 
broadly.
    Rule 614(d)(9)(iii)(B) should help to advance the Commission's goal 
of promoting fair and orderly markets by publicly disseminating 
information about systems disruptions, allowing market participants to 
use such information to evaluate the event's impact on their trading 
and other activities and develop an appropriate response, as well as to 
evaluate the performance of various competing consolidators.
    Rule 614(d)(9)(iii)(C) provides for a framework for reporting of 
systems disruptions and systems intrusions, which ensures the 
Commission's review and oversight of market data infrastructure and 
fosters cooperation between the Commission and competing consolidators 
in responding to such events. The Commission also believes that the 
aggregated data from the reporting of systems disruptions and systems 
intrusions, in combination with filings from SCI competing 
consolidators under Regulation SCI, enhances its ability to 
comprehensively analyze the nature and types of various systems issues 
and identify more effectively areas of persistent or recurring problems 
across the systems of all competing consolidators.
    Rule 614(d)(9)(iv) should assist the Commission in maintaining fair 
and orderly markets in a BC/DR scenario following a wide-scale 
disruption.
(c) Collection of Information Is Mandatory
    The collection of information discussed above is a mandatory 
collection of information.
(d) Confidentiality
    The Commission expects that the written policies and procedures, 
processes, criteria, standards, or other written documents developed or 
revised by competing consolidators pursuant to Rule 614(d)(9) will be 
retained by competing consolidators in accordance with, and for the 
periods specified in, applicable recordkeeping requirements. Should 
such documents be made available for examination or inspection by the 
Commission and its representatives, they would be kept confidential 
subject to the provisions of applicable law. In addition, the 
information submitted to the Commission that is filed on Form CC is 
public, as discussed in detail above. The information publicly 
disseminated by competing consolidators pursuant to Rule 
614(d)(9)(iii)(B) is not confidential.
(e) Respondents
    As described above, the Commission estimates that, following the 
SCI CC Phase-In Period, one of the eight competing consolidators will 
not meet the definition of ``SCI competing consolidator'' and will be 
subject to the requirements of paragraph (d)(9) of Rule 619.
(f) Total Initial and Annual Reporting and Recordkeeping Burden
    As described in detail above, the requirements under Rule 614(d)(9) 
are substantially similar to a subset of the requirements of Regulation 
SCI. In particular, these provisions largely mirror the requirements of 
Regulation SCI Rules 1001(a)(1), (a)(2)(vi), (a)(3) and (4), and (c), 
1002(a) and (c), and 1004(c). Accordingly, the Commission believes that 
its 2018 burden estimates for these rules would be applicable to the 
corresponding requirements under Rule 619(d)(9). With regard to the 
Commission notification provision in

[[Page 18725]]

paragraph (d)(9)(ii)(C), as described above, the Commission believes 
that this provision is significantly more streamlined than the 
requirements under Rule 1002(b), and therefore competing consolidators 
would incur only a small portion of the estimated burdens for Rule 
1002(b). Considering its prior burden estimates for the Regulation SCI 
rules, the Commission estimates that the one competing consolidator 
subject to the requirements of Rule 619(d)(9) following the SCI CC 
Phase-In Period will have initial and ongoing burdens that are 
approximately 33% of the burdens estimated for compliance with all of 
the provisions of Regulation SCI.\1589\ This estimate of 33% includes 
the paperwork burdens estimated for Rules 1001(a)(1), (a)(2)(vi), 
(a)(3) and (4), and (c), 1002(a) and (c), and 1004(c) of Regulation 
SCI, with the addition of an incremental burden associated with 
notifying the Commission of systems disruptions and systems intrusions 
on Form CC, as compared to the burden estimates for all of the 
requirements of Regulation SCI that will be applicable to SCI competing 
consolidators.
---------------------------------------------------------------------------

    \1589\ See 2018 PRA Extension, supra note 1567.
---------------------------------------------------------------------------

V. Economic Analysis

A. Introduction and Market Failures

1. Introduction
    Section 3(f) of the Exchange Act requires the Commission, whenever 
it engages in rulemaking and is required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action would promote efficiency, competition, and capital 
formation.\1590\ In addition, Section 23(a)(2) of the Exchange Act 
requires the Commission, when making rules under the Exchange Act, to 
consider the impact such rules would have on competition.\1591\ 
Exchange Act Section 23(a)(2) prohibits the Commission from adopting 
any rule that would impose a burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \1590\ 15 U.S.C. 78c(f).
    \1591\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission believes that the economic benefits of the 
amendments justify the costs. The amendments will generally enhance the 
consolidated market data content, reduce the latency of consolidated 
market data, and improve the dissemination of consolidated market data. 
This will reduce information asymmetries that exist between market 
participants who subscribe to proprietary DOB and other proprietary 
products and market participants who only subscribe to SIP data, and 
may allow some market participants who subscribe to proprietary DOB 
products to replace them with potentially cheaper consolidated market 
data feeds. Improvements to the content and latency of consolidated 
market data from the amendments may also help market participants that 
currently rely on SIP data to make more informed trading decisions, 
which will facilitate their ability to trade competitively and improve 
their execution quality, and will facilitate best execution.
    The Commission perceives three main benefits from the new round lot 
definition and the expanded content of consolidated market data, which 
as noted above includes ``core data.'' First, the expanded content of 
consolidated market data will enable market participants \1592\ that 
currently only subscribe to SIP data to get additional content from 
expanded consolidated market data and to experience increased gains 
from trade by allowing them to take advantage of trading opportunities 
they may not have been aware of due to the lack of information in 
existing SIP data.\1593\ Second, the expanded content of consolidated 
market data may also allow these market participants to make more 
informed trading decisions and improve their order routing and order 
execution capabilities, potentially lowering investor transaction 
costs. Finally, the changes in the definition of the round lot will 
result in a narrower NBBO in some higher priced stocks, which may 
improve execution quality. A narrower NBBO could also affect the amount 
of price improvement that trading venues, including ATSs, exchanges, 
and internalizers could offer. Changes in the NBBO could also affect 
other Commission and SRO rules. Market participants should benefit from 
these changes independently of any benefits from the decentralized 
consolidation model.
---------------------------------------------------------------------------

    \1592\ Here, market participants may include investors, 
including retail investors. Market participants that do not receive 
the additional content from expanded consolidated market data may 
benefit indirectly if the broker-dealers that handle their orders 
subscribe to the expanded content. The extent to which particular 
kinds of market participants will incur benefits or costs from these 
final rules is discussed more fully in the relevant parts of Section 
V.C.
    \1593\ Here and throughout, the phrase ``gains from trade'' 
refers to a situation in which two market participants would each be 
better off if they exchanged their respective property. It captures 
the idea of a potential welfare benefit that could be realized if 
trade was allowed and possible. Generally, in this release the 
relevant property will be securities and cash. Market participants 
that post the orders that are traded against would also benefit from 
realizing additional gains from trade.
---------------------------------------------------------------------------

    The Commission recognizes that there are costs to expanding the 
content of consolidated market data. They include costs to new 
competing consolidators related to upgrading existing infrastructure in 
order to handle the dissemination of the increased message traffic; 
costs relating to upgrading software and trading systems that consume 
consolidated market data; costs relating to market participants 
receiving consolidated market data from technological investments 
required to handle increased content and message traffic.\1594\ 
Expanding consolidated market data will also result in transfers among 
various market participants, including transfers from the current 
beneficiaries of asymmetric information associated with the uneven 
distribution of market data to market participants who currently do not 
have access to the additional information contained in proprietary DOB 
products and other proprietary products. SROs will have costs 
associated with the dissemination of data content underlying 
consolidated market data.
---------------------------------------------------------------------------

    \1594\ See infra Section V.C.1 for a complete discussion of 
related costs.
---------------------------------------------------------------------------

    With respect to the introduction of the decentralized consolidation 
model, the Commission believes that the risk of too few competing 
consolidators operating in the market and precluding any of the 
potential benefits from materializing is low, and in any event, certain 
benefits from opening up the market to competitive forces will 
materialize even with few competing consolidators because the market 
will now be open to new entrants, i.e., benefits from the threat of 
entry. The potential economic benefits of the decentralized 
consolidation model will include a reduction in the latency (as 
measured at the location of market participants using the data) and 
content differential that exists between SIP data and proprietary data 
feeds, improvements in innovation and efficiency in the consolidated 
market data delivery space, and an increase in market resiliency. 
Moreover, because today's market participants need to subscribe to both 
the exclusive SIPs and proprietary data feeds to receive the same 
content that will be included in consolidated market data, the 
Commission expects the fees for consolidated market data will likely be 
lower than fees that market participants pay for equivalent data 
today.\1595\ Finally, subscribers choosing to receive a subset of 
consolidated market data

[[Page 18726]]

will likely pay the same or lower fees than they do today for 
equivalent data, depending on the fee schedule of the effective market 
system plan(s).
---------------------------------------------------------------------------

    \1595\ See infra Section V.C.2(b) for an analysis of the impact 
on data fees.
---------------------------------------------------------------------------

    At the same time, the introduction of the decentralized 
consolidation model will impose direct costs on potential competing 
consolidators and SROs.\1596\ Potential competing consolidators (such 
as SROs, exclusive SIPs, and current market data aggregators) will 
incur registration and compliance costs and implementation and 
incremental infrastructure costs.\1597\ SROs will incur costs as part 
of their SRO functions, which include costs to file amendments to the 
effective national market system plan(s) and to collect and disseminate 
the data content underlying new elements of consolidated market data to 
competing consolidators.
---------------------------------------------------------------------------

    \1596\ See infra Section V.C.2(d).
    \1597\ Many of the potential competing consolidators have 
already invested in this infrastructure for the existing business 
services that they provide (e.g., proprietary data aggregation 
services), which may reduce their implementation costs.
---------------------------------------------------------------------------

    The final rule will also impose indirect costs on the existing 
exclusive SIPs, certain market participants and investors, and on 
SROs.\1598\ The existing exclusive SIPs will incur a loss in revenue as 
they lose their role as the exclusive distributors of consolidated 
market data. The SROs might incur indirect costs depending on how they 
choose to provide the data content underlying consolidated market data. 
Finally, certain market participants will incur direct or indirect 
implementation costs and switching costs to use the consolidated market 
data products.
---------------------------------------------------------------------------

    \1598\ See infra Section V.C.2(d) for a discussion of the 
related costs.
---------------------------------------------------------------------------

    The Commission believes that the interaction of expanding 
consolidated market data and implementing a decentralized consolidation 
model together should produce some benefits, including less expensive 
alternatives to proprietary DOB products for market participants; 
potential new entrants into the broker-dealer, market making, and other 
latency sensitive trading businesses; \1599\ expansion of business 
opportunities for market data aggregators; improved regulatory 
oversight from the Consolidated Audit Trail; \1600\ and enhancements to 
the quality of service provided by data vendors. Further, as noted 
above, the Commission believes that the adopted rule will facilitate 
best execution and reduce information asymmetries. These changes might 
impose certain costs, such as potentially lower revenues for SROs; 
potentially higher costs for the implementation of the Consolidated 
Audit Trail; potentially higher costs for certain market data 
vendors.\1601\ Some of these benefits and costs will result from 
transfers among various market participants.
---------------------------------------------------------------------------

    \1599\ This includes the indirect benefits of improved 
competition in the executing broker-dealer business and potential 
increases in market liquidity from additional market makers.
    \1600\ The expanded content of core data will improve the 
completeness and accessibility of Consolidated Audit Trail Data, 
which will facilitate more efficient regulatory activities using 
Consolidated Audit Trail Data. See infra Section V.C.4(c)(ii).
    \1601\ See infra Section V.C.4 for additional discussion of the 
related costs.
---------------------------------------------------------------------------

    On balance, the amendments are necessary and appropriate in the 
public interest and do not impose a burden on competition not necessary 
or appropriate in furtherance of the purposes of the Exchange Act.
    Wherever possible, the Commission has quantified the likely 
economic effects of the adopted rules. The Commission is providing both 
a qualitative assessment and quantified estimates of the economic 
effects of the adopted rule where feasible. The Commission has 
incorporated data and other information provided by commenters to 
assist it in the analysis of the economic effects of the adopted 
rules.\1602\
---------------------------------------------------------------------------

    \1602\ As explained in more detail below, because in certain 
circumstances the Commission may not have, and in certain cases 
cannot reasonably obtain, data that may inform the Commission on 
certain economic effects, the Commission is unable to quantify 
certain economic effects. Further, in certain circumstances, it may 
not be practicable to quantify the economic effects due to the 
number and type of assumptions necessary, which render any such 
quantification unreliable.
---------------------------------------------------------------------------

2. Market Failures
    The Commission is amending Rules 600 and 603 and adopting new Rule 
614 of Regulation NMS under the Exchange Act to increase the 
availability and improve the dissemination of information regarding 
quotations for and transactions in NMS stocks to market participants. 
First, the Commission is defining the terms ``consolidated market 
data,'' ``consolidated market data product,'' ``core data,'' 
``regulatory data,'' ``administrative data,'' and ``self-regulatory 
organization-specific program data,'' and enhancing the content of core 
data to include certain odd-lot quote information, certain depth of 
book data, and information on orders participating in auctions.\1603\ 
Second, the Commission is introducing a decentralized consolidation 
model whereby competing consolidators will assume responsibility for 
the collection, consolidation, and dissemination functions currently 
performed by the exclusive SIPs,\1604\ and self-aggregators will be 
able to generate consolidated market data for their own use, and the 
use of their broker-dealer and registered investment advisor 
affiliates.
---------------------------------------------------------------------------

    \1603\ See supra Section II.
    \1604\ See supra Section III.
---------------------------------------------------------------------------

    The Commission understands that there is an inherent conflict of 
interest in that the exchanges, as voting members of the Equity Data 
Plan Operating Committees, may not be incentivized to improve the 
content or latency of SIP data.\1605\ For example, certain exchanges 
have developed proprietary data products with reduced latency and 
expanded content (i.e., proprietary DOB products), while not taking 
similar action on these committees to enhance the data products offered 
by the Equity Data Plans.\1606\ These proprietary DOB products have 
evolved to be considered competitive necessities by many market 
participants and are offered at premiums to exclusive SIP 
products.\1607\ Similarly, some exchanges have developed limited TOB 
data products, offering them at a discount compared to the SIP data, 
while the exclusive SIPs have not developed less expensive SIP 
products.\1608\ The exchanges have continued to develop and enhance 
their proprietary market data businesses--which generate revenue that, 
unlike SIP data revenues, do not have to be shared with the other 
SROs--while remaining responsible for the governance and operation of 
the Equity Data Plans, including content, infrastructure, and pricing, 
as well as data consolidation and dissemination.\1609\
---------------------------------------------------------------------------

    \1605\ A number of commenters agreed that the SROs have a 
conflict of interest. See, e.g., Wellington Letter at 1; IEX Letter 
at 2; Fidelity Letter at 3. See also Proposing Release, 85 FR at 
Section III.A. and n. 267 (describing an exchange-led initiative to 
enhance the SIPs). While the new Equity Data Plan, required to be 
filed pursuant to the Governance Order, is required to be designed 
to address these conflicts of interest, it would not eliminate them.
    \1606\ See Governance Order, supra note 1128 at Section II.B.1. 
Commenters agreed that the improvements to the SIPs have not kept 
pace with the improvements in proprietary feeds. See, e.g., State 
Street Letter at 2 (``Over time, improvements have been made to the 
SIPs, but those improvements have not kept pace with the alternative 
data feeds that the industry can and is often required to access''); 
Wellington Letter at 1.
    \1607\ See id.
    \1608\ See id.; see also Proposing Release, 85 FR at n. 25. The 
Commission did not receive comments disagreeing with this 
characterization of the relationship between the exclusive SIPs and 
TOB feeds.
    \1609\ See Governance Order, supra note 1128, at Section II.B.1.
---------------------------------------------------------------------------

    The Commission believes that there are two additional factors 
related to the Equity Data Plan processors that may impede improvements 
to the

[[Page 18727]]

dissemination of SIP data. First, pursuant to Regulation NMS, each 
exclusive SIP has exclusive rights to collect trade and quotation data 
related to NMS stocks from multiple SROs and then aggregate and 
disseminate market data to market participants.\1610\ This structure 
may further impede improvements in the dissemination of SIP data \1611\ 
because Equity Data Plan participants that govern exclusive SIPs do not 
have incentives to innovate due to the lack of competition in 
dissemination of SIP data.
---------------------------------------------------------------------------

    \1610\ See Proposing Release, 85 FR at n. 21 and accompanying 
text.
    \1611\ See infra Section V.B.2(b).
---------------------------------------------------------------------------

    Second, the exclusive SIPs are either SROs themselves or affiliates 
of SROs.\1612\ This gives the SROs a dual role in that they serve as 
both existing plan processors and as entities selling directly their 
own proprietary market data products that can reach market participants 
faster than SIP data, or as affiliates of entities that do so. As 
discussed in the Proposing Release, this may create an additional 
conflict of interest that could provide incentives making the Equity 
Data Plan participants that oversee the Equity Data Plans reluctant to 
improve the content and latency of the SIP data, because a divergence 
in the usefulness of SIP data provided by the exclusive SIPs as 
compared to the proprietary data feeds increases the value of the 
proprietary market data products.\1613\
---------------------------------------------------------------------------

    \1612\ See Proposing Release, 85 FR at n. 42.
    \1613\ Commenters agreed with this assessment. See, e.g., BestEx 
Research Letter at 1 (``SIP operators have little incentive to 
provide better content at more competitive prices with lower latency 
because it may cannibalize their own direct feed business'') and 4 
(``The bigger the differences in content between direct data feeds 
and SIP, the more power exchanges have in setting their own prices 
for market data.'').
---------------------------------------------------------------------------

    The Commission is concerned that Regulation NMS and the Equity Data 
Plans have not kept pace with the needs of market participants as 
markets, trading systems, and technologies have changed dramatically. 
While the exchanges have developed individual proprietary data products 
to meet the needs of some market participants, the Commission believes 
that there should be improvement to, and modernization of, the national 
market system to fulfill the goals of Section 11A of the Exchange Act 
and to meet the current core data needs of all market participants. The 
Commission is concerned that the lack of modernization to the content 
and dissemination of SIP data compared to proprietary data feeds has 
contributed to the development of a two-tiered system in which certain 
market participants who are able to afford, and choose to pay for, the 
exchanges' relatively more expensive proprietary DOB data feeds and 
associated connectivity and transmission offerings receive more 
content-rich data faster than those who do not receive these data 
feeds.\1614\
---------------------------------------------------------------------------

    \1614\ See supra Sections I.A and I.B.
---------------------------------------------------------------------------

    Some market participants are unable to rely solely on SIP data to 
trade competitively and execute investor orders in today's 
markets.\1615\ SIP data currently does not include some important data 
elements such as odd-lot quotations (except to the extent that odd-lot 
quotations are aggregated into round lots pursuant to exchange 
rules),\1616\ depth of book data, and information about orders 
participating in auctions.\1617\ Moreover, there is a substantial 
latency differential between market data provided via the exclusive 
SIPs and proprietary data products delivered by the exchanges directly 
to market participants or to market data aggregators as part of 
exchange proprietary data feeds.\1618\ The latency and content 
disparity between SIP data feeds and proprietary DOB data products has 
the effect of increasing the market participants' demand for 
proprietary products to the extent that some brokers-dealers stated 
they view acquiring such products as a competitive necessity.\1619\ 
Additionally, market participants have stated that the higher prices 
charged for some exchange proprietary DOB feeds and associated 
connectivity and transmission limits the number of broker-dealers 
accessing these feeds and places those that do not subscribe at a 
competitive disadvantage relative to other market participants willing 
and able to spend the money to access these feeds.\1620\
---------------------------------------------------------------------------

    \1615\ See supra Section II.C.2(c); see also id.; Proposing 
Release, 85 FR at Section III.C.1(a); infra Section V.B.2(c). A 
number of commenters agreed that market participants may not be able 
to rely on the SIP to trade competitively. See, e.g., DOJ Letter at 
2 (``[P]articipants that rely solely on SIP Data could be at a 
competitive disadvantage to those that rely on multiple sources of 
market information, including Prop Data''); MFA Letter at 2; 
BlackRock Letter at 2; Wellington Letter at 1; IntelligentCross 
Letter at 4.
    \1616\ See supra Section II.C.2(b); see also Proposing Release, 
85 FR at Section III.C.1(a).
    \1617\ Only limited auction-related information is currently 
included in SIP data. See supra Section II.G; see also Proposing 
Release, 85 FR at Section III.C.3(a).
    \1618\ See infra Section V.B.2(b).
    \1619\ A number of commenters agreed that broker-dealers need to 
purchase proprietary DOB feeds in order to trade competitively. See, 
e.g., Clearpool Letter at 2 (``[B]roker-dealers are compelled to 
purchase the exchanges' proprietary data feeds both to provide 
competitive execution services to clients and to meet best execution 
obligations due to the content of the information contained in 
proprietary data feeds, as well as the lack of latency in those 
feeds, both important considerations for brokers''); State Street 
Letter at 2; Better Markets Letter at 1; T. Rowe Price Letter at 1. 
Commenters also agreed that there is a disparity between the content 
and latency of the SIP data feeds and proprietary market data. See, 
e.g., Committee on Capital Markets Regulation Letter at 2.
    \1620\ See supra notes 26-28 and accompanying text; infra 
Sections V.B.3(e), V.B.2(f). For example, one commenter stated 
``[w]e observe increasing concentration in the financial industry--
in the asset manager space, the broker/dealer community, and in the 
liquidity provider/market maker space. There are barriers to entry 
based on necessary scale to be able to absorb the fixed costs of 
infrastructure, market data and connectivity,'' and that 
``algorithmic executions by broker/dealers cannot in general be 
competitive if they do not use direct feeds.'' See NBIM Letter at 3. 
Additionally, there are indicia that exchanges may not be subject to 
robust competition with respect to market data. See infra Section 
V.B.3(b).
---------------------------------------------------------------------------

    One commenter stated that all of the additional information 
provided by the proprietary feeds is already available to everyone who 
needs it.\1621\ While the Commission acknowledges that the option to 
subscribe to proprietary market data is available to all market 
participants, the Commission is concerned that the national market 
system needs improvement to fulfill the goals of Section 11A of the 
Exchange Act and to meet the current core data needs, including data 
content and latency, of all market participants. The Commission is 
concerned a two-tiered system has developed in which market 
participants that do not receive proprietary DOB feeds may be affected 
in their efforts to seek best execution and otherwise effectively 
compete with market participants that receive proprietary DOB data 
feeds. The Commission believes that consolidated market data must 
reflect all information that is important for a broad cross section of 
investors and market participants and must do so in a manner that is 
latency-sensitive.
---------------------------------------------------------------------------

    \1621\ See Nasdaq Letter IV at 34.
---------------------------------------------------------------------------

B. Baseline

    The Commission has assessed the likely economic effects of the 
final amendments, including benefits, costs, and effects on efficiency, 
competition, and capital formation, against a baseline that consists of 
the existing regulatory process for collecting, consolidating, and 
disseminating market data, and the structure of the markets for SIP 
data products and for connectivity and trading services.
1. Current Regulatory Process for Equity Data Plans and SIP Data
    The current regulatory framework for SIP data relies upon a 
centralized consolidation model, whereby the SROs provide certain 
quotation and transaction information for each NMS stock to a single 
exclusive SIP, which then consolidates this data and makes it

[[Page 18728]]

available to market participants.\1622\ This SIP data includes what 
historically has commonly been referred to as core data, as well as 
certain regulatory data related to Commission and SRO rules and NMS 
plan requirements.\1623\
---------------------------------------------------------------------------

    \1622\ See Proposing Release, 85 FR at Section II.A.
    \1623\ Id.
---------------------------------------------------------------------------

    As discussed in more detail below,\1624\ SIP data currently 
includes transaction information for both round lot and odd-lot-sized 
transactions as well as quotation information for round lot top of book 
quotes for each SRO. Additionally, several exchanges, pursuant to their 
own rules, aggregate odd-lot orders into round lots and report such 
aggregated odd-lot orders as quotation information to the exclusive 
SIPs.\1625\ Thus, SIP data lacks information on odd-lot quotations at 
prices better than the best bid and offer and on depth of book 
quotations (i.e., limit orders resting at exchanges at prices outside 
of the bid and offer). Additionally, only limited auction-related 
information is included in SIP data.\1626\
---------------------------------------------------------------------------

    \1624\ See infra Section V.B.2(a). See also Proposing Release, 
85 FR at Section II.C.1.
    \1625\ See Proposing Release, 85 FR at Section II.A.
    \1626\ See Proposing Release, 85 FR at Section III.C.2.
---------------------------------------------------------------------------

    Currently, the Operating Committees of the Equity Data Plans, which 
are governed exclusively by the SROs,\1627\ select the exclusive SIPs 
to consolidate and disseminate market data to market participants. The 
selection process for the exclusive SIPs is organized through a bidding 
process, and once selected, an exclusive SIP has exclusive rights to 
consolidate and disseminate market data for a given Equity Data 
Plan.\1628\ Currently, SIAC (a NYSE affiliate) is the exclusive SIP for 
the CTA and CQ Plans, and Nasdaq Stock Market LLC is the exclusive SIP 
for the UTP Plan.
---------------------------------------------------------------------------

    \1627\ Under the Governance Order, the Operating Committee of 
the New Consolidated Data Plan would include non-SRO members. See 
Governance Order, supra note 1128.
    \1628\ The Nasdaq UTP Plan contains the description of its 
approach to the selection and evaluation of the processor. See 
Nasdaq UTP Plan, supra note 10, at 10. The CTA/CQ Plan does not 
contain a similar provision. See CTA Plan, supra note 10; CQ Plan, 
supra note 10. Historically, exchanges or exchange affiliates had 
always been selected to be plan processors.
---------------------------------------------------------------------------

    Each exclusive SIP is physically located in a different data 
center.\1629\ The exchanges' and FINRA's primary data centers are also 
located in different locations. Each exchange and FINRA must transmit 
its quotation and transaction information from its own data center to 
the appropriate exclusive SIP's data center for consolidation, at which 
point SIP data is then further transmitted to market data end-users, 
which are often located in other data centers. The exclusive SIPs do 
not compete with each other in the collection, consolidation, or 
dissemination of SIP data.
---------------------------------------------------------------------------

    \1629\ See Proposing Release, 85 FR at Section II.A. and n. 43.
---------------------------------------------------------------------------

2. Current Process for Collecting, Consolidating, and Disseminating 
Market Data
    In addition to the provision of SIP data pursuant to the Equity 
Data Plans, the national securities exchanges separately sell their 
individual proprietary market data products directly to market 
participants via proprietary data feeds.\1630\ Proprietary data feeds 
may include SIP data elements and a variety of additional data elements 
and can vary in content from proprietary TOB products to proprietary 
DOB products.\1631\ In addition, in connection with proprietary data 
feed products, the exchanges offer various connectivity services (e.g., 
co-location at primary data centers, fiber optic connectivity, wireless 
connectivity, and point-of-presence connectivity at third-party data 
centers), which may result in higher speed transmissions.\1632\ 
Typically, proprietary data is transmitted directly from each exchange 
to the data center of the subscriber, where the subscriber's broker-
dealer or vendor (or the subscriber itself) privately consolidates such 
data with the proprietary data of the other exchanges. This section 
describes the current content of SIP data and proprietary data feeds, 
current process of data dissemination, and current process for costs of 
generating SIP data and proprietary data feeds.
---------------------------------------------------------------------------

    \1630\ See Proposing Release, 85 FR at Section II.A.
    \1631\ See Proposing Release, 85 FR at Section III.C.2.
    \1632\ See Proposing Release, 85 FR at n. 51 and accompanying 
text; Proposing Release, 85 FR at Section IV.A.
---------------------------------------------------------------------------

(a) Current Content of SIP Data and Proprietary Data Feeds
    As discussed in the Proposing Release,\1633\ today SIP data does 
not include some of the content that certain market participants rely 
on when handling customer orders and trading.\1634\ This difference in 
content creates significant information asymmetries between market 
participants who rely solely on SIP data and market participants who 
also rely on proprietary data feeds.\1635\
---------------------------------------------------------------------------

    \1633\ See Proposing Release, 85 FR at Section III.C.
    \1634\ A number of commenters agreed with this statement. See, 
e.g., Clearpool Letter at 11; IEX Letter at 5-6; Virtu Letter at 2; 
DOJ Letter at 2. See also supra notes 1615, 1619 and accompanying 
text.
    \1635\ Commenters agreed with this assessment. See, e.g., MEMX 
Letter at 2 (acknowledging that ``information asymmetries exist 
between market participants consuming consolidated data disseminated 
through the'' exclusive SIP feeds and ``market participants 
consuming proprietary data feeds directly from national securities 
exchanges''); Clearpool Letter at 15; Schwab Letter at 3.
---------------------------------------------------------------------------

    A certain portion of market participants do not rely solely on SIP 
data to trade competitively in today's markets and instead purchase 
proprietary data from SROs to supplement or even replace SIP 
data.\1636\ In particular, the Commission understands that 
approximately 50 to 100 firms purchase all of the proprietary DOB feeds 
from the exchanges and do not rely on the SIP data for their 
trading.\1637\ Conversely, the number of users of the SIP data is much 
larger (in the millions),\1638\ suggesting that many users rely on the 
exclusive SIPs alone. The Commission believes that a large portion of 
retail investors rely solely on SIP data for trading decisions.\1639\ 
However, some retail investors may use data derived from proprietary 
feeds from one or more exchanges in order to obtain additional data 
beyond the NBBO.\1640\
---------------------------------------------------------------------------

    \1636\ See Proposing Release, 85 FR at Section VI.B.2(a). The 
Commission believes that when market participants purchase 
proprietary data feeds to replace SIP data, they also almost always 
purchase SIP data as a back-up system to proprietary data. See also 
Proposing Release, 85 FR at n. 101.
    \1637\ See Proposing Release, 85 FR at n. 140. In addition to 
using proprietary DOB feeds for non-display purposes, these firms 
may also use proprietary DOB feeds for display purposes for their 
employees and clients.
    \1638\ As of the fourth quarter of 2019, there were 
approximately 2-3 million non-professional subscribers and 
approximately 0.3 million professional subscribers across the UTP 
and CTA/CQ SIPs. Additionally, there were approximately 300 non-
display vendor use cases at each of the exclusive SIPs. See, e.g., 
CTA Plan, Q2 2020 CTA Tape A & B Quarterly Population Metrics, 
available at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_2Q2020.pdf; Nasdaq UTP Plan, Q2 2020 UTP 
Quarterly Population Metrics, available at https://www.utpplan.com/DOC/UTP_2020_Q2_Stats_with_Processor_Stats.pdf. The Commission 
understands that there is an overlap in subscribers across the 
exclusive SIPs.
    \1639\ See Proposing Release, 85 FR at Section VI.B.2(a). 
Commenters agreed that many retail investors only view core data. 
See, e.g., Schwab Letter at 2; MEMX Letter at 3. Retail investors 
may also view proprietary TOB feeds that contain less content than 
the SIP. See infra note 1651.
    \1640\ One retail broker stated that it ``currently offers depth 
of book products at a reasonable cost for those investors who find 
the data useful. Providing this data from separate feeds in specific 
circumstances for investors allows clients to choose what data 
beyond a national best bid and national best offer (``NBBO'') is 
important and useful to them and avoids overwhelming amounts of 
information.'' See TD Ameritrade Letter at 6.

---------------------------------------------------------------------------

[[Page 18729]]

    As described in the Proposing Release,\1641\ SIP data consists of 
certain quotation \1642\ and transaction data \1643\ that the SROs are 
required to provide to the exclusive SIPs for consolidation and 
dissemination to the public on the consolidated tapes. Specifically, 
the SIP data includes: (1) An NBBO; \1644\ (2) the best bids and best 
offers from each SRO; \1645\ and (3) information on trades such as 
prices and sizes. The SIP data also includes certain regulatory data, 
such as information required by the LULD Plan,\1646\ information 
relating to regulatory halts and MWCBs,\1647\ information regarding 
short sale circuit breakers,\1648\ and other data, such as data 
relating to retail liquidity programs, market and settlement 
conditions, the financial condition of the issuer, OTC equities, last 
sale prices for corporate bonds, and information about indices.\1649\
---------------------------------------------------------------------------

    \1641\ See Proposing Release, 85 FR at Section II.A.
    \1642\ See Rule 602 of Regulation NMS.
    \1643\ See 17 CFR 242.601 (Rule 601) of Regulation NMS.
    \1644\ The national best bid and offer are constructed from the 
best bid and offer prices across all exchanges in which the quoted 
size is at least one round lot. See Proposing Release, 85 FR at 
Section III.C.1.
    \1645\ The best bids and offers on an exchange are determined by 
the best prices in which the quoted size is at least one round lot. 
Some exchanges aggregate odd-lot orders at better prices into round 
lots and report such aggregated orders as their best bid or offer at 
the least aggressive price of the aggregated orders. Typically, the 
best bids and offers on each exchange are protected quotes under NMS 
Rule 611 and cannot be traded-through. See Proposing Release, 85 FR 
at Section III.C.1(a).
    \1646\ See Proposing Release, 85 FR at n. 38.
    \1647\ See id. at n. 39.
    \1648\ See id. at n. 40.
    \1649\ See id. at n. 41.
---------------------------------------------------------------------------

    The exchanges separately sell their individual market data directly 
to market participants via proprietary data feeds. For example, the 
exchanges have developed proprietary DOB products that provide greater 
content (e.g., odd-lot quotations, orders at prices above and below the 
best prices, and information about orders participating in auctions, 
including auction order imbalances) at lower latencies,\1650\ relative 
to the exclusive SIPs, for certain segments of the data market, such as 
automated trading systems. They have also developed proprietary TOB 
products that provide data that is generally limited to the highest bid 
and lowest offer and last sale price information and are typically 
priced lower than the SIP data for another segment of the data market 
that is less sensitive to latency (e.g., retail or non-professional 
investors and wealth managers that access market data visually).\1651\ 
Proprietary data feeds are available as part of exchanges' standard 
offerings. Most exchanges offer for sale as part of their proprietary 
DOB products the complete set of orders at prices above and below the 
best prices (e.g., depth of book data), complete odd-lot quotation 
information, and information about orders participating in auctions, 
including auction order imbalances (for listing exchanges).\1652\
---------------------------------------------------------------------------

    \1650\ See, e.g., Proposing Release, 85 FR at n. 19 (for Nasdaq 
Global Data Products, Real-Time--NYSE Proprietary Market Data, and 
Cboe Equities Offerings, all describing low-latency DOB data 
products). Commenters agreed with this description of the market. 
See, e.g., DOJ Letter at 2; Committee on Capital Markets Regulation 
Letter at 2.
    \1651\ Examples of such proprietary TOB products include NYSE 
BBO, Nasdaq Basic, and Cboe One Feed. See Proposing Release, 85 FR 
at n. 19. NYSE BBO provides TOB data. Nasdaq Basic and Cboe One's 
Summary Feed provide TOB and last sale information. Nasdaq Basic 
also provides Nasdaq Opening and Closing Prices and other 
information, including Emergency Market Condition event messages, 
System Status, and trading halt information. Cboe One also offers a 
Premium Feed that includes DOB data. Each of these products is sold 
separately by the relevant exchange group. See Letter from Matthew 
J. Billings, Managing Director, Market Data Strategy, TD Ameritrade, 
(Oct. 24, 2018) (``TD Ameritrade Letter 2018''), available at 
https://www.sec.gov/comments/4-729/4729-4560068176205.pdf at 5-8 
(stating that the lower cost of exchange TOB products, coupled with 
costs associated with the process to differentiate between retail 
professionals and non-professionals imposed by the Equity Data 
Plans, and associated audit risk, favors retail broker-dealer use of 
exchange TOB products).
    \1652\ See Proposing Release, 85 FR at n. 335. IEX and MEMX make 
proprietary data available but do not charge for it. See, e.g., IEX, 
Market Data, available at https://iextrading.com/trading/market-data/ (last accessed Jan. 8, 2020); MEMX Fee Schedule, available at 
https://info.memxtrading.com/fee-schedule/ (last accessed Nov. 18, 
2020). See also Ramsay Letter II. Long Term Stock Exchange does not 
offer a proprietary data feed, but makes information on the order 
book available on its website. See, e.g., LTSE Connectivity Guide, 
available at https://assets.ctfassets.net/cchj2z2dcfyd/1Jp5V4TWZXzhl8QmBWD3Ed/2f926fa4c55f6f489cceb8b77fe8e685/LTSE_Connectivity_Guide.pdf (last accessed Nov. 18, 2020).
---------------------------------------------------------------------------

    One notable gap between SIP data and proprietary DOB data is that 
SIP data does not include complete odd-lot quotation information even 
though odd-lots represent a large share of all trades in the U.S. stock 
market and can represent economically significant trading opportunities 
at prices that are better than the prices of displayed and disseminated 
round lots.\1653\ While several exchanges aggregate odd-lot orders into 
round lots and report such aggregated orders as quotation information 
to the exclusive SIPs,\1654\ market participants must purchase 
proprietary data feeds, available from the exchanges, to see the odd-
lot quotations that are priced at or better than the best bid or 
offer.\1655\
---------------------------------------------------------------------------

    \1653\ See Alexander Osipovich, NYSE Aims to Speed Up Trading 
with Core Tech Upgrade, Wall Street Journal (Aug. 5, 2019), 
available at https://www.wsj.com/articles/nyse-aims-to-speed-up-trading-with-core-tech-upgrade-11565002800 (Retrieved from Factiva 
database). Commenters agreed that odd-lot quotes make up a 
significant portion of trading interest, especially in higher priced 
stocks. See, e.g., Cboe Letter at 6; Healthy Markets Letter I at 3; 
Clearpool Letter at 11-12; IntelligentCross Letter at 3; IEX Letter 
at 3-4; ICI Letter at 7.
    \1654\ See Proposing Release, 85 FR at Section III.C.1(a). 
Exchange rules specify how the aggregation process works in 
different terms and with different levels of specificity, but many 
exchanges aggregate odd-lots across multiple prices and provide them 
to the exclusive SIPs at the least aggressive price if the combined 
odd-lot interest is equal to or greater than a round lot. See 
Proposing Release, 85 FR at nn. 157, 158, 789.
    \1655\ See Proposing Release, 85 FR at n. 163. Commenters agreed 
that the absence of odd-lot quote information reduces the usefulness 
of the SIP. See, e.g., BlackRock Letter at 3.
---------------------------------------------------------------------------

    Odd-lot transactions make up a significant proportion of 
transaction volume in NMS stocks, including ETPs, and a significant 
proportion of odd-lot trades occur at prices better than the prevailing 
NBBO, especially in higher priced stocks. In May 2020, approximately 
45% of all trades executed on exchanges and approximately 10% of all 
volume executed on exchange in corporate stocks and ETFs were odd-lot 
sized and that 40% of those transactions (representing approximately 
35% of all odd-lot volume) occurred at a price better than the 
NBBO.\1656\ Additionally, a significant portion of quotation and 
trading activity occurs in odd-lots, particularly for frequently 
traded, high-priced tickers, and as stock prices rise, the difference 
in spreads calculated using the different feeds also rises, indicating 
that odd-lots are more likely to set the best quote as stock prices 
rise.\1657\
---------------------------------------------------------------------------

    \1656\ See supra note 241. Similar staff analysis in the 
Proposing Release examining a different time period also showed that 
odd-lot trades account for a significant proportion of transactions. 
See Proposing Release, 85 FR at 16813.
    \1657\ See supra note 240. The staff analysis found that for the 
500 top tickers by dollar volume, odd-lot quotes represented a 
significant price improvement over the exclusive SIP quotes. This 
analysis further found that as the price of the stock increased, the 
duration-weighted amount by which the odd-lot quote improved on the 
SIP quote increased as well. Similar staff analysis in the Proposing 
Release examining a different time period found similar results. See 
Proposing Release, 85 FR at Section III.C.1(b). Analysis by one 
commenter also observed that there are frequently odd-lot limit 
orders priced better than the NBBO and that this is more common in 
higher priced stocks. See JP Morgan Memo to File at 2.
---------------------------------------------------------------------------

    A number of commenters also submitted analyses examining the 
occurrence of odd-lot trades. Commenter analyses generally observed 
that odd-lot trades occur frequently in higher priced stocks and that 
their frequency has increased over time, along with an increase in the 
average

[[Page 18730]]

stock price.\1658\ Commenter analysis also observed that odd-lot limit 
orders occur frequently in higher priced stocks.\1659\
---------------------------------------------------------------------------

    \1658\ Analysis from a number of commenters observed that odd-
lot trades are more prevalent in high priced stocks. See, e.g., 
BestEx Research Letter at 6; Capital Group Letter at 3; Nasdaq 
Letter III at 11; RBC Letter at 5. Additional commenter analysis 
observed that the percentage of odd-lot trades has increased over 
time, especially in high priced stocks. See, e.g., BestEx Research 
Letter at 6; Healthy Markets Letter I at 11-12. Analysis from one 
commenter also observed that the frequency of odd-lot trades also 
increased off-exchange. See Healthy Markets Letter I at 11-12. 
Commenters also observed that the average stock price has increased 
over time. See, e.g., Cboe Letter at 6 (``The average price of a 
stock included in the S&P 500 Index was $44.86 at the end of 2005, 
compared to $140.47 at the end of 2019''); Virtu Letter at 3; 
Citadel Letter at 3. Other commenters also agreed that odd-lot 
trading has increased over time, especially in high priced stocks. 
See, e.g., Fidelity Letter at 4; ACS Execution Services Letter at 2; 
Angel Letter at 13.
    \1659\ See, e.g., Nasdaq Letter IV at 16; Schwab Letter at 4; 
Citadel Letter at 3.
---------------------------------------------------------------------------

    One commenter stated that odd-lot trade frequency is not a valid 
proxy for passive order interest because trade size is often determined 
by the liquidity-taking order and is often a result of algorithmic 
``pinging.'' \1660\ This commenter conducted an analysis and concluded 
that it is small liquidity-taking orders that are driving the increase 
in odd-lot trades.\1661\ This commenter did not observe an increase in 
the size of passive retail investor orders but did find a decrease in 
their execution size. The Commission acknowledges that algorithmic 
``pinging'' could account for a portion of the odd-lot trading volume 
that occurs but also believes that odd-lot-sized limit orders can 
represent a significant source of liquidity, especially in higher 
priced stocks. This commenter's analysis was limited to the orders of 
retail investors, while the staff analysis discussed above and the 
analyses submitted by other commenters, which observed that odd-lot 
limit orders are a significant source of liquidity (especially in high-
priced stocks), contained the orders of other types of traders.\1662\ 
Additionally, analyses from other commenters also observed that a 
significant portion of retail limit orders are smaller than 100 shares, 
and that this is more common in higher priced stocks.\1663\
---------------------------------------------------------------------------

    \1660\ See TD Ameritrade Letter at 6-7.
    \1661\ See id.
    \1662\ See supra note 1657. See also, e.g., Nasdaq Letter IV at 
16; JP Morgan Memo to File at 2.
    \1663\ See, e.g., Nasdaq Letter IV at 16; Schwab Letter at 4 
(``In the first quarter of 2020, a total of 1.87 million, or 23 
percent, of Schwab customers' limit orders for stocks priced higher 
than $100 are for fewer than 100 shares''); Citadel Letter at 3. One 
commenter also stated that retail investors tend to trade in lots 
smaller than 100 shares. See Schwab Letter at 4.
---------------------------------------------------------------------------

    Information on odd-lot quotes can help with the optimal placement 
and routing of orders across markets.\1664\ Odd-lot quotation data can 
help market participants improve trading strategies and lower execution 
costs by allowing them to take advantage of odd-lot quotes that are 
available at prices better than the NBBO, possibly on a different 
exchange than where the NBBO is located. Odd-lot quotation data can 
also help market participants place limit orders at prices at or inside 
the NBBO. SIP data is unable to differentiate between individual round 
lot quotes and odd-lot quotes that were aggregated by the exchanges to 
be a round lot quote.
---------------------------------------------------------------------------

    \1664\ Commenters agreed that odd-lot information has become 
important for trading decisions. See, e.g., ACS Execution Services 
Letter at 2; Clearpool Letter at 11-12; IntelligentCross Letter at 
4. A panelist at the Roundtable also stated that odd-lot quotation 
data is needed to make effective decisions in trading applications 
and to fill client orders effectively. See Proposing Release, 85 FR 
at n. 173 and accompanying text.
---------------------------------------------------------------------------

    Another gap between SIP data and proprietary DOB data is that SIP 
data currently lacks quotation information in NMS stocks beyond the top 
of book \1665\ even though the decimalization of securities pricing in 
2001 led to a dispersion of quoted volume away from the top of 
book.\1666\ Consequently, the NBBO shown in SIP data became less 
informative and some market participants have come to view depth of 
book data as necessary to their efforts to trade competitively and to 
provide best execution to customer orders.\1667\ Market participants 
interested in such depth of book data must rely upon the proprietary 
DOB products offered by the exchanges that include varying degrees of 
depth data.\1668\
---------------------------------------------------------------------------

    \1665\ See Proposing Release, 85 FR at Section III.C.2.
    \1666\ Commenters agreed that decimalization led to a decline in 
top of book liquidity. See, e.g., Schwab Letter at 3; ACS Execution 
Services Letter at 2.
    \1667\ See Proposing Release, 85 FR at Section III.C.2(d).
    \1668\ See Proposing Release, 85 FR at n. 270. Commenters stated 
that top of book information is insufficient and market participants 
pay for proprietary feeds to access depth of book information. See, 
e.g., ICI Letter at 9.
---------------------------------------------------------------------------

    Staff analyzed depth of book quotations for corporate stocks using 
data from the week of May 4, 2020 and found that there is a substantial 
amount of quotation volume at several levels below the best bid.\1669\ 
The analysis also found that during active parts of the trading day, 
there is quotation interest at every $0.01 increment at least ten 
levels out for the most liquid stocks; for the least liquid stocks, 
there is a large gap between the best bid and the next highest bid and 
large gaps are generally also present between the next several bid 
levels. Additionally, the analysis found a significant percentage of 
the total notional value of all depth of book quotations for both 
liquid and illiquid stocks falls within the first five price levels.
---------------------------------------------------------------------------

    \1669\ See supra note 387. Similar staff analysis in the 
Proposing Release examining a different time period found similar 
results. See Proposing Release, 85 FR at Section III.C.2(d). 
Commenters also referenced analysis that observed there was 
significant liquidity beyond the top of book. See, e.g., RBC Comment 
Letter at 4-5 (referencing an analysis RBC had previously submitted 
to the Commission); IEX Letter at 5 (referencing an academic study 
by Tolga Cenesizoglu and Gunnar Grass, Bid- and ask-side liquidity 
in the NYSE limit order book, 38 J. Fin. Mkts. 14 (2018)).
---------------------------------------------------------------------------

    The Commission recognizes that market participants have diverse 
market data needs. Depth of book data can assist SORs and electronic 
trading systems with the optimal placement of orders across 
markets.\1670\ Specifically, depth of book data can help market 
participants improve trading strategies and lower execution costs by 
placing liquidity taking orders that are larger than the displayed best 
bid or best offer and achieve queue priority for liquidity providing 
orders that post at prices away from the best bid or offer.\1671\ At 
the same time, the depth of book data may be less valuable to a certain 
segment of market participants (e.g., some retail or non-professional 
customers).\1672\ For example, a relatively small portion of marketable 
orders execute at prices outside the NBBO indicating that some market 
participants submitting marketable orders do not find ``walking the 
book'' useful.\1673\
---------------------------------------------------------------------------

    \1670\ Several commenters agreed that depth of book information 
is useful in routing and placing orders effectively. See, e.g., 
Clearpool Letter at 14; IntelligentCross Letter at 4; IEX Letter at 
5; Schwab Letter at 3; Angel Letter at 9.
    \1671\ See infra Section V.C.1(c)(ii). Commenters agreed that 
depth of book information helps with placing market orders and 
accessing liquidity beyond the top of book. See, e.g., ICI Letter at 
8-9; Schwab Letter at 3; ACS Execution Services Letter at 4-5; IEX 
Letter at 5.
    \1672\ One commenter believes that depth of book information 
would be valuable for retail investors in less liquid stocks and for 
placing limit orders. See Angel Letter at 1-9.
    \1673\ That is, a marketable order so large that it executes 
against all the volume at the top of the book and then executes 
against orders behind the top of the book. See Craig W. Holden and 
Stacey Jacobsen, Liquidity Measurement Problems in Fast Competitive 
Markets, 69 J. Fin. 1760, at Table I (2014) (showing that 3.3% of 
orders clear outside the NBBO). This does not necessarily mean that 
limit orders outside the NBBO are irrelevant. There are limitations 
to using the observation of trades at prices outside the NBBO at the 
time of trade execution as an indicator for orders that executed at 
prices outside of the NBBO at the time of trade order (specifically, 
these events are not necessarily the same thing). Additionally, 
instead of submitting a large marketable order that ``walks the 
book'', market participants may split a larger marketable order into 
smaller child orders, with some smaller orders executing against 
liquidity providing orders at the top of the book and others later 
executing against liquidity providing orders that were behind the 
top of book when the first child orders executed. See infra Section 
V.B.3(e).

---------------------------------------------------------------------------

[[Page 18731]]

    Another gap between SIP data and proprietary DOB data is that SIP 
data includes only limited auction-related information. Auctions are 
important liquidity events, accounting for approximately 7% of daily 
equity trading volume.\1674\ Closing auctions generate prices that are 
used for a variety of market purposes, including setting benchmark 
prices for index rebalances and for determining NAV prices for mutual 
funds and ETFs.\1675\ Auctions are important for the implementation of 
passive investment strategies. For example, one commenter stated that 
mutual funds and ETFs that utilize passive index-tracking strategies 
actively participate in closing auctions.\1676\ One commenter stated 
that reopening auctions play an important role in connection with 
security-specific or market-wide events, such as a limit up-limit down 
or other regulatory halt.\1677\ Auction imbalance information and 
indicative prices can help facilitate order placement in auctions and 
predict price movements.\1678\
---------------------------------------------------------------------------

    \1674\ See supra note 466 for staff analysis; see also Proposing 
Release, 85 FR at Section III.C.3(c) and n. 348. Commenters agreed 
that an increase in the portion of total trading volume executed in 
opening and closing auctions makes them important liquidity events. 
See, e.g., Cboe Letter at 21; Clearpool Letter at 15; MEMX Letter at 
5-6; IEX Letter at 6; Fidelity Letter at 5; Schwab Letter at 5; ACS 
Execution Services Letter at 2; Angel Letter at 8; Data Boiler 
Letter I at 31. A number of commenters attributed the growth in 
auction volume to the increase in passive investing. See, e.g., 
Schwab Letter at 5 (``The growth of passive investing and exchange-
traded funds (ETF) has contributed to the growth in auctions 
relative to other trading.''); SIFMA Letter at 5. See also Proposing 
Release, 85 FR at 16735.
    \1675\ Commenters agreed with this assessment. See, e.g., 
Clearpool Letter at 15; MEMX Letter at 5-6.
    \1676\ See ICI Letter at 9.
    \1677\ See Clearpool Letter at 15.
    \1678\ See, e.g., ICI Letter at 9 (``Auction information, which 
includes imbalance levels between buy and sell orders, allows funds 
to decide whether to participate, and if so, to determine direction, 
order size and timing.''); BlackRock Letter at 2 (``Auction 
information telegraphs the direction and magnitude of price moves at 
the end of the day.''); MEMX Letter at 6.
---------------------------------------------------------------------------

    Today, some NYSE auction data, such as pre-opening 
indicators,\1679\ are disseminated through the CTA/CQ SIP, and no 
auction information generated by the other primary listing exchanges is 
distributed through the exclusive SIPs, except very limited LULD 
information related to auction collar messages.\1680\ Thus while the 
exchanges' proprietary data includes detailed information on several 
aspects of their auctions, only a small subset of the auction-related 
information is included in SIP data.\1681\
---------------------------------------------------------------------------

    \1679\ See NYSE Rule 15.
    \1680\ See Proposing Release, 85 FR at n. 333; see also UTP 
Plan, UTP Participant Input Specification (Dec. 3, 2019), available 
at http://www.utpplan.com/DOC/UtpBinaryInputSpec.pdf.
    \1681\ See, e.g., NYSE, TAQ NYSE Order Imbalance--Quick 
Reference Card, available at https://www.nyse.com/publicdocs/nyse/data/TAQ_NYSE_Order_Imbalance_QRC.pdf (last accessed Jan. 8, 2020).
---------------------------------------------------------------------------

    While all listing exchanges make auction information available to 
market participants through proprietary data feeds, only some exchanges 
offer this information through specialized feeds for a lower price than 
full DOB products. For instance, NYSE Order Imbalances is an example of 
such a proprietary auction data product offered by NYSE,\1682\ while 
Nasdaq does not offer such a specialized product.\1683\
---------------------------------------------------------------------------

    \1682\ See NYSE, Real-Time Data Imbalances, available at https://www.nyse.com/market-data/real-time/imbalances (last accessed Jan. 
8, 2020) (describing the NYSE Order Imbalances product).
    \1683\ The Nasdaq Net Order Imbalance Indicator is a feature of 
Nasdaq's BookViewer proprietary data feed product rather than a 
stand-alone product. See Nasdaq, Net Order Imbalance Indicator, 
available at https://data.nasdaq.com/NOII.aspx (last accessed Jan. 
8, 2020).
---------------------------------------------------------------------------

    One commenter observed another gap in information between the 
exclusive SIPs and proprietary market data. This commenter observed 
that when market-wide circuit breakers tripped, proprietary feeds 
continued to disseminate information, such as information on quotes, 
during the halt while the exclusive SIPs provided updates that were not 
in real-time.\1684\
---------------------------------------------------------------------------

    \1684\ See T. Rowe Price Letter at 2.
---------------------------------------------------------------------------

    Currently, the gap in information between data in the exclusive SIP 
and proprietary DOB products may limit the current level of price 
efficiency if market participants with access to proprietary DOB 
products do not incorporate this information into prices observed by 
exclusive SIP subscribers quickly enough through their trading or 
quoting activity.\1685\ However, the Commission does not know the 
extent of this possible effect because it does not know how quickly 
market participants that subscribe to proprietary DOB products 
incorporate the information contained in these feeds into the 
information contained in the exclusive SIP.
---------------------------------------------------------------------------

    \1685\ For example, price efficiency may be limited if there is 
a delay in incorporating imbalance information observed in 
proprietary DOB feeds into the quote and trade prices shown by the 
exclusive SIP. See infra Section V.D.1. Price efficiency is greater 
when prices reflect current information faster.
---------------------------------------------------------------------------

(b) Current Process for Dissemination of SIP Data and Proprietary Data 
Feeds
    Today, SIP data is disseminated to investors and market 
participants through a centralized consolidation model with an 
exclusive SIP for each NMS stock, centrally collecting market data 
transmitted from the dispersed SRO data centers and then redistributing 
the consolidated market data to market participants who are often in 
different locations.\1686\ The SROs typically transmit their market 
data through fiber optic cables to the SIPs.\1687\
---------------------------------------------------------------------------

    \1686\ See Proposing Release, 85 FR at Sections I, II.A; see 
also DOJ Letter at 2.
    \1687\ See Proposing Release, 85 FR at Section II.A.
---------------------------------------------------------------------------

    Typically, proprietary data is transmitted directly from each 
exchange to the data center of the subscriber and does not first travel 
to a centralized consolidation location. Furthermore, unlike the 
standardized transmission of SIP data over fiber optic cable, 
proprietary data is frequently transmitted using low-latency wireless 
connectivity (e.g., microwave signals) or other forms of connectivity 
(often provided by the exchanges) that are faster than fiber.\1688\ As 
stated by one commenter, data transmission via microwave signals is 
much faster than via fiber optic cables, because ``microwave signals 
travel at the speed of light through air, rather than over fiber, which 
can attenuate signals.'' \1689\
---------------------------------------------------------------------------

    \1688\ Id.
    \1689\ See Data Boiler Letter I at 39.
---------------------------------------------------------------------------

    There is a significant latency differential between SIP data and 
the proprietary market data products that are delivered directly to 
market participants or to market data aggregators who generally have 
better connectivity, communications, and aggregation technology than 
the SIPs.\1690\ Specifically, the centralized consolidation model has 
three sources of latency: (a) Geographic latency; (b) aggregation or 
consolidation latency; and (c) transmission or communication latency. 
The latency differentials between SIP data and proprietary data, are 
meaningful, and market participants believe these differentials impact 
their

[[Page 18732]]

ability to trade and their order execution quality.\1691\
---------------------------------------------------------------------------

    \1690\ See supra note 397; see also Robert P. Bartlett, III and 
Justin McCrary, How Rigged Are Stock Markets? Evidence from 
Microsecond Timestamps at 45 (2017), available at https://www.law.berkeley.edu/wp-content/uploads/2019/10/bartlett_mccrary_latency2017.pdf (``[O]ur analysis suggests SIP 
reporting latencies generate remarkably little scope for exploiting 
the informational asymmetries available to subscribers to exchanges' 
direct data fees.'').
    \1691\ See Proposing Release, 85 FR at n. 412 and accompanying 
text; Martin Scholtus et al., Speed, Algorithmic Trading, and Market 
Quality around Macroeconomic News Announcements, 38 J. Banking & 
Fin. 89 (2014) (``This paper documents that speed is crucially 
important for high-frequency trading strategies based on U.S. 
macroeconomic news releases. Using order-level data on the highly 
liquid S&P 500 ETF traded on Nasdaq from January 6, 2009, to 
December 12, 2011, we find that a delay of 300 ms or more 
significantly reduces returns of news-based trading strategies.''); 
Grace Hu et al., Early peek advantage? Efficient price discovery 
with tiered information disclosure, 126 J. Fin. Econ. 399 (2017) 
(``Calibrating the speed of price discovery at a finer scale, we 
find that the first 200 milliseconds at 9:54:58 accounts for 89% of 
the one-second return at 9:54:58 on negative news days, and 85% of 
the one-second return at 9:54:58 on positives news days. In other 
words, most of the price discovery happens during the first 200 
milliseconds, faster than the blink of an eye.''); Tarun Chordia et 
al., Low Latency Trading on Macroeconomic Announcements, 31 Rev. 
Fin. Stud. 4650 (2018) (``Specifically, trading in the direction of 
the announcement surprise results in average dollar profits (across 
market participants) of $19,000 per event for SPY and roughly 
$50,000 per event for ES. This translates to roughly $15 million in 
cumulative profits on average each year, which is trivial relative 
to about $4.7 trillion traded in SPY and $35.8 trillion notional 
value traded in ES in 2012. The $15 million is also trivial compared 
with the cost of price discovery in U.S. markets, which at 0.67% of 
the market capitalization (French 2008) amounted to roughly $100 
billion in 2006.'').
---------------------------------------------------------------------------

    Geographic latency refers to the time it takes for data to travel 
from one physical location to another. Greater distances usually equate 
to greater geographic latency, though geographic latency is also 
affected by the mode of data transmission. The Commission understands 
that geographic latency is typically the most significant component of 
the additional latency that SIP data feeds experience compared to 
proprietary data feeds.\1692\ The record in this rulemaking suggests 
that the geographic latency of SIP data may be up to a 
millisecond.\1693\
---------------------------------------------------------------------------

    \1692\ See Proposing Release, 85 FR at Section IV.A. The hub-
and-spoke model of the exclusive SIPs exacerbates this geographic 
latency. See supra note 676. See also MEMX Letter at 6.
    \1693\ See Proposing Release, 85 FR at n. 396.
---------------------------------------------------------------------------

    Aggregation or consolidation latency refers to the amount of time 
an exclusive SIP takes to aggregate the multiple sources of SRO market 
data into SIP data and includes the time it takes to calculate the 
NBBO. This latency reflects the time interval between when an exclusive 
SIP receives data from an SRO and when it disseminates consolidated 
data to the end-user. Even though in recent years the exclusive SIPs 
made improvements to address aggregation latency, the proposal stated 
that the related latency differential remains; as mentioned above, in 
the second quarter of 2019, for Tapes A and B average quote feed and 
average trade feed aggregation latencies were 69 and 139 microseconds, 
respectively.\1694\ In the same time period, the Tape C aggregation 
latency was an average of 16.9 microseconds for quotes and 17.5 
microseconds for trades.\1695\ Notably, these latency differentials 
remain even though the Equity Data Plans' Operating Committees have 
made some improvements to certain aspects of the exclusive SIPs and 
related infrastructure, including improvements to address aggregation 
latency.\1696\
---------------------------------------------------------------------------

    \1694\ See Proposing Release, 85 FR at Section IV.A.
    \1695\ Id.
    \1696\ See Proposing Release, 85 FR at Section IV.A.
---------------------------------------------------------------------------

    One commenter pointed out that the CTA SIP has implemented 
improvements to its processing, which at the time that the commenter 
expected to bring the aggregation time down to ``under 20 
microseconds.'' \1697\ While these improvements will likely reduce the 
aggregation latency of the CTA SIP, 20 microseconds of aggregation 
latency will continue to be meaningfully slower than current market 
practice in the aggregation of proprietary data feeds, and only about 
as fast as the UTP SIP is currently.
---------------------------------------------------------------------------

    \1697\ See NYSE Letter II at 10, 11.
---------------------------------------------------------------------------

    Transmission latency refers to the time interval between when data 
is sent (e.g., from an exchange) and when it is received (e.g., at an 
exclusive SIP and/or at the data center of the subscriber), and the 
transmission latency between two fixed points is determined by the 
transmission communications technology through which the data is 
conveyed. Transmission latency also varies depending on the geographic 
distance between where the data is sent and where it is received. There 
are several options currently used for transmitting market data, such 
as fiber optics, which typically are used by the exclusive SIPs for 
receipt and dissemination of SIP data, and wireless microwave 
connections, which the exchanges offer as an alternative for their 
proprietary data feeds but not for SIP data.\1698\ Fiber optics are 
generally more reliable than wireless networks since the data signal is 
less affected by weather. The modes of transmission for SIP data are 
typically slower than the modes of transmission used for proprietary 
data. In the Proposing Release, the Commission stated that each of the 
CTA/CQ Plan participants must transmit its data through connectivity 
options that have a round-trip latency of at least 280 
microseconds.\1699\ One of the commenters said that ``[i]n 2019, the 
SIP Operating Committee authorized two improvements to the CTA SIP'' 
and that this change ``will reduce what the Commission refers to as CTA 
SIP data `transmission' latency, i.e., the time interval between when 
the data is sent and when it is received, by over 140 microseconds.'' 
\1700\
---------------------------------------------------------------------------

    \1698\ Id.
    \1699\ See Proposing Release, 85 FR at n. 410.
    \1700\ NYSE Letter II at 10-11.
---------------------------------------------------------------------------

    The Commission believes that the benefits of greater speed on the 
timescales at which the market currently measures latency have mostly 
to do with being faster than one's competitors. In some situations 
small latency differentials that leave enough time for certain market 
participants to observe and react to information before other, slower 
market participants can be as costly to slower market participants as 
larger latency differentials.\1701\ For example, a market participant 
may use market data to anticipate price movements and then place limit 
orders ahead of the price movement. In doing so, the market participant 
will end up in a queue of limit orders placed in the book, in order of 
time priority. If other market participants react the same way, then 
this market participant's quote will be behind the quotes in the queue 
of those who reacted faster. If the market participant increases its 
reaction time but still does not end up faster than the trader who 
placed the order directly in front of it in the queue, then the market 
participant's quote will have the exact same priority that it had at 
the slower reaction time.
---------------------------------------------------------------------------

    \1701\ Academic literature examines the effects of trading speed 
on revenues, adverse selection, and liquidity. See, e.g., Matthew 
Baron et al., Risk and Return in High-Frequency Trading, 54 J. Fin. 
& Quantitative Analysis 993 (2019) (testing the connection between 
high frequency trading (``HFT'') latency and trading performance; 
the authors find that relative latency matters and that ``HFT firms 
exhibit large, persistent cross-sectional differences in 
performance, with trading revenues disproportionally accumulating to 
a few firms.'' Furthermore, when HFT firms use their relative 
latency advantages to trade on news to create short-term arbitrage 
opportunities, they generate adverse selection on slower traders.); 
Bruno Biais et al., Equilibrium fast trading, 116 J. Fin. Econ. 292 
(2015) (arguing that fast trading technology ``provides advance 
access to value-relevant information, which creates adverse 
selection, lowering welfare,'' and ``generates a negative 
externality''); Thierry Foucault et al., Toxic Arbitrage, 30 Rev. 
Fin. Stud. 1053 (2017) (providing evidence that ``[a]rbitrage 
opportunities due to asynchronicities in the adjustment of prices to 
news are toxic because they expose dealers to the risk of trading 
with arbitrageurs at stale quotes.'' The authors then claim that 
these toxic arbitrage opportunities that come with higher trading 
speed impair market liquidity.).
---------------------------------------------------------------------------

    Currently, some market participants obtain proprietary data feeds 
from many SROs.\1702\ Of these market participants, some prefer to have 
consolidated

[[Page 18733]]

proprietary data. There are two ways these market participants can 
obtain consolidated data. First, market participants may independently 
create consolidated data by purchasing individual exchange proprietary 
market data products and consolidating that information for their own 
use.
---------------------------------------------------------------------------

    \1702\ The exchanges, as a subset of SROs, sell proprietary data 
feeds to market participants.
---------------------------------------------------------------------------

    Second, market participants may obtain consolidated data from 
market data aggregators, which are mostly firms that purchase direct 
access to exchange data,\1703\ consolidate the data, and disseminate 
the data (after various levels of processing) to market 
participants.\1704\ Additionally, some market data aggregators do not 
purchase direct access to exchanges. Instead, they provide hardware and 
software for market data aggregation to the parties that have 
contractual relationships to purchase or license the market data 
enabling market participants to outsource the significant hardware, 
software, and personnel expertise that is required to consolidate the 
proprietary feeds directly. Many of the most sophisticated market 
participants in the market use these products, and despite the fact 
that they create an additional chain link between market participants 
and proprietary feeds, the Commission believes that these firms 
generally deliver data to market participants faster than the exclusive 
SIPs.\1705\
---------------------------------------------------------------------------

    \1703\ As mentioned below, even when obtaining consolidated 
market data from market data aggregators, market participants also 
have to pay data fees directly to the exchanges. See infra Section 
V.B.2(c).
    \1704\ Market participants who consolidate market data 
independently may use other market data aggregators' products and 
services such as software.
    \1705\ See, e.g., Roundtable Day One Transcript at 128-29 (Mark 
Skalabrin, Redline Trading Solutions).
---------------------------------------------------------------------------

    Market participants who subscribe to SIP data also have two 
different ways of obtaining their data. They can either directly get 
SIP data feeds from the exclusive SIPs or, as stated by a 
commenter,\1706\ they can get SIP data from a third party aggregator in 
a normalized form.\1707\ The least latency sensitive market 
participants are the most likely to receive SIP data in this normalized 
form.
---------------------------------------------------------------------------

    \1706\ BestEx Research Letter at 8.
    \1707\ Companies that normalize market data take in raw data 
delivered in a variety of protocols and, using feed handlers, 
normalize it into a single protocol different from the one used by 
the original venue. This way a data user can receive one feed using 
one streaming protocol. See Vela's Definitive Guide to Market Data, 
available at https://info.tradevela.com/definitive-guide-to-market-data#normalisation.
---------------------------------------------------------------------------

    Some commenters stated that the need for backup data feeds is an 
important cost in obtaining access to market data.\1708\ The Commission 
believes that today, many market participants use the exclusive SIPs as 
a backup, and maintain a subscription to the exclusive SIP feeds 
despite using proprietary data for trading decisions partly for this 
reason. The exclusive SIPs themselves maintain a geographically diverse 
backup system consistent with Regulation SCI. One participant in the 
Market Data Roundtable stated that the exclusive SIPs are ``expensive 
for a backup feed.'' \1709\
---------------------------------------------------------------------------

    \1708\ See, e.g., Angel Letter at 20; NYSE Letter II at 24; 
FINRA Letter at 4.
    \1709\ Roundtable Day One Transcript at 140 (Mark Skalabrin, 
Redline Trading Solutions).
---------------------------------------------------------------------------

(c) Current State of Utilization of Market Data
    One commenter stated that the introduction of different levels of 
quality in core data consolidation and dissemination would introduce 
new ``tiers'' into the market beyond the two tiers of those who use 
proprietary DOB feeds and those who do not.\1710\ The Commission does 
not believe that differing tiers of market data access sophistication 
and technology represent changes to the market, given current market 
practice. Market participants have different levels of sophistication 
in receiving and processing real time market data, because of 
differences in the cost of maintaining data processing systems and in 
the data needs of various trading and investment strategies. More 
sophisticated firms use advanced data access methods and technologies, 
and generally seek to reduce latency and improve the way in which the 
data can be used. Other market participants trade latency for lower 
costs, and this has resulted in a continuum of different levels of 
latency and processing quality in the market.
---------------------------------------------------------------------------

    \1710\ See, e.g., Nasdaq Letter IV at 8.
---------------------------------------------------------------------------

    The most competitive executing broker-dealers, market makers, and 
traders using highly latency sensitive strategies define market 
practice at the highest-cost, lowest-latency end of the continuum. 
These market participants typically invest significantly more resources 
in reducing latency and increasing processing speed than any other kind 
of market participant. This group typically purchases co-location 
services at all major data centers, along with the highest capacity 
connectivity services and the most raw and unprocessed exchange 
proprietary data feeds.\1711\ Many market participants in this group 
maintain their competitive advantage by performing all major steps 
related to data connection and processing within their own business. 
That is, they arrange connectivity, software, hardware, and 
transmission necessary to receive and process market data on their own 
without employing the services of outside vendors. As a result, there 
are highly significant technological, infrastructure, and personnel 
costs to building and maintaining such a system for data 
processing.\1712\ Therefore, the Commission believes that there are 
relatively few market data users at this level.\1713\
---------------------------------------------------------------------------

    \1711\ For example, NYSE describes their order-by-order message 
feed, NYSE Integrate Feed, as a ``high-performance product.'' See 
https://www.nyse.com/market-data/real-time/integrated-feed (last 
accessed Sept. 21, 2020).
    \1712\ As an example of such costs, see What Types of Financial 
Market Data Providers Are There?, Exegy Blog, available at https://www.exegy.com/2019/07/types-financial-market-data-providers/ (last 
accessed Sept. 21, 2020), stating that ``[e]xchanges are the most 
expensive provider option,'' because data directly from the exchange 
comes raw and in whatever format the exchange uses, and this leaves 
the end user of the data with the task of ``maintaining, 
transporting and processing the data.'' Because firms that are the 
most sophisticated users of market data consume data directly from 
the exchange, these are costs they incur.
    \1713\ The market participants at this level are a subset of all 
market participants using proprietary data (see supra Section 
V.B.2(a)). Much of the text discusses market participants who use 
proprietary data feeds; the different levels on the continuum 
consist of differences in how those feeds are used even within the 
set of market participants who use proprietary data.
---------------------------------------------------------------------------

    Market participants that seek to reduce the costs of maintaining 
this high level of capability in market data access make a variety of 
cost saving adjustments. For example, market participants may decide to 
employ vendors to assist in the most difficult or sophisticated aspects 
of the process, such as microwave transmission and hardware. These 
market participants may also use software vendors to aggregate 
proprietary data, and may also employ vendors to assist in connecting 
to the data feeds. While using such vendors can reduce cost, this can 
sometimes come at the expense of adding latency.\1714\ This can happen 
because market participants may base their competitive advantage on the 
development of technology, which might be superior to what is available 
from vendors, or because the level of customizability and 
specialization to the specific use case available from third-party 
vendors is reduced, compared to developing these technologies ``in-
house.''
---------------------------------------------------------------------------

    \1714\ See Vela, supra note 1707, stating that the use of ``. . 
. normalized feed of data from a vendor, however, can add latency, 
which may make it less suitable for latency-sensitive applications . 
. .''

---------------------------------------------------------------------------

[[Page 18734]]

    Further cost-savings are possible by not purchasing co-location 
services at all major exchanges, and increasing the number of data 
access functions outsourced. Some market participants may obtain their 
entire market data feed from a third-party aggregator in the form of a 
pre-aggregate feed, saving money but surrendering significant ability 
customize the data feed.\1715\ Additionally, some market participants 
may use the exclusive SIPs instead of proprietary feeds for some use 
cases. For example, proprietary feeds might only be used for actual 
order routing decisions, while the exclusive SIPs are used to fill 
other data needs. Because of the substantial difference in price 
between exclusive SIP and proprietary feeds, this method may represent 
a substantial cost savings.\1716\ While the benefits of speed and 
quality of processing may be diminished for those market participants 
utilizing these more low-cost options, there continue to be trading and 
order routing strategies for which these approaches are sufficient. 
However, as acknowledged elsewhere,\1717\ execution using these data 
aggregation methods may experience higher execution costs on average.
---------------------------------------------------------------------------

    \1715\ See Exegy blog, supra note 1712, describing the 
affordability of API data feed options and the possibility that 
customization is reduced relative to less processed options. See 
also NBIM Letter at 4, stating that broker-dealers who do not 
perform the aggregation ``in-house'' will not be ``consistently 
competitive.'' This commenter also states that ``[t]his does not 
preclude using third-party technology to do the data aggregation, as 
long as it is done in-house to avoid incremental latency.''
    \1716\ For a discussion of the differences in price between 
exclusive SIPs and proprietary feeds, see supra Section V.B.2(c).
    \1717\ See infra Section V.B.3(e).
---------------------------------------------------------------------------

    One commenter argued that the exclusive SIP feeds could not be used 
to route orders electronically, stating that ``[d]ue to its limited 
content and higher latency, the usage of SIP data is adequate only for 
investors that visually consume NMS information (e.g., humans looking 
at quotes on a screen).'' \1718\ While the Commission agrees that many 
users of display feeds use the exclusive SIPs (as discussed in the text 
below), the Commission believes that there are likely a few non-display 
users of the exclusive SIP data who route orders based on exclusive SIP 
feeds as well.\1719\
---------------------------------------------------------------------------

    \1718\ See T. Rowe Price Letter at 1.
    \1719\ For example, one commenter suggested that exclusive SIP 
feeds play an important role in the activities of some broker-
dealers. See Bestex Research Letter at 3.
---------------------------------------------------------------------------

    At the bottom of the continuum are those market participants for 
which latency sensitivity is not an issue. These include market 
participants that use human traders who obtain market data through 
display feeds, and retail investors.\1720\ Such market participants 
frequently outsource the entire data aggregation and dissemination 
process, including the production of the visual display, to third-party 
vendors. These market participants also often rely on the exclusive SIP 
feeds or TOB feeds instead of the DOB feeds. Since latency sensitivity 
is not an issue, the primary benefit for this type of user of DOB feeds 
as compared to SIP or TOB feeds is the additional available data. 
Because of the challenges in obtaining high execution quality using 
only display feeds and per quote feeds,\1721\ many market participants 
in this last level route their orders to a broker-dealer at a higher 
level of capability in market data access for execution. Market 
participants who engage in this type of behavior include investment 
funds and retail investors. Sometimes broker-dealers working on behalf 
of clients route orders to a different broker for execution.
---------------------------------------------------------------------------

    \1720\ One commenter stated that the exclusive SIPs are ``. . . 
the primary feed for retail investors.'' See Schwab Letter at 2.
    \1721\ See infra Section V.B.3(e) for a discussion of the need 
for sophisticated use of market data to achieve high quality 
execution.
---------------------------------------------------------------------------

    One commenter stated ``. . . the Commission fails to consider that 
proprietary market data is neither necessary nor relevant to the 
business models and trading or investment strategies of many, if not 
most, ordinary investors and market participants.'' \1722\ While the 
Commission acknowledges that this final tier of consumers of market 
data, which includes most retail investors, might currently rely solely 
on the SIPs for their own use (and this use might include visual 
display), the Commission disagrees that proprietary data does not 
matter to most market participants. The Commission continues to believe 
that the market participants described as using proprietary data feeds 
in this section do indeed need those feeds to be competitive with their 
peers \1723\ and that these participants represent a significant 
segment of the market.\1724\ Many market participants, in routing 
orders to the exchanges, rely on the more sophisticated users of market 
data to execute orders on their behalf. In other words, while not every 
individual market participant uses proprietary data feeds, nearly all 
orders entered into the National Market System, including retail 
orders, touch a component (typically the order router of the executing 
broker) that uses proprietary data in order to reduce execution costs 
and improve execution quality. The Commission therefore disagrees with 
this comment that proprietary data is not relevant to the business 
models of most market participants because the systems by which a broad 
range of market participants access exchange trading (namely, the 
network of brokers through which orders are routed) find proprietary 
data feeds, including their content and speed, relevant to their 
business models.
---------------------------------------------------------------------------

    \1722\ Nasdaq Letter IV at 8.
    \1723\ For additional details on the uses of proprietary data to 
be competitive, see infra Section V.B.3(e).
    \1724\ While these market participants are less numerous than, 
for example, retail investors, this does not mean that their role in 
the market is less significant. For additional insight on this 
point, see note 1794, which discusses Commission analysis that 
showed that 91.6% of the message volume on exchanges in a sample 
week came from just 50 firms. Each of these firms maintained a 
connection to at least all but one exchange of the 11 exchanges in 
the sample, which correlates with a relatively high level of 
sophistication in trading. The fact that the percentage of orders 
that comes from these firms is so high indicates their significance.
---------------------------------------------------------------------------

(d) Current Costs of Generating SIP Data and Proprietary Data Feeds
    As mentioned above,\1725\ currently the exclusive SIPs consolidate 
and disseminate SIP data to market participants. The data fees that 
exclusive SIPs charge to market participants for obtaining SIP data are 
set by the Operating Committees of the Equity Data Plans, subject to 
notice and comment, and Commission approval. A portion of the SIP data 
revenues is used to pay for the cost of maintaining and administering 
the exclusive SIP,\1726\ and the remaining funds are distributed to the 
SRO members proportionately to their trading and quoting 
activity.\1727\ In the case of the UTP SIP, there is an additional 
FINRA cost for the oversight of the OTC markets that is also taken out 
of the exclusive SIP's revenues before distributing funds to the plan 
participants.
---------------------------------------------------------------------------

    \1725\ See supra Section V.B.1.
    \1726\ Once an exclusive SIP is selected, upgrades to that 
processor's SIP infrastructure are mandated and funded by the 
Operating Committee of the relevant Equity Data Plan. This comes out 
of SIP revenues distributed to the SROs.
    \1727\ The market data revenue allocation formula is summarized 
at, e.g., UTP Plan, Summary of Market Data Revenue Allocation 
Formula, available at http://www.utpplan.com/DOC/Revenue_Allocation_Formula.pdf (last accessed Jan. 8, 2020). FINRA 
rebates a portion of the SIP revenue it receives back to broker-
dealer internalizers and ATSs based on the trade volume they report. 
See FINRA Rule 7610B. One Roundtable commenter estimated that from 
2013 to 2017, through the Nasdaq/UTP plan, the FINRA/Nasdaq TRF gave 
83 percent of SIP revenue it received to broker-dealers. See Letter 
from Thomas Wittman, Executive Vice President, Head of Global 
Trading and Market Services and CEO, Nasdaq Stock Exchange, to Brent 
J. Fields, Secretary, Commission, at 19 (Oct. 25, 2018).

---------------------------------------------------------------------------

[[Page 18735]]

    Exclusive SIP revenues from data fees totaled more than $430 
million in 2017.\1728\ There are three broad categories of SIP data 
fees: Access fees, content fees, and distribution/redistribution 
fees.\1729\ An access fee is a flat monthly fee for physical 
connectivity to SIP data and does not depend on the type of market 
participant (e.g., market data vendor vs. institutional broker).
---------------------------------------------------------------------------

    \1728\ See Governance Order, supra note 1128.
    \1729\ See, e.g., CTA Plan, Q2 2020 CTA Quarterly Revenue 
Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_2Q2020.pdf; Nasdaq UTP Plan, Q2 
2020 UTP Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q22020.pdf; see also 
Letter from Charles M. Jones, Robert W. Lear Professor of Finance 
and Economics, Columbia Business School, to Brent J. Fields, 
Secretary, Commission, 15-16 (Oct. 21, 2018) (``Jones Letter'').
---------------------------------------------------------------------------

    There are three categories of content fees that depend on how 
market participants access SIP data. First, if SIP data is displayed 
for market participants on computer screens or other devices, the 
market participant is charged a display fee (a professional or a non-
professional subscriber fee depending on the type of market 
participant). These fees can be per screen displaying the data, per 
user as part of the multi instance single user (MISU) program, and per 
application where multiple applications can run on one screen. Second, 
if SIP data is not displayed on computer screens and instead is 
directly sent to an automated system such as a trading algorithm or a 
SOR, then the market participant is charged a non-display fee. Display 
and non-display fees are monthly fees and entitle the subscriber to an 
unlimited amount of real-time market information during the month. In 
2018, around 65% to 75% of total SIP revenue was accounted for by 
professional and non-professional display fees, and around 8% to 13% of 
revenue was accounted for by non-display fees.\1730\ A third type of 
content fee is the query quote fee, which are fees collected from 
market participants accessing SIP data on a per quote basis. Under the 
per-query fee structure, subscribers are required to pay an amount for 
each request for a packet of real-time market information. Around 4% to 
10% of total SIP revenue is accounted for by quote query fees in 
2018.\1731\ Finally, exclusive SIPs charge distribution/redistribution 
fees when the market data is delivered to a user other than the initial 
purchaser.
---------------------------------------------------------------------------

    \1730\ Id.
    \1731\ Id.
---------------------------------------------------------------------------

    Based on the exclusive SIPs' public disclosures, as of fourth 
quarter of 2018 there were approximately 2-3 million non-professional 
subscription use cases and approximately 0.3 million professional 
subscription use cases across the UTP and CTA/CQ SIPs. Additionally, 
there were approximately 300 non-display vendor use cases at each of 
the exclusive SIPs.\1732\ The Nasdaq UTP SIP operating expenses totaled 
around $7 million in 2017.\1733\ The CTA/CQ SIP operating expenses 
totaled around $8.8 million in 2018.
---------------------------------------------------------------------------

    \1732\ See supra note 1638.
    \1733\ Operating expenses for the Nasdaq UTP Plan represent 
support costs, paid to the SIP, and are a pre-determined amount 
agreed upon by the Nasdaq UTP Plan's SRO participants. The Nasdaq 
UTP SIP costs do not include the costs of the exchanges generating 
the data they send to the Nasdaq UTP SIP. The UTP Plan also incurs 
administrative costs and other miscellaneous expenses, which 
together totaled around $3.6 million.
---------------------------------------------------------------------------

    There is a substantial difference between the fees market 
participants pay for SIP data and the fees they pay for proprietary DOB 
data products. For instance, monthly non-display fees for data (not 
including connectivity fees) charged by the CTA/CQ SIP is $2,000 for 
Network A and $1,000 for Network B,\1734\ while monthly non-display 
fees charged by NYSE for its NYSE Integrated Feed (not including 
connectivity fees) is $20,000,\1735\ which is an order of magnitude 
larger than the SIP data fee.\1736\ Additionally, proprietary data feed 
fees have increased over the past decade. For instance, SIFMA estimates 
that between 2010 and 2018 data fees charged by some exchanges went up 
by three orders of magnitude or more.\1737\ In comparison, SIP data 
fees went up by 5% during the same time period.\1738\ Based on 
Commission staff experience, the Commission understands that the number 
of subscribers to proprietary market data is relatively small.\1739\ 
The Commission understands that the number of subscribers of 
proprietary market data and proprietary market data revenues vary 
across exchanges and that some exchanges obtain a larger percentage 
than other exchanges of their total market data revenue from 
proprietary data products (as opposed to revenue from SIP data 
products). For example, the Commission estimates that in 2018, NYSE 
collected approximately 5% of its net revenues from selling proprietary 
market data products. On the other hand, according to the Commission's 
estimates, Cboe BYX collected approximately 9% of its revenues from 
selling proprietary market data products.\1740\
---------------------------------------------------------------------------

    \1734\ See CTA Plan, Schedule of Market Data Charges (Jan. 1, 
2015), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Schedule%20Of%20Market%20Data%20Charges%20-%20January%201,%202015.pdf.
    \1735\ See NYSE Proprietary Data Products, Market Data Pricing 
(Oct. 16, 2020), at 3, available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
    \1736\ While all of the fees are for non-display purposes, the 
data content in the CTA/CQ SIP data is different from the NYSE 
Integrated Feed. The NYSE Integrated Feed is a full DOB feed and 
provides an order-by-order view of events in the NYSE equities 
market, whereas the CTA/CQ non-display feed provides consolidated 
SIP data for Tape A and Tape B securities. See supra Section 
V.B.2(a) (discussing the difference in content between SIP data and 
proprietary DOB feeds). See also NYSE, Real-Time Integrated Feed, 
available at https://www.nyse.com/market-data/real-time/integrated-feed (last accessed Nov. 23, 2020); CTA, Consolidated Tape 
Association, available at https://www.ctaplan.com/index (last 
accessed Nov. 23, 2020).
    \1737\ See SIFMA Letter 2018.
    \1738\ SIFMA's study submitted in connection with the Roundtable 
contained analysis examining the change in fees that some broker-
dealers paid for CTA SIP data between 2010 and 2018. The analysis 
showed that CTA SIP fees for most categories of data increased by an 
average of 5% between 2010 and 2018. However, the change in the 
total amount each broker-dealer spent on CTA SIP data varied based 
on the type of broker-dealer. The analysis found that the average 
amount of money spent on CTA SIP data by retail broker-dealers 
declined by 4% between 2010 and 2017, but the average amount spent 
by institutional broker-dealers increased by 7%. See id. at 21-28.
    \1739\ See Proposing Release, 85 FR at n. 140.
    \1740\ See infra Section V.B.2(e). The Commission estimates are 
based on NYSE and Cboe BYX's Form 1 filings and UTP and CTA/CQ 
revenue metrics. NYSE's Form 1 filings disclose $968 million as its 
net revenues in 2018. NYSE's revenues from the SIP redistribution is 
approximately $47 million. Note 2 to the exchange's financial 
statements states that NYSE collects market data revenues from the 
exclusive SIPs and ``to a lesser extent for (sic) New York Stock 
Exchange proprietary data products,'' indicating that the 
approximately $47 million in revenues from SIP data could be a 
benchmark for their proprietary market data revenues. NYSE Form 1, 
available at https://www.sec.gov/Archives/edgar/vprr/1900/19003689.pdf (last accessed Jan. 29, 2020). Similarly, Cboe BYX Form 
1 filings report $58 million in net revenues. Of this $58 million, 
$26 million were market data revenue--approximately $21 million from 
SIP data revenues and $5 million from proprietary market data 
revenues. Cboe BYX Form 1, available at https://www.sec.gov/Archives/edgar/vprr/1900/19003669.pdf (last accessed Jan. 29, 2020).
---------------------------------------------------------------------------

    As mentioned above,\1741\ market participants who purchase 
proprietary data feeds from multiple SROs may choose to self-aggregate 
multiple data feeds, or, alternatively, they can purchase already 
consolidated data from market data aggregators. The exchanges charge a 
data fee to any market participant that purchases exchanges' data from 
market data aggregators.\1742\

[[Page 18736]]

Therefore, these fees are effectively a part of the total price that a 
market participant must pay when purchasing data from a market data 
aggregator. In some cases, these fees may be so high that some market 
participants cannot afford to self-aggregate proprietary feeds from all 
exchanges or purchase market data aggregator products.\1743\ The 
Commission believes that more active market makers and some 
sophisticated broker-dealers including a number of HFT firms and some 
of the larger banks with proprietary data feed trading desks either 
self-aggregate or purchase aggregation services or products from third-
party vendors.
---------------------------------------------------------------------------

    \1741\ See supra Section V.B.2(b).
    \1742\ Some exchanges charge redistribution fees or their 
equivalents to market data aggregators and separately, one or more 
data fees (based on different use cases such as professional or non-
professional, display or non-display) to market participants who 
purchase the exchanges' data from market data aggregators. See Virtu 
Letter I at 16-79 (Exhibit ``A,'' lists of data and connectivity 
fees by several exchanges).
    \1743\ See, e.g., Roundtable Day One Transcript at 128-29 (Mark 
Skalabrin, Redline Trading Solutions).
---------------------------------------------------------------------------

    The Commission understands that the data fees the exchanges charge 
to market participants that purchase the exchanges' data from market 
data aggregators may account for a significant portion of the total 
price market participants pay for the market data aggregators' data 
products. However, the Commission does not have information on the 
pricing of market data aggregators' data and cannot break down market 
data product prices between the direct data fees charged by the 
exchanges and the fees charged by market data aggregators for their 
services. The Commission stated this lack of information in the 
Proposing Release and did not receive the information in the comment 
letters.
    The exchanges also charge fees for various connectivity services 
they offer (e.g., co-location, fiber connectivity, and wireless 
connectivity). Connectivity services permit a customer to access an 
exchange's proprietary market data and/or its trading and execution 
systems as well as SIP data. The purchase and use of certain 
connectivity services is necessary to directly access an exchange's 
market data and to directly participate in that market, at least for 
those market participants that represent the vast majority of trading 
activity on exchanges. Additionally, these connectivity services may be 
needed in order to take advantage of the reduced latencies offered by 
the proprietary data feeds, including when market participants prefer 
the contents of SIP data consolidated from the proprietary data feeds--
rather than delivered by an exclusive SIP--to avoid additional 
latencies.
    Connectivity fees can be substantial. For instance, the annual 
fiber connectivity fees per port at the exchanges' primary data centers 
are $90,000 at Cboe, $120,000 at Nasdaq, and $168,000 at NYSE.\1744\ 
Co-location services may have two components: An initial fee and an 
ongoing monthly fee based on the kilowatt (kW) usage. For example, at 
NYSE, an initial fee for a dedicated high-density cabinet that consumes 
9kW per month is $5,000, and an ongoing monthly fee per kW is 
$1,050.\1745\ At Nasdaq, an initial fee is $3,500, and an ongoing 
monthly fee is $4,500.\1746\ Thus, for a year of co-location in a 
dedicated cabinet with 9kW power, these fees add up to over $118,000 
for NYSE and over $57,000 for Nasdaq.
---------------------------------------------------------------------------

    \1744\ See Letter from Brad Katsuyama, CEO, Investors Exchange 
LLC, to Brent J. Fields, Secretary, Commission, at Table 7 (Jan. 29, 
2019) (``Katsuyama Letter II'') (10Gb fiber connectivity).
    \1745\ See NYSE price list 2020, supra note 1434.
    \1746\ See Nasdaq, Price List--Trading Connectivity, available 
at https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2 
(last accessed Dec. 19, 2019).
---------------------------------------------------------------------------

(e) Current Aggregate Exchange Revenues From Selling Market Data and 
Connectivity
    The Commission estimates that in 2018 the exchanges earned a total 
revenue of approximately $941 million from selling both proprietary and 
SIP market data products and connectivity services in the equities 
market. In addition, the Commission estimates that the exchanges earned 
approximately $596 million of this $941 million revenue from selling 
market data products and approximately $345 million of this revenue 
from selling connectivity services. With respect to the revenue from 
market data products, the Commission estimates that in 2018 the 
exchanges earned approximately $327 million of the $596 million revenue 
from equity SIP data and approximately $269 million from selling 
proprietary data products. Further, approximately $63 million of the 
$327 million equity SIP revenue in 2018 was distributed to FINRA.\1747\
---------------------------------------------------------------------------

    \1747\ When taking this $63 million into account, total SIP 
revenues shared by SROs were approximately $390 million in 2018, 
which is consistent with the $430 million estimate for 2017 provided 
in the Proposed Governance Order (which also included the amount 
paid to the plan processor). See supra note 1728 and accompanying 
text. This estimate is also consistent with the $387 million 
estimate for 2017. See Jones Letter, supra note 1729 at 25.
---------------------------------------------------------------------------

    The Commission's estimates above are mainly based on revenue 
information that the exchanges filed as part of their Form 1 
filings.\1748\ In addition, the Commission used SIP revenue information 
disclosed by the CTA/CQ Plans and the Nasdaq UTP Plan in their 
quarterly revenue disclosures.\1749\ Furthermore, because revenue 
information provided by some exchanges in their Form 1 filings is not 
sufficiently detailed for this calculation, the Commission had to make 
certain assumptions in order to derive these estimates. First, the Form 
1 filings for NYSE and NYSE MKT combine revenue from connectivity fees 
with revenue from market data fees. For these exchanges, the Commission 
derived the revenue earned from connectivity fees by assuming that the 
revenue that these exchanges earn from proprietary data is slightly 
smaller than the revenue that they earn from SIP data (based on notes 
in their Form 1 filings that indicate that SIP revenue exceeds 
proprietary data revenue). Second, the Form 1 filing for Nasdaq 
combines revenue from connectivity fees with revenue from transaction 
fees. The Commission derived the revenue that Nasdaq earned from 
connectivity fees by assuming that Nasdaq's revenues from connectivity 
fees and transaction fees were in the same proportion to one another as 
NYSE's revenues from these two business lines. Third, Form 1 filings 
for exchanges that offer trading in both equities and options provide 
revenue information for these two asset classes combined. For these 
exchanges, the Commission assumed that their combined revenues from 
market data fees and connectivity fees in the equities market and in 
the options market were in the same proportion to one another as the 
market data and connectivity revenues that these exchanges would have 
earned in each of these markets based on their dollar volume market 
share (as compared to the dollar volume market share of the exchanges 
that trade only equities or only options).
---------------------------------------------------------------------------

    \1748\ See Commission, National Securities Exchange Periodic 
Amendments to Form 1 (Modified June 20, 2019), available at https://www.sec.gov/rules/national-securities-exchanges-amendments.htm 
(providing links to exchanges' Form 1 filings).
    \1749\ See supra note 1729.
---------------------------------------------------------------------------

(f) Current State of National Best Bid or Offer Dissemination
    Some commenters characterized the current process for dissemination 
of the NBBO as being based on a universally trusted source in the form 
of the exclusive SIPs, upon which all market participants heavy 
rely.\1750\ Commenters also suggested that the introduction of 
``multiple NBBOs'' into the market would be a significant departure 
from current market practice.\1751\ The Commission disagrees with this 
characterization of the relevant baseline for the final amendments. As 
mentioned

[[Page 18737]]

in the Proposing Release,\1752\ today, at any given instant of time, 
there can be differences between various market participants in what 
they observe to be the prevailing NBBO. These differences arise because 
of the geographic dispersion of the exchange data centers and the 
differences in latency between consolidated market feeds produced by 
the SIPs and those produced through the use of proprietary data feeds. 
Furthermore, the amount of time that typically elapses before the 
differences are corrected is meaningful to market participants.
---------------------------------------------------------------------------

    \1750\ See, e.g., Nasdaq Letter IV at 3.
    \1751\ See, e.g., Nasdaq Letter IV at 11; TD Ameritrade Letter 
at 12.
    \1752\ See Proposing Release, 85 FR at 16845.
---------------------------------------------------------------------------

    Geographic latency means that even if all market participants 
relied on the exclusive SIPs, there would still be differences in what 
market participants observed to be the prevailing quote. For example, 
suppose the CTA/CQ SIP receives an update about the prevailing NBBO in 
a given stock. That information must still be disseminated to the 
various broker-dealers at the different data centers. At a minimum, 
there will be broker-dealers located in Mahwah, Secaucus and Carteret 
who will all be interested in seeing the new quote. The exclusive SIP 
distributes the quote to each of the data centers at the same time, but 
since these are in different locations, the quotes will arrive at 
different times.\1753\ Therefore, as many as three different quotes for 
the same stock could be observed to be the NBBO in that stock at these 
three locations at a given instant in time, at least for market 
participants who are latency-sensitive enough to detect such 
differences.
---------------------------------------------------------------------------

    \1753\ While they will likely all arrive within roughly a 
millisecond of each other, this is still a meaningful discrepancy in 
today's markets.
---------------------------------------------------------------------------

    On top of this basic geographic latency source of differing NBBOs, 
the latency differential that exists between NBBOs obtained from the 
exclusive SIP and NBBOs produced by consolidating proprietary feeds 
\1754\ further contributes to the discrepancies in market views 
possessed by market participants.
---------------------------------------------------------------------------

    \1754\ See supra Section V.B.2(b) for a discussion of the types 
of latencies.
---------------------------------------------------------------------------

    Market participants have adapted to this state of affairs. For 
example, some of the concern in the market about obtaining fast market 
data is directly connected to the existence of multiple NBBOs.\1755\ 
Market participants often use co-location in order to be closer to the 
trading center and thereby receive updates with less delay than they 
would experience if they were located elsewhere, in order to prevent 
themselves from acting on stale NBBO quotes that may be different from 
the NBBO prevailing at the trading center.\1756\ In addition, the 
inspection and enforcement conducted by SROs with regard to best 
execution obligations has evolved to consider this phenomenon. 
Specifically, SRO inspections typically request data from a broker-
dealer in evaluating whether a violation has occurred.\1757\ Also, the 
Commission has stated that for the Order Protection Rule a trading 
center ``. . . will be assessed based on the times that orders and 
quotations are received, and trades are executed, at that trading 
center.'' \1758\ This statement reflects the fact that the inevitable 
latency differential between two trading centers means that there may 
be multiple NBBOs in the market depending on which trading center one 
is at. Also, the lookback provision of Rule 611 \1759\ recognizes that 
an observed NBBO may not be the current prevailing NBBO.\1760\ As 
detailed above, the potential for multiple NBBOs has been understood 
and dealt with for some time, and therefore should not be problematic 
for market participants.
---------------------------------------------------------------------------

    \1755\ See supra Section V.B.2(b) for discussion of the value of 
speed in trading and data access. In that section, the Commission 
discussed the value of being faster than one's competitors. One way 
in which this is relevant is that if a competitor's order executes 
against the NBBO before some other competitor, then the second 
competitor's order will arrive at the trading center based on 
information about the NBBO that is no longer true at the time that 
the order arrives.
    \1756\ See MEMX Letter at 6 stating that because inherent 
geographic differences ``. . . market participants may each have a 
different view of market data and events based on where they are 
located and the technologies and telecommunication techniques 
used.''
    \1757\ See supra Section III.B.10(d). Also, FINRA Rule 4554 
requires that ATSs report the NBBO in effect at the time of order 
execution and the timestamp of when the ATS captured the effective 
NBBO.
    \1758\ See Regulation NMS Adopting Release, 70 FR at 37523, note 
215.
    \1759\ 17 CFR 242.611(b)(8) (Rule 611(b)(8)) provides a one-
second ``window'' prior to a transaction, which allows a trading 
center to trade at any price equal to or better than the least 
aggressive best bid or best offer displayed at another trading 
center during the previous second.
    \1760\ See Regulation NMS Adopting Release, 70 FR at 37523.
---------------------------------------------------------------------------

3. Competition Baseline
    This section discusses, as it relates to this rulemaking, the 
current state of the market for core and SIP data products, the market 
for proprietary data products, the market for connectivity services, 
and the market for trading services as well as broker-dealers' 
competitive strategies for trading services.
(a) Current Structure of Market for Core and SIP Data Products
    Under the Equity Data Plans, SIP data is collected, consolidated, 
processed, and disseminated by the exclusive SIPs.\1761\ Equity Data 
Plan Operating Committees, which are composed of the SROs, set the fees 
the exclusive SIPs charge for SIP data.\1762\ Any revenue earned by the 
exclusive SIPs, after deducting their operating costs and FINRA's OTC 
oversight costs, is split among the SROs. FINRA rebates a portion of 
the exclusive SIP revenue it receives back to broker-dealers based on 
the trade volume it reports.\1763\ The nature of the Equity Data Plan 
Operating Committee's responsibilities can create a conflict of 
interest for the SROs, as discussed above.\1764\
---------------------------------------------------------------------------

    \1761\ See Proposing Release, 85 FR at Section II.A, for 
discussion of these issues in the Proposing Release.
    \1762\ See supra note 1726 and accompanying text.
    \1763\ See supra note 1727.
    \1764\ See supra Section V.A.2.
---------------------------------------------------------------------------

    Each Equity Data Plan selects a single exclusive SIP through a 
bidding process to be the exclusive distributor of the plan's 
data.\1765\ This grants the SIP a monopoly franchise in the 
distribution of the plan's data, which means that the SIPs are not 
subject to competitive forces that would produce more efficient 
outcomes. The Commission acknowledges that some economic theory would 
point to the opposite conclusion, but does not believe that it applies 
here. In particular, a paper by Demsetz would predict that the current 
monopolistic structure is most efficient.\1766\ In industries where 
there are economies of scale, a monopoly franchise structure may lead 
to the most efficient means of production. This profile applies to the 
distribution of core data because of the high fixed costs.\1767\ 
Demsetz (1968) argues that just because an industry has a monopolistic 
provider of a service does not mean that it is not subject to 
competitive forces. In particular, Demsetz (1968) argues that if the 
monopolistic provider of a service is subject to competition in the 
bidding process it could provide sufficient competitive incentives to 
achieve a competitive outcome. However, many theories provide examples 
of situations in which the monopoly franchise structure is less 
efficient than other structures.\1768\ The Commission does not believe 
that the exclusive SIP bidding process provides sufficient

[[Page 18738]]

competitive incentives for two reasons. First, the bidding process 
could be subject to conflicts of interest since some of the SROs voting 
to select the exclusive SIP are also bidding to be the SIP. Second, the 
contracts are not bid out regularly, so there may not be a significant 
chance that the current exclusive SIP will be replaced. Therefore, the 
Commission does not believe that the bidding process for exclusive SIPs 
is likely to produce the most efficient outcome and subject the 
exclusive SIPs to competitive forces.
---------------------------------------------------------------------------

    \1765\ See supra Section IV.A.
    \1766\ See Harold Demsetz, Why Regulate Utilities?, 11 J.L. & 
Econ. 55 (1968) (``Demsetz (1968)'').
    \1767\ See infra note 1797 and accompanying text.
    \1768\ See, e.g., Oliver E. Williamson, Franchise Bidding for 
Natural Monopolies--in General and with Respect to CATV, 7 Bell J. 
Econ. 73 (1976) (discussing why bidding for monopolies may not work 
well); Robin A. Prager, Firm behavior in franchise monopoly markets, 
21 Rand J. Econ. 211 (1990).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that historically 
there were not a large number of bidders for SIP tenders, and listed 
this as one of three reasons why the Commission does not believe that 
the exclusive SIP bidding process provides sufficient competitive 
incentives in the above discussion. Since then, the Commission has come 
to understand that there were 11 bidders for the UTP tender offer in 
2014.\1769\ Based on this new understanding, the Commission no longer 
believes that the process bidding for SIP tenders may be hindered by 
the number of bidders. However, the first two reasons discussed, 
namely, conflicts of interest and lack of regular new bidding on the 
contract, are sufficient reasons for the Commission to continue to 
believe that the bidding process may not be adequately competitive. 
Thus, the Commission continues to believe that the conclusions of 
Demsetz (1968) do not apply in this case, as discussed above.
---------------------------------------------------------------------------

    \1769\ See UTP Operating Committee Selects Nasdaq as Processor 
Announcement, Jordan & Jordan, available at, https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf.
---------------------------------------------------------------------------

    The exclusive SIPs have significant market power in the market for 
core and aggregated market data products and are monopolistic providers 
of certain information, which means that for all such products they 
would have the market power to charge supracompetitive prices. Fees for 
core data are paid by a wide range of market participants, including 
investors, broker-dealers, data vendors, and others.
    One reason the exclusive SIPs have significant market power is 
that, although some market data products are comparable to SIP data and 
could be used by some core data subscribers as substitutes for SIP data 
in certain situations, these products are not perfect substitutes and 
are not viable substitutes across all use cases. For example, as 
mentioned above, some market data aggregators buy direct depth of book 
feeds from the exchanges and aggregate them to produce products similar 
to SIP data.\1770\ However, these products do not provide market 
information that is critical to some subscribers and only available 
through the exclusive SIPs, such as LULD plan price bands and 
administrative messages.\1771\ Additionally, some SROs offer TOB data 
feeds, which may be considered by some to be viable substitutes for SIP 
data for certain applications.\1772\ However, broker-dealers typically 
rely on the SIP data to fulfill their obligations under Rule 603 of 
Regulation NMS, i.e., the ``Vendor Display Rule,'' which requires a 
broker-dealer to show a consolidated display of market data in a 
context in which a trading or order routing decision can be 
implemented.\1773\
---------------------------------------------------------------------------

    \1770\ The feeds produced by market data aggregators offer 
additional features, such as lower latency, but usually cost more 
than SIP data. See Roundtable Day One Transcript at 126-29 (Mark 
Skalabrin, Redline Trading Solutions).
    \1771\ See Proposing Release, 85 FR at Sections III.D, III.E. 
One commenter agreed, stating that because the exclusive SIPs are 
the sole source of such messages, many market participants must 
purchase both proprietary and exclusive SIP feeds. See MEMX Letter 
at 3.
    \1772\ In the equity markets, the top of book feeds offered by 
the SROs are usually cheaper than SIP data. However, they may only 
contain information from one exchange, or one exchange family. See, 
e.g., Nasdaq Basic, supra note 1651; CBOE One, supra note 9 at n. 
19; NYSE BQT, https://www.nyse.com/market-data/real-time/nyse-bqt; 
TD Ameritrade Letter 2018, supra note 1651 (stating that the lower 
cost of exchange TOB products, coupled with costs associated with 
the process to differentiate between retail professionals and non-
professionals imposed by the SIP Plans, and associated audit risk, 
favors retail broker-dealer use of exchange TOB products).
    \1773\ See Vendor Display Rule, Rule 603 of Regulation NMS; 
Proposing Release, 85 FR at Section IV.B.2(a).
---------------------------------------------------------------------------

    The purchase of SIP data or proprietary market data from all 
exchanges, either directly or indirectly, is necessary for all market 
participants executing orders in NMS stocks.\1774\ SROs have 
significant influence over the prices of most market data products. For 
example, the exchanges individually set the pricing of the TOB data 
feeds that they sell to market data aggregators and broker-dealers that 
self-aggregate who in turn generate consolidated data. At the same 
time, SROs collectively, as participants in the national market system 
plans, decide what fees to set for SIP data.\1775\ Although market data 
aggregators might compete with the exclusive SIPs by offering products 
that provide consolidated data, they ultimately derive their data from 
the exchanges' direct proprietary data feeds, whose prices are set by 
the exchanges, a subset of SROs.\1776\
---------------------------------------------------------------------------

    \1774\ For example, 17 CFR 242.611(a) (Rule 611(a)) of 
Regulation NMS requires trading centers to establish policies and 
procedures to prevent trade-throughs. In order to prevent trade-
throughs, executing broker-dealers need to be able to view the 
protected quotes on all exchanges. They can fulfill this requirement 
by using SIP data, proprietary data feeds offered by the SROs, or a 
combination of both.
    \1775\ See supra Section V.B.1.
    \1776\ Pursuant to Section 19(b) of the Exchange Act and Rule 
19b-4 thereunder, SROs must file with the Commission proposed rules, 
in which they set prices for their direct feed data. Those prices 
can vary depending on the type of end user.
---------------------------------------------------------------------------

    Regarding the level of competition among non-SRO market data 
aggregators that sell consolidated data to market participants, the 
Commission currently does not have an estimate of the number of players 
in this market and does not know how specialized these players 
are.\1777\
---------------------------------------------------------------------------

    \1777\ The Commission understands that certain entities from the 
list of market data vendors published on Nasdaq's website currently 
perform the market data aggregator function. See Proposing Release, 
85 FR at n. 516. This list does not provide a lower bound on the 
number of such entities because the list includes firms that the 
Commission believes are unlikely to perform high-speed data 
aggregation. The list is also not an upper bound because the 
Commission does not believe that all firms performing market data 
aggregation are listed. While the Commission does not have the 
number of data aggregators, the Commission has analyzed the effects 
on such parties qualitatively. The Commission does not have this 
information because data aggregators are not required to register 
with the Commission and/or identify themselves as data aggregators. 
Additionally, the Commission requested this information and did not 
receive any comments providing estimates of the number of data 
aggregators. While Commission does not have quantitative 
information, the Commission does have the insights discussed in this 
section and believes that these insights are sufficient to support 
our analysis in this section.
---------------------------------------------------------------------------

    The production of both core data and proprietary data feeds 
involves relatively high fixed costs and low variable costs.\1778\ 
Fixed costs are composed of, among others, costs to set up 
infrastructure, regulatory approval costs, software development costs, 
administrative costs and overhead costs, while variable costs include 
costs to contract with and establish connectivity to each customer. 
Importantly, fixed costs of the production of both core data and 
proprietary data feeds are not specific to the production of data but 
also support the exchanges' other services such as intermediating 
trade. In such markets, the firms have additional incentives to 
increase the number of their customers in order to spread the fixed 
cost across a larger base of consumers.
---------------------------------------------------------------------------

    \1778\ See, e.g., Paul M. Romer, Endogenous Technological 
Change, 98 J. Pol. Econ. S71-102 (1990) (pointing out that 
information is fundamentally distinct from other goods because it 
has a fixed cost of discovery and a near zero cost of replication).
---------------------------------------------------------------------------

(b) Current Structure of Market for Proprietary Market Data Products
    In addition to SIP data, the exchanges voluntarily disseminate 
proprietary data

[[Page 18739]]

and charge fees for this data.\1779\ Proprietary data fees have 
increased over the past decade.\1780\ SIFMA estimates that, for some 
broker-dealers, data fees charged by some exchanges went up by three 
orders of magnitude or more between 2010 and 2018.\1781\ One commenter 
disagreed with this estimate by comparing it to a separate estimate 
obtained for increases in market data revenue of 78.4% for Nasdaq over 
the same period (including both revenue from exchange data and non-
exchange data products).\1782\ The Commission does not believe there is 
necessarily any contradiction from the contrast in these estimates, 
since fees for some broker-dealers for market data are not the same 
thing as Nasdaq revenue for market data products, because the latter of 
these contains revenue from all broker-dealers as well as market 
participants who are not broker-dealers who purchase data from Nasdaq, 
and it is possible that not all these entities purchase the same set of 
data products. Correspondingly, exchanges' revenues from selling 
proprietary data and connectivity services also increased over the last 
several years. For example, Budish, et al. (2019) observe that 
exchanges earn significant revenues from selling proprietary data (a 
range of $555.4-$623.0M in 2015 by their estimate), as well as 
connectivity services (a range of $436.8-$484.8M in 2015 by their 
estimate).\1783\ According to NYSE's Form 1 filings, its revenues from 
data services (including connectivity revenues but excluding SIP data 
revenues) increased approximately 93% from 2014 to 2018. Similarly, 
Nasdaq's Form 1 filings show an approximately 21% increase in their 
revenues from data services (excluding revenues from connectivity 
services and SIP data revenues).\1784\ On the other hand, during the 
same period, revenues distributed back to NYSE by the exclusive SIPs 
increased approximately 18% and the revenues distributed back to Nasdaq 
increased approximately 12%. The exchanges' differences in their 
reporting of these numbers make it difficult to compare revenue numbers 
across exchanges. However, for both of these exchanges, their revenues 
from the proprietary data and connectivity business have been growing 
faster than the revenues they collect from SIP data.\1785\
---------------------------------------------------------------------------

    \1779\ See supra Section V.B.2(a) for details on these 
proprietary feeds.
    \1780\ Some commenters agreed that fees have increased. See, 
e.g., Virtu Letter at 2; Clearpool Letter at 2.
    \1781\ See SIFMA Letter; see also Virtu Letter I at 4 
(discussing double ``dipping'' on fees by the exchanges).
    \1782\ See Nasdaq Letter IV at 29.
    \1783\ See Eric Budish, et al., Will the Market Fix the Market? 
A Theory of Stock Exchange Competition and Innovation, (Univ. of 
Chi., Becker Friedman Inst. for Econ., Working Paper No. 2019-72, 
May 2019), available at https://ssrn.com/abstract=3391461 (Retrieved 
from SSRN Elsevier database).
    \1784\ Nasdaq submitted estimates for Nasdaq's increase in 
revenue from exchange and non-exchange data products of 78.4% over 
the period from 2010 and 2018, and an increase of 62.4% for revenue 
from connectivity services from 2010 to 2018. See Nasdaq Letter IV 
at 29.
    \1785\ According to its 2014 Form 1 filing, NYSE collected 
approximately $138 million as market data revenues, covered under 
the ``data services fees'' income statement line item. According to 
the notes to NYSE's financial statements, these market data revenues 
include proprietary data revenues, SIP data revenues, and revenues 
from connectivity services. NYSE's same revenue line item increased 
to approximately $236 million by the end of 2018. Whereas during 
this same time period, the revenues NYSE collected from the 
exclusive SIPs went from approximately $40 million to approximately 
$47 million. Nasdaq's 2014 Form 1 filing discloses approximately 
$206 million in ``information services'' line item in its income 
statement. According to the footnotes to its financial statements, 
this line item includes Nasdaq's market data revenues and 
redistributed SIP revenues but does not include connectivity service 
revenues. In its 2018 Form 1 filing, Nasdaq disclosed $242 million 
in revenues under the same information services line item. During 
the same time period, Nasdaq's SIP data revenues went up from 
approximately $76 million to $85 million, a smaller revenue increase 
relative to its market data revenues.
---------------------------------------------------------------------------

    Indicia that exchanges may not be subject to robust competition 
include that many broker-dealers state that even in the face of 
increasing proprietary data fees they feel compelled to buy proprietary 
data to be able to provide competitive trading strategies for their 
clients.\1786\ Additionally, some academic research suggests that each 
particular exchange's proprietary data has no substitutes for some uses 
of the data and no perfect substitutes for any uses.\1787\ For example, 
Budish et al. (2019) conclude that each exchange has market power with 
respect to the data products (and the speed technology) specific to 
that particular exchange because of a lack of substitutes for many 
applications of their data.\1788\
---------------------------------------------------------------------------

    \1786\ See, e.g., SIFMA Letter at 2 (``[W]e do not believe that 
the SIPs currently provide the necessary data to market participants 
at the requisite speed to efficiently trade in today's high speed 
and automated marketplace. As a result, many broker-dealers, asset 
managers and other market participants are forced to purchase 
proprietary data feeds from individual exchanges to create a 
consolidated and robust view of the market, while additionally 
bearing the economic burden of having to purchase consolidated data 
from the SIPs. This results in an enormous cost burden on the 
marketplace and creates a two-tiered market for market data by 
limiting access to critical market data at the fastest speeds to 
those who can afford to pay the exorbitant fees charged for it by 
the exchanges.''); MFA Letter at 2 (``Today, the current exclusive 
SIP model and content of core data does not serve the needs of 
investors, many of whom must subscribe to the exchanges' proprietary 
market data feeds at considerable additional cost to trade 
effectively, while others are forced to rely on inferior information 
and outdated technology.''); State Street Letter at 2 (``. . . 
regulatory obligations and customer expectations related to best 
execution, transaction cost analysis, transparency and market 
competition generated further need for data that is unavailable on 
the SIPs. As a result, market participants have become increasingly 
dependent on proprietary data feeds marketed by the exchanges 
outside of the SIPs.''); Capital Group Letter at 2 (``Over the last 
15 years, the discrepancy in data elements and latency between 
proprietary feeds and the consolidated tape has expanded such that 
the SIP is no longer a realistic tool for institutional investors or 
broker-dealers in meeting their respective best execution 
obligations when routing orders.''). See also Roundtable Day One 
Transcript at 198-199 (Joseph Wald, Clearpool) (``Clearpool and 
other broker-dealers are compelled to purchase exchanges' 
proprietary data feeds, both to provide competitive execution 
services to our clients and to meet our best execution obligations 
due to the content of the information contained in the proprietary 
data feeds as well as the latency differences between them, which 
are major and important considerations for brokers.'').
    \1787\ These points are supported by some commenters. See, e.g., 
BestEx Research Letter at 2, 4 (``. . . exchanges do not compete on 
market data fees since each is an exclusive provider of their own, 
indispensable content.'') and DOJ Letter at 4, stating that 
characteristics of proprietary data feeds ``. . . would tend to 
indicate that Prop Data products lack substitutes, which would in 
turn enable the exchanges to exercise market power in determining 
their pricing of these products because they are the only data 
provider in their own markets.''
    \1788\ See Eric Budish et al., supra note 1783. See also 
Glosten, Economics of the Stock Exchange Business: Proprietary 
Market Data, (Jan. 2020), available at: https://ssrn.com/abstract=3533525 (Retrieved from SSRN Elsevier database).
---------------------------------------------------------------------------

    A commenter stated that there is competition between exchanges for 
proprietary data products as part of their overall competition for 
order flow.\1789\ While it is true that exchanges compete for order 
flow, they are the sole source of data from their own exchange. Many 
market participants use a full view of the market in order to route 
orders effectively, regardless of whether or not they end up sending 
the order to any particular exchange. The Commission understands that 
some market participants may combine the exclusive SIPs with 
proprietary feeds in order form a complete view of the market, but this 
comes with disadvantages, as discussed elsewhere in this release.\1790\
---------------------------------------------------------------------------

    \1789\ See, e.g., Nasdaq Letter IV at 48.
    \1790\ See supra Section V.B.2(b).
---------------------------------------------------------------------------

    This commenter also stated in reference to the question of 
competition in the provision of proprietary data that ``the 
Commission's analysis is incomplete and flawed because it fails to 
appropriately analyze competition between trading platforms, and never 
considers the all-in price of trading in its discussion.'' \1791\ The 
Commission does not believe that its analysis presented on this issue 
is incomplete or

[[Page 18740]]

flawed for not including the all-in cost of trading because market data 
and trading services, although related, are not the same thing.\1792\ 
For example, it is conceivable that market participants may want data 
from an exchange even if they never route orders to that exchange. In 
such a case, the cost of trading on that exchange is not even relevant 
to that market participant. Therefore, whether exchanges face robust 
competition in the market for their proprietary data products can be 
determined by considering the indicia discussed above (among other 
things) and without consideration of other costs of trading, which 
include not only other SRO products, but often products and services 
provided by additional third-party vendors. Because of these 
considerations, the Commission also does not believe that the metric 
offered by one commenter \1793\ produced by dividing one exchange 
group's total revenue by its total dollar trading volume is necessarily 
relevant to the question of robust competition and pricing in the 
market for proprietary data products. Specifically, this revenue 
includes revenue across all businesses, not just market data, and the 
value of considering this revenue on a per trade basis at this exchange 
group is unclear.
---------------------------------------------------------------------------

    \1791\ Nasdaq Letter IV at 29.
    \1792\ The relevant analysis was presented in the Proposing 
Release, 85 FR at Section VI.B.3(b). See Proposing Release, 85 FR at 
Section VI.B.3(d) for a discussion of trading services and the 
market for their provision.
    \1793\ See Nasdaq Letter IV at 30.
---------------------------------------------------------------------------

(c) Current Structure of Market for Connectivity Services
    Exchanges are exclusive providers of their own connectivity 
services, and for many market participants, effective trading 
strategies require connection to many if not all of the exchanges, 
making their demand for these connectivity services less elastic (i.e., 
less sensitive to price changes). The Commission examined data on 
exchange orders that shows that large broker-dealers (as measured, for 
example, by the number of messages sent to exchanges) connect to all or 
almost all exchanges.\1794\ This is consistent with Roundtable 
participants' stated view that in order to avoid a competitive 
disadvantage, market participants have little choice but to purchase 
direct connectivity services from multiple SROs.\1795\
---------------------------------------------------------------------------

    \1794\ Based on the sample of audit trail data made available to 
the Commission by FINRA, firms that are connected to all exchanges 
account for 76.6% of the message volume (there are 37 such firms out 
of a total of 327 firms in the sample). Firms that are connected to 
at least all but one of the exchanges account for 91.6% of the 
message volume (there are 50 such firms). The FINRA data sample 
covers the week of December 5, 2016, and includes messages sent to 
11 exchanges (NYSE National and Chicago Stock Exchange are not part 
of this sample).
    \1795\ See Proposing Release, 85 FR at Sections III.C.2.(a), 
II.A.
---------------------------------------------------------------------------

    As mentioned above, the exchanges offer different connectivity 
options to transmit market data to market participants. These options 
may include fiber optics connections, wireless microwave connections, 
and laser transmission, all of which vary in speeds and 
reliability.\1796\ The fastest and more reliable connections (e.g., 
laser transmission) offer market participants an advantage over other 
market participants with slower or less reliable connections. 
Therefore, the Commission believes that the exchanges have incentives 
to offer multiple levels of connectivity and exchanges can charge 
higher prices for the fastest connections.
---------------------------------------------------------------------------

    \1796\ See Proposing Release, 85 FR at Section II.A.
---------------------------------------------------------------------------

(d) Current Structure of the Market for Trading Services in NMS Stocks
    The market for trading services is served by exchanges, ATSs, and 
liquidity providers. The market relies on competition to supply 
investors with execution services at efficient prices. These trading 
venues, which compete to match traders with counterparties, provide a 
framework for price negotiation and disseminate trading information. 
The market for trading services in NMS stocks currently consists of 16 
national securities exchanges, as well as off-exchange trading venues 
including wholesalers \1797\ and 34 NMS stock alternative trading 
systems.\1798\
---------------------------------------------------------------------------

    \1797\ Wholesalers are broker-dealers that pay retail brokers 
for sending their clients' orders to the wholesaler to be filled 
internally (as opposed to sending the trade orders to an exchange). 
Typically, a wholesaler promises to provide price improvement 
relative to the NBBO for filled orders.
    \1798\ As of November 23, 2020, 34 NMS stock ATSs are operating 
pursuant to an initial Form ATS-N. A list of NMS stock ATSs, 
including access to initial Form ATS-N filings that are effective, 
can be found at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
---------------------------------------------------------------------------

    Since the adoption of Regulation NMS in 2005, the market for 
trading services has become more fragmented. The number of exchanges 
increased from eight in 2005 to 16 exchanges operating today.\1799\ 
Additionally, the market shares of individual exchanges became less 
concentrated, with a shift in market shares from some of the bigger and 
older exchanges to the newer ones.\1800\ For instance, from 2005 to 
2013, there was a decline in the market share of trading volume for 
exchange-listed stocks on NYSE.\1801\ At the same time, there was an 
increase in the market share of newer national securities exchanges 
such as NYSE Arca, Cboe BYX, and Cboe BZX.\1802\
---------------------------------------------------------------------------

    \1799\ See Proposing Release, 85 FR at n. 660.
    \1800\ See Letter from Edward T. Tilly, Chairman and Chief 
Executive Officer, Cboe, to Brent J. Fields, Secretary, Commission 
(May 25, 2018), at n. 9.
    \1801\ See Securities Exchange Act Release No. 76474 (Nov. 18, 
2015), 80 FR 80998, 81112 (Dec. 28, 2015) (Regulation of NMS Stock 
Alternative Trading Systems Proposing Release).
    \1802\ Id.
---------------------------------------------------------------------------

    Additionally, the proportion of NMS stocks trading off-exchange 
(which includes both internalization and ATS trading) increased; for 
example, as of July 2020, ATSs alone comprised approximately 10 percent 
of consolidated dollar volume, and other off-exchange volume totaled 
approximately 23 percent of consolidated dollar volume.\1803\ Aside 
from trading venues, exchange market makers provide trading services in 
the securities market. These firms stand ready to buy and sell a 
security ``on a regular and continuous basis at a publicly quoted 
price.'' \1804\ Exchange market makers quote both buy and sell prices 
in a security held in inventory, for their own account, for the 
business purpose of generating a profit from trading with a spread 
between the sell and buy prices. Off-exchange market makers also stand 
ready to buy and sell out of their own inventory, but they do not quote 
buy and sell prices.\1805\
---------------------------------------------------------------------------

    \1803\ Data sources: TAQ and FINRA's OTC Transparency Data 
weekly summaries (https://otctransparency.finra.org/otctransparency/AtsDownload). Due to FINRA's weekly aggregation, the actual sample 
is 03/30/2020 through 06/26/2020 (i.e., the last two working days of 
March are included, and the last two working days of June are 
excluded).
    \1804\ See Commission, Fast Answers: Market Maker (modified Mar. 
17, 2000), available at http://www.sec.gov/answers/mktmaker.html.
    \1805\ See Laura Tuttle, OTC Trading: Description of Non-ATS OTC 
Trading in National Market System Stocks, Securities and Exchange 
Commission (Mar. 2014), available at http://www.sec.gov/dera/staff-papers/white-papers/otc-trading-white-paper-03-2014.pdf.
---------------------------------------------------------------------------

    Trading venues can rely on the SIP, proprietary feeds, or a 
combination of both to determine the NBBO for the purposes of trade 
execution. One commenter observed that over one third of ATSs 
exclusively rely on the SIP when determining trade prices and that 
other ATSs used the SIP as a backup and in place of the direct feeds 
from some exchanges.\1806\
---------------------------------------------------------------------------

    \1806\ See BestEx Research Letter at 3.
---------------------------------------------------------------------------

    All of these developments increased the competitiveness of the 
market for trading services in NMS stocks. However, the Commission 
recognizes that while the market is more competitive, the actual level 
of competition that any given trading venue faces may depend on 
multiple factors including the liquidity of a stock

[[Page 18741]]

as well as the type of trading venue and market participant engaging in 
the trade.
(e) Broker-Dealers' Competitive Strategies for Trading Services
    While many market participants use market data to make investment 
decisions, not all market participants are equally competitive in how 
they trade based on this data. Some broker-dealers and other latency 
sensitive traders utilize sophisticated routing tools to strategically 
decide how to fill an order, including when and where to submit the 
order, how to split a larger order (i.e., into how many pieces, or 
``child orders'' \1807\), how large the child order sizes should be, 
and what order type(s) should be used, e.g., whether to use a market 
order, limit order, or some other order type. The strategies employed 
by broker-dealers and other latency sensitive traders in this regard 
are designed to secure the best possible execution price(s) for an 
order. For example, the methodologies utilized in trading orders can 
impact the price of the stock being purchased or sold in a manner that 
can increase or decrease its execution cost. Commenters stated that the 
trend towards higher proprietary data fees has had a negative impact on 
the market, such as making it more difficult for broker-dealers to 
compete.\1808\
---------------------------------------------------------------------------

    \1807\ ``Child order'' refers to a smaller order that was a 
piece of a larger ``parent'' order.
    \1808\ See, e.g., Clearpool Letter at 2 (``. . . of all the 
issues relating to the costs of trading, the trend toward higher 
market data fees has had the most negative impact on the securities 
markets. It remains increasingly difficult for many broker-dealers 
to compete in the current market environment due, in part, to issues 
related to the costs associated with trading.'').
---------------------------------------------------------------------------

    Broker-dealers in particular compete with each other to provide the 
lowest possible execution costs for their clients (i.e., high execution 
quality) as quickly as possible.
    An example of routing tools as noted above is an SOR. SORs employ 
the use of algorithms (e.g., by broker-dealers on behalf of a client) 
designed to optimally send parts of an order (child orders) to various 
market centers (e.g., exchange and ATSs) so as to optimally access 
market liquidity while minimizing execution costs. SORs help to 
determine how to quickly access (``take'') available market liquidity 
before other market participants, and help to determine how to 
strategically place limit orders to optimize queue priority across 
various limit order books among exchanges. The ability to optimize 
queue priority facilitates the ability for a broker to ``capture the 
quoted'' spread, i.e., buy on the bid or sell on the offer, while also 
potentially benefitting from exchange rebates paid to liquidity 
providers.
    The Commission understands that data beyond the NBBO with minimal 
latency are important inputs \1809\ to strategies designed to optimize 
the ability to access market liquidity and minimize execution costs. 
Further, the Commission understands that competing with the most 
effective SORs is more difficult without possessing real-time market 
data while minimizing data latency,\1810\ and that those traders who do 
not access trading tools that utilize comprehensive market data with 
low-latency experience higher execution costs on average.
---------------------------------------------------------------------------

    \1809\ In addition to such data, the Commission believes that 
there are also ongoing significant personnel and technological costs 
to producing a sophisticated, competitive SOR.
    \1810\ Some commenters supported the idea that proprietary data 
is important in order to be competitive in offering executing 
brokerage services. See, e.g., Healthy Markets Letter I at 5; T. 
Rowe Price Letter at 1.
---------------------------------------------------------------------------

    One commenter stated that the association of broker-dealers with 
proprietary data feeds represents behavior that is ``largely window-
dressing,'' and that broker-dealers still rely heavily on the 
SIP.\1811\ This commenter also stated that many broker-dealers have ``. 
. . layers of market data normalization and aggregation by third-party 
vendors'' which further increase the latency of the data as it is 
used.\1812\ To the extent this it is the case that any current 
subscriber of proprietary data feeds does not, in fact, make good use 
of them according to the most competitive standards, the Commission 
believes it represents a further way in which more capable users of 
market data are separated from less capable users of market data, and 
not an indication that proprietary market data feeds are of no real 
advantage to any broker-dealer.
---------------------------------------------------------------------------

    \1811\ See BestEx Research Letter at 3.
    \1812\ See BestEx Research Letter at 4.
---------------------------------------------------------------------------

C. Economic Effects of the Rule

1. Consolidated Market Data
    The Commission believes that the enhancements to consolidated data 
will result in numerous beneficial economic effects. These economic 
effects derive from codifying the definition of core data, from 
redefining the round lot, and from expanding the content of core data.
    The change will have the benefit of mitigating the influence of 
existing conflicts of interest inherent in the existing exclusive SIP 
model.\1813\ The change reduces the divergence between exchanges' 
proprietary DOB products and current SIP data because it establishes 
data elements that competing consolidators can include in their 
consolidated market data products.
---------------------------------------------------------------------------

    \1813\ See supra Section V.A.2. for a discussion of these 
conflicts of interest.
---------------------------------------------------------------------------

    One commenter stated that the claim that the expansion of core data 
mitigates conflicts of interest fails to consider the fact that the 
Governance Order gives some non-SRO market participants voting power on 
the effective national market system plan(s) Operating Committee.\1814\ 
This commenter stated that the non-SROs would have a conflict of 
interest and that this needs to be considered when discussing any 
conflicts mitigated by the rules. The Commission disagrees with this 
commenter's assessment. It is not clear how the introduction of non-SRO 
votes to the Operating Committee and their associated interests are 
relevant to the question of whether or not the expansion of core data 
will mitigate the conflicts of interests of the SRO members of the 
Operating Committee. As discussed above,\1815\ the Governance Order 
will reduce, but not eliminate the conflicts of interest of the SROs on 
the Operating Committee. The potential for further mitigation of the 
influence of those conflicts remains and the Commission continues to 
believe that the expansion of core data will have that benefit.
---------------------------------------------------------------------------

    \1814\ See Nasdaq Letter IV at 49.
    \1815\ See supra Section III.I.
---------------------------------------------------------------------------

(a) Definitions of Consolidated Market Data, Core Data, Administrative 
Data, and Regulatory Data
    The Commission's definitions of ``consolidated market data,'' 
``consolidated market data product,'' ``core data,'' ``regulatory 
data,'' ``administrative data,'' and ``self-regulatory organization-
specific program data'' under Regulation NMS will specify the quotation 
and transaction information in NMS stocks that can be collected, 
consolidated, and disseminated under rules of the national market 
system and pursuant to an effective national market system plan(s). 
This definition will codify the dissemination of certain current SIP 
data elements, and will include some additional data elements, but will 
not include some data that the exclusive SIPs currently disseminate. 
This section discusses the secondary economic effects of this expansion 
to consolidated market data that will come from codifying the inclusion 
of some current SIP data in ``consolidated market data,'' while 
subsequent sections discuss the economic effects of the new round lot 
definition and expanding the content of core data. These secondary 
effects are

[[Page 18742]]

providing flexibility to the Equity Data Plans for including new data 
elements, requiring that regulatory data will continue to be provided 
in the decentralized consolidation model, cost to update the national 
market system plan(s), and costs to obtain data that is currently in 
SIP data but will not be included in consolidated market data, such as 
data on information related to OTC equities, certain corporate bonds, 
and indices.\1816\
---------------------------------------------------------------------------

    \1816\ See supra Section II.C.2(c).
---------------------------------------------------------------------------

    The Commission believes the definitions of ``self-regulatory 
organization-specific program data,'' ``regulatory data'' and 
``administrative data,'' along with the ability for the Equity Data 
Plan(s) to add elements to these proposed definitions, will promote 
regulatory efficiency by providing flexibility for consolidated market 
data to include data elements beyond those explicitly defined as 
``consolidated market data.'' It provides a mechanism for the 
participants in the national market system plan(s) to propose to add 
additional data elements, such as elements similar to current retail 
liquidity programs. This will allow for organic change in consolidated 
market data that may become useful due to future market and regulatory 
developments. Further, while the underlying data content of 
``regulatory data'' is currently included in disseminated SIP data, the 
definition of ``regulatory data'' will help ensure that market 
participants continue to have access to this information as part of 
consolidated market data.\1817\
---------------------------------------------------------------------------

    \1817\ Commenters agreed that regulatory data is highly relevant 
and important to all types of market participants. See, e.g., IEX 
Letter at 7; MEMX Letter at 6.
---------------------------------------------------------------------------

    The Commission recognizes that the Equity Data Plan(s) will incur 
one-time initial implementation costs in ensuring the plans are 
consistent with the proposed definitions of ``consolidated market 
data,'' ``core data,'' ``administrative data,'' ``regulatory data,'' 
and ``self-regulatory organization-specific program data,'' but the 
plans will not incur significant ongoing costs as a result of the 
codification of these five definitions.\1818\ These initial 
implementation costs will come from the Operating Committees needing to 
draft revisions to their respective plans that are consistent with the 
proposed definitions.
---------------------------------------------------------------------------

    \1818\ See infra Section V.C.2(d)(ii) and supra Section 
IV.D.6(c) for a discussion of these costs. Below in Section 
V.C.1(c)(iv), the Commission also discusses the costs of including 
data elements to the definition of ``core data'' that are not 
currently in SIP data.
---------------------------------------------------------------------------

    The Commission believes that not including some data elements that 
the exclusive SIPs currently transmit \1819\ in the definition of 
``consolidated market data'' may have some costs to those market 
participants who would want to arrange to get this data 
elsewhere.\1820\ The UTP SIP offers quotation and transaction feeds for 
OTC equities, and the CTA Plan permits the dissemination of 
``concurrent use'' data related to corporate bonds and indexes.\1821\ 
Under the amendments, these data elements will not be defined as 
consolidated market data or core data elements. However, the amendments 
will not preclude the provision of these data elements by the SROs via 
proprietary data products to market participants and investors who wish 
to receive them.
---------------------------------------------------------------------------

    \1819\ See supra Section II.C.2(c) and Proposing Release, 85 FR 
at Section III.B.
    \1820\ One commenter agreed, stating that not including 
quotation and transaction data for OTC equities in consolidated 
market data would increase both the costs to provide the data and 
the costs of market participants to acquire it. See FINRA Letter at 
11.
    \1821\ See supra Section II.C.2(c) and Proposing Release, 85 FR 
at Section III.C.
---------------------------------------------------------------------------

    One commenter stated that not including quotation and transaction 
data for OTC equities in consolidated market data may reduce market 
participant access to this data and would increase both the costs to 
the SRO to provide the data and the costs of market participants to 
acquire it.\1822\ This commenter also stated that, because OTC equities 
may become listed and become NMS stocks and vice versa, not providing 
this data in the same feed as core data could result in a disruption of 
market data when a security switches between being listed and unlisted 
and investors or market participants are not subscribed to both 
services providing core data and data for delisted issuers.\1823\ The 
Commission acknowledges that not including information related to OTC 
equities in consolidated market data may potentially increase the costs 
of FINRA providing this data and market participants to acquire the 
data. The Commission also acknowledges that this could prove disruptive 
to market participants not receiving both information related to OTC 
equities and core data if a security switches between being listed and 
unlisted. However, the extent of these effects is uncertain and would 
depend on the fees FINRA charges for the data.\1824\ Market 
participants may still receive both of these data elements in the same 
data feed because competing consolidators would be able to offer a 
product that contains both information related to OTC equities as well 
consolidated market data.\1825\ The degree to which competing 
consolidators offer this product will depend on the fees FINRA charges 
for this data as well as the fees for consolidated market data 
offerings set by the NMS plan.\1826\
---------------------------------------------------------------------------

    \1822\ See FINRA Letter at 9, 11.
    \1823\ See FINRA Letter at 11.
    \1824\ See supra Section II.C.2(c).
    \1825\ Competing consolidators will not be restricted from also 
offering data elements from SRO proprietary data. See supra note 220 
and accompanying text.
    \1826\ See supra Section II.C.2(c) (discussing fees for 
information related to OTC equities) and infra Section V.C.2(b)(i) 
(discussing fees for consolidated market data).
---------------------------------------------------------------------------

(b) Effects of New Round Lot Definition
    The final amendments will reduce the number of shares included in 
the definition of a round lot for NMS stocks for which the prior 
calendar month's average closing price on the primary listing exchange 
was greater than $250.00.\1827\ Higher priced stocks will be grouped 
into tiers based on their price and stocks in higher price tiers will 
have fewer shares in their definition of a round lot. In addition, part 
of the definition of core data will require that the best bid and offer 
and national best bid and offer include odd-lots that, when aggregated, 
are equal to or greater than a round lot and that such aggregation 
shall occur across multiple prices and shall be disseminated at the 
least aggressive price of all such aggregated odd-lots.\1828\ Round lot 
quotes will be protected quotations subject to the trade-through 
prevention requirements of Rule 611 and the locked and crossed markets 
restrictions of Rule 610(d).\1829\
---------------------------------------------------------------------------

    \1827\ See supra Section II.D.2.
    \1828\ See supra Section II.E.2(b). Several exchanges already 
aggregate odd-lot orders into round lots and report such aggregated 
odd-lot orders as quotation information to the exclusive SIPs. See 
Proposing Release, 85 FR at nn. 157-58.
    \1829\ See supra Section II.E.2(a).
---------------------------------------------------------------------------

    For stocks priced above $250, the new round lot definition will 
result in the inclusion of quotes at better prices in core data that 
were previously excluded from being reported because they consisted of 
too few shares. This will make these quotes visible to anyone who 
subscribes to core data, thereby improving transparency.\1830\ This 
will also mechanically narrow NBBO spreads for most stocks with prices 
greater than $250, which will affect other Commission or SRO rules and 
regulations. This section discusses the effects of the new round lot 
definition on: The NBBO, market participants, the

[[Page 18743]]

internalization of retail order flow, and on trading venues. 
Additionally, this section discusses the effects of the monthly 
calculation to determine the round lot size, the costs of the new round 
lot definition, and the effects of the new round lot definition on 
other rules and regulations.
---------------------------------------------------------------------------

    \1830\ The Vendor Display Rule will require broker-dealers to 
show, in the context of which a trading or order-routing decision 
can be implemented, a consolidated display that includes quotes 
derived from the new round lot size. See supra Section II.D.2(b) and 
infra Section V.C.1(b)(vii).
---------------------------------------------------------------------------

(i) Effects on the NBBO
    The new round lot definition will change the average spread between 
the NBBO for many stocks with prices above $250 because the NBBO will 
now be calculated based off of the smaller round lot size. Because odd-
lot shares exist in these stocks at prices that are better than the 
national best bid and offer (i.e., at prices higher than the national 
best bid and prices lower than the national best offer), the new 
national best bid and offer will be at a higher/lower price because 
fewer odd-lot shares will need to be aggregated together (possibly 
across multiple price levels) to form a round lot. This will result in 
a quoted spread that is calculated based off of the NBBO being narrower 
for these stocks.\1831\ The reduction in spreads will be greater in 
higher priced stocks because stocks in higher priced tiers will have 
fewer shares included in the definition of a round lot.\1832\
---------------------------------------------------------------------------

    \1831\ Commenters agreed that the new round lot size would 
tighten spreads. See, e.g., Nasdaq Letter III at 11, 15; ICI Letter 
at 6; BestEx Research Letter at 6; CBOE Letter at 5.
    \1832\ See supra Section II.D.2(a).
---------------------------------------------------------------------------

    The Commission believes that market participants relying on new 
core data will see a significant improvement in the NBBO for stocks 
that fall into the higher priced round lot tiers. Table 3 confirms this 
belief by updating the analysis from the Proposing Release to account 
for the new round lot tier structure.\1833\ Specifically, Table 3 shows 
the percentage of instances in a sample of market data when the NBBO 
provided at the time by an exclusive SIP \1834\ was inferior to the 
price of an NBBO determined by the new definition of a round lot in the 
final amendments. For instance, the table shows that for stocks with 
prices between $1,000.01 and $10,000, the new round lot definition 
caused a quote to be displayed that improved on the current round lot 
quote 47.7% of the time. The frequency of this narrower NBBO is lower 
for lower priced stocks. For example, the new round lot definition 
resulted in a quote being displayed that improved on the current round 
lot quote 26.6% of the time in the $250.01-$1000 tier. This analysis 
shows that, within each round lot tier the new round lot definition 
will improve the quoted spread in a significant number of instances.
---------------------------------------------------------------------------

    \1833\ See Proposing Release, 85 FR at Table 4.
    \1834\ Since the source used for this SIP NBBO is an exclusive 
SIP itself, this quote includes quotes the exchanges produce by 
aggregating or ``rolling up'' odd-lots to obtain a round lot-sized 
quote.

                                       Table 3--Instances of Smaller NBBO
----------------------------------------------------------------------------------------------------------------
                                                                         Instances of smaller NBBO (%) \3\
                                                                 -----------------------------------------------
                       Round lot tier 1 2                                                           Best bid or
                                                                     Best bid        Best ask        best ask
----------------------------------------------------------------------------------------------------------------
1. $0-$250 (100 shares).........................................             n/a             n/a             n/a
2. $250.01-$1,000 (40 shares)...................................            16.3            16.5            26.6
3. $1000.01-$10,000 (10 shares).................................            40.2            34.6            47.7
4. $10,000.01+ (1 share)........................................             n/a             n/a             n/a
----------------------------------------------------------------------------------------------------------------
\1\ Tier based on the stock's prior month's average closing price in April 2020.
\2\ Twelve stocks trade in round lots different than 100 shares and are included in the table. Six stocks are in
  the $0-250 tier and currently trade in 10 share lots, 2 stocks are in the $250.01-$1,000 tier and trade in 10
  share lots, 3 stocks are in the $1000.01 to $10,000 tier, and 1 stock is in the $10,000.01+ tier. In the
  $1000.01 to $10,000 tier, 1 stock trades in 1 share lots and 2 stocks trade in 10 share lots. In the
  $10,000.01+ tier, 1 stock trades in 1 share lots.
\3\ Overall frequency of smaller NBBO quotes during May 2020 for the new round lot tier criteria (source: Direct
  feeds) versus the current 100 share round lot criteria (source: SIP). The denominator consists of hourly
  snapshots from 10:30 a.m. to 3:30 p.m. for each trading day in May 2020. The numerator is the total number of
  snapshots with smaller NBBO quotes.

    The effects of instances of narrower NBBOs under the new round lot 
definition depends on the trading volume of stocks in the tiers 
affected by the change. The Commission believes that, in particular, 
for securities with a significant amount of dollar trading volume, 
there will be significant changes to (tightening of) the quoted spread 
displayed under the new round lot definition. Table 4 accounts for the 
new round lot definition, showing the number of NMS stocks that would 
be in each round lot tier based on monthly average closing prices in 
September of 2020, as well as the percent of overall average daily 
volume (``ADV'') and notional value (``$ADV'') of each price group 
during one week of trading in October of 2020.\1835\ It shows that 
while most stocks, approximately 98.5%, will remain unaffected by the 
new round lot definitions, around 28.1% of the dollar trading volume 
currently is in stocks that will have a new round lot definition.
---------------------------------------------------------------------------

    \1835\ See Proposing Release, 85 FR at Table 1.

                           Table 4--Round Lot Tier Number of Stocks and Trading Volume
----------------------------------------------------------------------------------------------------------------
                                                                     Number of      Percent of      Percent of
                       Round lot tier \1\                            stocks in     ADV, by price  $ADV, by price
                                                                  round lot tier     group \2\       group \2\
----------------------------------------------------------------------------------------------------------------
1. $0-$250 (100 shares).........................................           9,023           97.12           71.93
2. $250.01-$1,000 (40 shares)...................................             117            2.79           23.24
3. $1000.01-$10,000 (10 shares).................................              16            0.09            4.82
4. $10,000.01+ (1 share)........................................               1            0.00            0.02
----------------------------------------------------------------------------------------------------------------
\1\ Tier based on the stock's prior month's average closing price in September 2020.
\2\ Percent of ADV and Percent of $ADV are based on trading volume between October 5-9, 2020.


[[Page 18744]]

    The Commission believes that the size of the change in the spread, 
conditional on the NBBO being smaller, will also be substantial. Table 
5 confirms this belief by updating the analysis from the Proposing 
Release that quantifies the average change in the spread offered by the 
best quote under the new round lot definition, conditional on the event 
that the NBBO is smaller in the first place.\1836\ The table shows, for 
example, that the new round lot definition in the $250.01-$1000 tier 
could yield a 7 basis point reduction in the spread (conditional on the 
NBBO being smaller). Because the average quoted half spread is 24 basis 
points, this represents a significant reduction in the half spread. In 
the case of the $1000.01 to $10,000 tier, the difference of 13 basis 
points represents an even more significant fraction of the 23 basis 
point average half spread.
---------------------------------------------------------------------------

    \1836\ See Proposing Release, 85 FR at Table 5.

                                         Table 5--Size of Change in NBBO
----------------------------------------------------------------------------------------------------------------
                                                                                      Average      SIP: Average
                                                     Best bid:       Best ask:    difference  in  quoted percent
               Round lot tier 1 2                 Average  price  Average  price   quoted  half     half spread
                                                  change ($) \3\  change ($) \3\  spread (%) \4\        (%)
----------------------------------------------------------------------------------------------------------------
1. $0-$250 (100 shares).........................             n/a             n/a             n/a             n/a
2. $250.01-$1,000 (40 shares)...................            0.64            0.89            0.07            0.24
3. $1000.01-$10,000 (10 shares).................            2.48            2.81            0.13            0.23
4. $10,000.01+ (1 share)........................             n/a             n/a             n/a             n/a
----------------------------------------------------------------------------------------------------------------
\1\ Tier based on the stock's prior month's average closing price in April 2020.
\2\ Twelve stocks trade in round lots different than 100 shares and are excluded.
\3\ Conditional on a the instance of a smaller quote, stock-day average price improvement is calculated using
  MIDAS data, which consists of hourly snapshots from 10:30 a.m. to 3:30 p.m. for each trading day in May 2020.
  Calculation is based on the difference between the best bid/best ask calculated under the new round lot tier
  definition (source: Direct feeds) compared to the NBBO based on the current 100 share round lot criteria
  (source: SIP)
\4\ Conditional on a the instance of a smaller quote (bid or ask), stock-day average difference in percent
  quoted half spread is calculated by SIP NBBO quoted percent half spread minus the new percent quoted half
  spread under the proposed round lot tier criteria. Quoted half spread is defined by: Quoted half-spread = QSit
  = 100 * (Askit-Bidit)/(2*Mit), where M is the midpoint between the best bid and best ask.

    In the Proposing Release, the Commission qualitatively discussed 
that the change in round lot size could cause the NBBO and protected 
quotes to widen for the twelve stocks that currently have a round lot 
size less than 100 shares.\1837\ However, one commenter stated that the 
Commission did not analyze the effects of the change in round lot size 
and protected quotes on these twelve stocks.\1838\ In response to this 
comment, the Commission quantitatively analyzed the effects of the 
revised definition of round lot size on these stocks using data from 
one week of trading in October 2020 and confirmed that the NBBO would 
widen in some of these stocks.\1839\ The analysis showed that the round 
lot size will not change for four of these stocks, so their NBBO will 
not change. However, for eight of these stocks the round lot size would 
increase. In these 8 stocks, the analysis showed that, on average, the 
NBBO would widen 97.1% of the time under the new round lot definition. 
In the instances in which the NBBO was wider, the Commission found that 
the NBBO half-spread increased by an average of 3.66% in these stocks.
---------------------------------------------------------------------------

    \1837\ See Proposing Release, 85 FR at 16824, 16830-1.
    \1838\ See NYSE Letter II at 6.
    \1839\ The round lot tiers for these twelve was based on the 
stocks' prior month's average closing price in September 2020. The 
analysis for these twelve stocks used the same data source and 
methodology as the analysis in Tables 4 and 6, but was based on 
trading occurring between October 5-9, 2020. Because the new round 
lot size will be protected, this analysis also examines the change 
in the protected quotes under the final amendments.
---------------------------------------------------------------------------

(ii) Effects on Market Participants
    For stocks priced above $250, the new round lot definition will 
result in the inclusion of quotes at better prices in core data that 
were previously excluded from being reported because they consisted of 
too few shares. This will make these quotes visible to anyone who 
subscribes to core data, thereby improving transparency.\1840\ The 
Commission believes that this will create an economic benefit for 
market participants who currently rely exclusively on SIP data to 
obtain market information, such as many retail investors. These market 
participants will benefit from being able to see information on these 
smaller quotes at better prices before they send in their orders, which 
may improve their trading decisions and order execution quality by 
providing an opportunity to realize gains from trade,\1841\ as 
discussed below in this section.\1842\ This may also improve price 
efficiency. This is because certain odd-lot information not currently 
disseminated as part of SIP data will be made available as part of core 
data; therefore market participants who use SIP data who previously did 
not use the information contained in these odd-lot quotes will be able 
to incorporate this information into their trading decisions. These 
trading decisions are integral to how market prices are formed. Also, 
the change may affect order routing and the share of order flow 
received by each exchange, since more market participants who rely on 
core data will be aware of quotes at better prices that are currently 
in odd-lot sizes, and these may not be on the same exchange as the one 
that has the best 100 share quote.
---------------------------------------------------------------------------

    \1840\ Commenters agreed that the new round lot definition would 
improve transparency. See, e.g., Schwab Letter at 4; CBOE Letter at 
5. The Vendor Display Rule will require broker-dealers to show, in 
the context of which a trading or order-routing decision can be 
implemented, a consolidated display that includes quotes derived 
from the new round lot size. See supra Section II.D.2(b) and infra 
Section V.C.1(b)(vii).
    \1841\ See supra note 1593.
    \1842\ It will also benefit market participants who post odd-lot 
quotes at prices superior to the NBBO because market participants 
that rely exclusively on SIP data may now be able to see some of 
these quotes and trade against them.
---------------------------------------------------------------------------

    The Commission believes that changing the round lot definition to 
include smaller-size orders in stocks priced higher than $250 will 
benefit market participants who would have traded with price-improving 
odd-lot quotes in these stocks but do not do so because they cannot see 
information on odd-lot quotes.\1843\ Under the final

[[Page 18745]]

amendments, these market participants will be able to see these quotes 
in core data, and make a decision about whether to trade based on this 
newly visible, improved price.\1844\ This may benefit market 
participants, including many retail investors, because they will be 
able to realize the gains from trade that are available in this 
situation and are not currently occurring because of the lack of 
information. Also, some market participants may wish to exchange an 
odd-lot quantity of a stock by posting a limit order for an odd-lot 
amount. Currently, this order's price is not visible to market 
participants who rely solely on SIP data, and thus there may be delays 
in getting this limit order filled, since such market participants 
would not send market orders in. Thus, adding smaller-size quotes in 
core data for certain stocks will result in a benefit to both the 
market participants who would submit the market orders and the market 
participants who post the odd-lot quotes they execute against.
---------------------------------------------------------------------------

    \1843\ Currently, some information about odd-lot quotes ends up 
in core data through certain exchanges rolling up odd-lot quotes 
into round lots. But even in this case, the rolled up quote is 
reported to the exclusive SIPs at the worst price out of all the 
odd-lots that were rolled up to produce the quote, so the full 
amount of price improvement available on that exchange is still not 
visible to market participants relying solely on exclusive SIPs for 
market data.
    \1844\ Commenters agreed that the new round lot definition would 
show more odd-lot trading interest. See, e.g., CBOE Letter at 6; 
BlackRock Letter at 3.
---------------------------------------------------------------------------

    The magnitude of this benefit depends on the amount of additional 
trading generated by the inclusion of odd-lot information. In 
particular, the Commission believes that to the extent many market 
participants who rely solely on SIP data and lack information on odd-
lot quotes would have traded frequently against odd-lot quotes had they 
known about them, the benefit will be large. However, if it is uncommon 
for market participants who would trade frequently against odd-lot 
quotes to rely solely on SIP data and to lack information on odd-lot 
quotes, then the Commission believes that the associated economic 
benefit from including smaller-size quotes in core data for certain 
stocks will be small. The Commission believes it is not possible to 
observe this willingness to trade with existing market data.
    The Commission believes that the new round-lot definition will 
benefit market participants by improving order routing in stocks priced 
higher than $250, provided that they do not already obtain information 
on odd-lots from proprietary feeds.\1845\ Currently, market 
participants who rely on core data are not aware of odd-lot quotes 
available at other exchanges that exist at prices that are better than 
the national best bid and offer (e.g., the exchange with the best 
priced 100 share quote may not be the exchange with the best priced 
odd-lot quote).\1846\ The new round lot definition will make more of 
these quotes in higher priced stocks visible to market participants 
that subscribe to core data, which will improve order routing and may 
improve order execution quality and facilitate best execution for these 
market participants.\1847\
---------------------------------------------------------------------------

    \1845\ This benefit would apply to both market participants who 
are routing their own orders and market participants whose orders 
are being routed by a broker-dealer, provided the broker-dealer does 
not do not already obtain information on odd-lots from proprietary 
feeds.
    \1846\ Battalio, Corwin, and Jennings (2016) examined the 
frequency of trading at inferior prices as compared to available 
unprotected odd-lot quotes in a sample of 10 high-priced stocks 
during one week in 2015. They found that there was an unprotected 
odd-lot limit order available at a better price for 2.52% of the 
trades that occurred. See Robert Battalio et al, Unrecognized Odd 
Lot Liquidity Supply: A Hidden Trading Cost for High Priced Stocks, 
12 J. Trading 35 (2016). A commenter also referenced this study and 
stated that unprotected odd-lot quotes at prices better than the 
NBBO at other exchanges get traded through. See BlackRock Letter at 
4.
    \1847\ For a discussion of order execution quality and the 
provision of execution services by broker-dealers, see supra Section 
V.B.3(e).
---------------------------------------------------------------------------

    The Commission believes that the new round lot definition may 
improve price efficiency for stocks priced above $250.\1848\ The wider 
availability of information about odd-lot quotes may mean that more 
market participants (who currently rely solely on SIP data) will 
incorporate the information contained in those quotes into their 
trading decisions. This may have the effect of improving the efficiency 
with which this information becomes reflected in prices.
---------------------------------------------------------------------------

    \1848\ For additional discussion of the price efficiency point, 
see infra Section V.D.1.
---------------------------------------------------------------------------

    The Commission believes that the new round lot definition may cause 
changes to order flow as market participants change their trading 
strategies to take advantage of newly visible quotes.\1849\ This may 
mean that there would be changes to the share of order flow each 
exchange receives as a result of this rule. The Commission is uncertain 
about the magnitude of this effect.
---------------------------------------------------------------------------

    \1849\ For example, currently a market participant, relying on 
SIP data, may submit an order to the exchange with the exclusive SIP 
NBBO and in the process, trade at an inferior price to an odd-lot 
quote that the market participant was not aware of on another 
exchange. If the market participant would have preferred to route to 
the price-improving odd-lot quote, then under the updates to core 
data the market participant will send the order to the exchange with 
the smaller, price improving quote.
---------------------------------------------------------------------------

    As observed by commenters,\1850\ the new round lot definition will 
also improve transaction cost analysis and best execution analysis in 
higher priced stocks, which are benchmarked against the NBBO. A smaller 
round lot size will improve these analyses because it will increase the 
accuracy of the NBBO, which will now better reflect smaller sized odd-
lot quotes that may be available at better prices, possibly on another 
exchange.\1851\
---------------------------------------------------------------------------

    \1850\ See, e.g., ICI Letter at 7; AHSAT Letter at 5. It will 
also improve the accuracy of Rule 605 statistics. See infra Section 
V.C.1(b)(vii).
    \1851\ See supra Section V.C.1(b)(i) and discussion in this 
section.
---------------------------------------------------------------------------

    Some commenters stated that new round lot tiers would increase 
complexity and create confusion among investors.\1852\ The Commission 
acknowledges that the new round lot tiers may initially increase 
complexity when they are first implemented.\1853\ However, after the 
new round lot tiers are implemented, the Commission does not believe 
they will significantly increase the complexity of the market or create 
confusion for a number of reasons.\1854\ First, market participants 
already trade in stocks with round lot sizes other than 100 
shares.\1855\ Second, most NMS stocks will have a round lot size of 100 
shares under the new round lot tier definitions.\1856\ Third, core data 
will be distributed with the size of the NBBO and best quotes from each 
exchange given in shares and not number of round lots.\1857\ Currently, 
the SIPs indicate size as the number of round lots available at the 
NBBO and each exchange's best quote, so investors need to convert round 
lot size to share size for stocks with round lots other than 100 
shares. Under the final amendments, investors will observe the number 
of shares available and will not need to make this conversion. Fourth, 
the Commission expects that broker-dealers and other market 
participants will modify or develop their systems to automatically keep 
track of the different round-lot changes.\1858\
---------------------------------------------------------------------------

    \1852\ See, e.g., Clearpool Letter at 11-12; STANY Letter II at 
3; TD Ameritrade Letter at 10.
    \1853\ See infra Section V.C.1(b)(v).
    \1854\ Commenters agreed that the new round lot tiers would not 
add significant complexity. See, e.g., MEMX Letter at 4 (``Once 
tiers are required, although technology changes will be needed to 
implement the tiering structure, MEMX does not believe that there is 
significant additional complexity associated with supporting 
differing numbers of tiers.''); IEX Letter at 4.
    \1855\ See supra Section V.C.1(b)(i).
    \1856\ The Commission estimates that approximately 98.5% of NMS 
stocks will have a round lot size of 100 shares. See supra Table 4.
    \1857\ See supra Section II.C.2(e). One commenter stated that 
showing the number of shares rather than the number of round lots 
would reduce confusion with different size round lot tires. See CBOE 
Letter at 13-14.
    \1858\ See infra Section V.C.1(b)(v).
---------------------------------------------------------------------------

    Commenters stated that the reduced round lot sizes would cause less 
liquidity to be available at the new NBBO in higher priced round lot 
tiers

[[Page 18746]]

and that more marketable orders would have to walk the book and execute 
at prices outside the NBBO.\1859\ One of these commenters stated that 
the round lot tier structure in the Proposing Release would cause many 
retail investors' marketable orders to walk the book, which could lead 
to confusion and disappointment among retail investors because they are 
not used to having their orders walk the book.\1860\ The Commission 
acknowledges that the smaller round lot size could lead to a smaller 
number of shares at the NBBO for most stocks in higher priced round lot 
tiers. However, this effect will depend on how market participants 
adjust their order submissions. For example, as observed by a 
commenter, orders pegged to the NBBO will remain at the NBBO.\1861\ If 
this represents a significant portion of orders at the NBBO, then the 
number of shares at the NBBO may not change significantly.
---------------------------------------------------------------------------

    \1859\ See, e.g., TD Ameritrade Letter at 7-8, 10; AHSAT Letter 
at 5; Nasdaq Letter III at 12.
    \1860\ See, e.g., TD Ameritrade Letter at 8. The round lot tier 
sizes the commenter was referring to in the Proposing Release were 
based on a $1,000 notional size. The adopted round lot tiers are 
based on a larger $10,000 notional size, which should significantly 
decrease the frequently of a marketable order being larger than the 
notional value of the adopted round lot tiers compared to the round 
lot tiers in the Proposing Release. See supra Section II.D.2(a).
    \1861\ See BestEx Research Letter at 6.
---------------------------------------------------------------------------

    If the size at the NBBO decreases in a stock in a higher priced 
round lot tier, then it could increase the frequency with which 
marketable orders walk the book. The adopted round lot tier sizes are 
based on a notional value of $10,000. Staff analysis estimated that the 
average notional trade size in 2019 was $8,068 (excluding 
auctions).\1862\ Commenter analysis also observed that a significant 
portion of trading occurred at or below $10,000.\1863\ The Commission 
acknowledges that these estimates indicate that if the available 
liquidity at the NBBO is close to the $10,000 notional value, then 
there could be an increase in the frequency with which orders walk the 
book in the higher priced round lot tiers. However, as discussed above 
in this section, it is not entirely clear how investor orders and the 
size at the NBBO will change. Therefore, it is also uncertain how 
frequently orders will walk the book under the new round lot tiers. 
Even if the size at the NBBO declines, the Commission does not believe 
it will cause a significant increase in the frequency that retail 
investors' marketable orders walk the book and lead to confusion among 
retail investors for two reasons. First, currently most retail investor 
marketable orders execute off-exchange at retail internalizers and do 
not execute on an exchange and walk the limit order book.\1864\ Because 
retail internalizers may offer price improvement, it is possible that 
the retail internalizer could fill the entire order at a price that is 
equal to or better than the NBBO.\1865\ Second, even if a retail 
marketable order was routed to an exchange, it may not be greater than 
the notional size of the NBBO at an exchange in a higher priced round 
lot tier.\1866\ Additionally, even if the size at the NBBO is smaller 
and a marketable order walks the book or a retail internalizer does not 
execute the whole order at the NBBO, the Commission does not believe 
that the average price at which it executes will decrease, i.e., 
transaction costs will not increase, because the NBBO will be at a 
better price.\1867\
---------------------------------------------------------------------------

    \1862\ See supra Section II.D.2(a). Several commenters stated 
that the Commission did not conduct analysis to determine the 
notional value of the proposed round lot tiers. See, e.g., Nasdaq 
Letter V at 4-5; Angel Letter at 13-14. In developing the notional 
value for the adopted round lot tiers, the Commission considered its 
estimate of the average trade size in 2019 and commenter analysis on 
the size of trades and orders. See supra note 269 and accompanying 
text.
    \1863\ See Virtu Letter at 3-4 (stating that data from 2019 to 
present show that the vast majority (over 75%) of all trades are 
still for less than $10,000); Angel Letter at 17 (``[T]he median 
trade size is roughly $10,000.''); IntelligentCross Letter at 3 
(``[T]he notional value of the median trade today is about 
$2,000.'').
    \1864\ See infra Section V.C.1(b)(iii).
    \1865\ It is also possible that a retail internalizer could 
execute part of the order and route the rest to an exchange, where 
it could execute against the NBBO or walk the book.
    \1866\ One commenter observed that the average retail trade size 
between 2007 and the present is around $14,581. See Virtu Letter at 
3-4. The minimum notional size at the NBBO on a single exchange in 
the higher priced round lot tiers will be $10,000. If more than one 
exchange were at the NBBO, then an order would need to execute at 
the available liquidity at those exchanges before walking the book.
    \1867\ See supra Section V.C.1(b)(i).
---------------------------------------------------------------------------

    As observed by commenters, protecting the smaller round lot quotes 
in higher priced stocks will benefit retail investors by better 
protecting their limit orders.\1868\ One commenter observed that 23 
percent of its customers' limit orders for stocks priced higher than 
$100 are less than 100 shares.\1869\ Under the new round lot tiers, 
retail investors will benefit because a greater portion of their odd-
lot sized orders in higher priced stocks will be protected and not 
traded-through.\1870\
---------------------------------------------------------------------------

    \1868\ See, e.g., Schwab Letter at 4-5; SIMFA Letter at 9-10.
    \1869\ See Schwab Letter at 4-5.
    \1870\ See supra note 1846.
---------------------------------------------------------------------------

    One commenter stated that the smaller round lot size in higher 
priced stocks would disadvantage the limit orders of retail traders 
because it would make it easier for low-latency professional traders to 
step ahead of them with less risk.\1871\ The Commission disagrees with 
this commenter. Currently low-latency professional traders that receive 
proprietary feeds that contain all odd-lot information do not need to 
submit a round lot sized order to step ahead of retail limit orders. 
These traders can submit an odd-lot-sized order to step ahead of the 
retail investor's order at a lower price and the retail investor may 
not observe it if the retail investor only receives SIP data. With the 
smaller round-lot size in higher priced stocks, retail investors who 
only receive core data would be better able to observe if a smaller 
order steps ahead of their order at a better price and may be able to 
adjust their limit order in response.
---------------------------------------------------------------------------

    \1871\ See TD Ameritrade Letter at 9.
---------------------------------------------------------------------------

    One commenter stated that protecting smaller round lot quotes would 
negatively impact the trading of institutional investors because market 
participants would post smaller displayed quotes and institutional 
investors with larger orders would have to slice their trading activity 
into smaller increments to avoid signaling their trading 
interest.\1872\ The Commission does not believe that protecting the 
smaller round lot size in higher priced stocks will negatively impact 
the trading of institutional investors. It is already common practice 
for institutional investors' parent orders to be sliced into smaller 
child orders.\1873\ Additionally, because the round lot tiers are based 
on a notional value, $10,000, which is larger than the average trade 
size, $8,068 (excluding auctions),\1874\ the Commission does not 
believe that market participants are likely to significantly reduce the 
size of their displayed limit orders and institutional investors' 
orders will not have to be sliced into smaller sizes than they already 
are. Additionally, the Commission believes that protecting the smaller 
round lot sizes in higher priced stocks could benefit smaller odd-lot-
sized child limit orders that institutional investors submit. Because 
more of these orders would now be observable in core data, they may be 
more likely to execute against the marketable orders of market 
participants who rely on SIP data and were not previously able to 
observe these orders, as described above in this section.
---------------------------------------------------------------------------

    \1872\ See T. Rowe Price Letter at 3.
    \1873\ See supra Section V.B.3(e).
    \1874\ See supra note 1862 and accompanying text.

---------------------------------------------------------------------------

[[Page 18747]]

    Commenters stated that the Proposing Release did not consider the 
effects the smaller round lot size could have on the options market, 
where the standard options contract size is 100 shares.\1875\ The 
Commission does not believe the new round lot tier sizes will have a 
significant impact on the options market for a number of reasons. 
First, the new round lot size will not change the size of the options 
contract. Second, most NMS stocks will still have a round lot size of 
100 shares under the new round lot tier definitions.\1876\ Third, even 
for stocks that are in a higher priced round lot tier, the smaller 
round lot may not have a significant impact on quoting in the options 
market because the round lot definition will not change market maker 
quoting obligations in the options market. Fourth, because there is 
already a significant presence of odd-lot quotes better than the NBBO 
in higher priced stocks,\1877\ the best prices in these stocks are 
already frequently smaller than 100 shares. Therefore, the change in 
the round lot size may not have a significant impact on arbitrage 
opportunities between the options and equity markets for stocks in the 
higher priced round lot tiers. Fifth, the options markets already have 
standard options contracts on stocks with a round lot size less than 
100 shares, so there are already conventions for dealing with options 
in which the round lot size in the equity market is not 100 
shares.\1878\
---------------------------------------------------------------------------

    \1875\ See, e.g., STANY Letter at 4; Nasdaq Letter IV at 2; Data 
Boiler Letter I at 81.
    \1876\ The Commission estimates that approximately 98.5% of NMS 
stocks will have a round lot size of 100 shares. See supra Table 4.
    \1877\ See supra Section V.B.2(a).
    \1878\ See supra Section II.D.2(a).
---------------------------------------------------------------------------

(iii) Effects on Internalization of Retail Order Flow
    The Commission believes that the change in the round lot size may 
have an effect on wholesalers in the retail order flow internalization 
business. Currently, some wholesalers,\1879\ by arranging to execute 
orders on behalf of retail broker-dealers, offer superior prices 
relative to the existing NBBO (i.e., price improvement) to retail 
investors. As part of this arrangement, the wholesaler typically agrees 
that some percentage of the broker-dealer's orders will execute at 
prices better than the NBBO and/or agrees to certain execution quality 
metrics. The Commission expects that the new definition of a round lot 
will, at times, make the NBBO narrower for the affected stocks because 
the new definition will include orders that are at superior prices to 
the 100 share NBBO at a size less than 100 shares. As a result, it may 
become more difficult for the retail execution business of wholesalers 
to provide price improvement and other execution quality metrics at 
levels similar to those provided under the 100 share round lot 
definition today.\1880\
---------------------------------------------------------------------------

    \1879\ See supra note 1797 for a discussion of wholesalers and 
retail internalization.
    \1880\ Commenters agreed that a protected smaller round lot 
quote could affect the ability of internalizer to provide price 
improvement to retail investors. See, e.g., Virtu Letter at 5.
---------------------------------------------------------------------------

    By the same mechanism, retail investors might or might not 
experience an improvement in execution quality, as measured by 
execution prices, from these wholesalers.\1881\ Assuming that the NBBO 
has narrowed and wholesalers continue to agree to provide the same 
amount of price improvement off of the narrower spread, retail 
investors will receive better execution prices. One commenter stated 
that retail investors will not receive better execution prices under 
the new round lot sizes because wholesalers already offer price 
improvement to retail investors that exceeds the potential improvements 
in the NBBO from the new round lot size.\1882\ However, another 
commenter stated that all investors, including retail, would experience 
reduced execution costs from a tighter NBBO no matter where the 
execution took place.\1883\ The Commission is uncertain whether the 
execution quality retail investors receive from wholesalers will change 
if the NBBO narrows for securities in the smaller round lot tiers 
because the effect of the amendments on retail execution quality would 
depend on how the change in the NBBO compared to the current price 
improvement offered by wholesalers, as well as on changes in the degree 
of price improvement wholesalers will offer in stocks with tighter 
NBBOs, which is uncertain.
---------------------------------------------------------------------------

    \1881\ This improvement may not be transparent to the retail 
investor. The price improvement metrics reported by retail broker-
dealers do not take into account odd-lot quotes priced better than 
the NBBO. Even if a retail investor receives a better execution 
price from the new round lot definition, it might not show up as 
price improvement in retail wholesaler price improvement metrics if 
the NBBO also narrowed as a result of the new round lot size and now 
reflects odd-lot quotes that are priced better than the NBBO based 
on the current round lot size. One commenter stated retail 
wholesalers' price improvement metrics, along with Rule 605 
statistics, are not accurate because they do not take into account 
odd-lots quotes that are priced better than the NBBO. See Healthy 
Markets Letter I at 6-17.
    \1882\ See TD Ameritrade Letter at 8, 10.
    \1883\ See Best Ex Research Letter at 6 (``A tighter NBBO will 
reduce execution costs for all market participants--both retail and 
institutional investors--no matter where executions take place.'').
---------------------------------------------------------------------------

    To the extent that retail wholesalers are held to the same price 
improvement standards by retail broker-dealers in a narrower spread 
environment, the profitability of the retail execution business for 
wholesalers might decline. In particular, less ``spread profit'' would 
be available to the wholesaler in a narrower NBBO. This is, in part, 
because the wholesaler may often keep a portion of the spread profit 
that is not given as price improvement to the investor who submitted 
the order. Therefore, if the NBBO has narrowed and the same price 
improvement must still be provided, less revenue will be left for the 
wholesaler.\1884\ To the extent this happens, it will be a transfer 
from the wholesaler to retail investors. As such, any impact on 
wholesaler profitability depends on the same factors as the impact on 
retail execution quality.
---------------------------------------------------------------------------

    \1884\ The NBBO based off the new round-lot definition will be 
relevant to the spread considered by the wholesalers, because, among 
other things, it would be used for Rule 605 execution statistics. 
See infra Section V.C.1(b)(v) for further discussion of Rule 605 
statistics.
---------------------------------------------------------------------------

    To make up for lower revenue per order filled in a narrower spread 
environment, wholesalers may respond by changing how they conduct their 
business in a way that may affect retail broker-dealers. There are 
several possibilities, including but not limited to, reducing per order 
costs associated with their internalization programs, such as reducing 
any payments for order flow or reducing the agreed upon metrics for 
price improvement. In the event that wholesalers reduce payments for 
order flow, retail broker-dealers may respond by changing certain 
aspects of their business. The Commission is uncertain as to how 
wholesalers may respond to the change in the round lot definition, and, 
in turn, how retail broker-dealers may respond to those changes, and 
the Commission is uncertain as to the extent of these effects.
    The effect of lost revenue for wholesalers discussed above may be 
reduced if wholesalers currently use proprietary feeds to trade, to the 
extent they already see and respond to odd-lot quotations inside the 
NBBO and currently provide execution quality to customers based upon 
the superior odd-lot quotations.
(iv) Effects on Trading Venues
    The Commission believes that changes in the NBBO caused by the new 
round lot definitions may also affect other trading venues, including

[[Page 18748]]

exchanges and ATSs.\1885\ Exchanges and ATSs have a number of order 
types that are based off of the national best bid and offer.\1886\ 
Changes in the NBBO may affect how these order types perform and could 
also affect other orders they interact with. Some ATS matching engines 
also derive their execution prices based off of price improvement 
measured against the NBBO. Changes in the NBBO from the new round lot 
definition may affect execution prices on these platforms. Overall, the 
Commission believes that these interactions may affect relative order 
execution quality among different trading platforms, but it is 
uncertain of the magnitude of these effects.
---------------------------------------------------------------------------

    \1885\ See supra Section V.C.1(c)(iv) for additional discussion 
of effects on exchange rules.
    \1886\ For example, the apparent price improvement over the NBBO 
calculated based off core data that is offered by a midpoint 
crossing network will be reduced as a result of changes to the NBBO.
---------------------------------------------------------------------------

    Changes in relative execution quality may in turn affect the 
competitive standing among different trading venues, with trading 
venues that experience an improvement/decline in execution quality 
attracting/losing order flow. However, the Commission is uncertain of 
the magnitude of these effects.
    One commenter stated that protecting the smaller round lot size 
could affect order flow to exchanges and other trading venues.\1887\ 
The narrower protected NBBO in higher priced round lot tiers could 
cause more order flow to be routed to exchanges in these stocks. 
Because off-exchange trading venues would not be able to trade-through 
the NBBO, a narrower protected NBBO would limit the price range in 
which off-exchange trading venues could execute trades and cause more 
orders to be routed to exchanges in order to not trade through a 
protected quote.
---------------------------------------------------------------------------

    \1887\ See Virtu Letter at 5.
---------------------------------------------------------------------------

(v) Effects of Monthly Round Lot Calculation
    The Commission believes that the use of the previous calendar 
month's average closing price on the primary listing exchange to 
determine the round lot tier for a given stock balances certain 
tradeoffs that should be considered when selecting such a 
benchmark.\1888\ The Commission is balancing a more up-to-date stock 
price estimate against the costs imposed on market participants from 
having to frequently make updates to systems and practices to account 
for changes to a stock's round lot tier. A more recent average (e.g., 
the past week's average closing price) may better reflect the stock's 
current price level, and thereby lead to the stock being placed in the 
correct tier more frequently. However, such a recent estimate may be 
more volatile and thus more prone to causing frequent changes to the 
stock's status, especially if the stock's price level is close to a 
round lot tier cutoff point. This could impose a greater burden because 
it would require more frequent adjustments from market participants, 
including SROs and competing consolidators, to account for what a 
stock's round-lot tier is and what the NBBO for that stock would be 
given its tier.\1889\
---------------------------------------------------------------------------

    \1888\ Commenters agreed that a monthly calculation strikes an 
appropriate balance. See MFA Letter at 10; Data Boiler I at 25.
    \1889\ One commenter stated more frequent updates could impose a 
higher administrative burden. See NovaSparks Letter at 1.
---------------------------------------------------------------------------

    Commenters stated that updating of a stock's round lot size each 
month could create confusion.\1890\ One commenter stated that only 
updating a stock's round lot size monthly could create confusion 
because it could lead to a stock's current price not reflecting its 
round lot tier, especially during months of extreme volatility or if a 
stock splits its shares.\1891\ This commenter also stated that it could 
create confusion and uncertainty at the end of each month if a stock's 
price is close to a threshold and could also create confusion comparing 
Rule 605 statistics if a stock changed round lot tiers.\1892\ The 
Commission does not believe that the updating a stock's round lot tier 
each month will create significant confusion. Most NMS stocks will 
still have a round lot size of 100 shares under the new round lot tier 
definitions.\1893\ In response to comments, the Commission estimated 
that between August 2019 and August 2020, on average, only 17 stocks 
would change round lot tiers each month, which means that most stock's 
current prices would be reflective of their current round lot tiers. 
Additionally, primary listing exchanges will publish data on each 
stock's round lot size and the Commission expects market participants 
will modify or develop systems to automatically keep track of a stock's 
round lot size.\1894\
---------------------------------------------------------------------------

    \1890\ See, e.g., Nasdaq Letter IV at 17; MFA Letter at 12-13.
    \1891\ See Nasdaq Letter IV at 17.
    \1892\ See id.
    \1893\ The Commission estimates that approximately 98.5% of NMS 
stocks will have a round lot size of 100 shares. See supra Table 4.
    \1894\ See infra Section V.C.1(b)(vi) (discussing the 
implementation costs for these systems).
---------------------------------------------------------------------------

(vi) Costs of New Round Lot Definition
    The Commission believes that the new round lot definition will 
impose two types of implementation costs on market participants: (1) 
One associated with upgrading systems to account for additional message 
traffic and (2) to modify and reprogram systems to account for the new 
round lot definition.
    The Commission believes that market participants who currently rely 
solely on core data to obtain NBBO feeds will incur some infrastructure 
investment costs as a result of the change in the definition of a round 
lot. This is because the change will likely lead to more frequent 
updates to the NBBO and this will likely result in an increase in 
message traffic for NBBO feeds.\1895\ Because most NMS stocks will 
still have a round lot size of 100 shares,\1896\ the Commission does 
not believe the increase in message traffic will be significant. 
Therefore, the Commission does not believe that the system upgrades 
required by the new round lot definition will be significant. However, 
the Commission is unable to estimate the associated costs because it 
does not have access to information about the infrastructure expenses a 
broker-dealer incurs to process market data and because of the 
likelihood that such costs vary substantially according to the existing 
infrastructure of broker-dealers.
---------------------------------------------------------------------------

    \1895\ This will happen more in high-priced stocks where the new 
round lot definition will have more of an effect.
    \1896\ The Commission estimates that approximately 98.5% of NMS 
securities will have a round lot size of 100 shares. See supra Table 
4.
---------------------------------------------------------------------------

    Additionally, for certain core data use cases, the costs described 
in the preceding paragraph are likely to be minimal. Many broker-
dealers, when accessing data for the purposes of visual display, 
currently obtain NBBO quotes from the exclusive SIPs with a ``per 
query'' use case. This use case is set up so that a quote is only sent 
when it is asked for. The Commission believes that this setup has very 
little technological cost associated with it and that furthermore 
whatever cost there is to receiving such a feed will not be impacted by 
increasing the number of times the NBBO is updated over a given time 
period. Thus, the Commission believes that for those broker-dealers who 
rely on per query use cases for their quotes, the upgrade costs 
resulting from changing the round lot definition will be minimal.\1897\
---------------------------------------------------------------------------

    \1897\ This conclusion is contingent on the assumption that 
competing consolidators will choose to offer a per query service to 
market participants so that this arrangement may continue. Because a 
significant portion of market participants (particularly retail 
investors) access SIP data on a per query basis, the Commission 
believes that it is likely the Equity Market Data Plans will 
continue to charge fees on a per query basis and some competing 
consolidators will also offer a per query service in order to meet 
the demand of market participants.

---------------------------------------------------------------------------

[[Page 18749]]

    Trading venues and broker-dealers will experience implementation 
costs from having to modify and reprogram their systems, including 
matching engines and SORs, to account for the changes in the new round 
lot definition. Commenters stated that there would be implementation 
costs for market participants to develop systems to monitor and account 
for changes in a stock's round lot size.\1898\ One commenter observed 
that broker-dealers would need to make changes to their order routing 
systems and systems that display customer orders each month to account 
for changes in the round lot size.\1899\ This commenter also stated 
that regulators would need to modify their surveillance systems each 
month to account for changes in a stock's round lot size.\1900\
---------------------------------------------------------------------------

    \1898\ See, e.g., MEMX Letter at 4; Fidelity Letter at 6; STANY 
Letter at 4; Nasdaq Letter IV at 17; MFA Letter at 12-13; Angel 
Letter at 17.
    \1899\ See MFA Letter at 12-13. This commenter stated that Rule 
604 does not require a broker-dealer to display a customer's limit 
order if it is an odd-lot size.
    \1900\ See id.
---------------------------------------------------------------------------

    In the Proposing Release the Commission estimated that the 
implementation cost for a trading venue to update its systems, 
including its matching engine, to account for the new round lot 
definition and changes in the Order Protection Rule would be similar to 
the estimated costs of an exchange modifying its systems to implement 
the Tick Size Pilot, which, based upon the input from commenters, the 
Commission estimated to be around $140,000.\1901\ The Commission also 
estimated in the Proposing Release that the implementation cost for a 
broker-dealer to update its systems, including its SOR, would be 
$9,000.\1902\ One commenter stated that the Commission significantly 
underestimated the costs for a trading venue to update its systems and 
estimated that its costs to modify its trading venue to account for the 
changes in round lot size and order protection would be between $3.4 
and $4 million.\1903\ The Commission agrees and believes that the 
estimates from the Proposing Release underestimated the implementation 
costs for modifying trading venue and broker-dealer systems to account 
for the new round lot definition and changes in the Order Protection 
Rule, which created a separate NBBO and PBBO.\1904\ However, the 
Commission also believes, as suggested by commenters, that the new 
round lot definition under the final amendments will require 
significantly less system modifications compared to the Proposing 
Release.\1905\ For example, one commenter stated that if the new round 
lot definitions were protected then trading venues and broker-dealers 
will be able to rely on existing technology to continue to operate 
without significant changes to current execution and routing logic 
compared to having to build new logic and workflow to account for a 
separate NBBO and PBBO.\1906\ Additionally the Commission believes that 
many broker-dealer and trading venue systems already account for 
different round lot sizes and will not need to make extensive 
modifications to account for a changing round lot size each month. 
Therefore, although the implementation costs estimated in the Proposal 
Release may have underestimated the costs to modify systems to account 
for a separate NBBO and PBBO, the Commission believes they provide an 
appropriate sense of the level of cost associated with the 
implementation costs of modifying systems related to the new round lot 
definition under the final amendments, including building or modifying 
systems to account for the monthly change in a securities round lot 
size. The Commission estimates that a trading venue will incur an 
initial implementation cost of approximately $140,000 and a broker-
dealer will incur an initial implementation cost of approximately 
$9,000 to modify its systems to account for the new round lot 
definition. However, these costs will vary substantially according to 
the existing infrastructure of the broker-dealer or trading venue.
---------------------------------------------------------------------------

    \1901\ In the Proposing Release, the Commission stated that it 
did not have detailed information on the operation of exchange 
matching engines and believed that the $140,000 from the Tick Size 
Pilot may provide some sense of the level of cost associated with 
the changes SROs, ATSs, and other off-exchange trading venues would 
have to make. See Proposing Release, 85 FR at Section VI.C.1(c)(i).
    \1902\ See id.
    \1903\ See Nasdaq Letter IV at 17. This commenter also estimated 
it would cost an additional $800,000 to $1.2 million to modify its 
systems to account for the changes in locked and crossed markets as 
a result of the changes in order protection. See Nasdaq Letter IV at 
19.
    \1904\ See supra Section II.E.1.
    \1905\ See, e.g.; MEMX Letter at 4; BestEx Research Letter at 6-
9.
    \1906\ See MEMX Letter at 4.
---------------------------------------------------------------------------

(vii) Other Rules and Regulations
    The amendments to the definition of round lot and resulting 
mechanical changes to the NBBO spread, affect how other rules and 
regulations operate.\1907\ In particular, this change affects which 
orders determine the reference price for numerous rules, including 
rules under the Exchange Act, SRO rules, and effective national market 
system plans.\1908\ Specifically, the Commission believes that the 
changes to the NBBO may present changes to the benchmark prices used in 
Regulation SHO, LULD, retail liquidity programs, market maker 
obligations, and certain exchange order types and recognizes that the 
change in the benchmark price may result in economic effects. Further, 
changing the NBBO will alter the estimation mechanics for Rule 605 
metrics, resulting in implementation costs. In addition, the round lot 
definition will result in economic effects through its impact on the 17 
CFR 242.606 (Rule 606) compliance. Finally, although the new round lot 
definition may alter the requirements of some rules, such as Rules 602, 
604, and 610(c), the Commission believes that the economic effects of 
the changes are uncertain and depend on current practices of handling 
odd-lot-sized orders. If broker-dealers already include odd-lot-sized 
orders when complying with the provisions of these rules, then the new 
round lot definition may not produce any economic effects related to 
these rules.
---------------------------------------------------------------------------

    \1907\ The Commission is also deleting the reference to ``The 
Nasdaq Stock Market, Inc.'' from the definition of protected bid or 
offer and believes that this change will have no economic effects. 
As explained above, Nasdaq is now a national securities exchange and 
is thus otherwise bound by the definition. See supra note 361.
    \1908\ The Commission discussed many of these changes in the 
Proposing Release. See Proposing Release, 85 FR at Section 
III.C.1(d)(i).
---------------------------------------------------------------------------

    For the Short Sale Circuit Breaker, the reference bid for the 
execution of a short sale transaction could be higher for stocks in the 
higher priced round lot tiers under the final amendments than it is 
currently, potentially slightly increasing the burdens on short 
selling.\1909\ Currently, after the Short Sale Circuit Breaker 
triggers, short sales can only execute at prices greater than the 
national best bid. While short sales are currently permitted to execute 
against any odd-lot quotations that exist above the national best bid, 
the new round lot definition will reduce the instances of such odd-lot 
quotations in higher priced stocks. Therefore, the final amendments may 
result in a higher national best bid and thus result in a slightly 
higher benchmark price for short sale executions in stocks priced more 
than $250, reducing the fill rate of short sales or increasing the time 
to fill for short sales.
---------------------------------------------------------------------------

    \1909\ One commenter stated that the Commission failed to 
include analysis of how the change in the round lot definition 
affected Rule 201 of Regulation SHO. See NYSE Letter II at 8. This 
commenter is mistaken. The Commission did qualitatively analyze the 
effects of the round lot definition on Rule 201 of Regulation SHO. 
See Proposing Release, 85 FR at Section VI.C.1(c)(iii).
---------------------------------------------------------------------------

    In addition, a potentially higher national best bid (or lower 
national best offer) price could marginally affect the trigger of the 
Short Sale Circuit Breaker.

[[Page 18750]]

In particular, the final amendments could result in slight delays in or 
a reduction in the number of Short Sale Circuit Breaker triggers, or it 
could have the opposite effect in the nine stocks whose round lot size 
will increase. In particular, a national best bid that includes smaller 
round lots could result in a higher-priced execution relative to a 
national best bid that does not include smaller round lots. This 
higher-priced execution could be above the price that would trigger the 
Short Sale Circuit Breaker whereas an execution on a 100-share quote 
would have triggered the circuit breaker. This could delay the trigger 
if the price continues downward, such that the circuit breaker still 
triggers, or the circuit breaker may not trigger at all if the price 
rebounds after such an execution. On the other hand, in the eight 
stocks that will have a larger round lot size, and lower priced 
national best bid, it could have the opposite effect on circuit breaker 
triggers: Triggering sooner and more often.\1910\
---------------------------------------------------------------------------

    \1910\ See supra Section V.C.1(b)(i).
---------------------------------------------------------------------------

    The Commission believes that the economic effects of the potential 
impact on the Short Sale Circuit Breaker are unlikely to be 
significant. These effects should not create implementation costs, and 
the Short Sale Circuit Breaker should continue to function consistent 
with its stated purpose. Notably, if the adopted rule will result in 
not triggering as many Short Sale Circuit Breakers, it could reduce 
ongoing compliance costs in situations in which the price rebounds 
despite the lack of a price test on short sales.
    Similarly, a potentially higher bid price or lower offer price 
could affect the trigger of a Limit State under the LULD Plan. A lower-
priced national best offer or a high-priced national best bid could 
result in that quote being more likely to touch a price band, thus 
triggering a Limit State, when it otherwise would not have. Depending 
on whether the quote would have otherwise rebounded, this could 
increase the number of Limit States and/or Trading Pauses or could 
merely trigger such Limit States or Trading pauses sooner. As in the 
case of the Short Sale Circuit Breaker, the effects should not create 
implementation costs, and LULD should continue to function consistent 
with its stated purposes. In addition, the economic effects of this 
potential marginal change depends largely on how often odd-lot 
quotations lead price declines or lead price increases.
    As discussed in the Proposing Release,\1911\ a number of Rule 605 
execution quality statistics are benchmarked to the NBBO. Under the 
final amendments, the NBBO will be based on the tiered, price-based 
round lot sizes, which means any Rule 605 execution quality statistics 
that rely on the NBBO as a benchmark will reflect the modified 
definition of the NBBO. This could cause certain execution quality 
statistics to change in higher priced stocks. As discussed above, the 
Commission believes that the NBBO will become narrower for some stocks 
in higher price tiers. This could cause execution quality statistics 
that are measured against the NBBO to change because they will be 
measured against the new, narrower NBBO. For example, execution quality 
statistics on price improvement for higher priced stocks may show a 
reduction in the number of shares of marketable orders that received 
price improvement because price improvement will be measured against a 
narrower NBBO.\1912\ However, the Commission believes that some of 
these changes may cause some Rule 605 statistics to more accurately 
reflect actual execution quality because the NBBO based on the new 
definition for round lots may now take into account more liquidity that 
the current NBBO ignores.\1913\ The Commission believes that these 
effects will be larger for stocks in higher price tiers because their 
new round lot definition will include fewer shares.
---------------------------------------------------------------------------

    \1911\ See Proposing Release, 85 FR at Section III.C.1(d)(i).
    \1912\ A commenter agreed that the smaller round lot size would 
cause a decrease in the number of orders showing price improvement 
in Rule 605 statistics. See Nasdaq Letter IV at 19.
    \1913\ In the hypothetical case of a stock in which there are 
often valuable odd-lot quotes, broker-dealers trading in this stock 
can currently use these odd-lot quotes to improve on the NBBO, and 
this improvement might be reflected in Rule 605 statistics. Under 
the new round lot definition, if this stock is priced over $250 per 
share, then some of these odd-lot quotes could end up being defined 
as round lots under the new definition and thereby end up the basis 
for the NBBO. With these quotes as the NBBO, the broker-dealer will 
no longer appear to be improving over the NBBO in its execution, and 
Rule 605 statistics may appear to indicate a decrease in execution 
quality. However, they will, in fact, merely be reflecting a more 
accurate picture of the market circumstances at the time of 
execution. One commenter agreed that Rule 605 statistics may not be 
accurate because they do not include information on odd-lot quotes 
priced better than the NBBO. See Healthy Markets Letter at 15. One 
commenter agreed that the new round lot size would improve the 
accuracy of Rule 605 statistics and that this would improve 
transaction cost analysis for funds that rely upon these statistics 
to analyze broker-dealer execution quality. See ICI Comment Letter 
at 7.
---------------------------------------------------------------------------

    In addition, the NBBO midpoint in stocks priced higher than $250 
could be different under the adopted rules than it otherwise would be, 
resulting in changes in the estimates for Rule 605 statistics 
calculated using the NBBO midpoint, such as effective spreads. In 
particular, at times when bid odd-lot quotations exist within the 
current NBBO but no odd-lot offer quotations exist (and vice versa), 
the midpoint of the NBBO resulting from the rule will be higher than 
the current NBBO midpoint. For example, if the NBB is $260 and the 
national best offer is $260.10, the NBBO midpoint is $260.05. Under the 
adopted rules a 40 share buy quotation at $260.02 will increase the 
NBBO midpoint to $260.06. Using this new midpoint, effective spread 
calculations for buy orders will be lower but will be higher for sell 
orders. More broadly, the adopted rules will have these effects 
whenever the new round lot bids do not exactly balance the new round 
lot offers. However the Commission does not know to what extent or 
direction that odd-lot imbalances in higher priced stocks currently 
exist, so it is uncertain of the extent or direction of the change.
    Finally, the Commission recognizes that the new round lot 
definitions could force market centers (or their third-party service 
providers) to revise their processes for estimating the Rule 605 
execution statistics. Such changes will result in implementation costs.
    The Commission recognizes that the NBBO serves as a benchmark in 
SRO rules in addition to Exchange Act rules and effective national 
market system plans. For example, the NBBO acts as a benchmark for 
various retail liquidity programs on exchanges, for exchange market 
maker obligations, for some order types, and for potentially many other 
purposes.\1914\ As such, including smaller quotes in the NBBO will 
change how these rules operate and these changes could have economic 
effects. For example, having to post more aggressive limit orders into 
retail liquidity programs could reduce the already low volume by 
reducing the liquidity available but could result in better prices for 
those retail investors able to execute against that liquidity. In 
addition, a narrower NBBO could effectively increase some market maker 
obligations, which could improve execution quality for investors and/or 
provide a disincentive to being a market maker on the margin. 
Alternatively, the exchanges with such retail liquidity programs, order 
types, or market maker obligations could elect to propose rule changes 
to maintain the current

[[Page 18751]]

operation of these rules. Such proposals could mitigate any follow-on 
economic effects (both benefits and costs) but would require exchanges 
to incur the expenses associated with proposing amendments to their 
rules.
---------------------------------------------------------------------------

    \1914\ See supra Section V.C.1(b)(i) for a discussion of the 
effect of changes to the NBBO on order types and for a discussion 
related to changes to round lot size for stocks with round lots of 
less than 100 shares.
---------------------------------------------------------------------------

    As discussed in the Proposing Release,\1915\ the definition of 
round lot could result in an increase in the number of indications of 
interest in higher priced stocks that will be required to be included 
in 606(b)(3) reports. Depending on the number of potential indications 
of interest included as a result of the final amendments, the 
Commission believes that these changes could increase the benefits of 
17 CFR 242.606(b)(3) (Rule 606(b)(3)) with little to no effect on 
costs.\1916\ In particular, the inclusion could result in clients 
receiving information on order routing for more of their orders, with 
the resulting benefits. Further, because the incremental cost of adding 
orders to the reports is low, the Commission does not expect that 
adding indications of interest to the reports will significantly 
increase costs.
---------------------------------------------------------------------------

    \1915\ See Proposing Release, 85 FR at Section III.C.1. for a 
discussion of how the definition impacts Rule 606.
    \1916\ See Proposing Release, 85 FR at n. 227 for a discussion 
of the benefits of 606(b)(3).
---------------------------------------------------------------------------

    One commenter stated that the Commission did not examine the 
effects of the new rules on Rule 603(b), the Vendor Display Rule.\1917\ 
The new round lot definition will require broker-dealers to show a 
consolidated display that includes the NBBO derived from the new round 
lot size in higher priced stocks. This will allow investors to see odd-
lot quote information that may not previously have been included in the 
NBBO under the current round lot definition, which may improve their 
trading decisions and order routing and execution quality.\1918\ 
Broker-dealers may also incur implementation costs in order to adjust 
their systems.\1919\
---------------------------------------------------------------------------

    \1917\ See NYSE Letter II at 6-7.
    \1918\ See supra Section V.C.1(b)(ii).
    \1919\ See supra Section V.C.1(b)(vi).
---------------------------------------------------------------------------

    The new round lot definition would also affect the requirements 
regarding the size of orders that need to be collected and made 
available under Rules 602(a) and (b) and 604(a)(1) and (2). However, it 
is unclear whether this will have any economic effects, because it 
would depend on the current practices for handling odd-lot orders. For 
example, exchanges may already have procedures to collect and make 
available their best bids and offers to vendors, regardless of the size 
of those best bids and offers. Further, broker-dealers may already 
treat all bids and offers as firm quotes regardless of size and may 
already display all customer limit orders regardless of size. To the 
extent that these practices are in place, there will be no economic 
effect from these changes. To the extent that these practices are not 
in place, the final amendments will increase transparency in higher 
priced stocks by requiring broker-dealers and trading venues to include 
smaller sized orders that meet the new round lot definition under these 
rules.\1920\ Broker-dealers and trading venues may also incur 
implementation costs in order to adjust their systems.\1921\
---------------------------------------------------------------------------

    \1920\ See supra Section V.C.1(b)(ii).
    \1921\ One commenter stated that market makers would need to 
make adjustments to their systems to display customer limit orders 
in the new round lot sizes under Rule 604. See MFA Letter at 12-13. 
These costs are included in the costs to adjust systems to the new 
round lot size. See supra Section V.C.1(b)(vi).
---------------------------------------------------------------------------

    One commenter stated that the Commission did not consider the 
burden that applying Rule 610(c) to the new round lot definition would 
have on market participants and competition, including trading centers 
that display quotes.\1922\ The Commission does not believe that 
applying the new round lot definition to Rule 610(c) create a 
significant burden for market participants, including trading centers 
that display quotes, or have a significant impact on competition. The 
Commission believes that exchanges may already pay the same rebates or 
charge the same access fees regardless of order size. Therefore, it 
does not expect the new round lot definition to affect these fees.
---------------------------------------------------------------------------

    \1922\ See NYSE Letter II at 7-8.
---------------------------------------------------------------------------

(c) Expanded Core Data Content
    The Commission is adopting amendments to include certain 
information on odd-lot quotes at and inside the NBBO, certain depth of 
book data, and information on orders participating in auctions in the 
definition of core data. This section discusses the economic effects of 
expanding the core data content separately for each additional core 
data element and then discusses the additional costs that may accrue to 
market participants from the combined new core data elements, although 
competing consolidators will not be required to offer consolidated 
market products that include all of the content of expanded core data 
and market participants may choose not to take in all of the new core 
data elements in every instance.\1923\ The economic effects discussed 
in this section depend on the fees for data content underlying core 
data charged by the effective national market system plan(s) for NMS 
stocks and the competing consolidators. The fees for data content 
underlying new core data are discussed later, in Section V.C.2(b).
---------------------------------------------------------------------------

    \1923\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    The Commission believes that expanding the content of core data to 
include information on odd-lot quotes at and inside the NBBO, depth of 
book information, and auction information will provide benefits to 
market participants that previously only relied on the SIP and choose 
to receive the new core data elements if the fees are lower as part of 
consolidated market data than fees for equivalent data today.\1924\ 
Expanding core data will reduce information asymmetries between these 
market participants and market participants that subscribe to 
proprietary DOB feeds.\1925\ A reduction in information asymmetry may, 
in turn, enhance market efficiency and price discovery if it leads to 
information that was previously only contained in proprietary DOB feeds 
being impounded into prices quicker.\1926\ The additional information 
contained in expanded core data will also allow these market 
participants to improve order routing and will help facilitate best 
execution, which may reduce their transaction costs.\1927\ The 
additional content of expanded core data could make consolidated market 
data a reasonable alternative to exchange proprietary data feeds for 
some market participants,\1928\ potentially lowering their costs.\1929\
---------------------------------------------------------------------------

    \1924\ See infra Section V.C.2(b)(i).
    \1925\ Commenters agreed that the expansion of core data would 
reduce information asymmetries. See, e.g., BestEx Research Letter at 
2; Better Markets Letter at 2-3; BlackRock Letter at 2; Capital 
Group Letter at 2. See infra note 2404 and accompanying text for a 
discussion of commenter stating that allowing competing 
consolidators to offer customized products containing subsets of 
expanded core data would increase information asymmetries.
    \1926\ Commenters agreed that the expansion of core data would 
improve market efficiency and price discovery. See, e.g., Better 
Markets Letter at 2-3; ICI Letter at 5.
    \1927\ Commenters agreed that the additional information in core 
data would facilitate best execution. See, e.g., Clearpool Letter at 
11; DOJ Letter at 4; IntelligentCross Letter at 2; SIMFA Letter at 
3-4.
    \1928\ Commenters agreed that the expanded content of core data 
could reduce some market participants' dependence on proprietary 
data feeds. See, e.g., Clearpool Letter at 11; BlackRock Letter at 
2; DOJ Letter at 4.
    \1929\ See infra Section V.C.2(b) (discussing potential fees for 
consolidated market data). Commenters agreed the expanded content of 
core data could lower costs for some market participants who 
currently subscribe to proprietary DOB feeds and switch to 
consolidated market data. See, e.g., Virtu Letter at 5.
---------------------------------------------------------------------------

    One commenter stated that it is unclear whether the expanded 
content

[[Page 18752]]

of core data would be useful to any set of investors and that the 
Proposing Release did not provide any analysis on this point.\1930\ 
This commenter questioned whether there would be demand for the 
expanded content of core data, stating that it would simultaneously 
provide ``too much and too little to be optimal for anyone--too much 
data for the retail investor and too little for sophisticated 
traders.'' \1931\ This commenter also stated that expanding the content 
of core data would provide no real benefits because all of the 
information is already available to everyone who needs it.\1932\ The 
Commission disagrees with this commenter and believes there would be 
demand for the expanded content of core data. Although the Commission 
did not quantify the number of market participants that would subscribe 
to the expanded content of core data, the Commission did provide a 
qualitative analysis of how certain market participants might subscribe 
to and could benefit from the expanded content of core data.\1933\ 
Although expanded core data will not contain all of the data contained 
in proprietary DOB feeds, the Commission believes that it will contain 
data that will be useful for market participants.\1934\ For example, 
although the DOB data contained in expanded core data will only contain 
five levels of depth, the Commission believes, and commenters agree, 
that including five levels of depth in expanded core data will provide 
a benefit to market participants, including allowing them to improve 
their order routing.\1935\ The Commission believes that there are 
market participants who would subscribe to proprietary DOB feeds, but 
do not currently do so because of the cost.\1936\ Because the 
Commission anticipates that the total fees for a consolidated market 
data product containing all the elements of expanded core data are 
likely to be less expensive than equivalent proprietary data 
feeds,\1937\ the Commission believes that there would be demand from 
these market participants for a consolidated market data product that 
contains all the elements of expanded core data because it will reduce 
information asymmetries between these market participants and market 
participants that subscribe to proprietary DOB feeds.\1938\ 
Additionally, if a consolidated market data product containing all data 
elements is offered at reduced latency, then some market participants 
that currently rely on aggregated proprietary DOB feeds may use it as a 
substitute for proprietary feeds.\1939\ Furthermore, there are likely 
market participants that may only benefit by taking subcomponents of 
expanded core data or products that competing consolidators offer that 
may be derived from the expanded content of core data, such as products 
that detail the best-priced odd-lot quotes or DOB imbalance measures. 
Therefore, to the extent that the individual components of expanded 
core data are less expensive than equivalent data from proprietary 
feeds,\1940\ there will be demand for competing consolidators to also 
offer consolidated market data products that contain a subset of 
consolidated market data. Even if market participants do not directly 
benefit from any of the expanded content of core data, they may benefit 
indirectly if the broker-dealers that handle their orders subscribe to 
the expanded content.\1941\ While the Commission believes there will be 
demand for the expanded content of core data, the Commission remains 
unable to quantify the number of market participants who will subscribe 
to the expanded content of core data because it does not have 
information on the number of market participants that would subscribe 
to proprietary DOB feeds, but do not do so because of the cost, or 
information on the number of market participants that currently 
subscribe to proprietary DOB feeds but might switch to expanded core 
data if the cost is lower.\1942\
---------------------------------------------------------------------------

    \1930\ See Nasdaq Letter IV at 33, 38 (``the Proposed Rule 
replaces ``only pay for what you need'' with a feed that is 
simultaneously providing too much and too little to be optimal for 
anyone--too much data for the retail investor and too little for 
sophisticated traders'').
    \1931\ See Nasdaq Letter IV at 38.
    \1932\ See Nasdaq Letter IV at 34.
    \1933\ See Proposing Release, 85 FR at Section VI.C.1.
    \1934\ For example, expanded core data will not contain complete 
order-by-order information or full depth of book information.
    \1935\ See infra Section V.C.1(c)(ii). Commenters agreed that 
five levels of depth is sufficient for many market participants. 
See, e.g., State Street Letter at 2-3; Capital Group Letter at 3; 
Fidelity at 4.
    \1936\ See supra note 28 (discussing commenters' views that the 
cost of proprietary DOB products currently inhibits the purchase of, 
and the widespread dissemination of, the data elements that will be 
contained in expanded core data). See also Roundtable Day One 
Transcript at 128-29 (Mark Skalabrin, Redline Trading Solutions) 
(stating that some customers do not purchase exchange proprietary 
DOB products because of the cost, explaining ``we sell to various 
customers, leading firms that have lots of money and really imbed 
this technology, but also to startup brokers and small firms trying 
to integrate in the market. And not all of them use direct feeds. 
And it was mentioned before that some people just don't buy the 
direct feeds. Some people can do without it. And we deal with them 
in that decision process. It's not a mystery why they don't use the 
direct feeds; it's solely cost.'').
    \1937\ See infra Section V.C.2(b)(i) (discussing fees for 
consolidated market data).
    \1938\ See infra Sections V.C.1(c)(i), V.C.1(c)(ii), and 
V.C.1(c)(iii). Commenters agreed that core data that included odd-
lot information, auction information, and five levels of depth would 
be useful to market participants. See, e.g., Better Markets Letter 
at 3 (``These information taken together amount would fill a 
significant gap that currently exists in the SIP data.''); ICI 
Letter at 4; State Street Letter at 2-3.
    \1939\ See infra Section V.C.4(a). Commenters agreed that the 
additional information contained in expanded core data would make 
consolidated market data a viable alternative to proprietary DOB 
feeds. See, e.g., SIFMA Letter at 7; T Rowe Price Letter at 2; 
Clearpool Letter at 11.
    \1940\ See infra Section V.C.2(b)(ii).
    \1941\ See supra Sections II.A and II.C.2(a). See also infra 
Sections V.C.1(c)(i), V.C.1(c)(ii), and V.C.1(c)(iii).
    \1942\ See infra Sections V.C.2(b), V.C.4(a).
---------------------------------------------------------------------------

    Because competing consolidators will not be required to offer a 
consolidated market data product that contains all of the data elements 
of consolidated market data,\1943\ there is a risk that a consolidated 
market data product containing all of the data elements of expanded 
core data will not be offered by any competing consolidator. The 
Commission believes this risk is low because there is likely to be 
sufficient demand for such a product from market participants. As 
discussed above in this section, because the fees for a consolidated 
market data product containing all of the data elements of core data 
are likely to be lower than fees for equivalent data from proprietary 
feeds today,\1944\ the Commission believes that there will be demand 
from market participants for a consolidated market data product 
containing all of the elements of expanded core data.\1945\ Because 
there will be demand for the data and because the competing 
consolidator market is subject to competitive forces, the Commission 
believes that one or more competing consolidators will be incentivized 
to offer a consolidated market product containing all of the data 
elements.
---------------------------------------------------------------------------

    \1943\ See supra III.C.8(a).
    \1944\ See infra Section V.C.2(b)(i) (discussing fees for 
consolidated market data).
    \1945\ See supra note 1936 and accompanying text.
---------------------------------------------------------------------------

    Commenters stated that expanding the content of core data would 
provide no benefit to retail investors.\1946\ Commenters stated that 
depth of book and auction data is not useful for most retail investors 
and is likely to cause confusion.\1947\ The Commission disagrees with 
these commenters. The Commission acknowledges that many retail 
investors may not directly view

[[Page 18753]]

the entire content of expanded core data, but believes that retail 
investors will benefit from the expansion of the content of core data. 
Competing consolidators could offer customized products derived from 
the expanded content of core data that retail brokers may be able offer 
to their clients, who may be able to utilize the data to achieve some 
of the benefits discussed below without the retail broker taking in the 
additional message traffic from the full content of expanded core data. 
For example, competing consolidators could offer measures summarizing 
DOB or auction imbalances, or a feed that gives information on the best 
priced odd-lot quotes. Additionally, the Commission believes, as 
suggested by commenters, that retail brokers may allow some 
sophisticated retail investors to directly utilize the expanded content 
of core data and realize the benefits discussed below.\1948\ 
Furthermore, retail investors may indirectly benefit if their executing 
broker-dealer uses expanded core data and did not previously receive 
this information from proprietary feeds. Additionally, retail investors 
may also indirectly benefit from other market participants utilizing 
expanded core data because they would be better able to observe and 
interact with retail investor orders, possibly leading to additional 
gains from trade.\1949\
---------------------------------------------------------------------------

    \1946\ See, e.g., Nasdaq Letter IV at 33, 38; TD Ameritrade 
Letter at 2, 15.
    \1947\ See, e.g., Nasdaq Letter IV at 33; TD Ameritrade Letter 
at 5.
    \1948\ See, e.g., Schwab Letter at 1, 3.
    \1949\ See infra Sections V.C.1(c)(i), V.C.1(c)(ii), 
V.C.1(c)(iii).
---------------------------------------------------------------------------

(i) Effects of Addition of Information on Odd-Lot Quotes at and Inside 
the NBBO
    This section discusses the economic effects of expanding the 
content of core data to include information on odd-lot quotes that are 
priced at or more aggressively than the NBBO to the definition of core 
data.\1950\ For market participants who currently do not receive 
information on odd-lot quotes and choose to receive this aspect of 
expanded core data,\1951\ the Commission generally believes that the 
economic effects will be similar to many of the effects discussed above 
regarding including smaller sized odd-lot quotes in the definition of a 
round lot.\1952\ However, these benefits may be greater because these 
market participants will receive significantly more information on odd-
lot quotes, since they will receive aggregated information on all odd-
lot quotes priced better at or better than the NBBO for all NMS stocks, 
rather than just information on the smaller subset of quotes that will 
be included in the new round lot definition for stocks priced greater 
than $250.\1953\ More specifically, the inclusion of odd-lot quote 
information in core data will improve transparency and reduce 
information asymmetry between market participants who already receive 
this information through proprietary DOB feeds and market participants 
who choose to subscribe to this aspect of core data and previously did 
not receive this information.\1954\ This could potentially lead to 
these market participants being able to reduce their execution costs, 
make more informed trading decisions, facilitate best execution, as 
well as realize gains from trade. Including odd-lot quotes in core data 
may also cause changes in order flow to exchanges and off-exchange 
trading venues, as well as improvements in price efficiency. It may 
also benefit some market participants that currently subscribe to 
proprietary DOB feeds to receive data on odd-lot quotes because it may 
allow these market participants to receive this information through 
expanded core data, potentially at lower cost.\1955\ However there may 
also be costs to market participants who choose to receive this data 
because they may need to upgrade their infrastructure in order to 
handle the additional message traffic contained in the odd-lot 
information.\1956\ There could also be costs to market participants who 
currently receive information about odd-lot quotes from proprietary 
feeds and benefit from existing information asymmetries.
---------------------------------------------------------------------------

    \1950\ See supra Section II.C.2(b).
    \1951\ Market participants may choose not to subscribe to this 
element, as well as other aspects of expanded core data. See infra 
Section V.C.1(c)(iv).
    \1952\ See supra Section V.C.1(b)(ii).
    \1953\ See supra Section V.C.1(b).
    \1954\ One commenter stated that including all odd-lot quotes at 
prices better than the protected BBO in core data would provide 
investors with valuable information. See CBOE Letter at 15.
    \1955\ See infra Sections V.C.2(b) and V.C.4(a).
    \1956\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    The Commission recognizes that many market participants, including 
many retail brokers-dealers (and their clients), may choose not to 
receive all of the information on odd-lot quotes priced at or better 
than the NBBO that is contained in expanded core data.\1957\ However, 
the Commission believes that there are some market participants that 
currently do not receive information on odd-lot quotes but may choose 
to receive this information from expanded core data if it is available 
at a cheaper price than equivalent proprietary data.\1958\ If these 
market participants subscribe to this element of core data, then the 
Commission believes they will receive many of the benefits (and incur 
many of the costs) discussed below. Even if market participants do not 
directly receive all of the odd-lot information in expanded core data, 
they could realize some of the benefits if competing consolidators 
offer products that are derived from or contain some of the odd-lot 
information in expanded core data. For example, competing consolidators 
could offer a product that only contains information on the best priced 
odd-lot on each exchange. Because such a product would not 
significantly increase message traffic compared to receiving all the 
odd-lot information in expanded core data, many market participants, 
including many retail broker-dealers (who may offer it to their 
clients), may be able to utilize such a product and gain additional 
information about odd-lot quotes that would allow them to lower their 
execution costs and potentially realize additional gains from trade. 
Even if market participants do not receive any additional information 
on odd-lot quotes contained in expanded core data, they could still 
benefit if the broker-dealers handling their orders use the 
information. If a broker-dealer previously did not have access to odd-
lot information, then a broker-dealer receiving the additional 
information may help facilitate best execution of its clients' orders. 
Even if a broker-dealer previously received the data from proprietary 
feeds and now receives it from core data, customers of the broker-
dealer may benefit if the broker-dealer indirectly passes on any cost 
savings from switching data sources to its clients.
---------------------------------------------------------------------------

    \1957\ See supra Section V.C.1(c).
    \1958\ See infra Section V.C.2(b).
---------------------------------------------------------------------------

    Adding information on odd-lot quotes that are priced at or more 
aggressively than the NBBO to the definition of core data will 
significantly increase transparency for market participants that do not 
currently receive information on odd-lot quotes, such as market 
participants that rely exclusively on SIP data, and choose to receive 
this element of expanded core data. Even though the new round lot 
definition would expand information on odd-lots that may be priced 
better than the current NBBO in some stocks,\1959\ most stocks would 
not be affected by the new round lot definition.\1960\ Additionally, 
the analysis in Table 1 shows that a substantial amount of odd-lot 
transaction volume in stocks above $250 would not be included in the 
new round lot definition. The addition of odd-lot information to 
expanded core data will

[[Page 18754]]

make information on these additional odd-lot quotes that are priced at 
or better than the NBBO available to market participants who previously 
did not observe this information and who will choose to subscribe to 
this element of expanded core data. This would reduce information 
asymmetry between these market participants and market participants who 
currently receive this information through proprietary DOB feeds.
---------------------------------------------------------------------------

    \1959\ See supra Section V.C.1(b)(ii).
    \1960\ The Commission estimates that approximately 98.5% of NMS 
stocks will have a round lot size of 100 shares. See supra Table 4.
---------------------------------------------------------------------------

    Market participants who choose to receive the odd-lot quotes from 
expanded core data and currently do not receive this information could 
realize a benefit from additional gains from trade. Some of these 
market participants may have traded with a price-improving odd-lot 
quote but did not because they cannot see information on odd-lot 
quotes. Under the final amendments, these market participants would be 
able to see these quotes if they receive odd-lot information from 
expanded core data, and make a decision about whether to trade based on 
this newly visible trading interest.\1961\ This may benefit these 
market participants or their clients because they will be able to 
realize the gains from trade that are available in this situation and 
are not currently occurring because of the lack of information. Market 
participants that post the odd-lot quotes that these market 
participants trade against would also benefit from realizing additional 
gains from trade.
---------------------------------------------------------------------------

    \1961\ One commenter agreed that displaying odd-lot information 
would reveal greater liquidity in a stock. See RBC Letter at 5.
---------------------------------------------------------------------------

    The magnitude of this benefit depends on the amount of additional 
or improved trading generated by the inclusion of odd-lot information. 
In particular, the Commission believes that to the extent market 
participants who rely solely on SIP data and lack information on odd-
lot quotes choose to receive the odd-lot information in expanded core 
data and would have traded frequently against odd-lot quotes had they 
known about them, the benefit will be large. However, if these market 
participants would not have frequently traded against odd-lot quotes 
but for a lack information, then the Commission believes that the 
associated economic benefit from including odd-lot quotes in core data 
will be small. The Commission believes it is not possible to observe 
this willingness to trade with existing market data.
    Market participants who choose to receive the odd-lot quotes, or 
their clients, may benefit from making more informed trading decisions 
by utilizing the data to improve their strategies related to order 
routing and order placement, provided that they do not already obtain 
information on odd-lots from proprietary feeds. For instance, market 
participants who wish to fill an order at the best possible price, 
including at sizes of less than 100 shares, will be better able to do 
so because odd-lot quotes at prices better than the NBBO will be 
visible to them. Additionally, these market participants may be able to 
improve the placement of their limit orders by being able to see odd-
lot quotes at or inside the NBBO at multiple exchanges in order to 
evaluate which exchange's queue would provide their limit order with 
the highest execution priority. The use of this information may improve 
order execution quality and facilitate best execution for these market 
participants or their clients.\1962\ The Commission believes that many 
of the market participants who utilize such strategies already have 
access to full odd-lot information via proprietary feeds; for these 
market participants, this portion of the final amendments may not 
improve their strategies related to order routing.\1963\
---------------------------------------------------------------------------

    \1962\ For a discussion of order execution quality and the 
provision of execution services by broker-dealers, see supra Section 
V.B.3(e).
    \1963\ Adding information on odd-lot quotes priced at or better 
than the NBBO to expanded core data may benefit those market 
participants who already obtain odd-lot information by providing 
them with alternatives to proprietary feeds. For a discussion of 
this effect, see infra Section V.C.4(a). Also, the Commission 
understands that some market participants who use proprietary feeds 
as their main source of market data also use the SIP feeds as a 
backup. For such market participants, adding information on odd-lot 
quotes priced at or better than the NBBO to expanded core data may 
improve the value of a core data feed as a backup if they choose to 
subscribe to the additional information contained in expanded core 
data.
---------------------------------------------------------------------------

    Also, the Commission believes that some market participants might 
start running these order routing strategies if the data were available 
to them at prices that are lower than the cost of obtaining this data 
through proprietary feeds.\1964\ These market participants might 
currently find that the value of attempting such strategies without 
information on odd-lots is too low to justify running the strategies, 
but they might find that access to data on such orders through the 
updates to expanded core data will enable them to run such strategies 
effectively. To the extent that such market participants exist, the 
inclusion of odd-lot quotes in core data will be a benefit to them as 
well.\1965\
---------------------------------------------------------------------------

    \1964\ See infra Section V.C.2(b).
    \1965\ For further discussion of new entrants to the competitive 
order routing business, see infra Section V.C.4(b).
---------------------------------------------------------------------------

    The Commission believes that adding information on odd-lot quotes 
priced at or better than the NBBO to expanded core data may improve 
price efficiency. The wider availability of information about odd-lot 
quotes may mean that market participants who currently do not receive 
this information and subscribe to this element of expanded core data 
will incorporate the information contained in those quotes into their 
trading decisions. This may have the effect of improving the efficiency 
with which this information becomes reflected in prices.\1966\
---------------------------------------------------------------------------

    \1966\ For additional discussion of the price efficiency point, 
see infra Section V.D.1.
---------------------------------------------------------------------------

    One commenter stated that adding information on unprotected odd-lot 
quotations to core data would create confusion for retail 
investors.\1967\ The Commission disagrees with this commenter. As 
discussed above in this section, the Commission believes that many 
retail brokers will not directly offer their clients all of the odd-lot 
information contained in expanded core data and, therefore, their 
clients will not be confused by it. If a retail broker does directly 
offer all of the information to any of its clients, the Commission 
believes that any client receiving the information will likely be a 
sophisticated retail investor and not confused. Additionally, if 
competing consolidators develop products for retail brokers to offer to 
their clients (i.e., retail investors) that contain subsets of the odd-
lot information in expanded core data, the Commission believes that 
competing consolidators and the data vendors or broker-dealers that 
supply the information to retail investors will do so in way that does 
not create confusion.
---------------------------------------------------------------------------

    \1967\ See TD Ameritrade Letter at 4-5.
---------------------------------------------------------------------------

    The Commission believes that adding information on odd-lot quotes 
priced at or better than the NBBO to expanded core data may cause 
changes to order flow as market participants that do not currently 
receive this information and choose to subscribe to it change their 
trading strategies to take advantage of newly visible quotes. This may 
mean that there will be changes to the share of order flow each 
exchange and off-exchange trading center receives as a result of this 
rule. The Commission is uncertain about the magnitude of this effect.
    The addition of odd-lot quote information to expanded core data 
will increase the total message traffic in expanded core data, and this 
increase in message traffic will be accompanied by costs to market 
participants to set up the infrastructure required to handle this new 
level of traffic. Additionally, competing consolidators and SROs may

[[Page 18755]]

incur implementation costs related to receiving and generating the 
information necessary to process and disseminate consolidated market 
data. However, market participants are not required to receive (or 
display) the odd-lot quotes contained in expanded core data, and 
competing consolidators will not be required to disseminate all of the 
information in consolidated market data, including odd-lot quotes 
contained in expanded core data, so they will not incur these costs 
unless they choose to receive or disseminate this information, 
respectively.\1968\ These costs are discussed below in Section 
V.C.1(c)(iv).
---------------------------------------------------------------------------

    \1968\ See supra Sections II.C.2(a) and III.C.8(a)(ii).
---------------------------------------------------------------------------

    The addition of information on all odd-lot quotes priced at or 
better than the NBBO to core data may negatively affect certain trading 
strategies, but the associated costs are likely to be small. First, the 
Commission believes that there may be traders who currently attempt not 
to display their orders to wide public view by posting them in odd-lot 
sizes, in pursuit of trading strategies that take advantage of a 
market's limited knowledge of odd-lot size quotes. The Commission 
understands that certain traders (ones who are the most likely to 
recognize any advantage being sought in this manner) obtain proprietary 
feeds and so currently can see these odd-lot quotes. This means that 
this strategy cannot be used to hide quotes from users of proprietary 
DOB feeds. To the extent that it is necessary to hide the quotes from 
such users in order for the strategy to work, the benefits of such a 
trading strategy are likely to be minimal. If this is the case, then to 
the extent that the addition of odd-lot quotes to core data makes this 
strategy more difficult, the Commission believes that the cost to these 
traders of losing such an opportunity will also be minimal. On the 
other hand, if there is some benefit to posting quotes in odd-lot sizes 
to hide them from view (or at least from the view of market 
participants that do not observe these odd-lot quotes) despite the fact 
that users of proprietary DOB feeds can still see the quotes, the 
Commission believes that to the extent that the addition of odd-lot 
quotes to core data makes this strategy more difficult, there may be a 
cost to the traders who use such a strategy. The Commission cannot 
observe whether an odd-lot quote is being used to hide the order or 
not.
    Second, there may be costs to those traders who currently enjoy the 
position of being among the traders who can see odd-lot quotes via 
proprietary data feeds. The Commission believes that odd-lot quotes are 
more easily taken advantage of by those traders who can see the quotes. 
Currently, this advantage is available only to those traders who 
purchase proprietary data feeds. The Commission believes that this 
gives these traders an advantage over other traders by improving their 
order execution costs. Under the changes to core data, this advantage 
is likely to be reduced. If this were to happen, it will be because 
other traders will obtain the advantage as well and may take advantage 
of these quotes before the current direct feed subscribers do. To the 
extent that this happens, this cost to current direct feed subscribers 
from losing this advantage represents a transfer to the traders who can 
see the liquidity currently in odd-lots. The Commission is uncertain 
about the size of the loss in advantageous trading opportunities to 
traders who subscribe to the proprietary data. To quantify this 
requires knowing (among other things) when an odd-lot quote is traded 
with by a participant who had access to full odd-lot information and 
when it was traded with by a participant who did not know the quote was 
there, and this is not observable from available market data.
    It can sometimes happen that a market becomes locked or crossed in 
odd-lot orders. As a result of the final amendments, information on all 
odd-lot quotes priced at or better than the NBBO will now be included 
in expanded core data, and these locked and crossed odd-lot orders will 
now be visible to subscribers of expanded core data that chose to 
receive odd-lot information. The economic effects of having these 
locked or crossed quotes visible to market participants who receive 
this data will be minor. In particular, to the extent that these 
crosses and locks in odd-lot sizes represent a profitable trading 
opportunity to those market participants who do not receive odd-lot 
information, being able to observe the occurrence of these events as a 
result of the receiving odd-lot quotes in expanded core data will be a 
benefit to these market participants. Also, to the extent that market 
participants who currently subscribe to proprietary feeds are able to 
profit from being the only market participants to observe crossed or 
locked odd-lots, the change will represent a cost to them. To the 
extent these market participants can profit from exploiting those 
market participants who cannot see the crosses or locks, this change 
will represent a transfer from those who currently trade on this 
information to those who acquire the information through new core data 
and are able to use it effectively. It is also possible that traders 
avoid sending orders because of the risk of being exploited if they 
cross or lock the market. To the extent that this happens and that the 
expansion of core data addresses this concern, the increase in trading 
that will result will represent a benefit to both sides of the trade. 
The Commission believes that some crossed or locked odd-lot quotes 
represent traders who are not aware at the time they post their quote 
that the quote could be filled by a marketable order elsewhere. To the 
extent this happens it represents a cost to this trader since the 
posted order is exposed to the risk that it will be executed with a 
marketable order at a price inferior to what is available on the market 
to the trader who posted the order. The final amendments will reduce 
this cost for market participants who receive odd-lot information 
because they will now be able to observe and trade with odd-lot orders 
available at better prices.
(ii) Effects of Addition of Depth of Book Information
    The Commission is adding certain depth of book information to the 
definition of core data, which will result in this information becoming 
available to anyone who subscribes to this element of core data. The 
Commission believes that this information could be useful in trading, 
and therefore disseminating this information as an element of core data 
could have the effect of causing changes to the trading strategies of 
those market participants who currently rely solely on SIP data and 
will choose to buy depth of book information. This could potentially 
lead to improvements in order routing for these market participants or 
their clients and reductions in their execution costs and facilitate 
best execution. Adding certain depth of book information to the 
definition of core data may also lead to changes in order flow to 
trading venues, improvements in price efficiency of markets, and gains 
from trade that are not currently being realized. Market participants 
that choose to receive the depth of book data may experience 
implementation costs from having to upgrade infrastructure to account 
for the increase in message traffic from the data.
    Some commenters stated that most market participants do not need 
depth of book information.\1969\ However, other commenters believed 
that including depth of book data in core data would

[[Page 18756]]

be useful for market participants.\1970\ The Commission recognizes that 
many market participants, including many retail investors, may choose 
not to receive all of the DOB information contained in expanded core 
data.\1971\ However, the Commission believes that there are some market 
participants that currently do not receive DOB information but may 
choose to receive this information from expanded core data if it is 
available at a lower price than equivalent proprietary DOB feeds.\1972\ 
If these market participants subscribe to this element of core data, 
then the Commission believes they will receive many of the benefits 
(and incur many of the costs) discussed below. Even if market 
participants do not directly receive all of the DOB information in 
expanded core data, they could realize some of the benefits if 
competing consolidators offer products that are derived from or contain 
some of the DOB information in expanded core data. For example, 
competing consolidators could offer a product that contains only 
information on the price and size available at the next best round lot 
price outside the NBBO. Because such a product would not significantly 
increase message traffic compared to receiving all DOB information in 
expanded core data, many market participants, including many retail 
brokers (who may offer it to their clients), may be able to utilize 
such a product and gain additional information that would allow them to 
lower their execution costs. Even if market participants do not receive 
any additional DOB information contained in expanded core data, they 
may still benefit indirectly from including depth of book information 
in core data if the broker-dealers handling their orders use the 
information. If a broker-dealer previously did not have access to DOB 
information, then its clients may benefit if a broker-dealer uses the 
DOB information in expanded core data when handling customer orders, 
which may improve their execution quality.\1973\ Additionally, the 
Commission believes that the depth of book information in expanded core 
data may benefit market participants who substitute it for proprietary 
DOB feeds if it is available at lower cost \1974\ The Commission is not 
able to quantify the number of market participants who will directly 
utilize the depth of book information in core data because it would 
depend on the future fees the Equity Market Data Plan establishes for 
the additional content of core data.
---------------------------------------------------------------------------

    \1969\ See, e.g., Nasdaq Letter IV at 33; TD Ameritrade Letter 
at 5.
    \1970\ See, e.g., Clearpool Letter at 14; Healthy Markets Letter 
I at 3; DOJ Letter at 2-4.
    \1971\ See supra Section V.C.1(c).
    \1972\ See infra Section V.C.2(b).
    \1973\ See supra Section V.B.2(a). Even if a broker-dealer 
previously received the data from proprietary feeds and now receives 
it from core data, clients of the broker-dealer may benefit if the 
broker-dealer indirectly passes on any cost savings from switching 
data to its clients.
    \1974\ See infra Sections V.C.2(b)(i) and V.C.4(a).
---------------------------------------------------------------------------

    One commenter stated that it was unclear if five levels of depth 
would be useful to any investors at all.\1975\ However, the Commission 
believes, and commenters agree, that including five levels of depth in 
expanded core data will benefit market participants.\1976\ The 
Commission acknowledges that market participants that substitute 
expanded core data for proprietary DOB feeds will not receive as much 
depth of book information and may experience a reduction from the 
benefits they receive from such information. However the Commission 
believes that these market participants will only substitute expanded 
core data for proprietary DOB data if the money they save exceeds the 
value of the reduction in benefits from not receiving the additional 
information contained in proprietary DOB feeds.
---------------------------------------------------------------------------

    \1975\ See Nasdaq Letter IV at 33.
    \1976\ Commenters agreed that five levels of depth is sufficient 
for many market participants. See, e.g., State Street Letter at 2-3; 
Capital Group Letter at 3; Fidelity at 4. In addition, the staff 
analysis found a significant percentage of the total notional value 
of all depth of book quotations for both liquid and illiquid stocks 
falls within the first five price levels. See supra note 387. See 
also supra Section II.F.2(b).
---------------------------------------------------------------------------

    The Commission believes that adding the depth of book information 
as an element of core data will benefit market participants who 
previously relied exclusively on SIP data and who choose to receive 
this element of expanded core data. Academic research has found 
evidence that valuable trading information can be obtained from the 
full depth of a limit order book.\1977\ As noted in the Proposing 
Release, some market participants also believe that depth of book 
information is valuable.\1978\ Currently, only traders who subscribe to 
exchanges' proprietary data feeds can receive this information. As a 
result of the final amendments, additional depth of book information 
will become available to anyone who subscribes to these elements of 
core data. The Commission believes that market participants, including, 
as suggested by commenters, some retail investors,\1979\ that currently 
rely solely on SIP data could use the additional depth of book 
information to improve trading strategies and to lower execution 
costs.\1980\ To the extent that the advantage of having this 
information depends on other traders not having it, this economic 
effect will represent a transfer from the current users of depth of 
book information to those market participants who will now get access 
to, and will be able to utilize, this information.\1981\ In particular, 
a more widespread dissemination of depth of book information may cause 
market prices to adjust to this information more rapidly as more people 
react to this information. Once market prices settle to a level that 
reflects this information, the opportunity to profit from having 
additional depth of book information may be lost.
---------------------------------------------------------------------------

    \1977\ See Lawrence E. Harris and Venkatesh Panchapagesan, The 
Information Content of the Limit Order Book: Evidence from NYSE 
Specialist Trading Decisions, 8 J. Fin. Mkts. 25 (2005); Jonathan 
Brogaard et al., Price Discovery without Trading: Evidence from 
Limit Orders, 74 J. Fin. 1621-58 (2019); Shmuel Baruch, Who Benefits 
from an Open Limit-Order Book?, 78 J. Bus 1267 (2005) (presenting 
some theoretical results showing that liquidity takers benefit more 
from an open limit order book).
    \1978\ See Proposing Release, 85 FR at Section III.C.2(c) 
(describing how market participants have stated that they believe 
they need depth of book information in order to run their 
businesses). See also supra Section V.B.2(a) (discussing the value 
of depth of book information).
    \1979\ See, e.g., Schwab Letter at 1, 3 (``providing depth-of-
book data on the consolidated feed will give Main Street investors a 
critical look at market sentiment with regard to an individual 
security and pricing information for the size of the order they want 
to place''); Angel Letter at 8.
    \1980\ Commenters agreed including depth of book information in 
core data would help lower execution costs. See, e.g., RBC Letter at 
4; ICI Letter at 8-9.
    \1981\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    The Commission believes that market participants who use strategies 
related to order routing, order placement, and order execution, may 
benefit from the new depth of book information, provided that currently 
they do not already obtain this information via proprietary data feeds. 
For instance, market participants may seek to get priority in the queue 
at a particular price level behind the top of book by posting a limit 
order. Such a strategy may benefit from being able to see the depth at 
these price levels at multiple exchanges in order to evaluate which 
exchange's queue would provide the order with the highest execution 
priority. To the extent this is the case, the Commission believes that 
market participants who previously did not have access to additional 
depth of book information will benefit by being able to better run such 
strategies. This could improve order execution quality for these market 
participants (or their clients).\1982\ The Commission believes that 
many of the market participants who utilize such strategies already 
have

[[Page 18757]]

access to full depth of book information via subscriptions to 
proprietary feeds; for these traders the additional core data will not 
produce a direct benefit.\1983\ The Commission is unable to quantify 
the number of market participants who currently run these types of 
strategies without using depth of book information because the 
Commission does not have access to information on specific strategies 
utilized by individual traders in the market.\1984\
---------------------------------------------------------------------------

    \1982\ For a discussion of order execution quality and the 
provision of execution services by broker-dealers, see supra Section 
V.B.3(e).
    \1983\ The inclusion of depth of book information may benefit 
those market participants who already use depth of book information 
by providing alternatives to proprietary feeds. For a discussion of 
this effect, see infra Section V.C.1(c)(iv). Also, the Commission 
understands that some market participants who use proprietary feeds 
as their main source of market data also use the exclusive SIP feeds 
as a backup. For such market participants, the expansion of DOB 
information may improve the value of a core data feed as a backup.
    \1984\ The Commission requested comment on market participants 
who run order routing strategies without access to DOB information 
but did not receive information from commenters that would help 
quantify the number of market participants that use such strategies. 
The Commission believes that it is possible that the inclusion of 
this information in the definition of core data, along with 
reductions in the latency differential that will result from the 
decentralized consolidation model, may benefit market participants 
who do not currently run these strategies but who will choose to 
start running them as a result of the changes. For more discussion 
on this possibility, see infra Section V.C.4(b).
---------------------------------------------------------------------------

    Also, the Commission believes that there may be market participants 
that would start running these order routing strategies if the data 
were available to them at prices lower than the current prices for 
equivalent data in proprietary feeds.\1985\ These market participants 
might currently find that the value of attempting such strategies 
without DOB data is too low to justify them, but that access to 
additional DOB data through these elements of the new definition of 
core data will enable them to run such strategies effectively. To the 
extent that such market participants exist, the additional DOB data 
will be a benefit to them as well.
---------------------------------------------------------------------------

    \1985\ See infra Section V.C.2(b)(i) for a discussion of 
consolidated market data fees and Section V.C.4(b) for a discussion 
of market participants who may start running such strategies.
---------------------------------------------------------------------------

    The revision in trading strategies discussed above may result in 
changes to the decisions traders make about where to route their orders 
among the various trading venues. Market participants may find that 
depth of book information suggests trading opportunities on exchanges 
to which they would not have otherwise routed their orders. The 
Commission is uncertain about the magnitude of this effect or which 
trading venues may gain or lose order flow as a result. The Commission 
cannot determine how many market participants may choose to change 
routing strategies as a result of the new depth of book information, 
nor to what extent the new depth of book information will cause market 
participants to change where they route their orders.\1986\
---------------------------------------------------------------------------

    \1986\ One commenter stated that this information ``should be 
essential'' to the Commission's analysis, yet did not provide such 
information. See Nasdaq Letter IV at 47. The Commission requested 
comment on this issue but did not receive information to help 
determine these effects, which is unobservable in the current 
market.
---------------------------------------------------------------------------

    Also, the Commission believes that the more widespread 
dissemination of depth of book information may result in more efficient 
pricing.\1987\ As more traders take advantage of information contained 
in the depth of book data, prices will reflect this information more 
quickly.\1988\ Therefore, more widespread dissemination of depth of 
book information may lead to pricing that better reflects available 
information. The size of this effect depends on the willingness and 
ability of market participants who currently rely solely on SIP data to 
make use of the information in the new depth of book data, which is 
unobservable.
---------------------------------------------------------------------------

    \1987\ For further discussion of this point, see infra Section 
V.D.1.
    \1988\ A commenter agreed that including depth of book 
information in core data would improve price discovery. See RBC 
Letter at 4.
---------------------------------------------------------------------------

    The Commission believes that there may be gains from trade that 
will be realized as a result of adding this depth of book information 
as an element of core data. The possibility for this benefit to 
materialize relies on the extent to which there exist market 
participants who will be willing to send orders that ``walk the book'' 
\1989\ but currently do not do so because they do not see what is 
beyond the top of the book. This situation represents a current 
economic inefficiency because there are potential gains from trade that 
are not realized because of a lack of information. This would benefit 
both the market participant walking the book and the market 
participants who posted orders behind the BBO that will be filled as a 
result of the trade.
---------------------------------------------------------------------------

    \1989\ See supra note 1673.
---------------------------------------------------------------------------

    Relatively few orders actually execute at prices outside the 
NBBO,\1990\ which implies that trading against quotes away from the 
NBBO on a single exchange, using a single marketable order, does not 
occur frequently. In addition, an analysis of a sample of trading in 
ten stocks on the Nasdaq exchange found that an average of 0.65% of 
market orders walked through the best displayed price level for these 
ten stocks.\1991\ Therefore, the Commission believes that there may be 
limited benefits from additional DOB information in the particular 
hypothetical case of market participants who currently rely solely on 
SIP data for market information and who will submit market orders to 
trade against limit orders beyond the top of the book on a single 
exchange when the depth of book information is available in core data. 
However, the size of the benefit depends on the willingness of market 
participants to walk the book after receiving the new DOB information, 
as well as their trading interest, and this is unobservable in the 
current market.\1992\
---------------------------------------------------------------------------

    \1990\ See id.
    \1991\ See Nikolaus Hautsch and Ruihong Huang, Limit Order Flow, 
Market Impact and Optimal Order Sizes: Evidence from NASDAQ 
TotalView-ITCH Data, at 10, Table 3 (Aug. 22, 2011), available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914293 
(Retrieved from SSRN Elsevier database).
    \1992\ The Commission requested comment on to what extent any 
benefits of including depth of book information in core data depend 
on the degree to which orders walk the book. No commenters provided 
information on the willingness of market participants to walk the 
book if they received the new DOB information from expanded core 
data.
---------------------------------------------------------------------------

    The addition of depth of book information to expanded core data 
will increase the total message traffic in expanded core data, and this 
increase in message traffic will be accompanied by costs to market 
participants to set up the infrastructure required to handle this new 
level of traffic. Additionally, competing consolidators and SROs may 
incur implementation costs related to receiving and generating the 
information necessary to process and disseminate consolidated market 
data. However, market participants are not required to receive (or 
display) the DOB information contained in expanded core data, and 
competing consolidators will not be required to disseminate all of the 
information in consolidated market data, including DOB information 
contained in expanded core data, so they will not incur these costs 
unless they choose to receive or disseminate this information.\1993\ 
These costs are discussed below in Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    \1993\ See supra Sections II.C.2(a) and III.C.8(a)(ii).
---------------------------------------------------------------------------

(iii) Effects of Addition of Auction Information
    The Commission is adding ``auction information'' as an element of 
core data. This will result in all auction information currently 
disseminated by exchanges via proprietary data feeds being made 
available to subscribers of these elements of core data feeds. This 
will have effects that include changes to market participants' trading 
strategies, gains from trade as a result of new

[[Page 18758]]

participation in auctions, potential improvements to price discovery in 
auctions, changes to order routing decisions, and a significant 
reduction in the value of dedicated proprietary auction feeds.
    Several commenters stated that auction information may only be 
useful to sophisticated investors who already receive it and that 
including it in core data may not benefit most market 
participants.\1994\ However, other commenters stated that investors, 
including retail investors, would benefit from including auction 
information in expanded core data.\1995\ The Commission disagrees with 
the first set of commenters. The Commission believes including auction 
information in core data would expand its availability and allow more 
market participants to receive the benefits described below. Even if 
market participants do not directly access auction information, 
including it in core data may indirectly benefit market participants. 
If broker-dealers that do not currently receive auction information 
utilize the auction information included in core data to improve their 
handling of customer orders that participate in opening and closing 
auctions, it may improve their execution quality. More participation in 
closing auctions could also improve the price efficiency of closing 
prices, which could lead to better trading outcomes for market 
participants that rely on closing prices resulting from closing 
auctions, but do not participate directly in closing auctions.
---------------------------------------------------------------------------

    \1994\ See, e.g., TD Ameritrade at 5; Nasdaq Letter IV at 33; 
Data Boiler Letter at 31.
    \1995\ See, e.g., CBOE Letter at 21; Angel Letter at 8; SIFMA 
Letter at 7; Virtu Letter at 5.
---------------------------------------------------------------------------

    As discussed above, some auction information is currently available 
to market participants through specialized feeds,\1996\ and also a 
limited set of auction information is available through the current SIP 
feeds.\1997\ The availability of these feeds enables access to a 
limited set of auction information for some market participants without 
having to subscribe to full DOB feeds. To the extent that any market 
participants find these specialized auction feeds sufficient for their 
trading needs, the Commission believes that the addition of all auction 
information as an element of core data will have a limited effect on 
these market participants.\1998\ To the extent that those market 
participants make up a large share of the market participants who would 
be interested in using additional auction information, the Commission 
believes that the effect of adding auction information may be 
limited.\1999\ The Commission believes that the extent of this 
limitation is reduced by the fact that not all auction information is 
available to market participants through such feeds. The Commission 
does not have data on the number of market participants with these 
proprietary feed subscriptions.
---------------------------------------------------------------------------

    \1996\ See supra Section V.B.2(a).
    \1997\ See id.
    \1998\ Market participants who currently receive auction 
information through proprietary feeds may switch to using the 
auction information contained in expanded core if it is available at 
lower cost than equivalent data from proprietary feeds. See infra 
Section V.C.2(b).
    \1999\ Since the cost to integrate multiple auction feeds into a 
single feed is a fixed cost in producing a market data feed, the 
Commission believes that there would still be a benefit from the 
rule in the form of competing consolidator integrated auction feeds, 
which could be cheaper for market participants than integrating the 
feeds themselves.
---------------------------------------------------------------------------

    The Commission believes that auction information contains insights 
useful to market participants in devising and executing trading 
strategies.\2000\ Therefore, the Commission believes that adding this 
information as an element of core data will benefit those market 
participants (including retail investors) who currently do not access 
such information, as well as their clients. To the extent that these 
market participants can use this auction information, the addition of 
this information as an element of core data will enable them to produce 
better trading strategies and lower execution costs for their own 
orders and for their clients' orders, as well as facilitate best 
execution.\2001\ To the extent that the advantages of possessing 
auction information come from exploiting the trading decisions of 
market participants who lack this information, this effect will 
represent a transfer from those market participants who currently have 
auction information to those market participants who would obtain 
access to it through this rule and are able to exploit it to improve 
their trading strategies.\2002\ The Commission believes that this 
auction information could potentially be used across all trading 
venues, including exchange auctions, continuous exchange trading, and 
off-exchange venues.
---------------------------------------------------------------------------

    \2000\ See Proposing Release, 85 FR at nn. 344-46. Commenters 
agreed auction information is useful for predicting price movements 
and placing orders in closing auctions. See supra note 1678.
    \2001\ Commenters agreed that including auction information in 
core data may promote more informed and effective trading in 
auctions. See, e.g., Clearpool Letter at 15.
    \2002\ One commenter agreed that including auction information 
in core data would level the playing field for investors. See Virtu 
Letter at 5. Commenters also agreed that including auction 
information in core data would reduce information asymmetry between 
subscribers of SIP data and proprietary DOB feeds. See, e.g., 
IntelligentCross Letter at 4; Clearpool Letter at 15. One commenter 
stated including auction information in core data would benefit 
retail investors by reducing information asymmetry between retail 
investors and more informed market participants. See Angel Letter at 
8 (``Retail investors should be properly informed with appropriate 
information about the indicative auction price and the trading 
imbalance. Otherwise, we will be at a serious disadvantage to other 
better informed players.'').
---------------------------------------------------------------------------

    The Commission believes that the addition of auction information as 
an element of core data will result in increased participation in 
auctions, which may allow market participants to realize potential 
gains from trade. Commenters suggested that there are market 
participants who do not currently trade in auctions because they do not 
access auction data due to the cost of proprietary feeds.\2003\ To the 
extent that such market participants exist, including auction 
information in core data will allow these market participants to access 
this information, which may allow them to gain insights about trading 
opportunities that induce them to trade in auctions.\2004\ Commenters 
stated that an increase in auction participation will also increase 
auction liquidity.\2005\ The Commission agrees and believes that 
increased auction liquidity will also result in increased trading 
during auctions, which could benefit both sides of the trade, thus 
resulting in an economic benefit. To the extent that market 
participants who start trading in auctions as a result of gaining 
access to auction information possess insights beyond what can be 
inferred from auction information, increasing the number of 
participants in auctions as described above should improve price 
discovery in the auction process.\2006\ The Commission believes that 
those who do not participate in auctions because they do not access 
auction information are unlikely to possess insights beyond what can be 
inferred from auction information. This is because any market 
participant who has such insights would find it worthwhile to purchase 
auction information and participate in the auction so as to exploit the 
value of the insights. Therefore, the size of this effect depends on 
the number of market participants who currently possess such insights

[[Page 18759]]

relative to those who do not who start participating in auctions as a 
result of this rule and the size of their resultant auction trades. 
Both of these effects are unobservable in the current market.
---------------------------------------------------------------------------

    \2003\ Commenters stated that the costs of proprietary data 
feeds prevent some market participants from competing in auctions. 
See, e.g., ICI Letter at 9-10; SIFMA Letter at 7.
    \2004\ Commenters agreed that including auction information in 
core data would result in more market participants participating in 
auctions. See, e.g., BlackRock Letter at 2; ICI Letter at 9-10.
    \2005\ See, e.g., BlackRock Letter at 2; IntelligentCross Letter 
at 4.
    \2006\ Commenters agreed that adding auction information to core 
data would improve price discovery. See, e.g., BlackRock Letter at 
2; ICI Letter at 9-10; Data Boiler Letter at 31.
---------------------------------------------------------------------------

    Further, the Commission believes that the addition of auction 
information as an element of core data may affect the order routing 
decisions of market participants who currently do not have access to 
auction information. For example, some off-exchange trading venues 
cross market-on-close orders before the closing auction takes place and 
later settle the trades at the closing auction price. To the extent 
auction information is made available prior to the applicable cut-off 
time, if any, for the submission of closing orders to off-exchange 
venues, having access to auction imbalance information may affect 
market participants' decision to route a closing order to either an 
off-exchange venue or to the closing auction on the primary listing 
exchange. For example, a market participant who gets access to auction 
information through a subscription to these elements of new core data 
might decide not to route the order to an off-exchange venue so as to 
be able to participate in the auction using the new information 
available. Additionally, this auction information could also affect 
decisions made during the time when auction information is disseminated 
about whether an order should participate in continuous market trading 
or an auction. For example, if auction imbalance information indicates 
that an order would have a low probability of executing in an auction 
(or would be likely to execute at a worse price than if the order 
executed during continuous trading), then a market participant may 
decide the order should participate in continuous market trading, 
instead of the auction, to increase the chance the order is filled (or 
executed at a better price).\2007\ However, the overall effect of 
auction information on order routing decisions is uncertain and likely 
will vary based on market conditions.
---------------------------------------------------------------------------

    \2007\ Similarly, if auction imbalance information indicated a 
market participant's order would be more likely to execute in an 
auction at a better price, then the market participant may choose to 
have the order participate in the auction instead of continuous 
trading.
---------------------------------------------------------------------------

    The Commission believes that the value of dedicated proprietary 
auction feeds will be substantially reduced as a result of the addition 
of auction information to core data, and that this will result in a 
loss of revenue for those exchanges who offer such feeds.\2008\ The 
Commission believes that the value of any existing data product that 
provides only auction data \2009\ that is not currently in the 
exclusive SIP feeds will be substantially reduced because of the loss 
of revenue from these dedicated auction feeds. The Commission expects 
that many market participants who are executing a trade, either for 
themselves or for a client, have, and will continue to have, a 
subscription to core data.
---------------------------------------------------------------------------

    \2008\ See infra Section V.C.4(a) (discussing effects on 
exchange proprietary revenue).
    \2009\ See Proposing Release, 85 FR at n. 335.
---------------------------------------------------------------------------

(iv) General Costs to Expanding Consolidated Data
    The Commission believes that there are four potential costs to 
adding the new core data elements, which are common across all these 
elements. The first potential cost is the cost to the new competing 
consolidators that will be necessary to implement or upgrade existing 
infrastructure and software in order to handle the dissemination of the 
additional core data message traffic. The second potential cost is the 
cost to SROs to implement system changes required in order to make 
regulatory data and other data needed to generate consolidated market 
data available to competing consolidators. The third cost is the 
technological investments market participants might have to make in 
order to receive the new core data message traffic. The fourth cost is 
the cost to users of certain kinds of trading strategies that may 
currently be relying on the fact that this data is not widely 
distributed today.
    The Commission believes that the cost for firms that wish to become 
competing consolidators to implement or upgrade infrastructure to 
handle the dissemination of odd-lot quotes, depth of book information, 
and auction information will be limited. Competing consolidators will 
not be required to disseminate all of the information in consolidated 
market data, including the additional data elements contained in 
expanded core data, so they will not incur these costs unless they 
choose to disseminate this information.\2010\ As discussed in more 
detail below,\2011\ the Commission believes that the new competing 
consolidators will likely be firms that already have the technological 
infrastructure necessary to process full depth of book data and to 
generate the NBBO using this data. Therefore, for these firms, 
processing the new message traffic resulting from the additional 
content of expanded core data may add only a minimal cost to becoming a 
competing consolidator. However, for a firm that does not currently 
subscribe to, or process data from, exchange proprietary feeds, the 
additional message volume will increase the cost of becoming a 
competing consolidator if they choose to offer a consolidated market 
data product that includes the additional data elements contained in 
expanded core data. In particular, if the existing exclusive SIPs 
should decide to enter the competing consolidator business and choose 
to offer a consolidated market data product containing this data, they 
may incur such costs as they do not currently disseminate full depth of 
book data. These costs are included in the estimated costs for 
competing consolidators discussed below in Section V.C.2(d)(i).
---------------------------------------------------------------------------

    \2010\ See supra Section III.C.8(a)(ii).
    \2011\ See infra Section V.C.2(a) for a discussion of the 
technological capabilities of firms the Commission believes are most 
likely to become competing consolidators. It is possible that the 
new definition of core data will make consolidation more difficult 
for core data than it is currently, and that this added difficulty 
will result in additional latency. However, the Commission believes 
that the risk of this is minimal, again because of the technological 
capabilities of competing consolidators and the market forces that 
will be in effect in the decentralized consolidation model.
---------------------------------------------------------------------------

    The Commission believes that there will be some infrastructure 
investment required on the part of SROs to provide the information 
necessary to process and disseminate consolidated market data. The 
Commission believes that the infrastructure investment required by most 
SROs to provide the elements necessary to generate core data will be 
limited, because most SROs currently provide all elements of the new 
definition of core data over their proprietary feed 
infrastructure.\2012\ In addition, the Commission believes that many 
competing consolidators and self-aggregators will be firms that already 
subscribe to these feeds,\2013\ and thus, the SROs will likely not have 
a large amount of new data connections to service and therefore will 
not need to invest in infrastructure to handle them. However, as 
discussed by a commenter, FINRA may incur higher infrastructure 
investment costs in order to make data from the ADF available to 
competing consolidators and self-aggregators because it currently only 
provides this data to the SIPs.\2014\ Additionally, exchanges, 
particularly primary markets, may incur some infrastructure costs 
related to the dissemination of new regulatory data.\2015\ Currently, 
the

[[Page 18760]]

new regulatory data component to consolidated market data is 
distributed through the SIPs. In order for this information to be 
distributed through the new decentralized consolidation model, the rule 
requires the exchanges to provide a feed to competing consolidators and 
self-aggregators that contains the regulatory data. The Commission 
believes that the infrastructure and operational processes to provide 
such a feed are currently not completely in place and will require 
investment on the part of exchanges. These costs are included in the 
estimated costs for SROs discussed below in Section V.C.2(d)(ii).
---------------------------------------------------------------------------

    \2012\ See supra Section V.B.2(a).
    \2013\ See infra Sections V.C.2(a) and V.C.2(f).
    \2014\ See FINRA Letter at 3-4. See supra Section III.B.9(e).
    \2015\ As discussed above, this new regulatory data will consist 
of all the same messages as current regulatory data distributed 
through the exclusive SIPs. See supra Sections II.H and II.I. See 
also Proposing Release, 85 FR at Section III.D.
---------------------------------------------------------------------------

    One commenter stated that requiring each SRO to connect and 
transmit data to a large number of competing consolidators and self-
aggregators could significantly increase costs for SROs.\2016\ The 
Commission disagrees with this commenter. As discussed above, the 
Commission does not believe that SROs will need to add significant 
connectivity to account for competing consolidators and self-
aggregators, because the Commission believes that most market 
participants who will become competing consolidators and self-
aggregators already subscribe to exchange proprietary data feeds.\2017\
---------------------------------------------------------------------------

    \2016\ See FINRA Letter at 3.
    \2017\ As discussed below, an SRO would incur costs, which could 
include costs related to expanding connectivity and making sure the 
data is delivered at similar speeds to its other proprietary feeds, 
if it developed a separate feed to distribute the data necessary to 
generate consolidate market data. However the Commission does not 
believe that an SRO is likely to develop a separate feed and incur 
the costs. See infra Section V.C.2(d)(v).
---------------------------------------------------------------------------

    The Commission believes that there will be costs for infrastructure 
investment in order for market participants to receive the new odd-lot, 
DOB, and auction information components of core data. However, because 
market participants will not be required to receive the additional 
information in core data, the infrastructure investment costs will be 
limited to those market participants that choose to receive it.\2018\ 
Adding these components to core data will substantially increase the 
total message traffic in core data,\2019\ and this increase in message 
traffic will be accompanied by costs to market participants to set up 
the infrastructure required to handle this new level of traffic. 
Commenters stated that this will require significant infrastructure 
upgrades to receive the data.\2020\ The Commission acknowledges that 
some market participants will require significant infrastructure 
upgrades to receive the additional elements of core data. However, the 
Commission notes that the final amendments will not require market 
participants to receive (or display) the complete set of consolidated 
market data, and competing consolidators will not be required to 
deliver all proposed consolidated market data for each data product 
they offer.\2021\ Therefore, most market participants who do not want 
to incur the costs associated with the expanded core data message 
traffic due to additional odd-lot information, depth of book 
information, or auction information will be able to choose not to 
receive any such additional information. Thus, market participants who 
do not wish to incur the cost of the infrastructure investments 
necessary to receive the new core data will not. For those market 
participants who do wish to incur the cost, the Commission is unable to 
estimate the associated costs because the costs would vary across 
market participants and depend on each market participant's existing 
infrastructure.\2022\
---------------------------------------------------------------------------

    \2018\ See supra Section III.B.6.
    \2019\ The Commission believes that the addition of information 
on odd-lots quotes that are priced at or more aggressively than the 
NBBO and the addition of DOB information, in particular, may 
substantially increase message traffic. See Proposing Release, 85 FR 
at n. 294. Commenters agreed that the expansion of new core data, 
especially the inclusion of DOB would significantly increase message 
traffic. See, e.g., Virtu Letter at 5; STANY Letter II at 3.
    \2020\ See, e.g., Virtu Letter at 5; TD Ameritrade Letter at 5.
    \2021\ A market participant that has obligations under Rule 
603(c) will have to receive all data necessary to generate 
consolidated market data to comply with the rule. The specific cost 
associated with some of this data is discussed below. See infra 
Section V.C.2(d).
    \2022\ See infra note 2290 and accompanying text.
---------------------------------------------------------------------------

    Some commenters stated that the increase in message traffic from 
expanding core data will increase the latency of core data.\2023\ The 
Commission does not believe that expanding the content of core data 
will increase the latency of core data when it is combined with the 
decentralized consolidation model. The Commission believes that 
competing consolidators will develop technology to handle the expanded 
content of core data and to reduce the latency of aggregating and 
transmitting core data.\2024\ The Commission understands that third 
party market data aggregators aggregate and disseminate proprietary DOB 
feeds (which contain additional message traffic) at lower latencies 
than the exclusive SIPs and expects that competing consolidators would 
use similar technology to aggregate and disseminate the expanded 
content of core data at lower latencies than the exclusive SIPs.\2025\ 
Furthermore, the decentralized consolidation model will also reduce 
geographical latency by eliminating the extra hop that the exclusive 
SIPs currently experience.\2026\ As discussed above, market 
participants may also need to expand their bandwidth and invest in 
additional technology and infrastructure to handle receiving the 
additional content in core data. The increase in message traffic could 
increase the latency of market participants receiving expanded core 
data if they do not make these investments. However, the Commission 
believes that for those market participants who choose to receive the 
entire content of consolidated market data, these market participants 
will make the investments in technology to receive the data and not add 
latency.
---------------------------------------------------------------------------

    \2023\ See, e.g., STANY Letter II at 3.
    \2024\ See infra Sections V.C.2(c)(ii) and V.C.2(c)(iii).
    \2025\ See supra Section V.B.2(b).
    \2026\ See infra Section V.C.2(c)(iii).
---------------------------------------------------------------------------

    The Commission believes that adding the odd-lot quote, depth of 
book, and auction information to core data may impose a cost on traders 
who rely on strategies that take advantage of the fact that the 
information in odd-lot quote, depth of book, and auction data is not 
widely distributed (i.e., those traders who are beneficiaries of 
existing informational asymmetries). To the extent that some of the 
value of odd-lot quote, depth of book, and auction information lies in 
the fact that they currently are not observed by a number of market 
participants, the Commission believes that the dissemination of this 
data will adversely impact the profitability of such trading 
strategies. For traders using trading strategies based on depth of book 
information, the magnitude of the cost caused by the proposed 
amendments will depend on the extent to which the five aggregated 
levels of depth approximate the information contained in the full depth 
of book information. To the extent that these strategies exploit the 
lack of information on the part of exclusive SIP-reliant traders, this 
cost will represent a partial transfer to traders who currently rely 
solely on SIP data. The Commission is unable to estimate the size of 
this effect, since it does not have a method for detecting the use of 
such trading strategies from market data or determining what the profit 
on such strategies would be if they could be detected.
    One commenter stated that the Commission did not evaluate the 
effects of the potential changes in these trading strategies, including 
its effects on liquidity on ``lit'' markets.\2027\ The

[[Page 18761]]

Commission does not believe that changes in these trading strategies 
will have a significant effect on the liquidity on exchanges because 
increased competition from new market makers and broker-dealers that 
receive the expanded content of core data (which contribute to the 
reduction in the profits of those traders who are beneficiaries of 
existing informational asymmetries) will offset any liquidity reduction 
that may have occurred from changes in the trading strategies of those 
traders who are beneficiaries of existing informational 
asymmetries.\2028\ However, the Commission is unable to estimate the 
size of this effect because it cannot estimate the extent to which the 
profitability of such trading strategies will be affected.
---------------------------------------------------------------------------

    \2027\ See Nasdaq Letter IV at 31.
    \2028\ See infra Section V.C.4(a).
---------------------------------------------------------------------------

    One commenter stated that one cost the Commission did not consider 
in the expansion of core data was that, to the extent that the 
definition of core data continues to be updated in the future 
Commission rulemaking to include more proprietary data in it, exchanges 
will have less incentive to innovate and provide new or improved 
proprietary data products.\2029\ The Commission agrees that to the 
extent this happens, the incentive to innovate will be reduced. 
However, the Commission does not believe that the incentive to innovate 
will be entirely removed. The final rules do not include all 
proprietary data elements in consolidated market data and do not 
contemplate any updates to core data (except for additions to auction 
data information). Therefore, exchanges may be able to expect that some 
amount of revenue could be collected on new proprietary data products 
developed. To the extent that the Commission does not change the 
definition of core data in the future to include any new data products 
after such products are made available, the exchanges may be able to 
collect a significant amount of revenue on such products and therefore 
will continue to have strong incentives to innovate. To the extent that 
the Commission frequently changes the definition of core data to 
include new products developed by exchanges soon after they are made 
available, exchanges may not be able to collect significant revenue 
from them and their incentives to innovate will weaken. In the event 
that exchange incentives to innovate are weak, the lost innovation may 
represent a significant cost to the market.
---------------------------------------------------------------------------

    \2029\ See Nasdaq Letter IV at 7 (``Expropriating the 
proprietary market data products that Nasdaq and others have spent 
years developing would rob them of the fruits of their labors and 
dash their incentives to develop new and innovative data products 
going forward.'').
---------------------------------------------------------------------------

    Commenters stated that retail investors currently receive core data 
at little or no cost and that the expansion of core data content would 
increase costs for retail investors.\2030\ One of these commenters 
stated that currently retail investors who do not use depth-of-book 
data and auction data do not pay for it, but that the proposed rule 
will replace this with a single feed that is too much data for the 
retail investor.\2031\ The Commission believes that there is 
uncertainty regarding the cost of market data that retail investors 
will pay.\2032\ One factor would be the data content that retail 
investors receive. If retail brokers supply retail investors with some 
of the additional content from expanded core data, then their costs 
could increase but still be lower than the current cost of receiving 
equivalent data from SIP and proprietary feeds. However, even if retail 
brokers do not supply retail investors with any additional content from 
expanded core data, there are reasons that the overall cost of market 
data for retail investors could stay at similar rates or decrease 
relative to the fees charged by the current exclusive SIPs, including, 
among other things, the fees set by the Equity Data Plan(s) and whether 
they establish fees for data content underlying consolidated market 
data offerings that use subsets of consolidated market data (i.e., for 
only TOB data, DOB data, etc.), as well as the different products 
offered by competing consolidators and how they allocate fixed 
costs.\2033\
---------------------------------------------------------------------------

    \2030\ For commenters' views regarding current retail core data 
costs see, e.g., Angel Letter at 11 (stating retail 
``nonprofessional'' investors pay almost nothing in direct fees for 
market data and that most of the data costs are picked up by 
``professional'' users as a result of the good price discrimination 
in the current system that favors retail investors); Nasdaq Letter 
IV at 38. For commenters' views regarding cost increases to retail 
investors from the expansion of core data content, see, e.g., Nasdaq 
Letter IV at 38; TD Ameritrade Letter at 2, 14-15; Angel Letter at 
24.
    \2031\ See Nasdaq Letter IV at 38.
    \2032\ Retail investors may not directly pay for market data, 
but the costs of retail investors accessing market data may be 
indirectly passed on through the fees charged by retail broker-
dealers.
    \2033\ See infra Section V.C.2(b) for a detailed discussion of 
these fees.
---------------------------------------------------------------------------

2. Decentralized Consolidation Model
    This section focuses on the economic effects pertaining to the 
decentralized consolidation model. We first discuss the relevant broad 
economic considerations and economic benefits and costs of the 
decentralized consolidation model with regards to competing 
consolidators, then we address economic benefits and costs for self-
aggregators, and finally we conclude with the discussion of conforming 
changes.
(a) Broad Economic Considerations About the Decentralized Consolidation 
Model
    The economic analysis of the effects of the decentralized 
consolidation model assumes that upon the introduction of the model, a 
sufficient number of competing consolidators will enter the market so 
that competitive market forces will have a significant effect on their 
behavior. Several factors affect the reasonableness of this assumption: 
Barriers to entry into the competing consolidator space, fees for data 
content, uncertainty regarding connectivity charges for data underlying 
consolidated market data, potential size of the market for consolidated 
market data products, and competing consolidators' ability to offer 
differentiated products. While the Commission recognizes uncertainty in 
these factors \2034\ and that certain economic impacts depend on this 
assumption, the Commission believes that the risk of too few competing 
consolidators entering the market, and thus, precluding any potential 
benefits from materializing is low. Further, the Commission will 
consider the state of the market and the general readiness of the 
competing consolidator infrastructure in determining whether to approve 
a national market system plan amendment that will effectuate a 
cessation of the operation of the existing exclusive SIPs.
---------------------------------------------------------------------------

    \2034\ Commenters agreed that there is uncertainty about the 
potential market for competing consolidators. See, e.g., Nasdaq 
Letter IV at 8.
---------------------------------------------------------------------------

(i) Factors
(a) Barriers to Entry
    The first factor that will affect the number of competing 
consolidators is the barriers to entry. Potential entrants into the 
competing consolidator business could incur two types of barriers to 
entry: Business implementation costs that emerge from the technical 
necessities of becoming a competing consolidator and regulatory 
compliance costs. The business implementation costs will include 
creation or modification of technical systems to receive, consolidate, 
and disseminate consolidated market data.\2035\ Potential entrants will 
also

[[Page 18762]]

need to satisfy the regulatory compliance requirements of Rule 614 to 
become competing consolidators, and many competing consolidators may 
need to eventually satisfy the regulatory requirements of Regulation 
SCI.\2036\ Both the business implementation and regulatory compliance 
costs will differ based on the entrant type.\2037\ The Commission 
believes that the barriers to entry will vary based on whether the 
potential competing consolidator is: A market data aggregation firm or 
a broker-dealer that currently aggregates market data for internal 
uses, one of the existing exclusive SIPs (which are operated by SROs), 
an SRO that does not operate an exclusive SIP, or a new entrant without 
experience aggregating market data. The business implementation costs 
will also vary based on the elements of consolidated market data the 
competing consolidator chooses to offer in their products.
---------------------------------------------------------------------------

    \2035\ Competing consolidators will need to have systems and 
connections in place to receive data content from all SROs and then 
to disseminate the consolidated market data to a variety of market 
participants who will purchase their products. See supra Section 
V.C.1(b)(vi) and infra Section V.C.2(d). One commenter agreed that 
infrastructure costs would serve as a barrier to entry for potential 
competing consolidators. See NYSE Letter II at 15 (``[t]he 
significant costs required to develop, test, and support these 
technologies--costs that even existing data processors would incur--
would serve as a barrier to entry for the competing consolidator 
market.''). As discussed in detail in this section and below in 
Section V.C.2(d), the Commission believes that the costs for 
potential competing consolidators to develop and implement their 
systems will vary based on the type of entity that becomes a 
competing consolidator, but for some types of entities, these costs 
could be significantly higher and pose a larger barrier to entry.
    \2036\ See supra Sections III.C.7 and III.C.8 (discussing the 
requirements of Rule 614). See also supra Section III.F (discussing 
the requirements of Rule 614(d)(9) and Regulations SCI). New 
entrants will face both initial implementation and ongoing costs to 
comply with these regulatory requirements. See infra Sections 
V.C.2(d) and V.C.2(e)(ii) (discussing these costs).
    \2037\ See supra Sections IV.D.3 and IV.G. See also infra 
Sections V.C.2(d) and V.C.2(e)(ii).
---------------------------------------------------------------------------

    The Commission believes that the existing market data aggregation 
firms and some broker-dealers that currently aggregate market data for 
internal uses could face low barriers to entry to become competing 
consolidators. Because they currently collect, consolidate, and, in 
some cases, disseminate market data to their customers, much like 
competing consolidators would, the Commission believes that firms and 
broker-dealers that currently aggregate proprietary market data would 
not have to extensively modify their systems. However, the Commission 
believes that each of these firms and broker-dealers would incur costs 
to expand their bandwidth and purchase hardware to receive information 
that is not currently disseminated in the exchange proprietary market 
data feeds, such as the regulatory data and administrative data.\2038\ 
Further, current market data aggregators and broker-dealers that 
currently aggregate market data for internal uses would incur new 
compliance costs to satisfy the regulatory compliance requirements to 
become competing consolidators, including costs associated with Form 
CC, as well as costs to comply with Rule 614(d)(9) and likely 
eventually Regulation SCI.\2039\ These regulatory costs would initially 
be lower, but they could become large and therefore may affect entry 
and the benefits of the decentralized consolidation model.\2040\
---------------------------------------------------------------------------

    \2038\ See infra Section V.C.2(d).
    \2039\ See id. See also infra Sections V.C.3 (for costs 
associated with Form CC); V.C.2(e)(ii) (for costs associated with 
Rule 614(d)(9) and Regulation SCI).
    \2040\ Although potential competing consolidators will initially 
be subject to the lower costs of Rule 614(d)(9) rather than 
Regulation SCI, which will lower the initial barriers to entry, the 
Commission expects that many competing consolidators will eventually 
be SCI competing consolidators and that potential competing 
consolidators will take the higher costs of eventually becoming an 
SCI competing consolidator into account when deciding to enter the 
market. Rule 614(d)(9), which includes requirements similar to some 
of the key provisions of Regulation SCI, will apply to all competing 
consolidators (except competing consolidators affiliated with 
exchanges that do not operate under the limited exemptive relief) 
during the initial transition period and smaller competing 
consolidators that do not meet the market data revenue threshold for 
SCI competing consolidators thereafter. All competing consolidators 
that meet the consolidated market data revenue threshold for SCI 
competing consolidators, after the initial transition period, will 
be subject to Regulation SCI. See infra Section V.C.2(e)(ii) 
(discussing these costs). See also supra Section IV.G.3 (discussing 
number of competing consolidators subject to Regulation SCI).
---------------------------------------------------------------------------

    The Commission believes that barriers to entry for a potential 
competing consolidator that is affiliated with an exchange--which could 
be one of the exclusive SIPs--would depend on several factors. In 
addition, both business implementation and regulatory compliance costs 
would be relatively lower for the existing exclusive SIPs than for the 
other competing consolidators that are affiliated with exchanges.
    The barriers to entry from business implementation costs to operate 
a competing consolidator would be relatively low for an exclusive SIP. 
Because the systems used by the exclusive SIPs already collect 
information in quotations and transactions from the SROs as well as 
aggregate and disseminate it, the exclusive SIPs would not have to make 
as extensive modifications to their systems as the other competing 
consolidators that are affiliated with exchanges.\2041\ However, they 
would still incur costs to expand their bandwidth and connections to 
consume and disseminate consolidated market data as well as to transmit 
it with lower latency, and to program feed handlers to receive and 
normalize the different formats of the data feeds developed by the 
exchanges.\2042\ On the other hand, the Commission believes that other 
competing consolidators that are affiliated with exchanges would likely 
have to build at least some new systems to process expanded core data, 
and thus, could incur relatively high initial implementation costs, 
though they may be able to keep their costs lower by leveraging some of 
their existing systems.\2043\
---------------------------------------------------------------------------

    \2041\ Based on Commission staff experience, the Commission 
understands that existing exclusive SIPs' protocols for receiving 
direct data from exchanges are not standardized and introduce 
additional operational complexities. However, as the operators of 
exclusive SIPs, the exchanges, have figured out how to aggregate 
direct feeds for the purposes of their exchange matching engines, so 
they have the technology that would be deployable in the new 
decentralized consolidation model. If the exclusive SIPs determine 
to register as competing consolidators and to operate their 
competing consolidators using the existing infrastructure of the 
exclusive SIPs, then they may incur costs in order to reimburse each 
Plan's Participants for the costs they paid to build the exclusive 
SIP's systems. However, any determinations regarding payments to 
Participants or the disposition of the assets of the exclusive SIPs 
would be made by the Participants of the Equity Data Plans, subject 
to Rule 608. See supra note 979 and accompanying text.
    \2042\ See supra Section V.C.1(b)(vi) and infra Section 
V.C.2(d).
    \2043\ See supra Section IV.D.3 and infra Section V.C.2(d).
---------------------------------------------------------------------------

    The barriers to entry from regulatory compliance costs would also 
be relatively lower for an exclusive SIP. Because the exclusive SIPs 
currently operate critical SCI systems,\2044\ they will not bear any 
initial compliance costs associated with Rule 614(d)(9) and their 
ongoing compliance costs associated with Regulation SCI will not 
increase.\2045\ SROs that do not operate exclusive SIPs are also 
already SCI entities. However, because these SROs do not have direct 
experience operating in the consolidated market data business, they may 
need to incur initial costs in order for their competing

[[Page 18763]]

consolidator systems to be compliant with Rule 614(d)(9).\2046\
---------------------------------------------------------------------------

    \2044\ See supra Section III.H.
    \2045\ The Commission believes that the exclusive SIPs that 
become competing consolidators will likely surpass the 5% revenue 
threshold and will be required to comply with Regulation SCI at the 
end of the transition period, as described in the amendments. Their 
compliance costs associated with Regulation SCI may decrease, 
because the systems of an exclusive SIP that became a competing 
consolidator would no longer be considered critical SCI systems, 
which have stricter requirements and higher costs than other SCI 
systems. For example a critical SCI system needs to maintain backup 
systems that are designed to allow them to resume operations within 
two hours of a system outage (SCI entities only have the requirement 
to resume operations the day following a system outage). See infra 
V.C.2(e)(ii).
    \2046\ See id.
---------------------------------------------------------------------------

    The other regulatory costs that the competing consolidators that 
are affiliated with exchanges would incur would vary based on whether 
they chose to operate under the provisions of the limited exemptive 
relief from the rule filing requirements of Section 19(b) of the 
Exchange Act and Rule 19b-4 thereunder, the denial of access provisions 
in Section 19(d) of the Exchange Act, the requirements in Section 6(b) 
of the Exchange Act, and from Regulation SCI in regard to their 
competing consolidators.\2047\ However, the Commission believes that a 
competing consolidator that is affiliated with an exchange would choose 
to operate under the provisions of the limited exemptive relief because 
then they would not need to file rule changes (including new products 
and fee changes) related to their competing consolidator functions with 
the Commission under Section 19(b) of the Exchange Act.\2048\ If these 
competing consolidators operate under the exemption, then they would 
still incur the other regulatory compliance costs associated with Rule 
614.\2049\ If these competing consolidators did not operate under the 
exemption, then they would need to comply with certain rules applicable 
to SROs, including the provisions of Regulation SCI and the 
requirements of Section 6(b), and to file all rule changes with the 
Commission under the Section 19(b) process, which would impose 
significant regulatory barriers in terms of making adjustments to their 
products and fees compared to other competing consolidators, 
potentially placing them at a competitive disadvantage.\2050\ It would 
also create higher initial barriers to entry because the competing 
consolidator operations would need to be filed and approved by the 
Commission under Section 19(b) of the Exchange Act before they could 
begin operating.
---------------------------------------------------------------------------

    \2047\ A competing consolidator affiliated with an exchange may 
be a facility of the exchange and subject to Section 19(b) of the 
Exchange Act and Rule 19b-4 thereunder. If a competing consolidator 
that is affiliated with an exchange chooses to act under the limited 
exemptive relief, then the competing consolidator could do so 
pursuant to the conditions of the exemption and without having to 
operate under the denial of access provisions in Section 19(d) of 
the Exchange Act, the provisions of Regulation SCI related to an SRO 
(it would still be subject to the provisions of Regulation SCI 
related to competing consolidators), or without filing proposed rule 
changes with the Commission under Section 19(b) of the Exchange Act 
and Rule 19b-4 thereunder. Additionally, a competing consolidator 
that is affiliated with an exchange that chooses to operate under 
the limited exemptive relief would be exempt from the requirements 
of Section 6(b) of the Exchange Act (it would still be subject to 
the requirement in Rule 614(d)(3) to make consolidated market data 
products available to subscribers on terms that are not unreasonably 
discriminatory). See supra Section III.C.7(a)(iv).
    \2048\ See id.
    \2049\ A competing consolidator operating under the exemption 
would bear the regulatory compliance costs associated with Rule 614, 
including the costs associated with Form CC because the exemption 
requires the competing consolidator be registered as a competing 
consolidator under Rule 614 and be in compliance with the disclosure 
and other substantive regulatory requirements applicable to 
competing consolidators in Rule 603, Rule 614 and Form CC. Under the 
exemption, the exchange would also not be permitted to link the 
pricing for services of the affiliated competing consolidator to 
activities on, or other services performed by, the exchange. See id. 
See also infra Sections V.C.2(d) and V.C.3 for discussions of the 
regulatory compliance costs.
    \2050\ Rule filings under Section 19(b) would be subject to a 
notice and comment process and Commission consideration. Fee changes 
could be immediately effective upon filing under Section 19(b)(3), 
but the Commission would have the authority to abrogate such fee 
changes.
---------------------------------------------------------------------------

    The Commission anticipates that new entrants without prior 
experience in the market data aggregation business may become competing 
consolidators but that they would have the highest barriers to entry 
because they would incur both infrastructure and compliance costs. The 
new entrants would incur high infrastructure costs to build new systems 
to receive, consolidate, and disseminate consolidated market data; 
including costs to program feed handlers to be able to receive and 
normalize exchange data in different formats, and purchase bandwidth 
and connections to exchanges and co-location. These costs increase the 
fixed costs of participating as a competing consolidator in the market, 
further contributing to the barriers to entry. New entrants may also 
have the highest compliance costs among all potential entrants, because 
they would have to build compliance systems from scratch to satisfy 
both Rule 614(d)(9), and later potentially Regulation SCI, as well as 
the other requirements of Rule 614, including Form CC. Therefore, the 
Commission believes that there may be a limited number of firms that 
could enter the market data aggregation business for the first time.
    The business implementation compliance costs will vary based on the 
elements of consolidated market data the competing consolidator chooses 
to offer in their products. Specifically, potential entrants that seek 
to specialize in offering data products to clients who do not wish to 
receive the full consolidated market data could save on ongoing costs 
and potentially also on initial infrastructure costs.\2051\ The initial 
cost savings would vary across the entrant types listed above depending 
on the extent to which the entrant has already built the infrastructure 
necessary to aggregate and distribute data similar to consolidated 
market data. For example, current data aggregators choosing to 
specialize are likely to see a small reduction in barriers to entry 
from this change while firms without prior experience are likely to see 
a significant reduction in barriers to entry.
---------------------------------------------------------------------------

    \2051\ See supra Section III.C.1(b) and infra Section 
V.C.2(d)(i).
---------------------------------------------------------------------------

    One commenter stated that the Commission did not consider the risks 
of the potential liability that a competing consolidator may incur for 
any performance failures, which are a significant barrier to 
entry.\2052\ The Commission believes that these potential liability 
concerns are not a significant barrier to entry for competing 
consolidators. Competing consolidators could attempt to limit their 
potential liability from systems issues through contractual agreements 
with their subscribers, similar to provisions that data providers 
currently include in their subscriber agreements.\2053\
---------------------------------------------------------------------------

    \2052\ See NYSE Letter II at 15.
    \2053\ See, e.g., CTA Plan Professional Subscriber Agreement, 
available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Professional%20Subscriber%20Agreement.pdf; UTP Plan Subscriber 
Agreement, available at http://www.utpplan.com/DOC/subagreement.pdf; 
Nasdaq Global Subscriber Agreement, available at: http://www.nasdaqtrader.com/content/AdministrationSupport/AgreementsData/subagreemstandalone.pdf; ICE Data Services and Software Services 
Agreement, available at: https://www.theice.com/publicdocs/agreements/ICE_Data_Services_Agreement.pdf.
---------------------------------------------------------------------------

b. Effective National Market System Plan(s) Fees for Data Content 
Underlying Consolidated Market Data
    Another factor that would affect the number of competing 
consolidators relates to the fees that the effective national market 
system plan(s) would set for the consolidated market data 
content.\2054\ If these fees are set too high or have the effect of 
limiting product differentiation,\2055\ they could limit the 
opportunities for competing consolidators to build profitable 
businesses.
---------------------------------------------------------------------------

    \2054\ See infra Section V.C.2(b) for a discussion on the 
economic analysis of data content, consolidation and dissemination, 
and connectivity fees.
    \2055\ See infra Section V.C.2(a)(i)e for a discussion on the 
potential dimensions of product differentiation by competing 
consolidators.
---------------------------------------------------------------------------

    The Commission recognizes uncertainty in these fees. The fees 
developed by the effective national market system plan(s) for the data

[[Page 18764]]

content underlying consolidated market data offerings would be proposed 
by the Operating Committee(s) of the national market system plan(s) and 
filed with the Commission.\2056\ Because such fees depend on future 
action by the effective national market system plan(s), the Commission 
cannot be certain of the level of those fees or whether such fees would 
provide discounts for those end users who wish to receive subsets of 
consolidated market data (e.g., different prices for different levels 
of data content or different core data component) or based on usage 
categories (e.g., professional, non-professional, non-display).\2057\ 
As discussed further below, the fees developed by the Operating 
Committee of the effective national market system plan(s) must be fair 
and reasonable and not unreasonably discriminatory.
---------------------------------------------------------------------------

    \2056\ See Proposing Release, 85 FR at 16837.
    \2057\ See infra Section V.C.2(b)(ii) for further discussion of 
the impact of providing discounts based on scope of data content.
---------------------------------------------------------------------------

    Some commenters said that the uncertainty over fees for data 
content underlying consolidated market data offerings will make it 
difficult for potential competing consolidators to estimate the 
economic value of this new business opportunity, and therefore, enter 
the market.\2058\ While there is uncertainty surrounding the currently 
unknown levels of data content fees, potential competing consolidators 
can judge the value of the business opportunity. Potential competing 
consolidators will see, and be able to comment on, the newly proposed 
data content fees before they will have to decide whether to register 
as competing consolidators.\2059\ During the transition period, the new 
data content fees proposed by the effective national market system 
plan(s) will be available for potential competing consolidators to 
review and comment on before the registration date for the initial 
competing consolidator wave expires. This will give competing 
consolidators adequate time to evaluate this information and the 
potential business opportunity.
---------------------------------------------------------------------------

    \2058\ See, e.g., NYSE Letter II at 14.
    \2059\ See supra Section III.H for a discussion of the steps 
during the transition period.
---------------------------------------------------------------------------

    Additionally, the Commission believes that there will likely be 
different levels of fees for data content underlying consolidated 
market data offerings either based on usage category (e.g., 
professional, non-professional, non-display) or based on the scope of 
data content market participants use or a combination of both.\2060\ In 
either case, the Commission believes that the differential pricing of 
consolidated market data will expand differentiation opportunities for 
the potential competing consolidator, as discussed below.\2061\
---------------------------------------------------------------------------

    \2060\ See infra Section V.C.2(b) for a discussion in the impact 
on data fees.
    \2061\ See infra Section V.C.2(a)(i)e for a discussion on 
competing consolidators' differentiation.
---------------------------------------------------------------------------

c. Connectivity
    Another factor affecting the number of competing consolidators is 
the uncertainty regarding connectivity charges for data underlying 
consolidated market data and their effects on the viability of the 
decentralized model. Each exchange's data connectivity fees will 
continue to be set forth in the exchange's fee schedules and must 
continue to meet statutory standards.\2062\ Connectivity fees for the 
provision of data content underlying consolidated market data would be 
a fixed input cost for competing consolidators, and, therefore, the 
level of connectivity fees for data content underlying consolidated 
market data may affect the economies of scale and the resulting number 
of competing consolidators.\2063\ To the extent that some competing 
consolidators choose to offer data products with narrower data content 
than the entirety of consolidated market data, they could lower their 
connectivity costs because they could likely use connectivity options 
with narrower data transmission bandwidths.
---------------------------------------------------------------------------

    \2062\ See Proposing Release, 85 FR at n. 1019.
    \2063\ One commenter stated that the Commission may need to 
consider ways ``to avoid the imposition of fees that are 
substantially disproportionate to the cost of providing these 
connectivity methods.'' See IEX Letter at 8. As discussed below, 
connectivity fees competing consolidators might pay to the exchanges 
to receive data content underlying consolidated market data will 
have to be filed with the Commission as part their fee schedules and 
must continue to meet statutory standards. See infra Section 
V.C.2(b)(i)c and note 2171.
---------------------------------------------------------------------------

d. Potential Size of the Market for Consolidated Market Data Products
    Another important factor in assessing whether competing 
consolidators might face profitable business opportunities is the size 
of the market for consolidation and dissemination services. The size of 
the market will limit the aggregate revenue that competing 
consolidators will be able to collect from market participants. The 
size of the market can only support the number of competing 
consolidators that keep aggregate costs at or below the aggregate 
revenue.
    Commenters stated that the size of this market is not large enough 
to support enough competing consolidators for sufficient competition 
and that the Proposing Release did not adequately analyze potential 
revenue streams for competing consolidators.\2064\ The Commission 
believes that the size of the market is large enough to sustain several 
competing consolidators, because the Commission estimates that the 
potential annual revenues for competing consolidators will range from 
approximately $78 million to $97 million.\2065\ This is large enough to 
support several competing consolidators. The Commission is able to 
estimate the current revenues from consolidation and dissemination of 
SIP data because of some new information provided by one 
commenter.\2066\
---------------------------------------------------------------------------

    \2064\ See, e.g., IDS Letter I at 3.
    \2065\ To calculate these numbers the Commission uses estimates 
of the current revenues from consolidation and dissemination of SIP 
data as well as estimates of potential revenues from market 
participants switching from proprietary data to consolidated market 
data products as a proxy for the potential revenue size for the new 
competing consolidator business. See infra notes 2072, 2074, 2075, 
2076, and 2077 for the calculations of these numbers and the various 
assumptions that went into those calculations.
    \2066\ See Nasdaq Letter IV at 29 for a discussion on Nasdaq's 
connectivity and market data revenue numbers. See also Proposing 
Release, 85 FR at 16816.
---------------------------------------------------------------------------

    The Commission believes these estimates are a lower bound \2067\ 
and are based on the current SIP market conditions. They do not take 
into account any demand expansion from potential new entrants into the 
broker-dealer, market maker, and other latency sensitive businesses 
\2068\ nor from market participants who currently rely exclusively on 
SIP data choosing to spend more on data to receive additional 
consolidated data.\2069\ The Commission cannot address these

[[Page 18765]]

omissions because it does not have sufficient information to estimate 
the size of this potential demand expansion. As a result, these numbers 
underestimate the potential market size for competing consolidators. In 
addition, the estimates contained in this section are associated with 
significant additional uncertainty, especially in terms of connectivity 
revenues.\2070\ The potential revenue estimate is based on the current 
exclusive SIPs' revenues combined with certain market data aggregators' 
and certain exchanges' revenues that the Commission believes could be 
available for competing consolidators under the amendments. 
Specifically, the four components of these estimated potential revenues 
are: Current exclusive SIP operating expenses (approximately $16 
million), fees paid to the current SIP data normalizers (approximately 
$21 million), SIP data connectivity fees paid to the exchanges 
operating the exclusive SIPs (approximately $13 million to $18 
million), and data processing and connectivity fees (approximately $28 
million to $42 million) from proprietary data users switching to using 
consolidated market data products.
---------------------------------------------------------------------------

    \2067\ These are estimates for the end of 2018, because the main 
connectivity information used in these calculations is provided by 
one of the commenters for 2018. See Nasdaq Latter IV at 29.
    \2068\ See infra Section V.C.4(b) for a discussion on potential 
new entrants into the broker-dealer, market maker, and other latency 
sensitive businesses.
    \2069\ Potential demand for consolidated market data under the 
amendments is unlikely to be smaller than the current demand from 
market participants who rely on SIP data because market participants 
will continue to need the NBBO and last sale information to comply 
with the Vendor Display Rule. The Commission believes that the 
potential demand for consolidated market data might be larger than 
the current demand from market participants who rely on SIP data, 
because a portion of the current proprietary data users might switch 
to using consolidated market data and, additionally, there might be 
new entry into the broker-dealer, market maker, or other latency 
sensitive businesses, as discussed below in Section V.C.4(b). One of 
the commenters agreed that some of the current proprietary data 
users might switch to using consolidated market data. According to 
the commenter, a portion of those market participants newly choosing 
to use consolidated market data could become self-aggregators and 
others could be served by competing consolidators. See Nasdaq Letter 
IV at 25. See also supra Section V.C.1(c) for a discussion on the 
benefits of expanded core data content.
    \2070\ See supra note 2065 for additional caveats.
---------------------------------------------------------------------------

    The first component of the estimated potential revenues for 
competing consolidators is the operating expenses the current exclusive 
SIPs collect for their consolidation and dissemination services. The 
SIP data consolidation and dissemination fees currently paid to the 
exclusive SIPs could be paid to competing consolidators under the Rule, 
and thus, could be a potential source of income for the new competing 
consolidator business. As discussed above, UTP operating expenses 
totaled around $7 million in 2017 and CTA operating expenses totaled 
around $8.8 million in 2018.\2071\ Together, the Commission estimates 
the exclusive SIPs' operating expenses to be approximately $16 million 
at the end of 2018.\2072\
---------------------------------------------------------------------------

    \2071\ See supra Section V.B.2(d) for a discussion on the 
current exclusive SIP's operating expenses.
    \2072\ The Commission estimates the UTP operating expenses to be 
approximately $7.4 million as of the end of 2018, based on an 
estimated 6% rate of increase. This rate of increase is calculated 
as the change of information services revenues Nasdaq reported in 
its 2018 and 2019 Form 1 filings and the Commission assumes that a 
similar rate of increase applies to Nasdaq's SIP operating expenses. 
Nasdaq's Form 1 filings describe that its market data revenues 
(excluding connectivity revenues), including from SIP data, are 
recorded under the information services item of its consolidated 
income statement. According to its 2018 and 2019 Form 1 filings, 
Nasdaq's information services revenues increased from approximately 
$230 million at the end of 2017 to approximately $243 million at the 
end of 2018, an approximately 6% increase. See 2018 Nasdaq Form 1 
filing, available at https://www.sec.gov/Archives/edgar/vprr/1800/18002770.pdf (last accessed Sept. 7, 2020); 2019 Nasdaq Form 1 
filing, available at https://www.sec.gov/Archives/edgar/vprr/1900/19003684.pdf (last accessed Sept. 7, 2020).
---------------------------------------------------------------------------

    The second component of the estimated potential revenues for 
competing consolidators is the overall fees market participants pay to 
market data aggregators that are SIP data normalizers. Current SIP data 
normalizers take in raw data provided by the two exclusive SIPs and 
create a combined single data feed to their subscribers. Under the 
Rule, with the cessation of the exclusive SIPs, these subscribers will 
likely purchase consolidated market data products from competing 
consolidators.\2073\ The fees that market participants currently pay to 
the SIP data normalizers might be comparable to what market 
participants could pay to competing consolidators under the amendments, 
and thus could be another potential source of income for the new 
competing consolidator business. Based on its knowledge and expertise, 
the Commission believes that current SIP data normalizers operate on a 
price schedule where they charge 6% over the current SIP data fees. 
This pricing schedule and 2018 total SIP data fees indicate an 
estimated potential revenue of approximately $21 million to be 
available for competing consolidators.\2074\
---------------------------------------------------------------------------

    \2073\ One commenter stated that ``[t]he primary ability needed 
to act as a self-aggregator is technical skill.'' See AHSAT Letter 
at 3. The Commission believes that it is very unlikely for the 
market participants that currently receive data from SIP data 
normalizers to choose to become a self-aggregator under the 
amendments given the substantial investment and costs needed to 
become a self-aggregator. Thus, under the amendments, these market 
participants will likely purchase their market data from competing 
consolidators, and not self-aggregate. See supra Section V.B.2(c) 
for a discussion of the different levels of technical expertise and 
sophistication market participants have. See supra Section V.B.2(b) 
for a discussion of SIP data normalizers and their subscribers.
    \2074\ For this estimation, the Commission is using the publicly 
available SIP revenue information. The total SIP data revenues in 
2018 were approximately $164 million for Tape A, $94 million for 
Tape B, and $132 million for the UTP SIP. Of these revenues, 10% for 
Tape A, 9% for Tape B, and 12% for UTP were revenues from non-
display users. The Commission believes that market participants who 
purchase data from SIP data normalizers are unlikely to be non-
display users, thus the SIP revenues from non-display users should 
be excluded from this calculation. In 2018, the total SIP data 
revenues without non-display users is approximately $349 million. 
The 6% margin over these data revenues will indicate an 
approximately $21 million potential annual revenue that might be 
available for competing consolidators. See infra note 2191 for the 
CTA and UTP Plans' Q2 2020 Quarterly Revenue Disclosures.
---------------------------------------------------------------------------

    The third component of the estimated potential revenues for 
competing consolidators is the current SIP data connectivity fees paid 
to the exchanges operating the exclusive SIPs. As discussed above, the 
exchanges operating the exclusive SIPs charge connectivity fees to SIP 
data users who directly connect to the exchanges to receive SIP data. 
Under the Rule, market participants who will use consolidated market 
data products and who will not self-aggregate will likely pay 
connectivity fees to competing consolidators instead of the exchanges. 
The SIP data connectivity fees that market participants currently pay 
to the exchanges might be paid to competing consolidators under the 
amendments, and thus, could be another potential source of revenue for 
the new competing consolidator business.\2075\ The Commission estimates 
that the 2018 SIP data connectivity revenues range from approximately 
$13 \2076\ million to $18 million.\2077\
---------------------------------------------------------------------------

    \2075\ Today the exchanges operating the exclusive SIPs offer 
connectivity products that bundle SIP connectivity with other 
exchange connectivity services. It is not possible to tell how much 
of the connectivity fees cover SIP connectivity and how much of them 
cover connectivity services for other exchange products such as 
proprietary data feeds. For example, one exchange stated that 
``users can connect to Regulation NMS equities and options feeds 
disseminated by the SIP using either of the co-location local area 
networks. Users do not pay an additional charge to connect to the 
NMS feeds: It comes with their connection to the local area 
network.'' See NYSE's Notice of Filing of Proposed Rule Change to 
Amend the Exchange's Price List Related to Co-location Services, 
available at https://www.sec.gov/rules/sro/nyse/2019/34-86865.pdf 
(last accessed Sept. 8, 2020). For this reason, the Commission's 
estimates include several assumptions.
    \2076\ Neither of the exchanges operating the exclusive SIPs 
disclose their connectivity revenues as a separate item on their 
Form 1 filings. However, one of the commenters disclosed its 
connectivity revenues to be $167.6 million in 2018. See Nasdaq 
Letter IV at 29. To estimate the portion of this connectivity 
revenue that comes from subscribers of SIP data, the Commission uses 
the ratio of non-display SIP data revenues with respect to that the 
exchange's overall market data revenues (excluding connectivity 
fees). The Commission uses a revenue ratio based on non-display SIP 
data revenues within the overall market data revenues, because non-
display data subscribers are the most likely connectivity purchasers 
for SIP data. Nasdaq's information services revenues (which covers 
its market data revenues, excluding its connectivity revenues) at 
the end of 2018 were approximately $243 million. See supra note 2072 
for Nasdaq's 2019 Form 1 filings. In the same time period, its total 
non-display SIP revenues were approximately $9 million. See infra 
note 2191 for the CTA and UTP Plans' Q2 2020 Quarterly Revenue 
Disclosure. In other words, Nasdaq's total non-display SIP data 
revenues were approximately 4% of its overall market data revenues, 
excluding the connectivity revenues. For the lower bound estimation, 
the Commission assumed that the other exchange operating an 
exclusive SIP has the same amount of connectivity revenue from SIP 
data as Nasdaq ($6.4 million), bringing the lower bound of the total 
SIP data connectivity revenues that might be available to competing 
consolidators to approximately $13 million ($6.4 million times 2).
    \2077\ For the upper bound estimates, the Commission calculates 
the following numbers. First, the Commission estimates Nasdaq's 
connectivity revenues the same way, approximately $6.4 million in 
2018. Second, the Commission assumed that, in 2018, NYSE had the 
same amount of total connectivity revenue as Nasdaq ($167.6 
million). See supra note 2072 for NYSE's 2019 Form 1 filings. To 
estimate the portion of this connectivity revenue that comes from 
subscribers of SIP data, the Commission similarly used the ratio of 
non-display SIP data revenues with respect to that the exchange's 
overall market data revenues (excluding connectivity fees). In 2018, 
NYSE's non-display data revenue from the SIPs were approximately $5 
million and its overall market data revenue for the same period 
(excluding the connectivity revenues) were approximately $68 million 
($236 million overall data services revenues minus the $167.6 
million connectivity revenues). This indicates an approximately 7% 
revenue ratio. The Commission, then, estimated that NYSE's SIP data 
connectivity revenues in 2018 were approximately $12 million (7% x 
$167.6 million). This brings the upper bound of the total SIP data 
connectivity revenues that might be available to competing 
consolidators to approximately $18 million ($6.4 million plus $12 
million).

---------------------------------------------------------------------------

[[Page 18766]]

    Finally, the Commission also believes that a number of firms may 
switch from using proprietary data feeds to using consolidated market 
data products provided by competing consolidators.\2078\ The Commission 
believes that a reasonable range of firms who could switch to using 
consolidated market data products from using proprietary data feeds is 
10 to 15. A typical firm using non-display feeds typically requires 
feeds from 10 exchanges,\2079\ which the Commission estimates would 
cost approximately $1.1 million per year, per use case.\2080\ The 
Commission also believes that the typical broker-dealer firm would have 
2 use cases, so that the total spent on these proprietary data feeds 
would be $2.2 million. Using the 6% fee charged by normalizers 
discussed above, the Commission believes that there is between 
approximately $1.3 million and $2 million in revenue available to 
competing consolidators from this market segment.
---------------------------------------------------------------------------

    \2078\ See infra Section V.C.4(a) for additional discussion of 
this point, including how the expanded content of core data will be 
part of the reason firms may switch. These details were also 
discussed in the Proposing Release 85 FR at 16853.
    \2079\ Specifically, those exchanges are NYSE, NYSE American, 
NYSE Arca, Nasdaq, Nasdaq BX, PSX, Cboe BYX, Cboe BZX, Cboe EDGA, 
and Cboe EDGX.
    \2080\ See Katsuyama Letter II; Letter from John Ramsay, Chief 
Market Policy Officer, Investors Exchange LLC, to Brent J. Fields, 
Secretary, Commission (Feb. 4, 2019).
---------------------------------------------------------------------------

    If these 10 to 15 firms switch from using proprietary market data 
obtained from direct connections to the exchanges to using a competing 
consolidator, then they will no longer pay connectivity fees to the 
exchanges for their data access.\2081\ As in the case of connectivity 
fees for the exclusive SIPs, the Commission believes that the 
connectivity fees for the proprietary feed connections to which these 
market participants cease to subscribe represents potential revenue for 
competing consolidators. The Commission estimates that the connectivity 
fees associated with these 10 to 15 dropped connections total 
approximately $27 million to $40 million.\2082\
---------------------------------------------------------------------------

    \2081\ See supra Section V.B.3(c) for discussion of connectivity 
services.
    \2082\ This estimate follows a similar methodology as in note 
2076. The Commission assumed that a given percentage of total 
proprietary data feed revenue comes from customers who also make up 
the same percentage of proprietary data connectivity revenue. The 
Commission estimates that 10 to 15 proprietary data customers, each 
with 2 non-display use cases, represent approximately $21.9 million 
to $32.9 million in proprietary data revenue. Using the revenue 
numbers from Section V.B.2(e), the Commission estimates that this is 
approximately between 8% and 12% of total exchange proprietary data 
revenue ($21.9 million/$269.0 million; $32.9 million/$269.0 
million). The assumption that these customers make up the same 
percentage of total exchange connectivity revenue yields that these 
customers are responsible for between $26.6 million and $40.0 
million of total exchange connectivity revenue (8% x $327 million; 
12% x $327 million). In this calculation, the connectivity revenue 
that pertains to the exclusive SIPs is subtracted from total 
connectivity revenue to produce the base of proprietary data 
connectivity revenue. The conservative estimate of the upper bound 
on SIP connectivity revenue discussed in note 2077 of $18 million 
was used in both cases (10 and 15 switching users) to yield $327 
million for proprietary connectivity revenue.
---------------------------------------------------------------------------

    The Commission believes that even though the $78 to $97 million 
estimated potential annual revenue is an underestimate, it is still 
large enough to support multiple competing consolidators. The estimated 
ongoing costs per competing consolidator range from $6.6 million to $8 
million (including the ongoing Regulation SCI costs),\2083\ leaving 
substantial room for profits for multiple competing consolidators even 
after incurring initial costs.
---------------------------------------------------------------------------

    \2083\ See infra Sections V.C.2(d) and V.C.2(e)(ii) for a 
discussion about the ongoing cost potential competing consolidators 
might incur. See also infra note 2256 for the total direct cost 
numbers.
---------------------------------------------------------------------------

    Finally, some commenters argued that most market participants 
interested in consolidated market data might become self-aggregators, 
which might shrink the customer base available to competing 
consolidators preventing the emergence of a healthy competing 
consolidator market.\2084\ While acknowledging that some market 
participants might become self-aggregators,\2085\ the Commission 
believes the market will still support multiple competing 
consolidators. A variety of market participants will likely demand the 
entirety or a subset of consolidated market data, including market 
participants who currently rely on SIP data as well as market 
participants who might switch from the exchanges' proprietary data 
feeds to consolidated market data.\2086\ However, only a small portion 
of these are permitted to and will likely choose to be self-
aggregators. For instance, few, if any, of the market participants who 
currently rely only on SIP data will become self-aggregators under the 
amendments because of the extensive investment and technical expertise 
that is needed to become a self-aggregator.\2087\ Additionally, of the 
market participants who might switch from using the exchanges' 
proprietary data to consolidated market data, only certain market 
participants and with certain limitations are permitted to self-
aggregate under the amendments.\2088\ Other market participants who are 
not permitted to self-aggregate but who are consumers of the exchanges' 
proprietary data will need to subscribe to a competing consolidator if 
they switch to using consolidated market data.\2089\ On the other hand, 
the Commission acknowledges that while the number of potential self-
aggregators might be small their overall trading volume might be large, 
because these market participants are also likely some of the highest 
trading-volume broker-dealers and registered investment advisors.
---------------------------------------------------------------------------

    \2084\ See, e.g., NYSE Letter II at 17; Nasdaq Letter IV at 8, 
24; Nasdaq Letter V at 7; STANY Letter at 7; IDS Letter I at 15.
    \2085\ One commenter stated that they would expect some of their 
``members to consider becoming self-aggregators pursuant to the 
Proposal.'' See FIA PTG Letter at 1-2.
    \2086\ See infra Section V.C.4(a) for a discussion on some 
market participants' potential switch to consolidated market data.
    \2087\ See supra note 2073.
    \2088\ See supra Section III.D for a discussion on the market 
participants that can be self-aggregators and the conditions under 
which they can share data.
    \2089\ One commenter said that ``many non-broker-dealer market 
participants subscribe directly to proprietary data feeds from 
exchanges'' and that they will likely want to use consolidated 
market data. See MFA Letter at 3. One asset manager commented that 
they would expect much of their ``use case for direct feeds would be 
eliminated if the SEC's rule is implemented as proposed, and if 
there is a competitive consolidated tape offering with the processor 
physically located in the same data center as the broker/dealers'' 
they employ as agents. See NBIM Letter at 4.
---------------------------------------------------------------------------

e. Competing Consolidators' Ability To Offer Differentiated Products
    The last factor that may affect the reasonableness of the 
assumption that a sufficient number of competing consolidators will 
enter the market is the ability to offer differentiated products, 
determined by the demand for differentiated products and the 
feasibility of supplying differentiated products. The greater the 
ability to offer differentiated products, the more

[[Page 18767]]

competing consolidators are likely to register until no economic 
incentives are left for new entry. In fact, the ability to 
differentiate may be necessary to ensure multiple competing 
consolidators can serve the market for the following reasons. As 
discussed above, the production of consolidated data involves 
relatively higher fixed costs (e.g., connectivity to the exchanges, 
data storage, technical infrastructure needed to process large amounts 
of data), and lower variable costs (e.g., costs of delivering the 
processed data to each customer).\2090\ In such markets, the firms have 
additional incentives to increase the number of their customers in 
order to spread the fixed cost across a larger base of consumers. 
Without differentiation, the fixed cost nature of the market, and 
resulting economies of scale, could result in only one competing 
consolidator, because the largest competing consolidator would be able 
to offer the most competitive price.
---------------------------------------------------------------------------

    \2090\ Some commenters agreed. See, e.g., Angel Letter at 3, 19; 
NBIM Letter at 2. See also supra Section V.B.3(a).
---------------------------------------------------------------------------

    The Commission believes that differentiation will likely be 
possible both because market participants demand different market data 
products and services and because competing consolidators will have the 
incentives and ability to offer differentiated products to service 
those diverse needs.
    Market participants' demand for consolidated market data products 
is heterogeneous because there are many different investor types (e.g., 
retail investors, small banks, market participants focused on value 
investment) that have differing investment strategies, and therefore, 
different data needs.\2091\
---------------------------------------------------------------------------

    \2091\ Several commenters agreed with the Commission. See, e.g., 
BestEx Research Letter at 5; NYSE Letter II at 9; IEX Letter at 9; 
MEMX Letter at 5.
---------------------------------------------------------------------------

    Additionally, competing consolidators will have the incentives and 
ability to differentiate their products to meet their customers' 
diverse needs. The Commission believes that competing consolidators 
will have strong incentives to offer differentiated products because of 
its potential implications for their survival in the market 
place.\2092\ By offering products that are responsive to each type of 
customer's specific needs, competing consolidators can specialize and 
reduce their costs with this specialization. They can then pass these 
costs savings on to their customers as lower consolidation and 
dissemination fees and as a result capture market share. For example, 
competing consolidators could meet investors' diverse demand by 
offering different data products that range from the entirety of 
consolidated market data to subsets of consolidated market data such as 
top of book products.\2093\ In addition, some competing consolidators 
could differentiate themselves by specializing in lower latency data 
for a segment of the market where trading strategies require high speed 
data access. Other competing consolidators could target data users who 
might prefer not to have the lowest latency product if the higher 
latency products came with a lower price or additional analytics. 
Competing consolidators could offer a range of user interfaces and 
analytics (e.g., various ways to display consolidated data, or provide 
forecasting services) that appeal to different data users or could even 
offer an analytical environment to customize analytics (e.g., offer 
software tools allowing market participants to analyze and summarize 
consolidate data). Differentiation along these dimensions will allow 
competing consolidators to offer different services at potentially 
different prices to different types of end users.
---------------------------------------------------------------------------

    \2092\ See infra Section V.C.2(b) for a discussion on the 
relationship between differentiation and prices.
    \2093\ Several commenters agreed with the Commission that 
investors have diverse market data needs. See, e.g., IEX Letter at 
9; MEMX Letter at 5; NYSE Letter II at 9; Angel Letter at 9.
---------------------------------------------------------------------------

    Competing consolidators will also have the ability to differentiate 
because the amendments do not restrict the type or variety of products 
they can offer, which will be determined by competitive forces. 
Additionally, the amendments do not require competing consolidators to 
offer the entirety of consolidated data, potentially allowing them some 
fixed cost savings (e.g., on their connectivity and processing costs) 
if they offer narrower data content than the entirety of consolidated 
market data. However, there is some uncertainty about the extent to 
which competing consolidators can differentiate, because how fees are 
set by the effective national market system plan(s) might affect the 
feasibility to offer such diverse products.\2094\ For example, while 
with differentiation competing consolidators can save on costs and 
lower their consolidation and dissemination fees, in the absence of 
differential prices for data content, competing consolidators' 
differentiated products will have smaller corresponding price 
differences from their customers' perspective. This is because the 
biggest component of the overall data fees (i.e., data content, 
consolidation and dissemination, and connectivity fees) that the market 
participants pay will likely be data content fees that will go to the 
effective national market system plan(s). Thus, cost savings passed 
onto customers in terms of lower consolidation and dissemination fees 
will make a limited difference when customers are comparing overall 
data fees. As a result, potential competing consolidators will have a 
narrower price band within which to differentiate themselves and price 
their products.
---------------------------------------------------------------------------

    \2094\ See infra Section V.C.2(a)(i)e for a discussion of the 
influence of fees on the ability to differentiate.
---------------------------------------------------------------------------

    Some commenters expressed concern that competing consolidators will 
not offer differentiated products.\2095\ Some commenters said that 
market participants' ability to receive differentiated products depends 
on the choices of the Operating Committee(s) of the national market 
system plan(s) and competing consolidators, and that, the absence of 
differentiation will recreate the status quo.\2096\ Another commenter 
stated that competing consolidators will not differentiate because this 
business will rely on economies of scale (i.e., achieving cost savings 
by increasing their scale), not on economies of scope (i.e., achieving 
cost savings by increasing their product offerings).\2097\ The 
Commission believes that competing consolidators will offer 
differentiated products for two reasons.
---------------------------------------------------------------------------

    \2095\ See, e.g., NYSE Letter II at 4; Data Boiler Letter I at 
79.
    \2096\ See NYSE Letter II at 4; Nasdaq Letter IV at 25.
    \2097\ See Data Boiler Letter I at 79.
---------------------------------------------------------------------------

    First, while the Commission cannot be certain of whether such fees 
would provide discounts for those who wish to receive subsets of 
consolidated market data or based on usage categories,\2098\ the 
Commission believes that some form of differential pricing for 
consolidated market data is the most likely outcome as discussed 
above.\2099\ With differential pricing for the data content underlying 
consolidated market data, competing consolidators will have greater 
opportunity to offer differentiated products to market 
participants.\2100\ Likewise, exchanges continuing to offer 
connectivity at different latencies with different corresponding prices 
would further promote product differentiation by competing 
consolidators. This is because differential connectivity fees will lead 
to different fixed costs for competing consolidators (e.g.,

[[Page 18768]]

competing consolidators specialized in serving higher latency customers 
can purchase slower or lower capacity connectivity products and lower 
their fixed costs), and thus, different consolidation and dissemination 
and connectivity fees can be charged to their customers. Finally, 
competing consolidators are not required to consolidate and disseminate 
the entirety of consolidated market data, for example if they want to 
concentrate on a customer segment that prefers narrower data content. 
All of these--differential data content fees, the exchanges' 
differential connectivity fees, and the lack of a requirement to 
process and provide the entire data content of consolidated market 
data--will allow a larger price band over which potential competing 
consolidators can differentiate and price their products to serve their 
customers' diverse needs. On the other hand, this differentiation can 
still take place, in a more limited way, even if the effective national 
market system plan(s) do not implement any differential data content 
fees.
---------------------------------------------------------------------------

    \2098\ See infra Section V.C.2(b)(ii) for further discussion of 
these fees.
    \2099\ See supra Section V.C.2(a)(i)b for a discussion on the 
potential new fee structures under the amendments.
    \2100\ See supra Section V.C.2(b) for an additional discussion 
on differentiated products and data fees.
---------------------------------------------------------------------------

    Second, the Commission believes that, for competing consolidators, 
scale and differentiation and specialization are complements not 
substitutes, as suggested by one of the commenters.\2101\ Competing 
consolidators could expand their scale and market share to be able to 
spread their fixed costs over a larger set of customers than they 
otherwise would, by relying on their differentiated product offerings, 
similar to how the third party data aggregators operate today. For 
example, current third party data aggregators can be focused on more or 
less latency sensitive segments of the market and use this 
differentiation as a way to reach a larger set of customers than they 
otherwise would. The Commission believes that this business model will 
carry over into the new competing consolidator business, and could 
similarly differentiate across a variety of product characteristics 
such as latency, data content, analytics, and user interfaces.
---------------------------------------------------------------------------

    \2101\ See Data Boiler Letter I at 56.
---------------------------------------------------------------------------

    Finally, in the absence of differentiation, the market might end up 
with only one competing consolidator; \2102\ however, the Commission 
believes this is a low probability outcome for the reasons discussed 
above.
---------------------------------------------------------------------------

    \2102\ See infra Section V.C.2(a)(ii)a for a discussion on the 
probability and potential results of having a single competing 
consolidator operate in the market.
---------------------------------------------------------------------------

(ii) Risk of Few Competing Consolidator Registrants
    As discussed in the previous section, there are several factors 
that may affect the number of competing consolidators entering the 
market. These factors determine the number of competing consolidators, 
which in turn determines the level of competition and ultimately the 
magnitude of benefits from the final amendments. While the Commission 
recognizes uncertainty in some of these factors, the Commission 
believes that it is reasonable to assume that there will be a 
sufficient number of competing consolidators to achieve the benefits of 
the rulemaking and that the risk that the anticipated benefits of the 
amendments will not materialize because of insufficient competition 
among competing consolidators is low.\2103\
---------------------------------------------------------------------------

    \2103\ One of the commenters did not ``find any fault'' with the 
Commission's assessment over the potential competitive outlook of 
the competing consolidator market. The commenter stated that ``[t]he 
Department finds no fault with the SEC's preliminary determination 
that the risk is low that either no new SIP Data consolidators enter 
or only very few enter.'' See DOJ Letter at 5.
---------------------------------------------------------------------------

    The assumption that there will be a sufficient number of competing 
consolidators entering the market affects some economic effects of the 
decentralized consolidation model. Generally, many of the benefits and 
competitive considerations below depend on this assumption. For 
example, the Commission believes that competition among competing 
consolidators will lead to lower fees paid by market participants for 
consolidated market data products,\2104\ larger gains in efficiency in 
the delivery of consolidated market data products and market data 
communication innovations,\2105\ as well as a reduction in data 
consolidation and dissemination latencies.\2106\ In addition, some of 
the costs discussed below also depend on this assumption. For example, 
after the transition ends, the decentralized consolidation model will 
decrease regulatory compliance costs imposed by Regulation SCI on 
existing exclusive SIPs that may register as competing consolidators, 
by changing their systems from ``critical SCI systems'' to ``SCI 
systems.'' \2107\
---------------------------------------------------------------------------

    \2104\ See infra Section V.C.2(b).
    \2105\ See infra Section V.C.2(c).
    \2106\ Id.
    \2107\ See infra Section V.C.2(e)(ii) for a discussion on the 
heightened requirements for ``critical SCI systems'' versus standard 
requirements for ``SCI systems.''
---------------------------------------------------------------------------

    Some commenters questioned the Commission's assumption that there 
will be a sufficient number of competing consolidators and argued that 
there is not sufficient industry support for competing 
consolidators.\2108\ On the other hand, several commenters indicated an 
interest in becoming a potential competing consolidator \2109\ and one 
commenter predicted that several of the other current market 
participants will come forward to become one.\2110\
---------------------------------------------------------------------------

    \2108\ See, e.g., Nasdaq Letter IV at 2, 3, 23, 24, 47; NYSE 
Letter II at 13, 16; TechNet Letter II at 2; Angel Letter at 20; IDS 
Letter I at 3, 7. See also supra note 615.
    \2109\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at 
2; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of 
their interest in registering as competing consolidators.
    \2110\ See NovaSparks Letter at 1.
---------------------------------------------------------------------------

    The Commission continues to believe that the risk that the 
anticipated benefits of the amendments will not materialize because the 
likelihood of insufficient competition among competing consolidators is 
low. Specifically, based on its analysis, as well as its experience and 
judgment, the Commission believes that there will initially be at least 
two competing consolidators and entry into the competing consolidator 
market space will likely continue until no economic incentives are left 
for any new competing consolidators to enter. The Commission believes 
that the most likely outcome is three or more competing consolidators 
with at least one competing consolidator that is not affiliated with 
either one of the exchanges currently operating the exclusive SIPs or 
an exchange that has sufficient proprietary data revenue that would 
create conflicting profit incentives.\2111\ The Commission believes 
that this scenario will likely lead to vigorous competition and, as a 
result, will be enough for the predicted benefits to materialize.
---------------------------------------------------------------------------

    \2111\ See infra Section V.C.2(a)(ii)a for a discussion on 
conflicting profit incentives of some potential competing 
consolidators.
---------------------------------------------------------------------------

a. Likelihood of Zero or One Competing Consolidator
    In this section, the Commission analyzes the likelihood of zero or 
one competing consolidators registering and believes that the risk of 
either of these outcomes is low because of the strong incentives to 
enter. As such, and also because of the transition period requirements, 
the risk that the amendments will not achieve their benefits because 
only one or no competing consolidators register is low.
    One commenter stated that the EU has been attempting to create a 
market for competing consolidators, but ``no consolidators have signed 
up. By declaring that the risk of few or zero consolidators is low, the 
Commission appears to be signaling ignorance of the

[[Page 18769]]

experience of other countries.'' \2112\ The Commission does recognize 
the risk of no entry, but believes that strong incentives to enter 
render this risk low and that the European experience is not relevant 
to the U.S. because the regulatory framework in Europe is very 
different from that in the U.S.\2113\
---------------------------------------------------------------------------

    \2112\ See Angel Letter at 20.
    \2113\ The Commission does not believe that lack of potential 
consolidated tape providers (the EU equivalent of competing 
consolidators) in Europe has any implications for the U.S. markets 
or the predictions of the amendments because the regulatory 
framework within which the European market participants operate is 
very different from the U.S. Most significantly, the relevant 
European regulation, MiFID II, ``does not mandate the establishment 
of a CT [consolidated tape] in the EU and does not oblige trading 
venues and APAs [approved public arrangements] to submit transaction 
data to a CTP [consolidated tape provider] for consolidation. The 
latter solution is the one chosen by the legislation in the US.'' 
Under the European regulatory framework, both the supply of and 
demand for market data would be uncertain, making it an economic 
calculation very different from the one the potential competing 
consolidators will make in the U.S. See European Securities and 
Markets Authority, MiFID II/MiFIR Review Report No. 1, at 35, 
available at https://www.esma.europa.eu/sites/default/files/library/mifid_ii_mifir_review_report_no_1_on_prices_for_ 
market_data_and_the_equity_ct.pdf (last accessed Sept. 1, 2020). For 
additional discussion on how the European market data framework is 
different from the one in the U.S., see Philip Stafford, EU-backed 
study calls for new body to track equities trades, FINANCIAL TIMES 
(Oct. 7, 2020), available at https://www.ft.com/content/616acec6-cfc4-44d4-95c0-6053a041e0d7.
---------------------------------------------------------------------------

    There is some risk of no entity entering the new competing 
consolidator business for two reasons and if no entity enters as a 
competing consolidator, none of the Commission's predicted benefits 
will materialize. First, the potential registrants with some of the 
lowest entry barriers are also the same market participants who 
expressed a strong preference to maintain the current status quo.\2114\ 
Second, potential registrants who expressed interest in becoming 
competing consolidators also expressed some concern about not being 
able to compete with any potential competing consolidators affiliated 
with the exchanges operating the exclusive SIPs, because they might not 
be competing on a level playing field.\2115\
---------------------------------------------------------------------------

    \2114\ See, e.g., Equity Markets Association Letter at 2; NYSE 
Letter II at 24; Nasdaq Letter IV at 5. The two exchanges operating 
the exclusive SIPs stated that the exclusive SIP model performs very 
well and does not need to be replaced with the decentralized 
consolidation model.
    \2115\ One commenter said that its letter discusses ``the 
significance of establishing a level playing field by ensuring fair 
and equal access to exchanges and the need to extend these 
principles to the legs of the market data distribution system over 
which an exchange (or an exchange affiliate) may exercise direct or 
indirect control.'' See McKay Letter at 2. See also ACTIV Financial 
Letter at 2; MIAX Letter at 1.
---------------------------------------------------------------------------

    However, the Commission believes that this risk is low. Even if the 
two exchanges operating the exclusive SIPs choose not to become 
competing consolidators, there are several other potential entrants 
that stated that they are interested in becoming a competing 
consolidator.\2116\ For example, one or more of the exchanges that do 
not currently operate an exclusive SIP have incentives to, and are 
likely to, enter the new competing consolidator business.\2117\ Entry 
into the competing consolidator business would provide these exchanges 
new data processing and dissemination, as well as connectivity, 
revenues. Additionally, being an entrant in the first wave could give a 
competing consolidator some first mover advantage--even if small--to 
capture a part of the market that is currently served by the exclusive 
SIPs. The incentive to have a first mover advantage will only be 
available to competing consolidators during the initial registration 
period. In particular, the provision that temporarily precludes 
registration once the initial registration period closes would provide 
an incentive to register early, during the initial registration 
period.\2118\ Furthermore, entry costs are going to be lowest during 
this initial transition period,\2119\ making it more attractive to 
register before this temporary relief expires.
---------------------------------------------------------------------------

    \2116\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at 
2; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of 
their interest in registering as competing consolidators. One market 
participant submitted a comment letter to an NYSE filing fee where 
the market participant stated that ``Virtu plans to establish a 
competing consolidator to provide competitive market data 
products.'' See letter from Douglas A. Cifu, Chief Executive 
Officer, Virtu Financial, to Vanessa A. Countryman, Secretary, 
Commission, dated Aug. 28, 2020, available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf. See also 
IEX Letter at 2, 3.
    \2117\ One of the commenters, an exchange, expressed an interest 
in becoming a competing consolidator. See MIAX Letter at 1. 
Additionally, in the past, the same exchange was an active contender 
to run one of the exclusive SIPs. The announcement made by the law 
firm conducting the tender offer stated that ``The UTP Operating 
Committee short-listed four firms as the finalists for the RFP bid: 
CenturyLink, MIAX Technologies, Nasdaq and Thesys Technologies'' 
available at https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf (last accessed Sept. 7, 2020).
    \2118\ See supra Section III.H for a discussion on details of 
the transition period.
    \2119\ The requirements of Regulation SCI will not apply to 
competing consolidators during an initial phase in period after the 
effective date of this rulemaking. See supra Section III.F for a 
discussion of the amendments to Rule 1000 of Regulation SCI.
---------------------------------------------------------------------------

    In the unlikely event that only a single competing consolidator 
enters the market, very few of the Commission's benefit predictions may 
materialize. The Commission believes that market participants may 
receive some benefits such as a degree of latency reduction and some 
cost savings from only needing to connect to a single data provider 
instead of the two exclusive SIPs. However, overall, most of the 
predicted benefits depend on the new competing consolidator business 
being a competitive market, and therefore, will not likely materialize 
if only a single competing consolidator registers.
    The Commission believes that a single competing consolidator 
scenario is also a low probability outcome. The Commission believes 
that both of the exchanges operating the exclusive SIPs have strong 
incentives to enter \2120\ the new competing consolidator market 
because under the amendments, the exclusive SIPs will no longer be the 
exclusive consolidators and disseminators of market data and this will 
lead to potential revenue losses for the exchanges operating the 
exclusive SIPs.\2121\ The exchanges operating the exclusive SIPs will 
be incentivized to enter during the initial registration period to 
start recouping some or all of their potential losses, because 
competing consolidators that do not enter during the initial wave will 
not be able to register and operate until the Commission opens up the 
registration process again.\2122\ Additionally, the two exchanges 
operating the exclusive SIPs have entry costs, profit potentials, and 
economic interests similar to each other. Thus, neither exchange may 
leave the new consolidated market data business entirely to the other 
one and not pursue the chance to recoup some or all of their potential 
losses from no longer having the exclusive rights to consolidate and 
disseminate market data. Finally, as mentioned above, there are several 
other market participants who already have expressed an interest in 
becoming a competing consolidator, expanding the potential pool of 
initial entrants.\2123\
---------------------------------------------------------------------------

    \2120\ Throughout this section, ``entry by an exchange operating 
an exclusive SIP'' refers to either the exchange or one of its 
affiliates becoming a competing consolidator.
    \2121\ See infra Section V.C.2(d) for a discussion of the 
indirect costs of the decentralized consolidation model.
    \2122\ See supra Section III.H for a discussion on the 
transition and initial registration period.
    \2123\ See supra note 2109.
---------------------------------------------------------------------------

b. Likelihood of Two Competing Consolidators and Impact on Benefits
    The Commission believes that the likelihood that only two market 
participants enter as competing consolidators is slightly higher than 
the likelihood of zero or one.\2124\ This will

[[Page 18770]]

most likely happen if two competing consolidators affiliated with the 
exchanges operating the exclusive SIPs file to be the two initial 
entrants,\2125\ because the disclosure of their identities will 
potentially deter other potential competing consolidators from 
registering. The exclusive SIPs have a lot of experience in data 
consolidation and dissemination, which might deter other potential 
competing consolidators from entering. Additionally, while several 
commenters expressed an interest in becoming competing consolidators, 
they also listed several issues they see as potential risks.\2126\ Most 
of those risks were about the exchanges operating the exclusive SIPs 
not creating a level playing field for competing consolidators that are 
not affiliated with them. To the extent that any potential competing 
consolidator believes that they cannot compete with the exchanges 
operating the exclusive SIPs, they might not register as additional 
competing consolidators, leaving the market with only two competing 
consolidators where both are affiliated with the exchanges operating 
the exclusive SIPs.
---------------------------------------------------------------------------

    \2124\ One commenter stated that ``[o]ne possibility is that 
only two consolidators will emerge (the current operators of the CTA 
and UTP plans).'' See Angel Letter at 20.
    \2125\ The Commission believes an outcome of two competing 
consolidators, where one or both are unaffiliated with either of the 
exchanges operating the exclusive SIPs, is a very low probability 
one. This is because, as discussed above, the Commission believes 
that in such a situation both of the exchanges operating the 
exclusive SIPs will have incentives to enter. Thus it is unlikely 
that this would be a two competing consolidator scenario.
    \2126\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at 
2; NovaSparks Letter at 1; MIAX Letter at 1 for the risks the 
commenters state about competing consolidators' ability to compete 
on level playing field.
---------------------------------------------------------------------------

    In the event that the consolidated market data business is served 
by only two competing consolidators that are both affiliated with the 
exchanges operating the exclusive SIPs, some of the economic benefits 
of the competing consolidator model may be limited. In particular, 
while this result could produce lower gains in delivery efficiency, 
innovation, and latency differentials and less competitive pressure on 
data processing and delivery fees, it could bring some degree of 
competition and corresponding benefits relative to the exclusive SIP 
model.
    If the only competing consolidators to enter are the exchanges 
operating the exclusive SIPs, the outcome could be lower gains in data 
delivery efficiency and innovation, and smaller reductions in data 
consolidation and dissemination latencies. This may be the case 
primarily because competing consolidators that are affiliated with the 
exchanges operating the exclusive SIPs would have conflicting profit 
incentives. For a portion of the market participants, new consolidated 
market data and proprietary data could be close substitutes. Thus for 
competing consolidators serving those market participants, the 
consolidated market data business may cannibalize profits from their 
parent company's proprietary data business. In that case, these 
competing consolidators would have to weigh their potential revenue 
gains from the competing consolidator business against their parent 
company's potential losses from the proprietary data business. This 
prospect would reduce these competing consolidators' incentives to 
compete in this new business line.\2127\ Under this scenario, if the 
market is being served only by two competing consolidators both 
affiliated with the exchanges operating the exclusive SIPs, market 
participants would lack a consolidated market data product vendor 
without conflicting profit incentives.
---------------------------------------------------------------------------

    \2127\ One commenter stated that just having SIAC and Nasdaq UTP 
as competing consolidators will not create a very competitive market 
because it ``will do little to encourage innovation or price 
competition as intended by the Proposal.'' See MIAX Letter at 4.
---------------------------------------------------------------------------

    Additionally, if there are only two competing consolidators both 
with conflicting profit incentives, there may not be strong downward 
competitive pressure on data processing and delivery fees. The 
Commission's prediction about any downward pressure on data processing 
and delivery fees depends on the strength of competition among 
competing consolidators. Having just two competing consolidators--both 
affiliated with an exchange, with similar economic incentives, and a 
shared history of serving the whole SIP data market without competing 
with each other--could soften competition. Specifically, these two 
competing consolidators might explore opportunities to differentiate in 
ways that limit competition, such as offering products in different 
sets of stocks or capturing completely different segments of the 
market. If market participants would not see these two competing 
consolidators' products as viable substitutes, they would not be able 
to switch between them. And this would remove most of the competitive 
pressure on data processing and delivery fees.
    However, even the scenario with only two competing consolidators 
affiliated with the exchanges operating the exclusive SIPs will bring 
some degree of competition and corresponding benefits relative to the 
exclusive SIP model. Unlike the exclusive SIPs today, the exchange-
affiliated competing consolidators will operate under a threat of 
competition from each other and from other potential entrants if an 
economic opportunity presents itself. In particular, the exchange-
affiliated competing consolidators will still have an economic 
incentive to target each other's customers by introducing new data 
products serving those customers' needs. In addition, there will likely 
be some latency benefits from being able to get a consolidated feed 
from a single competing consolidator instead of the two exclusive SIPs. 
Additionally, market participants might see some decline in their 
consolidation and dissemination costs for equivalent data.\2128\ 
Finally, if an economic opportunity emerges, perhaps because of supra-
competitive prices charged by the existing competing consolidators that 
are affiliated with the exchanges operating the exclusive SIPs, another 
market participant might register to become a new competing 
consolidator, and try to capture those customers with product offerings 
at lower prices.
---------------------------------------------------------------------------

    \2128\ One commenter agreed. See Angel Letter at 21.
---------------------------------------------------------------------------

c. Likelihood of Three or More Competing Consolidators With at Least 
One Unaffiliated Third Party Registrant and Impact on Benefits
    The Commission believes that the most likely scenario for the new 
data consolidation business is for there to be three or more entrants, 
where at least one of the newly registered competing consolidators is 
not affiliated with either one of the exchanges operating an exclusive 
SIP or an exchange with a proprietary data revenue stream enough to 
create conflicting profit incentives.\2129\ The Commission believes 
that this scenario will likely lead to vigorous competition and, as a 
result, will be enough for the predicted benefits to materialize.
---------------------------------------------------------------------------

    \2129\ For a competing consolidator affiliated with an exchange 
that has a proprietary data revenue stream, there could be 
conflicting profit incentives as described in Section V.C.2(a)(ii)b. 
The degree of this conflicting profit incentive will depend on the 
size of the proprietary data stream relative to the exchange's 
overall revenues.
---------------------------------------------------------------------------

    The Commission believes that in addition to the exchanges operating 
a current exclusive SIP, there are several market participants, such as 
current third party data aggregators or other intermediary product and/
or service providers or exchanges that do not currently operate an 
exclusive SIP that would have the capability and incentives to enter 
the newly created

[[Page 18771]]

competing consolidator business.\2130\ Some of the commenters already 
expressed an interest in doing so.\2131\
---------------------------------------------------------------------------

    \2130\ One commenter said that ``[t]he Commission cites only a 
handful of entities who sought to become data processors in the 
context of a guaranteed monopoly.'' See NYSE Letter II at 19. The 
Commission agrees and notes that for the 2014 UTP SIP tender 11 
intent to bid letters were submitted. Similarly, for the CAT SIP 
tender over 30 intent to bid letters were submitted. See 2014 UTP 
SIP tender processor selection announcement, available at https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf (last accessed Aug. 12, 2020); 
2017 CAT SIP tender processor selection announcement, available at 
https://financialservices.house.gov/uploadedfiles/11.30.2017_mike_beller_testimony.pdf (last accessed Aug. 12, 2020).
    \2131\ See, e.g., McKay Letter at 2; ACTIV Financial Letter at 
1; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of 
their interest in registering as competing consolidators. See also 
letter from Douglas A. Cifu, Chief Executive Officer, Virtu 
Financial, to Vanessa A. Countryman, Secretary, Commission, dated 
Aug. 28, 2020, available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf.
---------------------------------------------------------------------------

    Several current market participants, such as third party data 
aggregators or other intermediary product and/or service providers in 
the market data space, have the technical capabilities,\2132\ customer 
base,\2133\ and incentives a new entrant would need. Some of the 
potential competing consolidators that might register to enter this new 
business line are some of the most technically sophisticated industry 
participants. These market participants are currently operating in 
adjacent markets (e.g., proprietary data aggregation business), making 
entry into the new consolidated data business easier. Others currently 
serve as normalizers of the SIP data for retail investors.\2134\ They 
are experienced in market data processing and dissemination, and 
already serve a portion of the market.
---------------------------------------------------------------------------

    \2132\ See, e.g., McKay Letter at 1 note 1; ACTIV Financial 
Letter at 1 note 1; NovaSparks Letter at 1; MIAX Letter at 1.
    \2133\ One of the commenters said that while it would like to 
contemplate being a competing consolidator, any contender would need 
a large customer base that the commenter believes it does not have. 
According to the commenter, the big market data aggregators with an 
existing large customer base are the ones that can achieve this. The 
Commenter said that ``[d]ominated (sic) market data aggregators, 
like Bloomberg and Refinitiv, would most likely spread their fixed 
cost to large customer base in quickest time.'' See Data Boiler 
Letter I at 84; Data Boiler Letter II at 1.
    \2134\ See supra note 1777. Companies that normalize market data 
take in raw data delivered in a variety of protocols and, using feed 
handlers, normalize into single protocol different from the one used 
by the original venue. This way a data user can receive one feed 
using one streaming protocol. See Vela blog, available at https://info.tradevela.com/definitive-guide-to-market-data#normalisation 
(last accessed Sept. 17, 2020).
---------------------------------------------------------------------------

    These potential competing consolidators also have the incentives to 
enter this new competing consolidator business. For an exchange that 
does not currently operate an exclusive SIP, competing consolidator 
business would provide an opportunity to get new data consolidation and 
dissemination as well as connectivity revenues. For a third party data 
aggregator, it would be a chance to build upon its existing business. 
For example, if a current third party data aggregator's main revenue 
source is its normalized SIP data products, then registering as a 
competing consolidator would be the most direct way for this data 
aggregator to continue receiving its revenue stream. Even if a current 
third party data aggregator is mainly focused on the proprietary data 
aggregation business, becoming a competing consolidator would be a new 
revenue source and would not create the same conflicting profit 
incentives described above.
    The Commission believes that if three or more competing 
consolidators enter the market where at least one of them is not 
affiliated with either one of the exchanges operating the exclusive 
SIPs or an exchange with sufficient proprietary data revenue to create 
conflicting profit incentives, this scenario will lead to vigorous 
competition and will be enough for the predicted benefits to 
materialize. The conflicting profit incentives described above stem 
from a competing consolidator's proprietary data customers switching to 
use consolidated market data products if the data content and speed of 
the latter become a viable substitute for them. The conflicting profit 
incentives would stem from the fact that the exchange would have data 
content revenues to lose as a result of its competing consolidator's 
customers switching from proprietary data to consolidated market data. 
But if an exchange does not have significant data content revenues to 
lose, they would not have such a conflicting profit incentive. A 
competing consolidator's revenues will mainly come from its data 
processing, dissemination, and connectivity services, irrespective of 
the data content it disseminates. Without conflicting profit 
incentives, such a competing consolidator will focus on expanding its 
revenue base by aggressively pursuing consolidated market data product 
clients and capturing an ever larger market share. As part of this 
pursuit, this competing consolidator would have an incentive to 
innovate to gain efficiency and speed in data processing and delivery, 
reduce its costs, and potentially pass on some of these cost savings to 
its clients to gain market share. Therefore, even if some of the 
potential competing consolidators have conflicting profit incentives, 
if at least one other competing consolidator is free from this 
conflict, competition will intensify.
    Overall, the Commission believes that there will initially be at 
least two competing consolidators and entry into the competing 
consolidator market space will likely continue until no economic 
incentives are left for new entry. The Commission believes that the 
most likely outcome is three or more competing consolidators with at 
least one competing consolidator that is not affiliated with either one 
of the exchanges operating the exclusive SIPs or with an exchange with 
a proprietary data revenue stream that creates conflicting profit 
incentives. As the number of competitors increase, the level of 
competition among them will intensify until no economic incentive is 
left for new entry. As discussed below,\2135\ intensifying competition 
will benefit market participants.
---------------------------------------------------------------------------

    \2135\ See infra Section V.C.2(c) for a discussion on the 
benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

    One commenter stated that the Commission did not consider a 
possible scenario of ``a relatively large number of high-cost 
consolidators charging high prices for NMS information.'' \2136\ As 
discussed above,\2137\ the Commission believes that a large number of 
high-cost competing consolidators will not be an equilibrium outcome, 
because while competing consolidators will have an incentive to 
differentiate and capture different segments of the market, they can 
also offer each other's products if they see an economic opportunity to 
do so. If a large number of high-cost competing consolidators enter 
this new business line, over time the more efficient of those will 
capture market share from the less efficient ones.\2138\ This is 
because more efficient competing consolidators will have lower costs 
and therefore the ability to charge lower prices to market participants 
and increase their market share. The ability to differentiate will not 
change this dynamic, because even as competing consolidators 
differentiate, this real threat of competition will discipline prices 
and efficiency in the consolidated market data space and will drive out 
inefficient competing consolidators.
---------------------------------------------------------------------------

    \2136\ See Nasdaq Letter IV at 23, 24.
    \2137\ See supra Section V.C.2(b) for a discussion of fees as 
one of the factors to influence the strength of competition in the 
competing consolidator business.
    \2138\ In a market, more efficient companies have lower 
production costs and therefore can lower their prices relative to 
and capture market share from higher cost, thus more inefficient, 
companies.

---------------------------------------------------------------------------

[[Page 18772]]

    Some commenters questioned the likelihood of any potential 
competing consolidators entering the market because of the uncertainty 
associated with the proposed transition period.\2139\ One commenter 
questioned whether market participants would have incentives to make 
large investments before the effective national market system plan(s) 
sets data content fees.\2140\ Another commenter stated that potential 
entrants would have to make large investments ``but would have no 
ability to earn any returns on those investments--or estimate when or 
if such returns would be realized--until after the Commission has 
elected to transition to the decentralized model.'' \2141\
---------------------------------------------------------------------------

    \2139\ See NYSE Letter II at 15, 16; IDS Letter I at 8, 9. See 
Proposing Release, 85 FR at 16794-95 for a discussion of the 
transition period.
    \2140\ See IDS Letter I at 8.
    \2141\ See NYSE Letter II at 16.
---------------------------------------------------------------------------

    The Commission believes that three aspects of the adopted 
transition period, discussed above,\2142\ addresses the issues raised 
by the commenters. First, potential competing consolidators will be 
able to see and comment on the data content fees before deciding 
whether to register and become a competing consolidator. This will 
eliminate some of the uncertainties about the potential value of the 
new competing consolidator business. Second, in phase one, following 
the development and testing periods, potential competing consolidators 
will be able to start operating and earn revenues as soon as they 
complete their test period. Thus competing consolidators would not be 
making large investments to earn potential future returns at an 
uncertain time.\2143\ Finally, the Commission will implement an initial 
registration period with the following two features designed to 
encourage entry into the new competing consolidator business space. The 
first feature is the limited initial registration period, which limits 
market participants' ability to enter the competing consolidator market 
until after the exclusive SIPs are retired, if they miss the first 
wave. This feature could encourage entry because being in the initial 
wave of competing consolidators could help market participants achieve 
a first mover advantage and capture some market share. However, the 
registration requirements for potential competing consolidators are the 
same whether they enter during the initial registration period or after 
the exclusive SIPs are retired. If a potential competing consolidator 
enters in the second wave, they will miss the opportunity to have a 
first mover advantage, but otherwise will go through the same 
registration process. The second feature is the disclosure of market 
participants' identities shortly after their filing of a Form CC.\2144\ 
This feature, in combination with the first one, could encourage entry 
because once potential competing consolidators start to register, these 
disclosures will signal that there are market participants interested 
in becoming competing consolidators in addition to revealing their 
identities. This could encourage other potential competing 
consolidators to register instead of adopting a wait-and-see approach.
---------------------------------------------------------------------------

    \2142\ See supra Section III.H for a discussion on the three 
phases of the transition period.
    \2143\ See supra note 1356 for a discussion on the length of 
time it might take to reach this point in the transition to the 
decentralized consolidation model.
    \2144\ See supra Section III.C.7(i)(ii) for a discussion on the 
disclosure of an initial Form CC filer's identity.
---------------------------------------------------------------------------

    Lastly, one commenter stated that the Commission ``fails to 
consider the possibility that, once the new model was in place, 
sufficient numbers of competing consolidators could cease operations, 
resulting in a system that is not viable.'' \2145\ The Commission 
acknowledges that after the new model is established, there might be 
some on-going entry and exit of competing consolidators, an expected 
economic dynamic just like in every other market place. However, the 
Commission believes that there is no reason for the economic conditions 
of the market to change drastically to lead to a wave of competing 
consolidator exits and a consolidated market data space without enough 
competition for two reasons. First, demand for consolidated market data 
products is not likely to dramatically decline over time, because 
market participants need certain consolidated market data products for 
regulatory compliance. Second, supply by competing consolidators is 
also unlikely to decline dramatically because as discussed above,\2146\ 
a competing consolidator is required to provide 90 calendar days' 
notice of its cessation of operations. This advance notice will provide 
enough time for new competing consolidators to enter the market or 
existing competing consolidators to expand their products and services 
to meet any unmet demand stemming from a competing consolidator's exit.
---------------------------------------------------------------------------

    \2145\ See IDS Letter I at 9.
    \2146\ See supra Section III.C.7(g)(ii) for a discussion on the 
requirements to file a notice of cessation.
---------------------------------------------------------------------------

(b) Analysis of the Impact on Data Fees
    The introduction of the decentralized consolidation model is likely 
to reduce the fees market participants will pay for consolidated market 
data. When comparing data fees for the consolidated market data with 
current data fees, this economic analysis holds data content constant. 
In other words, the fee comparison in this analysis is between what 
market participants will pay under the amendments versus what they 
currently would have to pay to access the same content. Specifically, 
the analysis finds that the amendments are likely to reduce, and 
unlikely to increase, fees paid for the equivalent of consolidated 
market data as well as the fees paid for the equivalent current SIP 
content. This effect on fees underlies the potential for many of the 
benefits and costs discussed above in Section V.C.1 and below in 
Section V.D.1 to be realized.
(i) Fees for Consolidated Market Data Content
    The Commission believes that the total fees for the equivalent of 
consolidated market data (i.e., data content, consolidation and 
dissemination, and connectivity fees) are likely to decline because of 
the amendments, but recognizes uncertainty about how the effective 
national market system plan(s) will set the fees for data content 
underlying consolidated market data offerings \2147\ and how SROs will 
set the fees for connectivity necessary to receive the data content 
underlying consolidated market data as well as how the competing 
consolidators will price their services. As a result of lower fees, 
some market participants will choose to purchase more market data 
content than they purchase today, such as purchasing the expanded core 
data. The likelihood of this outcome will depend on the difference 
between total fees for consolidated market data and current total fees 
for equivalent data content.\2148\
---------------------------------------------------------------------------

    \2147\ Several commenters agree. See, e.g., NYSE Letter II at 
19-20; STANY Letter II at 5.
    \2148\ The economic effect of more market participants 
purchasing expanded core data is discussed above in Section 
V.C.1(c).
---------------------------------------------------------------------------

    The Commission believes that three sets of fees may be affected as 
a result of this rule: Fees for data content underlying consolidated 
market data offerings, fees for the consolidation and dissemination of 
consolidated market data products, and fees for the connectivity 
services necessary to receive the data content underlying

[[Page 18773]]

consolidated market data from the SROs.\2149\
---------------------------------------------------------------------------

    \2149\ The first two fees are currently bundled into a single 
fee, which covers SROs' data and the exclusive SIPs' operations such 
as consolidation and dissemination of data. The amendments will 
unbundle these two components and will allow competing consolidators 
to provide the data consolidation and dissemination services. Under 
the rule, the fee for data content will be set by the effective 
national market system plan(s). See supra Section III.E.2(c) and 
Proposing Release, 85 FR at n. 96 for a discussion on the amendments 
to the provision regulating effective national market system plan(s) 
fee filings. Within 150 days of the effectiveness of Rule 614, the 
Operating Committee(s) of the effective national market system 
plan(s) will be required to propose the data content fees for the 
SROs' data required to create consolidated market data and will then 
file the proposed fees with the Commission for consideration 
pursuant to Rule 608. See supra Section III.H.1. Competing 
consolidators will likely charge a second fee for their 
consolidation and dissemination services, which could also include 
associated costs for data access at exchanges and transmission of 
data between data centers. The fees for data consolidation and 
dissemination will be determined by competition among competing 
consolidators. Finally, SROs currently charge connectivity fees for 
both exclusive SIP and proprietary data feeds. Under the amendments, 
SROs could charge connectivity fees to competing consolidators and 
self-aggregators, which must be consistent with statutory standards. 
Currently, connectivity fees are charged to the market participants 
that connect to the exchange and not to end users. See Proposing 
Release, 85 FR at n. 1017. Competing consolidators could charge 
connectivity fees to end users, which will be subject to competitive 
forces.
---------------------------------------------------------------------------

d. Data Content Fees
    The Commission believes that the fees for the data content used to 
create consolidated market data are unlikely to increase and actually 
will likely be lower than today's fees for equivalent data,\2150\ 
because the effective national market system plan(s) would have to 
satisfy the statutory standards that apply to such data. In addition, 
fees for data content underlying consolidated market data will be 
subject to a notice and comment period and Commission approval. As 
discussed above, the fees for the data content underlying consolidated 
market data must be fair, reasonable and not unreasonably 
discriminatory. One method for demonstrating compliance with such 
requirements is that fees are reasonably related to costs; this has 
been the principal method discussed by the Commission for analyzing the 
fairness and reasonableness of such fees for core data since the Market 
Information Concept Release.\2151\
---------------------------------------------------------------------------

    \2150\ The Operating Committee(s) of the effective national 
market system plan(s) will have to propose the data content fees for 
the SROs' data required to create consolidated market data and will 
then file the proposed fees with the Commission for consideration 
pursuant to Rule 608, within 150 days of the effectiveness of Rule 
614. See supra Section III.H.2.
    \2151\ For the purposes of this section, the Commission assumes 
that the Operating Committee of the effective national market system 
plan(s) will set fees for data content underlying consolidated 
market data offerings that are reasonably related to costs. See 
III.E.2(c) for a discussion of the statutory standards for fees on 
the data content underlying consolidated market data. See also supra 
note 21.
---------------------------------------------------------------------------

    The Commission believes that the fees for consolidated market data 
will likely be subject to downward pressure. Specifically, the new data 
content underlying consolidated market data (i.e., depth of book data, 
auction information, and odd-lot information) are currently elements of 
proprietary data products, which are assessed under the statutory 
standards that apply to proprietary data and are effective on 
filing.\2152\ However, fees for data content underlying consolidated 
market data will be developed and proposed by the effective national 
market system plan(s) and will be subject to notice and comment.\2153\ 
As stated above,\2154\ the fees for the data content underlying 
consolidated market data must satisfy the statutory standards of being 
fair, reasonable, and not unreasonably discriminatory. The Commission 
has historically analyzed fees for consolidated SIP data generated 
under the national market system plans using a standard under which 
fees are reasonably related to cost, while its analysis of proprietary 
data fees has not been limited in this manner.\2155\
---------------------------------------------------------------------------

    \2152\ See supra Section III.B.6. These statutory standards 
include Section 6(b)(4) of the Exchange Act and Section 11A(c)(1)(D) 
and Rule 603(a) under Regulation NMS.
    \2153\ See Effective-Upon-Filing Adopting Release, supra note 
17.
    \2154\ See supra Section III.B.6 and Section III.E.2(c).
    \2155\ See supra Section III.E.2(c); see also notes 1175 and 
1178.
---------------------------------------------------------------------------

    Under such methodology, data content fees are likely to decrease 
because between 2010 and 2018, the proprietary data feed portion of the 
current fees for equivalent data appears to have increased at a rate 
that seems unlikely to have been based on costs.\2156\ To the extent 
that the exchanges have generally not attempted to justify their 
proprietary data fees on a cost basis but instead relied on other 
justifications, their fees seem to have outpaced their costs.\2157\
---------------------------------------------------------------------------

    \2156\ See supra Section V.B.2(d); see, e.g., AHSAT Letter at 1; 
Better Markets Letter at 4.
    \2157\ In a comment letter, IEX provided data that the SRO 
markups on proprietary data may be large. In particular, IEX 
compared its own costs of providing proprietary market data with the 
fees charged by other exchanges for comparable produces and found 
markups of 900-1,800 percent. See Katsuyama Letter II; Letter from 
John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, to 
Brent J. Fields, Secretary, Commission (Feb. 4, 2019) (discussing 
the ``all-in'' cost to trade concept advocated by other exchanges). 
Additionally, in a letter submitted in advance of the Market Data 
Roundtable, one commenter stated that ``[t]he Exchanges have 
formulated pricing schemes that layer in redundant costs and fees 
which raises the true cost of market data well above the costs of 
producing and distributing the data'' and that ``the Exchanges 
impose multiple synthetic access fees for participants to physically 
connect to obtain the required data; these costs bear no relation to 
the Exchanges' actual cost of the connectivity.'' See letter from 
Douglas A. Cifu, Chief Executive Officer, Virtu Financial, to Brent 
J. Fields, Secretary, Commission, dated Oct. 23, 2018, at 3, 5, 
available at https://www.sec.gov/comments/4-729/4729-4558490-176196.pdf.
---------------------------------------------------------------------------

    The Commission believes that fees for content equivalent to the 
data content of consolidated market data will not increase because the 
downward pressure on fees noted above will not permit the fees for 
consolidated market data to be greater than the sum of the current fees 
for individual data components. Currently, market participants who want 
to access content equivalent to the data content of consolidated market 
data need to separately purchase SIP data and additional data elements 
from each exchange via proprietary data feeds.\2158\ As discussed in 
the Proposing Release,\2159\ the Commission understands that SRO 
proprietary feeds for depth of book data are more expensive than the 
exclusive SIP feeds.\2160\ The Commission believes that

[[Page 18774]]

a combination of these data elements, in the form of consolidated 
market data, is unlikely to be priced more than the sum of its parts.
---------------------------------------------------------------------------

    \2158\ Currently, fees for SIP data and proprietary data are 
generally charged based on the number and type of end user of the 
data. For example, the CTA/CQ Plan Schedule of Charges distinguishes 
fees by professional and nonprofessional subscribers and the number 
of devices. See CTA Plan, Schedule of Market Data Charges, supra 
note 1734; Proposing Release, 85 FR at n. 1511. The Nasdaq UTP Plan, 
Exhibit 2 provides separate fees for non-professionals and per 
device fees. See Proposing Release, 85 FR at n. 13 for Nasdaq UTP 
Plan. Similar user distinctions are made in proprietary data 
products. See Nasdaq, Price List--U.S. Equities, available at 
www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv (last accessed Jan. 
30, 2020) (showing Nasdaq TotalView usage fees, which provide fees 
for professional and non-professional subscribers); NYSE Proprietary 
Market Data Fees (as of Nov. 4, 2019), available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf 
(showing the NYSE Integrated Feed fee schedule, which distinguishes 
between professional and non-professional users).
    \2159\ See Proposing Release, 85 FR at 16839. See also supra 
Section I.B.
    \2160\ Several commenters supported this statement, some of whom 
stated that the fees for the exchanges' proprietary data makes it 
hard for them to fulfill their regulatory requirements. See, e.g., 
AHSAT Letter at 1; Better Markets Letter at 4. But another commenter 
stated that this statement represents an ``apples-to-oranges'' 
comparison, because a DOB feed contains more information than the 
exclusive SIP feeds. See Nasdaq Letter IV at 49. The Commission is 
aware that there is more information in the DOB feeds than the SIP 
feeds; the comparison in this statement is of the SIP data fees to 
the proprietary data fees to explain how the two current data 
content components' underlying consolidated market data are priced. 
This is because today any market participant that wants to get data 
content equivalent to consolidated market data would have to pay for 
certain DOB feeds as well as the SIP data feeds.
---------------------------------------------------------------------------

    Finally, the Commission would not expect fees for content 
equivalent to the data content of consolidated market data to be 
higher, because under the amendments the SROs are not required to incur 
significant new costs by creating a separate dedicated data feed and 
connectivity system. The amendments allow the SROs to use their 
existing proprietary data and connectivity infrastructure to provide 
the data content underlying consolidated market data.\2161\ This 
provision will likely reduce the SROs' implementation costs, further 
limiting the probability that the fees proposed by the effective 
national market system plan(s) for the data content underlying 
consolidated market data will be higher than the current fees for 
equivalent data.\2162\ In addition, the Commission does not believe 
that the rule will significantly increase SRO costs specifically for 
distributing data.\2163\ However, the exchanges could shift the 
allocation of fixed exchange costs to consolidated market data from 
some of their proprietary data.\2164\ The Commission lacks the 
necessary information to ascertain those impacts.
---------------------------------------------------------------------------

    \2161\ See supra Section III.B.9(b) for a discussion on how the 
SROs will provide the data content underlying consolidated market 
data.
    \2162\ See supra Section V.C.1(c)(iv).
    \2163\ See id.
    \2164\ One commenter agreed with the Commission's assessment 
however did not provide any analysis or data. See BlackRock Letter 
at 5. See also infra Section V.C.4(a) for a discussion of the likely 
effects of the rule on the revenues exchanges receive for 
proprietary data.
---------------------------------------------------------------------------

e. Consolidation and Dissemination Fees
    The Commission believes that data consolidation and dissemination 
fees for consolidated market data products will be lower than 
consolidation and dissemination fees market participants currently pay 
to receive equivalent data for two reasons.\2165\
---------------------------------------------------------------------------

    \2165\ Some commenters agreed. See, e.g., IntelligentCross 
Letter at 5.
---------------------------------------------------------------------------

    First, to receive data equivalent to consolidated market data 
today, market participants would have to pay separately for a portion 
of exclusive SIPs' cost to perform consolidation and dissemination of 
market data and a fee for consolidation and dissemination of additional 
data content underlying consolidated market data that are available via 
third-party providers of proprietary market data, who face competitive 
pressures. As discussed above,\2166\ exclusive SIPs are not constrained 
by competition and thus have lower incentives to reduce their costs. By 
comparison, the Commission expects that competition among competing 
consolidators will put downward pricing pressure on these service fees, 
because competing consolidators will have incentives to undertake 
investments intended to lower costs and improve quality in the 
provision of consolidated market data products. Competing consolidators 
will be competing over market share. Unlike in today's world of 
exclusive SIPs, under the amendments, a competing consolidator's 
inefficiencies or lack of desirable products could lead to its clients 
switching to another consolidated data vendor and that competing 
consolidator losing market share or even getting driven out of the 
market. The Commission recognizes that the stronger the competition 
among competing consolidators, the harder it would be for any given 
competing consolidator to increase its consolidation and dissemination 
fees and make supra-competitive profits from these services.\2167\
---------------------------------------------------------------------------

    \2166\ Several commenters agreed. See, e.g., DOJ Letter at 5; 
MFA Letter at 2; AHSAT Letter at 1. See also supra Section V.A.2.
    \2167\ See infra Section V.C.2(c) for a discussion on the 
benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

    Second, the fixed costs of the competing consolidators could be 
spread out among its subscribers, including subscribers to services 
provided by the competing consolidators that are not covered by the 
fees established by the effective national market system plan(s) such 
as, for example, proprietary data customers that might be purchasing 
their data from competing consolidators that also sell consolidated 
market data products. Consolidation and dissemination fees that 
competing consolidators will charge for equivalent data are expected to 
cover several associated costs, including fixed costs of hardware and 
software, processing to take in data, processing for consolidation 
(including compiling the NBBO and protected quotes), distribution of 
the data, and connectivity fees paid to exchanges to acquire the data 
for consolidation. The variable costs of the competing consolidators 
will be minor in comparison because additional data users will have a 
minimal impact on the costs of competing consolidators. Because having 
more subscribers could help competing consolidators spread out their 
fixed costs, any increase in the number of subscribers of current 
market data aggregators who would become competing consolidators would 
reduce the consolidation and dissemination fees of those aggregators in 
equivalent data. For example, some market participants who currently 
use proprietary data might switch to using consolidated market data 
products.\2168\ Additionally, as discussed below, the availability of 
the new consolidated market data might allow new entry into the market 
making, broker-dealer, and other trading businesses.\2169\ This would 
expand the potential subscriber pool, giving competing consolidators a 
chance to further spread their fixed costs. For these reasons, the 
Commission believes that the competition among competing consolidators 
will lead to lower consolidation and dissemination fees for 
consolidated market data products as compared to these fees for 
equivalent data today.
---------------------------------------------------------------------------

    \2168\ One of the commenters agreed that some of the current 
proprietary data users might switch to using consolidated market 
data products. According to the commenter, a portion of those could 
become self-aggregators and others could be served by competing 
consolidators. See Nasdaq Letter IV at 25. See also infra Section 
V.C.4(a) for a discussion on the effects of the amendments on 
exchanges' proprietary data feeds.
    \2169\ See infra Section V.C.4(b) for a discussion on new 
potential entrants into the market maker, broker-dealer, and other 
latency sensitive trading businesses.
---------------------------------------------------------------------------

f. Connectivity Fees
    The Commission believes that connectivity fees charged by competing 
consolidators for consolidated market data products will also be lower 
than connectivity fees market participants would currently have to pay 
to receive equivalent data. To receive data equivalent to consolidated 
market data today, market participants currently have to pay separately 
a connectivity fee to the exchanges to access SIP data and a 
connectivity fee to the exchanges or market data aggregators to access 
additional data elements that are not part of SIP data but that will be 
part of consolidated market data. Under the rule, the Commission 
expects that market participants will pay only one connectivity fee for 
consolidated market data products (unless they choose to have a back-up 
competing consolidator), set by a competing consolidator, and this 
connectivity fee will be subject to competition among competing 
consolidators. Competing consolidators will have the ability to sell 
potentially substitutable data products via their connectivity, 
subjecting their connectivity products to competition. By contrast, 
current exchange connectivity fees may not be as competitive because an 
exchange has sole control over its own connectivity

[[Page 18775]]

charge for its proprietary market data.\2170\ Therefore, the Commission 
believes that connectivity fees that will be charged by competing 
consolidators for consolidated market data products will be lower than 
the connectivity fees for equivalent data today.
---------------------------------------------------------------------------

    \2170\ Several commenters agreed. See, e.g., Virtu Letter at 2; 
SIFMA Letter at 4; IEX Letter at 5-6.
---------------------------------------------------------------------------

    The Commission recognizes that SROs will charge connectivity fees 
to competing consolidators and self-aggregators. The exchanges could 
continue to set connectivity fees for data feeds as part of their SRO 
fee schedules, and these fees must continue to meet statutory 
standards.\2171\ The exchanges' connectivity fees are not currently 
based on the number of end users, and therefore the Commission believes 
that the connectivity fees for consolidated market data products would 
not be directly passed through to the end users. SRO connectivity fees 
would be fixed costs incurred by self-aggregators and by competing 
consolidators, a cost the latter could spread out among their end users 
as a part of the consolidation and dissemination as well as 
connectivity fees.
---------------------------------------------------------------------------

    \2171\ For example, under Section 6(b)(4) of the Exchange Act, 
the rules of an exchange must ``provide for the equitable allocation 
of reasonable dues, fees, and other charges among its members and 
issuers and other persons using its facilities.''
---------------------------------------------------------------------------

g. Response to Comments on Fees for Consolidated Market Data
    Several commenters stated that the decentralized consolidation 
model is unlikely to reduce data costs, including because of the richer 
core data content and the additional upkeep costs introduced by the 
decentralized consolidation model.\2172\ One commenter said that the 
uncertainty around data reliability and fees did not provide assurances 
that the market data costs would decline after adoption of these 
amendments.\2173\ Another commenter stated that given the potential 
data and technology input costs, competition alone cannot lower 
prices.\2174\ Another commenter said that there will be a speed race 
among competing consolidators and, as a result, as their costs go up 
their prices will go up.\2175\ One other commenter expressed sympathy 
for the idea of introducing competitive forces, but said that the 
release did not provide any proof that introducing competition from 
competing consolidators and self-aggregators will lower data fees and 
latency.\2176\
---------------------------------------------------------------------------

    \2172\ See, e.g., BlackRock Letter at 5; Cboe Letter at 23-24; 
Angel Letter at 21; TD Ameritrade Letter at 2; Healthy Markets 
Letter I at 4; STANY Letter II at 5; Nasdaq Letter III at 8; Nasdaq 
Letter IV at 8; Data Boiler Letter I at 2.
    \2173\ See TD Ameritrade Letter at 2.
    \2174\ See Healthy Markets Letter I at 4.
    \2175\ See Nasdaq Letter III at 8.
    \2176\ See STANY Letter II at 5.
---------------------------------------------------------------------------

    The Commission disagrees with these comments and believes that 
competition among competing consolidators will likely decrease 
consolidated market data costs for equivalent data.\2177\ First, as 
discussed above, the Commission agrees that there is uncertainty around 
data content fees. However, for the reasons explained above, the 
Commission believes that the overall data fees (i.e., data content, 
consolidation and dissemination, and connectivity fees) will likely be 
lower for equivalent data. One commenter's statement about potential 
fee increases due to ``richer core data content'' \2178\ makes an 
accurate comparison to baseline SIP data fees difficult, because 
current SIP data fees bundle data content and consolidation and 
dissemination fees. While data content portion of the SIP data fees 
might go up because of the richer content of consolidated market data, 
consolidation and dissemination portion of SIP data fees could approach 
zero, as the exclusive SIPs will be discontinued. Thus the overall 
outcome is unclear, making comparisons to the current SIP data fees 
very difficult. A more accurate way to examine the data fees is by 
breaking them down into the three fee components (i.e., data content, 
consolidation and dissemination, and connectivity) while holding data 
content constant, as in the Commission's analysis above. As a result of 
that analysis, the Commission concludes that the overall data fees 
(i.e., data content, consolidation and dissemination, and connectivity 
fees) will likely be lower for equivalent data.
---------------------------------------------------------------------------

    \2177\ Several commenters agreed. See, e.g., BestEx Research 
Letter at 4; Fidelity Letter at 9; Committee on Capital Markets 
Regulation Letter at 3; Wellington Letter at 1; Intelligent Cross at 
5.
    \2178\ See BlackRock Letter at 5.
---------------------------------------------------------------------------

    Second, the Commission understands that competing consolidators 
will have input and technology costs, but as discussed above, these are 
mostly fixed costs that competing consolidators will spread over their 
customer base. Competitive pressure will encourage competing 
consolidators to always look for ways to reduce their costs and try to 
capture market share by passing some or all of these cost savings onto 
their customers. Additionally, the Commission believes that this same 
competitive dynamic will be unchanged even if competing consolidators 
charge different consolidation and dissemination prices for different 
products, such as higher prices for lower latency products, as 
suggested by one of the commenters. On the other hand, current market 
participants whose trading strategies require low-latency data need to 
buy proprietary data and the exchanges may not be subject to robust 
competition in their proprietary data business.\2179\ Similarly, the 
exclusive SIPs are not under competitive pressure and are unlikely to 
be focused on cost saving measures, as the competing consolidators 
will.
---------------------------------------------------------------------------

    \2179\ See supra Section V.B.3(b) for a discussion on the 
current market structure for proprietary market data.
---------------------------------------------------------------------------

    Some commenters stated that the Commission's belief about multiple 
competing consolidators offering differentiated products is in conflict 
with its predictions about the overall fees for consolidated market 
data potentially being lower than today for equivalent data.\2180\ One 
commenter said that ``if the Commission's prediction of 12 
consolidators were correct, the fixed costs associated with the two 
exclusive SIPs would be supplemented with the fixed costs associated 
with 12 consolidators, likely resulting in a substantial increase in 
industry fixed costs. Such an increase in fixed costs would ultimately 
have to be borne by industry participants, including investors, and 
ultimately recovered from consumers of market data.'' \2181\ Another 
commenter relied on an academic article to make the point that 
competition could increase prices when product differentiation is 
possible.\2182\ The Commission does not believe the commenters' 
conclusions necessarily follow for the new competing consolidator 
business.
---------------------------------------------------------------------------

    \2180\ See Nasdaq Letter IV at 2, 25, 26; Angel Letter at 23.
    \2181\ See Nasdaq Letter IV at 25.
    \2182\ See Angel Letter at 23.
---------------------------------------------------------------------------

    First, the Commission does not believe that the market having 
several competing consolidators will lead to higher fixed costs for 
equivalent data and thus higher consolidated market data prices. What 
the competing consolidators' fixed costs will be is uncertain, because 
a portion of those fixed costs will be the connectivity fees that the 
SROs will file with the Commission and those are yet to be 
proposed.\2183\ Additionally, even if the fixed costs end up being 
higher, that would not immediately imply higher consolidated market 
data prices because the demand for consolidated market data products 
might be higher as a result of some market participants potentially 
choosing to buy consolidated market data products instead of 
proprietary

[[Page 18776]]

data feeds \2184\ and potential new entry into the broker-dealer, 
market making, and other latency sensitive businesses.\2185\ Finally, 
the Commission believes that, unlike in the current centralized 
consolidation model, competitive pressures will make it harder for 
competing consolidators to raise their prices to supra-competitive 
levels under the decentralized consolidation model. At any given point, 
competing consolidators are unlikely to have exactly the same 
incremental costs. Some of them might have cost advantages over the 
others, which will allow them to pass these cost advantages to 
customers in terms of lower prices and to compete over each other's 
customer segments. Those competing consolidators with a cost advantage 
will increase their market share by pushing out the higher cost 
competing consolidators from the market. Eventually the market will 
reach a stable level of competition where individual competing 
consolidators cannot raise their prices to supra-competitive levels 
without risking a loss of their customers to a competitor.
---------------------------------------------------------------------------

    \2183\ See supra Section V.C.2(b)(i)c for a discussion on 
connectivity fees and their potential impact on competing 
consolidators.
    \2184\ See infra Section V.C.4(a) for a discussion on the impact 
of the amendments on proprietary data business.
    \2185\ See infra Section V.C.4(b) for a discussion on the impact 
of the amendments on new entrants into broker-dealer, market making, 
and other latency sensitive businesses.
---------------------------------------------------------------------------

    Second, the Commission does not believe that the comment about 
competition potentially leading to price increases in a market with 
product differentiation applies to the competing consolidator business. 
The comment relies on an academic paper that examines prices and 
competition under a duopoly market structure. The academic paper does 
not examine or try to understand potential price outcomes under a 
different market structure, such as one with several competing firms--
the most likely outcome for the competing consolidator business.\2186\ 
Therefore, it is hard to extrapolate the paper's arguments from a 
duopoly market to a market with more than two competitors because the 
competitive dynamics and the resulting price effects in a duopoly 
market might be very different from the competitive dynamics and the 
resulting price effects in a market with several competitors. The 
Commission acknowledges that competition may not be very strong if the 
new competing consolidator business ends up with two competing 
consolidators, especially if both of them are affiliated with the 
exchanges that currently operate an exclusive SIP.\2187\ However, even 
in such a market, this academic paper's predictions will not 
necessarily be applicable because the two competing consolidators will 
have the ability to target each other's customers if they see an 
economic opportunity to do so. On the other hand, the paper cited by 
the commenter examines a research question motivated by empirical 
observations in industries such as the anti-ulcer drug market. 
Competitors in those markets have a hard time offering each other's 
products, given potential patent and other restrictions. However, in 
the consolidated market data business, firms can offer perfectly or 
partially substitutable products as well as each other's differentiated 
products if an economic opportunity to do so exists. For example, as 
discussed above, an economic opportunity may exist if an inefficient 
competing consolidator charges prices above competitive levels. Unlike 
a brand name drug manufacturer, competing consolidators will maintain 
the ability to compete over the same customer segments, even as they 
differentiate their products. And this ability to compete will create a 
threat of competition that will discipline competing consolidators' 
prices.
---------------------------------------------------------------------------

    \2186\ See Yongmin Chen and Michael H. Riordan, Price-Increasing 
Competition, 39 Rand J. Econ. 1042, 1056 (2008). See also, supra 
Section V.C.2(a)(ii) for a discussion of the potential scenarios for 
the number of competing consolidator registrants.
    \2187\ See supra Section V.C.2(a)(ii)b for a discussion on the 
potential softening of competition if the only two registrants for 
the new competing consolidator business are exchange-affiliated 
competing consolidators.
---------------------------------------------------------------------------

(ii) Fees for the Content of Current SIP Data
    The Commission also considers the effect of the rule on fees market 
participants currently pay for SIP data content versus what they would 
pay for equivalent content under the decentralized consolidation model. 
The Commission recognizes that a significant proportion of market 
participants currently purchase only SIP data and/or the unconsolidated 
equivalent of SIP data.\2188\ Under this rule and conditional on fees 
for consolidated market data, while some of these market participants 
will choose to purchase more data than they purchase today, other 
market participants may choose to continue to purchase content 
equivalent to current SIP data (e.g., NBBO and TOB).\2189\ The 
Commission believes that data fees paid for equivalent data could be 
similar to current SIP data fees or could be lower than current SIP 
data fees. Whether the fees are the same or lower depends on several 
factors: The data content fee structure proposed by the effective 
national market system plan(s) for NMS stocks, how competing 
consolidators allocate their costs of processing (i.e., receiving, 
consolidating, and disseminating) consolidated market data, and any 
connectivity fees charged by competing consolidators for consolidated 
market data products.
---------------------------------------------------------------------------

    \2188\ Several commenters agreed. See, e.g., BestEx Research 
Letter at 2-3; State Street Letter at 2; BlackRock Letter at 1.
    \2189\ Some commenters agreed. See, e.g., MEMX Letter at 5.
---------------------------------------------------------------------------

a. Data Content Fees
    The Commission believes that the data content fee structure 
proposed by the effective national market system plan(s) for NMS stocks 
under the decentralized consolidation model is an important factor in 
determining whether total data fees (i.e., the sum of data content 
fees, consolidation and dissemination fees, and connectivity fees) for 
the equivalent of current SIP data could be similar or lower under this 
rule.\2190\ Until the effective national market system plan(s) propose 
fees for data content underlying consolidated market data offerings, 
the Commission is unable to determine the extent to which this fee 
structure would charge lower fees for end users who wish to receive 
subsets of consolidated market data from competing consolidators.
---------------------------------------------------------------------------

    \2190\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

    The Commission also understands that the current SIP data content 
fees are different for different use cases.\2191\ In the 2018 SEC 
roundtable, several exchanges agreed that their many different types of 
market participants and that one type of data product does not meet 
everybody's needs.\2192\ The amendments will not change the market 
reality that market participants have diverse data needs. Thus the 
Commission believes that the effective

[[Page 18777]]

national market systems plan(s) will likely take this market reality 
into account when proposing the fee schedule for data content 
underlying consolidated market data by, for example, proposing 
different fees based on the scope of data content a market participant 
consumes or usage category or a combination of both.\2193\
---------------------------------------------------------------------------

    \2191\ See CTA Plan, Q2 2020 CTA Quarterly Revenue Disclosure, 
available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_2Q2020.pdf; Nasdaq UTP Plan, Q2 
2020 UTP Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q22020.pdf.
    \2192\ One of the round table participants said that ``there are 
many different types of market data consumers, from major Wall 
Street banks and market makers to retail online brokerages and media 
companies across the world and all have differing data needs.'' (See 
Oliver Albers speech on page 107, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf). Another round table 
participant stated that ``[e]xchanges offer a variety of data 
products to meet the diverse needs of market participants.'' (See 
James Brooks' speech on page 177, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf).
    \2193\ One commenter agreed that different types of investor 
place different values on market data and therefore the market data 
pricing schemes should take this into account. See Angel Letter at 
9, 11, and 27.
---------------------------------------------------------------------------

    Two commenters \2194\ emphasized the uncertainty around the 
potential national market system plan(s) fee schedules, with one 
commenter stating that ``the Commission cannot assume that the 
operating committee of an NMS plan would create such a [top of book] 
product, or whether the costs of such a product would meet the needs of 
market participants who do not want or cannot consume the full 
consolidated market data.'' \2195\ Indeed the Commission does not 
assume that the Operating Committee of an effective national market 
system plan will create a differential pricing structure that might 
satisfy the needs of market participants who will continue to purchase 
data content equivalent to the current SIP data.\2196\ However, the 
Commission believes that this is a likely outcome based on market 
realities. The effective national market system plan(s) may choose 
different price levels based on usage category because that is the 
current fee practice for the exclusive SIPs. Thus it is possible this 
pricing method will carry over into the new market under the 
amendments.\2197\ On the other hand, it is also possible that the 
effective national market system plan(s) will choose different price 
levels based on the scope of data content market participants 
consume,\2198\ especially because competing consolidators are not 
required to offer the entire data content of consolidated market data. 
As a result, the Commission acknowledges that the amendments could 
decrease or keep at similar rates the content fees for the equivalent 
of SIP data.\2199\ The outcome is dependent on the effective national 
market system data plan(s)' fee proposals.\2200\
---------------------------------------------------------------------------

    \2194\ See Nasdaq Letter IV at 47; NYSE Letter II at 4.
    \2195\ See NYSE Letter II at 4.
    \2196\ See Proposing Release, 85 FR at 16840-41 for a discussion 
on the uncertainty about data content fees.
    \2197\ One commenter stated that the distinction between 
professional and non-professional users and the corresponding price 
differences between those categories should be retained under the 
amendments. See Angel Letter at 9. Within 150 days of the 
effectiveness of Rule 614, the Operating Committee(s) of the 
effective national market system plan(s) will be required to propose 
the data content fees for the SROs' data required to create 
consolidated market data and will then file the proposed fees with 
the Commission for consideration pursuant to Rule 608. See supra 
Section III.H.1. Thus the Commission is uncertain about the 
potential data content fee structure the effective national market 
system plan(s) will propose.
    \2198\ One commenter said that ``[u]sage categories are complex 
and lack standardization in terminology across exchanges, leading to 
excessive audits and subjective interpretations about compliance 
with contractual agreements.'' See BlackRock Letter at 6.
    \2199\ See NYSE Letter II at 20.
    \2200\ The Commission has issued an order to modernize the 
governance of the data plans. See Proposing Release, 85 FR at n. 8.
---------------------------------------------------------------------------

b. Consolidation and Dissemination Fees
    The fees for data consolidation and dissemination depend on how 
competing consolidators allocate fixed costs among subscribers 
receiving different subsets of data. As discussed in the Proposing 
Release,\2201\ the Commission expects competing consolidators to offer 
a menu of products and services, regardless of the data content fee 
structure of the effective national market system plan(s). Competing 
consolidators could elect to charge lower consolidation and 
dissemination fees to subscribers receiving subsets of data compared to 
fees charged to subscribers receiving the entirety of consolidated 
market data. In fact, the Commission believes that competitive pressure 
could result in such a fee structure. Additionally, some competing 
consolidators can specialize in serving market participants that prefer 
to consume subsets of consolidated market data. In such a case, these 
specialized competing consolidators might be able to lower some of 
their fixed costs (e.g., by signing up for a smaller, and therefore, 
cheaper connectivity port to take in only a subset of consolidated 
market data) and pass those cost savings in terms of lower 
consolidation and dissemination fees. Overall, the data consolidation 
and dissemination component of total fees charged to those who purchase 
content equivalent to SIP data could be lower than this component of 
current SIP data fees today.
---------------------------------------------------------------------------

    \2201\ See Proposing Release, 85 FR at Section VI.C.2(a).
---------------------------------------------------------------------------

c. Connectivity Fees
    The fees for connectivity services paid by end users seeking to 
purchase only what was previously SIP data may decline for some users 
but could stay the same for others. Currently, some SIP data users 
connect to the exchanges that are the administrators of exclusive SIPs 
and pay connectivity fees to access the SIP data. These connectivity 
fees are paid directly to the exchanges and do not go to the exclusive 
SIPs. There are also SIP data users that do not connect to the 
exchanges and thus do not pay SRO connectivity fees for SIP data, but 
may pay fees to other market data service providers. Under this rule, 
subscribers may be charged a connectivity fee by competing 
consolidators when they subscribe to consolidated market data products. 
The Commission acknowledges that there is uncertainty over whether the 
competing consolidator connectivity fees would be similar to or smaller 
than what SIP data users currently pay in connectivity fees. The 
overall connectivity fees under this rule may be similar if competing 
consolidators charge connectivity fees similar to what the current SIP 
data normalizers charge. As discussed above \2202\ and in the Proposal 
\2203\ and given the potential connectivity options available, the 
Commission believes competing consolidators will be under competitive 
pressure, and as such, they may offer a range of connectivity fees, 
including based on market participants' scope of data content and speed 
choice. In that case, SIP data subscribers who currently pay 
connectivity fees to the exchanges may see their connectivity fees 
decline.
---------------------------------------------------------------------------

    \2202\ See supra Section V.C.2(b)(i).
    \2203\ See Proposing Release, 85 FR at Section V.C.2(b)(i).
---------------------------------------------------------------------------

d. Response to Comments on Fees for the Content of Current SIP Data
    Several commenters argued that data fees for retail investors will 
go up and that those investors will effectively be subsidizing benefits 
incurred by self-aggregators or other market participants who use 
larger data content or the entirety of consolidated market data.\2204\
---------------------------------------------------------------------------

    \2204\ See, e.g., NYSE Letter II at 20; Angel Letter at 24; TD 
Ameritrade Letter at 4.
---------------------------------------------------------------------------

    The Commission acknowledges that market participants who would like 
to purchase a narrower data content that is equivalent to the current 
SIP data might pay fees similar to the current SIP data fees. This is 
because it is uncertain whether the effective national market system 
plan(s) will implement a fee schedule that has different fees based on 
the scope of data content a market participant consumes or usage 
categories, whether competing consolidators will allocate their fixed 
costs taking into account consolidation and dissemination bandwidth 
their customers use based on their data content consumption or usage 
category,

[[Page 18778]]

and at what level competing consolidators will charge connectivity 
fees. Despite this uncertainty, as discussed above, the Commission 
believes that there are several reasons why market participants who 
would like to purchase a narrower data content that is equivalent to 
the current SIP data might pay lower fees than the current SIP data 
fees.\2205\ The Commission does not have enough information to 
determine whether these fees will be lower or similar.
---------------------------------------------------------------------------

    \2205\ See supra Section V.C.2(b)(ii) for a discussion on the 
reasons why data fees for investors who would like to purchase data 
content equivalent to the current SIP data might pay lower fees than 
the current SIP data fees.
---------------------------------------------------------------------------

(c) Benefits of the Decentralized Consolidation Model Pertaining to 
Competing Consolidators
    As discussed above,\2206\ currently SIP data is collected, 
consolidated, and disseminated to market participants through a 
centralized consolidation model with an exclusive SIP for each NMS 
stock. The amendments will discontinue the centralized model, and 
instead will introduce a decentralized consolidation model. Even though 
the current exclusive SIPs are selected through a bidding 
process,\2207\ the Commission believes that a competitive marketplace 
is more capable of producing the benefits that come from competitive 
forces than the process of soliciting bids for exclusive 
contracts.\2208\ In particular, the Commission believes that the 
decentralized consolidation model will have four potential benefits for 
market participants. First, the Commission believes that the 
decentralized consolidation model offers the potential for gains in 
efficiency in the delivery of consolidated market data products to 
emerge over time. Second, the Commission believes that the model will 
promote innovation in market data delivery in the future, in a way that 
the current centralized consolidation model has not. Third, the 
Commission expects that the new model will significantly reduce content 
and latency differentials that currently exist between SIP data and 
proprietary data products. Finally, the Commission believes that the 
decentralized consolidation model will potentially increase market 
resiliency.
---------------------------------------------------------------------------

    \2206\ See supra Section V.B.2(b) for a discussion on the 
current process for dissemination of market data.
    \2207\ See supra SectionV.B.3(a) for a discussion on why the SIP 
bidding process is not necessarily competitive.
    \2208\ See supra Section V.A.2 for a discussion of the problems 
with the current process and infra Section V.D.2 for a discussion of 
the effect of the amendments on competition.
---------------------------------------------------------------------------

    The Commission acknowledges that some commenters raised issues 
about the potential benefits of the decentralized consolidation model 
predicted in the Proposing Release.\2209\ However, other commenters 
stated that the decentralized consolidation model will bring potential 
benefits and agreed with the Commission's earlier predictions.\2210\ 
The analysis responds to the comments below.
---------------------------------------------------------------------------

    \2209\ See, e.g., STANY Letter II at 5; Healthy Markets Letter I 
at 4; TD Ameritrade Letter at 2; Kubitz Letter at 1.
    \2210\ See, e.g., DOJ Letter at 3-4; IntelligentCross Letter at 
4-5; Better Markets Letter at 3; Clearpool Letter at 7; MEMX Letter 
at 8; Committee on Capital Markets Regulation Letter at 3; FIA PTG 
Letter at 1; Steinmetz Letter (comment on entire proposal).
---------------------------------------------------------------------------

(i) Gains in Efficiency, Such as Cost Savings
    The Commission believes that introducing competition into the 
provision of consolidated market data products and dissemination 
services will likely reduce costs and lower prices for those services, 
and create incentives for innovating on product offerings more tailored 
to the needs of the consumers.\2211\ It is therefore the Commission's 
expectation that the decentralized consolidation model will result in a 
meaningful increase in investments intended to lower costs and/or 
improve quality in the provision of consolidated market data products. 
This represents an economic benefit for the national market system, 
some of which will be kept by competing consolidators as profit, and 
some of which will be received by market participants in the form of 
lower fees for competing consolidator services.
---------------------------------------------------------------------------

    \2211\ See Section V.C.2(b) for an analysis of the potential for 
a reduction in the fees associated with of data consolidation and 
dissemination. See also, e.g., BestEx Research Letter at 4; Fidelity 
Letter at 9; Committee on Capital Markets Regulation Letter at 3; 
Wellington Letter at 1; RBC Letter at 6.
---------------------------------------------------------------------------

    Some market participants may benefit as a result of the 
introduction of the decentralized consolidation model if they 
experience a lower price for consolidated market data relative to 
today's price for consolidated market data, holding data content 
constant.\2212\
---------------------------------------------------------------------------

    \2212\ See supra Section V.C.2(b) for a discussion of why data 
fees might decline for some participants.
---------------------------------------------------------------------------

    Additionally, market participants could potentially save on the 
cost of consolidated market data because they will only need to 
subscribe to one competing consolidator instead of two exclusive SIPs 
(i.e., UTP and CTA/CTQ). To the extent market participants can 
subscribe to one competing consolidator, they could save money by not 
having to pay the costs of processing consolidated market data to two 
SIPs.\2213\ To the extent that some market participants that receive 
consolidated market data products from competing consolidators that are 
not SCI entities choose to retain a back-up connection to a second 
competing consolidator, their cost savings could be lower. Finally, the 
amendments could improve efficiency in the consumption of market data 
because purchasers could receive consolidated market data products for 
all NMS stocks on one feed instead of three.\2214\
---------------------------------------------------------------------------

    \2213\ One commenter agreed. See Angel Letter at 21. See also 
supra V.C.2(b) for a discussion of why competing consolidator fees 
for consolidation and dissemination are likely to be lower than 
current SIP fees for the same services.
    \2214\ One commenter agreed. See BlackRock Letter at 5.
---------------------------------------------------------------------------

    Several commenters raised issues about the prediction that the new 
decentralized consolidation model will lead to declines in market data 
costs.\2215\ On the other hand, several commenters said that the 
decentralized consolidation model will lead to more efficient and lower 
cost market data products.\2216\ As discussed in detail above, the 
Commission agrees with the second group of commenters and believes that 
competition will likely improve quality and lower market data 
costs.\2217\
---------------------------------------------------------------------------

    \2215\ See, e.g., TD Ameritrade Letter at 2; Healthy Markets 
Letter I at 4; STANY Letter II at 5; Data Boiler Letter I at 2.
    \2216\ See, e.g., BestEx Research Letter at 4; Fidelity Letter 
at 9; Committee on Capital Markets Regulation Letter at 3; 
Wellington Letter at 1; RBC Letter at 6.
    \2217\ See supra Section V.C.2(b) for an analysis of the 
amendments' impact on data fees.
---------------------------------------------------------------------------

(ii) Innovation in Data Delivery
    Second, the Commission believes that the decentralized 
consolidation model will enable consolidated market data delivery to 
continue to keep up with market data communication innovations in the 
future, in a way that the current centralized consolidation model has 
not.\2218\ This represents an improvement over the current system for 
dissemination of SIP data, in which the lack of competitors reduces the 
incentives of the exchanges that govern the exclusive SIPs to 
innovate.\2219\ The Commission believes that the current system of 
disseminating SIP data through exclusive SIPs, which are managed by the 
Equity Data Plans' Operating Committees, is not well suited to keep up 
with the pace of innovation in data processing and communication in the 
market.\2220\ The

[[Page 18779]]

decentralized consolidation model will place the task of determining 
the method of consolidation and dissemination to free market forces, 
which the Commission believes will make it easier to innovate rapidly 
and maintain competitive parity with other market participants.\2221\ 
The end result of this improved efficiency in investment decisions by 
consolidators will be to improve the quality and reliability of market 
data consolidation and dissemination services, which will result in 
market participants having better data to make trading decisions.\2222\ 
The Commission believes this will lead to better trading decisions, 
lower execution costs, and will help reduce information asymmetries 
between market participants that currently solely rely on SIP data and 
market participants who purchase the exchanges' proprietary data 
products.\2223\
---------------------------------------------------------------------------

    \2218\ One commenter agreed. See State Street Letter at 3.
    \2219\ See supra Section V.A.2.
    \2220\ See id.
    \2221\ Several commenters agreed. See, e.g., State Street Letter 
at 3; ACS Execution Services Letter at 5.
    \2222\ See infra Section V.D.1.
    \2223\ Several commenters agreed. See, e.g., BlackRock Letter at 
5-6; AHSAT Letter at 3.
---------------------------------------------------------------------------

    One commenter disagreed, stating that the Commission is actually 
replacing competition with ``a government-supervised rate-setting 
board.'' \2224\ The same commenter said that ``[t]he Commission would 
no longer permit competition to determine the prices of market data or 
to spur innovation.'' \2225\ Another commenter said that market data 
``should remain subject to market forces.'' \2226\ The Commission 
disagrees with this characterization of the amendments. Under the 
amendments, the exchanges can continue to sell their proprietary data 
feeds by filing their fee schedules with the Commission, like they do 
today. In addition, similar to today, the effective national market 
system plan(s) will file data content fees with the Commission for 
market data. Finally, as mentioned above, unlike the exclusive SIPs, 
competing consolidators' consolidation and dissemination fees will be 
determined by market forces.\2227\
---------------------------------------------------------------------------

    \2224\ See Nasdaq Letter IV at 9.
    \2225\ See Nasdaq Letter IV at 9.
    \2226\ See WFE Letter at 1.
    \2227\ See supra Section V.C.2(b) for a discussion on competing 
consolidators' consolidation and dissemination prices.
---------------------------------------------------------------------------

(iii) Reduce Latency Differentials
    Third, the Commission expects that the new model will significantly 
reduce the various types of content and latency differentials between 
data that is currently SIP data and data currently included in 
proprietary data products.\2228\
---------------------------------------------------------------------------

    \2228\ Several commenters agreed with the Proposal's predictions 
on latency reduction as a result of the decentralized consolidation 
model. See, e.g., IntelligentCross Letter at 4; DOJ Letter at 3-4; 
AHSAT Letter at 3; Wellington Letter at 1; BlackRock Letter at 5. 
See also supra Section V.B.2(b) for information on current latency 
differentials.
---------------------------------------------------------------------------

    The Commission's belief that there will be a significant reduction 
in the latency differential between consolidated market data products 
and proprietary data feeds is based upon the Commission's assumption 
that the business practices of current market data aggregators, some of 
which expressed interest in becoming competing consolidators,\2229\ 
will serve as a model for how competing consolidators will operate 
under the decentralized consolidation model.\2230\ Current market data 
aggregators have achieved connectivity, transmission, consolidation, 
and distribution speeds that are meaningfully faster than SIP data even 
as they process larger amounts of data than SIP data.\2231\ Therefore, 
the Commission believes that competition among competing consolidators 
will keep market data consolidation and distribution speeds close to 
the processing speeds achieved in the market data aggregation space 
currently.\2232\
---------------------------------------------------------------------------

    \2229\ Several commenters stated that they are interested in 
registering as competing consolidators. See, e.g., McKay Letter at 
2; ACTIV Financial Letter at 1; NovaSparks Letter at 1. See also 
Press Release, Miami Int'l Holdings, Miami Int'l Holdings Announces 
That It Is Evaluating Registration as a Competing Consolidator (Nov. 
18, 2020), available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_11182020.pdf.
    \2230\ See supra Section V.C.2(a) for a discussion of the 
factors affecting the decision to become a competing consolidator.
    \2231\ The Commission believes that if the existing exclusive 
SIPs choose to become competing consolidators in the decentralized 
consolidation model, the competition with other competing 
consolidators will incentivize them to improve their connectivity, 
transmission, consolidation, and distribution speeds to the levels 
of other competing consolidators.
    \2232\ See supra Section V.B.2(b) for a discussion on the 
latency differentials between SIP data and proprietary data feeds.
---------------------------------------------------------------------------

    The Commission believes that all forms of latency discussed 
previously--geographic, consolidation, and transmission latency 
\2233\--have the potential to be the source of these reductions in the 
latency differential. The Commission understands that the existing 
market data aggregator business does not rely on the single-instance 
consolidator model but instead produces a separate consolidated feed at 
each data center. This has the potential to substantially reduce 
geographic latency for data centers that are not co-located with one of 
the existing exclusive SIPs because it means new information at a data 
center can be used immediately at that data center instead of being 
returned to the processing center first. The Commission therefore 
expects that the decentralized consolidation model will serve to 
substantially reduce geographic latency in the same way for market 
participants. For instance, the existing market data aggregators 
already have infrastructure in place to consolidate market data in the 
described way. And if the existing exclusive SIPs become competing 
consolidators, they will also have to produce separate consolidated 
feeds at each data center to be able to compete with other competing 
consolidators. Therefore, the Commission believes that the geographic 
latency reduction in the decentralized consolidation model can be 
achieved even if one existing market data aggregator enters the 
competing consolidator business. The benefit of the decentralized 
consolidation model with regard to geographic latency will not rely 
heavily on the assumption that a large number of consolidators would 
enter the market.\2234\ Importantly, as discussed above,\2235\ 
geographic latency is the biggest cause of latency differentials 
between current SIP data distributed by exclusive SIPs and current 
proprietary data feeds.\2236\
---------------------------------------------------------------------------

    \2233\ See id.
    \2234\ See supra Section V.C.2(a); V.C.2(a)(ii).
    \2235\ See supra Section V.B.2(b).
    \2236\ Several commenters agreed. See, e.g., Cboe Letter at 23; 
Nasdaq Letter IV at 49; STANY Letter II at 6.
---------------------------------------------------------------------------

    Also, the Commission understands that many current market data 
aggregators rely on wireless communications to receive data from 
various exchange data centers, using fiber connections as a backup in 
case of bad weather. As discussed above,\2237\ wireless communications 
are faster than current transmission methods for SIP data. To the 
extent that the business practices of current market data aggregators 
serve as a model for competing consolidators, the Commission expects 
the decentralized consolidation model to reduce consolidation and 
transmission latency as well.\2238\ Additionally, some competing 
consolidators could achieve lower consolidation and transmission 
latency by processing subsets of consolidated market data for market

[[Page 18780]]

participants that prefer narrower data content than the entirety of 
consolidated market data. The Commission believes that the effect of 
the decentralized consolidation model on the consolidation and 
transmission latencies depends on robust competition among competing 
consolidators going forward.
---------------------------------------------------------------------------

    \2237\ One commenter agreed and provided a technical explanation 
for these speed differentials. See, e.g., Data Boiler Letter I at 
39. See also supra Section V.B.2(b) for a discussion on the current 
process for dissemination of SIP data and proprietary data feeds.
    \2238\ Some commenters agreed. See, e.g., ICI Letter at 10.
---------------------------------------------------------------------------

    The Commission believes that to the extent that the benefits of 
faster access to market data come from the ability to engage in more 
timely participation in the provision of liquidity, this effect 
represents an economic benefit to the equity market generally because 
it will provide more fair and equal access to market data and will 
reduce information asymmetries among market participants.\2239\ In 
particular, to the extent that the existing advantages of having access 
to fast proprietary data feeds are derived from trading strategies 
exploiting differentials in the speed of access to market data (i.e., 
exploiting traders in the market who currently rely solely on slower 
SIP data), this benefit would represent a transfer from current users 
of faster proprietary data to the users of consolidated market data 
products in the decentralized consolidation model that will now also 
have access to faster data.\2240\
---------------------------------------------------------------------------

    \2239\ One commenter agreed and said that ``[l]ow latency 
proprietary traders with independent decision engines in different 
data centers will always be the fastest actors in the system; 
however, lessening the information asymmetry between these actors 
and other market participants has great value.'' See Capital Group 
Letter at 4.
    \2240\ One commenter agreed and stated that ``[r]ace conditions 
are impossible to solve. Even if you're fastest by a picosecond, you 
are still first.'' See Nasdaq Letter III at 5. For a discussion of 
the effect of speed differentials on trading, see also Don 
Bollerman, A NYSE Speed Bump You Weren't Aware Of, IEX available at 
https://www.sec.gov/comments/10-222/10222-395.pdf (last accessed 
Jan. 8, 2020).
---------------------------------------------------------------------------

    In order for both economic benefits and transfers to be realized, 
at least some market participants that are new users of fast and more 
content-rich consolidated market data products will need to possess the 
technological capability to take advantage of the speed improvements 
the decentralized consolidation model is likely to provide. It is the 
Commission's understanding that such technological capabilities are 
costly to acquire, and this fact could reduce the amount of benefit and 
the degree to which individual market participants can profit (through 
the transfers mentioned above) from the decrease in data latency.
    Several commenters disagreed with the Proposing Release's 
predictions on latency reduction.\2241\ Some commenters stated that the 
existence of multiple competing consolidators will not reduce latency 
much because processing times are already minuscule.\2242\ Other 
commenters argued that additional latency gains are unlikely to improve 
outcomes for retail and long-term investors.\2243\ Other commenters 
argued that competing consolidators will be an extra hop on the data 
delivery chain and market participants receiving data from competing 
consolidators will always be slower than self-aggregators or 
proprietary data users who receive market data directly from the 
exchanges.\2244\
---------------------------------------------------------------------------

    \2241\ See, e.g., Nasdaq Letter IV at 36; Cboe Letter at 23; 
Citadel Letter at 5; Nasdaq Letter III at 5; STANY Letter II at 6; 
Data Boiler Letter II at 1; NBIM Letter at 6.
    \2242\ See, e.g., Nasdaq Latter IV at 49; Cboe Letter at 23; 
Citadel Letter at 5; STANY Letter II at 6.
    \2243\ See, e.g., Nasdaq Letter IV at 41; Proof Trading Letter 
at 1.
    \2244\ See, e.g., Nasdaq Letter IV at 8; Healthy Markets Letter 
I at 3-4; Data Boiler Letter II at 1.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model 
will reduce latency rates for market data and will bring consolidated 
market data products' latency rates more in line with the latency rates 
of proprietary data feeds. This latency reduction could come from all 
forms of latency, including geographic latency.\2245\ Even if the 
potential gains from processing speeds are small, competing 
consolidators could achieve larger latency reductions by decreasing 
geographic latency. Unlike the exclusive SIPs, competitive forces will 
incentivize competing consolidators to respond to market participants' 
needs. For example, for market participants whose trading strategies 
depend on low-latency data, some competing consolidators could create 
an instance of consolidated market data in every data center, 
significantly reducing geographic latency.\2246\ Furthermore, while 
retail and long term investors might have less latency sensitive 
trading strategies, even small gains in speed can be meaningful for 
improving execution quality, a benefit to investors.\2247\ Finally, the 
Commission expects the introduction of the decentralized consolidation 
model to reduce data latency for market participants who currently rely 
on SIP data but will switch to using consolidated market data products, 
because competing consolidators will be incentivized to provide faster 
data products than the exclusive SIPs. The Commission discusses the 
full details of the relationship between self-aggregators and competing 
consolidators with respect to latency below.\2248\ This then will lead 
to a reduction in information asymmetry caused by current large latency 
differences among investors using SIP data versus proprietary data 
feeds.\2249\
---------------------------------------------------------------------------

    \2245\ Several commenters agreed. See, e.g., DOJ Letter at 3-4; 
IntelligentCross Letter at 4; Wellington Management Letter at 1; 
BlackRock Letter at 5.
    \2246\ Several commenters agreed. See, e.g., BlackRock Letter at 
5; Wellington Letter at 1. Additionally, one commenter stated that 
``[g]eographic latency could be addressed either through a 
distributed SIP or competing consolidators, therefore agreeing with 
the Commission. See Nasdaq Letter IV at 49.
    \2247\ See supra Section V.B.3(e) for discussion of latency and 
execution quality.
    \2248\ See infra Section V.C.4(b) for this discussion.
    \2249\ Some commenters agreed. See, e.g., Capital Group Letter 
at 4; AHSAT Letter at 3.
---------------------------------------------------------------------------

    One other commenter disagreed with the Commission's assessment of 
the decentralized consolidation model's latency benefits, stating that 
``[c]competing consolidators will create a costly arms race in speed.'' 
\2250\ The Commission believes that there is already demand for fast 
data in the market and the introduction of the decentralized 
consolidation model will not affect market participants' demand for 
faster data. However, the new model will affect the supply of market 
data speeds available to market participants. Hence, with the 
amendments, market participants who currently rely on SIP data will 
have other data options that are faster than SIP data and that are 
potentially a closer substitute to proprietary data feeds.
---------------------------------------------------------------------------

    \2250\ See Angel Letter at 19.
---------------------------------------------------------------------------

(iv) Market Resiliency
    Fourth, the Commission believes that the decentralized 
consolidation model will eliminate the single point of failure in 
market data consolidation and dissemination step and potentially 
increase market resiliency. However, the Commission acknowledges that 
the provision of data content underlying consolidated market data will 
continue to be a single point of failure, in that one of the exchanges 
could experience a systems issue leading to a market-wide effect just 
like they could today if they experience a systems issue when 
delivering their data content to the exclusive SIPs.
    Under the amendments, with the availability of multiple competing 
consolidators, there could be multiple copies of consolidated market 
data, which will contribute to market resiliency.\2251\ Some commenters 
stated that having multiple competing consolidators will reduce the 
probability of market-wide failures and

[[Page 18781]]

instead increase market resiliency.\2252\ The Commission agrees. 
Currently, each exclusive SIP consolidates and disseminates unique 
market data and if either or both of the exclusive SIPs experience a 
systems problem the whole market is affected. However, under the 
amendments, with multiple competing consolidators serving the market, 
no single competing consolidator's systems issue will be a market-wide 
problem. At most, it will affect all of its customers or some of its 
customers if others retained a back-up competing consolidator.
---------------------------------------------------------------------------

    \2251\ See infra Section V.C.2(e)(i) for a discussion of how 
Regulation SCI could also contribute to market resiliency.
    \2252\ See, e.g., BlackRock Letter at 5; Committee on Capital 
Markets Regulation Letter at 3; Clearpool Letter at 7-8; BestEx 
Research Letter at 5. See also Section III.C.2.
---------------------------------------------------------------------------

    Other commenters stated that competing consolidators will move the 
market from single point of failure to multiple points of failure and 
reduce resiliency.\2253\ The Commission agrees that with multiple 
competing consolidators, each of their systems issues might cause 
problems for a certain portion of the market participants. However, 
that will still decrease the probability of market-wide failures in 
data consolidation and dissemination because all competing 
consolidators would have to have a simultaneous systems issue for there 
to be a market-wide failure in data consolidation and dissemination. 
That is unlike today, when a single exclusive SIP's systems issue can 
create a market-wide failure in data consolidation and dissemination. 
Additionally, with multiple competing consolidators, market 
participants will have a choice if they decide to retain a back-up 
competing consolidator based on their business needs. However, 
currently, for market participants that primarily rely on SIP data 
there is no secondary back-up consolidator option. Thus, as discussed 
above,\2254\ the Commission does not believe that the decentralized 
consolidation model reduces resiliency.
---------------------------------------------------------------------------

    \2253\ See, e.g., NYSE Letter II at 24; Nasdaq Letter IV at 7, 
8, 36; Cboe Letter at 23-24, 25; TechNet Letter II at 2; Data Boiler 
Letter II at 4.
    \2254\ See supra Section III.C.2.
---------------------------------------------------------------------------

    Finally, one commenter expressed concerns about low-cost providers 
being less resilient.\2255\ The Commission believes that low cost data 
providers would not necessarily be less resilient and, if any are less 
resilient, that would not necessarily lead to lower resiliency in the 
market because market participants could review competing 
consolidators' monthly disclosures and decide whether to retain a 
backup consolidator. First, any low cost competing consolidators that 
are above the five percent (5%) market data revenue threshold will be 
subject to Regulation SCI with geographically diverse backup 
requirements. Second, all competing consolidators are required to 
publicly disclose, on a monthly basis, their system availability and 
performance statistics. In a competitive market, this will encourage 
competing consolidators to invest in their systems to make sure that 
they have high rates of system ``up-time.'' Additionally, it will give 
market participants information to anticipate their backup needs and 
decide whether they need to get a backup consolidator based on their 
data providers' system availability and performance statistics.
---------------------------------------------------------------------------

    \2255\ See Nasdaq Letter IV at 35.
---------------------------------------------------------------------------

(d) Costs of the Decentralized Consolidation Model
    The Commission believes that the amendments are likely to have 
direct costs on potential competing consolidators and SROs, and 
indirect costs on existing exclusive SIPs, certain market participants 
and investors, and SROs. As explained below, the Commission estimates 
that the direct costs to each potential competing consolidator will be 
between approximately $5.6 million in ongoing annual costs, and total 
one-time costs of up to between approximately $1.7 million and $5.7 
million, depending on entity type.\2256\ Further, the Commission 
estimates that SROs will jointly have approximately $175,000 in direct 
one-time costs and approximately $102,000 in ongoing costs for the 
amendments to the effective national market system plan(s). Each SRO 
will also incur approximately $71,000 in one-time direct costs and 
approximately $128,000 in ongoing costs for the collection and 
dissemination of information. The Commission expects, however, that the 
amendments that introduce a decentralized consolidation model will have 
additional indirect costs. Some of these direct and indirect costs are 
likely to be passed on to investors in terms of the prices they will 
pay.
---------------------------------------------------------------------------

    \2256\ These costs do not include the costs of compliance with 
Regulation SCI, which are discussed below. See infra Section 
V.C.2(e)(ii). The direct cost of compliance with Regulation SCI 
(i.e., PRA plus non-PRA costs) is approximately between $1 million 
and $2.4 million in ongoing costs and is approximately between 
$300,000 and $3 million in one-time costs, depending on entity type. 
Therefore, the total direct cost of the decentralized consolidation 
model, including the costs of compliance with Regulation SCI is 
approximately between $6.6 million and $8 million in ongoing costs 
and is approximately between $2 million and $8.4 million in one-time 
costs, depending on entity type. However, these costs could be lower 
for some competing consolidators that choose not to take in and 
offer the entirety of consolidated market data as well as for some 
that do not have to comply with Regulation SCI.
---------------------------------------------------------------------------

(i) Direct Costs to Potential Competing Consolidators
    As mentioned in the Proposing Release and discussed above,\2257\ 
the Commission believes that five types of entities may register to 
become competing consolidators and will have to build systems, or 
modify existing systems, that comply with the rules: (1) Market data 
aggregation firms, (2) broker-dealers that currently aggregate market 
data for internal uses, (3) the existing exclusive SIPs, (4) new 
entrants, and (5) SROs. The Commission estimates that all direct 
ongoing annual costs and some one-time costs will be common among all 
competing consolidators and that some one-time costs will vary 
depending on entity type.
---------------------------------------------------------------------------

    \2257\ See Proposing Release, 85 FR at Section V.D.2; supra 
Section IV.D.3.
---------------------------------------------------------------------------

    For purposes of the PRA,\2258\ the Commission estimates that direct 
ongoing costs for each competing consolidator will be approximately 
$5.63 million and consist of the following costs: Costs of $16,812 to 
amend Form CC prior to the implementation of material changes to 
pricing, connectivity, or products as well as to correct inaccurate or 
incomplete information; \2259\ costs of $50 to obtain digital IDs for 
the purposes of signing the Form CC annually,\2260\ costs of 
approximately $5.56 million associated with operating and maintaining a 
competing consolidator system; \2261\ costs of $362 to ensure that it 
has posted the correct direct URL hyperlink to the Commission's website 
on its own website; \2262\ costs of $4,360 of recordkeeping; \2263\ and 
costs of $45,222 to prepare and make publicly available a monthly 
report.\2264\
---------------------------------------------------------------------------

    \2258\ Direct costs cited in this section are quantified from 
estimates in the PRA. See supra Section IV.
    \2259\ See supra Section IV.D.1(b)(iii); supra note 1412.
    \2260\ See supra Section IV.D.1(a).
    \2261\ These costs are composed of labor costs of $418,290, 
external costs of $371,175 to operate and maintain systems to comply 
with Rules 614(d)(1) through (4), external costs of $168,000 to 
purchase market data from the SROs, and an additional annual ongoing 
external cost of $4,602,720 to co-locate itself at four exchange 
data centers. See supra Section IV.D.3(g)(iii).
    \2262\ See supra Section IV.D.2(b)(iii); supra note 1423.
    \2263\ See supra Section IV.D.4(b)(iii).
    \2264\ See supra Section IV.D.5(b)(iii); supra note 1543.
---------------------------------------------------------------------------

    The Commission estimates that direct one-time costs that are common 
across all competing consolidators will be

[[Page 18782]]

$189,342 and consist of the following costs: Costs $93,540 to complete 
an initial Form CC; \2265\ costs of $50 to obtain digital IDs the 
purposes of signing the initial Form CC; \2266\ costs of $5,604 to file 
material amendments to Form CC; \2267\ costs of $121 to publicly post 
the Commission's direct URL hyperlink to its website upon filing of the 
initial Form CC; \2268\ costs of $8,720 to keep and preserve at least 
one copy of all documents made or received by it in the course of its 
business and in the conduct of its business; \2269\ costs of $80,507 to 
produce the monthly reports and costs of $800 for an external website 
developer to create the website that will post and keep the monthly 
reports.\2270\
---------------------------------------------------------------------------

    \2265\ See supra Section IV.D.1(a); supra note 1402.
    \2266\ See supra Section IV.D.1(a).
    \2267\ See id.
    \2268\ See supra Section IV.D.2(a)(iii).
    \2269\ See supra Section IV.D.4(a)(iii).
    \2270\ See supra Section IV.D.5(a)(iii).
---------------------------------------------------------------------------

    The Commission estimates that the total direct costs to each market 
data aggregation firm or each broker-dealer that currently aggregate 
market data for internal uses that will decide to register as a 
competing consolidator will include approximately $5.63 million in 
ongoing annual costs, as discussed above, and total one-time costs of 
approximately $1.71 million. The one-time costs are composed of labor 
costs of $697,150; \2271\ external costs of $618,750 to modify its 
systems to comply with Rules 614(d)(1) through (4), external costs of 
$14,000 to purchase market data from the SROs, an additional initial 
external cost of $194,000 to co-locate itself at four exchange data 
centers; \2272\ as well as $189,342 in costs that are common to all 
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2271\ See supra Sections IV.D.3(b)(iii), IV.D.3(c)(iii).
    \2272\ Id.
---------------------------------------------------------------------------

    The Commission estimates that the total direct costs to each 
existing exclusive SIP that will decide to enter as a competing 
consolidator will include $5.63 million in ongoing annual costs, as 
discussed above, and total one-time costs of approximately $3 million. 
The one-time costs per existing exclusive SIP are composed of labor 
costs of $1,394,300; \2273\ external costs of $1,237,500 to modify its 
systems to comply with Rules 614(d)(1) through (4), external costs of 
$14,000 to purchase market data from the SROs, an additional initial 
external cost of $194,000 to co-locate itself at four exchange data 
centers; \2274\ as well as $189,342 in costs that are common to all 
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2273\ See supra Section IV.D.3(d)(iii).
    \2274\ Id.
---------------------------------------------------------------------------

    The Commission estimates that the total direct costs to each new 
entrant that is not an SRO or a data aggregator, in the competing 
consolidator space and to each SRO that will decide to enter as a 
competing consolidator will include approximately $5.63 million in 
ongoing annual costs, as discussed above, and total one-time costs of 
approximately $5.66 million.\2275\ The one-time costs are composed of 
labor costs of $2,788,600,\2276\ external costs of $2,475,000 to build 
its systems to comply with Rules 614(d)(1) through (4), external costs 
of $14,000 to purchase market data from the SROs, an additional initial 
external cost of $194,000 to co-locate itself at four exchange data 
centers; \2277\ as well as $189,342 in costs that are common to all 
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2275\ The Commission believes that competing consolidators that 
are affiliated with exchanges will choose to operate under the 
provisions of the exemption. See supra Section V.C.2(a)(i)a.
    \2276\ See supra Section IV.D.3(e)(iii).
    \2277\ Id.
---------------------------------------------------------------------------

    One commenter stated that the Proposing Release underestimates the 
direct costs to become a competing consolidator. The commenter said 
that ``[t]he Commission estimates that potential competing 
consolidators would incur `total one time costs of up to between 
approximately $897,000 and $2.40 MM, depending on entity type.' Even 
the higher end of that range is a fraction of what ICE believes it 
would cost to build the necessary infrastructure to be a competing 
consolidator.'' \2278\ On the other hand, one commenter stated that the 
existing exclusive SIPs would have a competitive advantage over other 
potential competing consolidators, ``because they would not incur the 
upfront capital expenditures to build a Competing Consolidator model.'' 
\2279\ While acknowledging that some potential competing consolidators 
might incur lower costs than others to become a competing consolidator, 
the Commission is revising up its cost estimates from the Proposing 
Release.\2280\ The Commission estimates that the direct costs to each 
potential competing consolidator will be between approximately $5.6 
million in ongoing annual costs, and total one-time costs of up to 
between approximately $1.7 million and $5.7 million, depending on 
entity type.\2281\
---------------------------------------------------------------------------

    \2278\ The commenter also stated that ``the capital expenditure 
costs to build the NMS network were estimated at $3.8 million, and 
the ongoing costs to maintain and operate the NMS network are 
estimated to be $215,000 annually.'' See IDS Letter I at 13. The 
Commission believes this is informative but not directly applicable 
to the costs that potential competing consolidators could incur when 
building or modifying their systems to operate as a competing 
consolidator for two reasons. First, unlike the potential competing 
consolidators with one of their main functions being data 
consolidation, the NMS network is not a system that consolidates 
market data. Second, the NMS network costs include the transmission 
of options data, which competing consolidators will not consolidate 
or disseminate.
    \2279\ See MIAX Letter at 2-3.
    \2280\ See Proposing Release, 85 FR at 16843 for a discussion on 
the costs to becoming a competing consolidator.
    \2281\ See supra note 2256 for a discussion on costs including 
the costs to comply with Regulation SCI.
---------------------------------------------------------------------------

(ii) Direct Costs to SROs
    Separately, the Commission estimates that the SROs will jointly 
have approximately $175,000 in direct one-time costs and approximately 
$102,000 in ongoing costs for the amendments to the effective national 
market system plan(s).\2282\ These costs include the costs SROs will 
incur when conducting an assessment of competing consolidator 
performance and developing an annual report of such assessment to be 
provided to the Commission. Additionally, each SRO will incur 
approximately $71,000 in one-time direct costs \2283\ and approximately 
$128,000 in ongoing costs for the collection and dissemination of 
information necessary to generate consolidated market data required by 
Rule 603(b).\2284\
---------------------------------------------------------------------------

    \2282\ See supra Section IV.D.6(c).
    \2283\ See supra Section IV.D.7(a)(iii); supra note 1553.
    \2284\ See supra Section IV.D.7(b)(iii); supra note 1559.
---------------------------------------------------------------------------

    One commenter mentioned that the amendments will ``require the SROs 
to continue to incur costs associated with managing an NMS plan while 
overseeing and reporting on competing consolidators.'' \2285\ The 
requirement that the SROs conduct an assessment of and report on 
competing consolidators' performance is new and the Commission did not 
include ongoing direct costs from this requirement to the SROs in the 
Proposing Release. However, with the amendments, the Commission revises 
its estimates to include $102,165 of ongoing direct costs jointly 
incurred by the SROs.\2286\ The SROs and the Operating Committee will 
have access to information made publicly available by competing

[[Page 18783]]

consolidators, which could be used as part of their assessment of 
competing consolidators. The SROs can mitigate some of their costs by 
using this information.
---------------------------------------------------------------------------

    \2285\ See NYSE Letter II at 28.
    \2286\ This ongoing direct cost number is calculated using the 
PRA ongoing burden hours for maintaining the required timestamps, 
conducting assessments of competing consolidators, preparing an 
annual report, maintaining the list of the primary listing exchange 
for each NMS stock, and calculating gross revenues (Attorney at $417 
for 245 hours equals $102,165). See supra Section IV.D.6(c).
---------------------------------------------------------------------------

    The commenter also stated that the Commission ``also places on 
exchanges the costs of calculating and disseminating certain regulatory 
data (such as LULD bands) to competing consolidators and self-
aggregators.'' \2287\ The commenter said that the cost to obtain data 
from other exchanges needed to perform these calculations should be 
considered by the Commission. The Commission disagrees that calculation 
of the regulatory data required by this rule will impose any major new 
data costs on the exchanges and the Commission's estimates of the costs 
to collect and disseminate this certain regulatory data are included in 
the estimates of direct costs to the SROs. The national securities 
exchanges currently aggregate market data obtained from the exclusive 
SIPs and from proprietary data feeds to perform several exchange 
functions, including order handling and execution, order routing, and 
regulatory compliance. Therefore, if they continue to use the same 
proprietary data for their regulatory data calculations, there would 
not be major new costs. To the extent they can use the new consolidated 
market data to perform the regulatory data calculations, the exchanges 
can become self-aggregators \2288\ and benefit from potentially lower 
data content costs.
---------------------------------------------------------------------------

    \2287\ See NYSE Letter II at 20-21.
    \2288\ See supra Section III.D.2(a) for a discussion on the 
scope of the definition of self-aggregator.
---------------------------------------------------------------------------

(iii) Indirect Costs to the Exclusive SIPs
    The Commission believes that the amendments may impose a 
substantial cost for existing exclusive SIPs in terms of loss of data 
processing revenues because exclusive SIPs will no longer be exclusive 
consolidators and disseminators of market data, and at least one of the 
exclusive SIPs--Nasdaq UTP--will no longer be paid out of the plan for 
its processing costs.\2289\ The Commission believes that the exclusive 
SIPs' loss of revenue will be mitigated by the opportunity to become 
competing consolidators. If the exclusive SIPs decide to become 
competing consolidators, they will compete for business with each other 
and with other competing consolidators. This competition may lead to 
revenue that is lower than their current revenues. This potential 
decrease in revenue will represent a transfer of resources to other 
competing consolidators and to market participants potentially 
increasing social welfare. On the other hand, if the exclusive SIPs 
decide to become competing consolidators, their experience with this 
market may give them a competitive advantage and help mitigate their 
potential revenue losses. The exclusive SIPs have the benefit of having 
been in this business for a long time. They have significant 
connectivity to market participants and vendors and can leverage their 
existing customer base and established relationships with vendors and 
purchasers at firms. Additionally, as mentioned below, the CTA SIP 
received some improvements from recent investments.
---------------------------------------------------------------------------

    \2289\ This does not apply to CTA/CQ Plan that, as discussed 
above, is paid differently. See supra Section V.B.2(d).
---------------------------------------------------------------------------

(iv) Direct and Indirect Costs to Certain Market Participants and 
Investors
    The Commission believes that the amendments are likely to have 
indirect costs--such as potentially paying for unused data content and 
implementation costs of switching from SIP or proprietary data to 
consolidated market data--to certain market participants and investors.
    First, the Commission believes that there will be an implementation 
cost for market participants to switch from using current exclusive SIP 
providers or proprietary data feeds to using competing consolidators. 
This cost is likely to vary among types of market participants; for 
instance, existing purchasers of proprietary DOB data products are 
likely to assume limited additional costs while new customers of 
consolidated market data products from competing consolidators will 
need, for example, to establish new connectivity and integrate a larger 
set of data into their operations. This implementation cost will 
include administrative costs for subscribing to a new provider of the 
data, as well as any infrastructure investments that may be needed to 
handle the data as delivered by the competing consolidator. One of the 
commenters stated that the cost to replace or integrate a new data feed 
might be approximately $1 million and that ``[s]maller firms would try 
to do the same at lower cost.'' \2290\ The Commission is uncertain 
whether the cost number mentioned in this comment letter covers costs 
to get this new feed from a competing consolidator or from the 
exchanges directly. The Commission believes that the ultimate size of 
these costs will likely vary by market participant. For example, for 
market participants that currently use proprietary data feeds and that 
will continue to use their existing systems and infrastructure after 
switching to consolidated market data, these costs are likely lower. On 
the other hand, for market participants who need to build brand new 
systems and infrastructure to be able to receive consolidated market 
data, these costs could be higher and closer to the number the 
commenter states.
---------------------------------------------------------------------------

    \2290\ See Data Boiler Letter I at 79-80.
---------------------------------------------------------------------------

    Additionally, one of the current exclusive SIPs, SIAC, processes 
and disseminates the academic TAQ dataset. If SIAC discontinues its SIP 
business, there may be interruptions to the availability of this data, 
which will create a cost for both the academic community and investors 
that otherwise benefit from academic and regulatory use of this dataset 
and the research derived from it. On the other hand, other data vendors 
also provide comprehensive historical data products and that may become 
more readily or more affordably available from competing consolidators, 
especially because competing consolidators do not have to take in all 
data content underlying consolidated market data and offer a data 
product with the entirety of consolidated market data.\2291\ The 
Commission is uncertain and acknowledges the possibility that TAQ may 
no longer be available and consolidated market data products may not be 
affordable to the academic community.\2292\ The Commission is unable to 
quantify the incremental social welfare cost of the interruption of 
availability of the TAQ dataset.
---------------------------------------------------------------------------

    \2291\ See, e.g., MayStreet, Market Data, available at http://maystreet.com/products/market-data/ (last accessed Jan. 2, 2020).
    \2292\ One commenter stated that ``NYSE's TAQ product is 
licensed to the academic community at a steep discount to its true 
cost.'' See Wharton Letter at 2.
---------------------------------------------------------------------------

    Some commenters stated that the decentralized consolidation model 
will increase costs for market participants because they would have to 
contract with a backup competing consolidator to avoid disruptions 
should their primary competing consolidator experience a 
disruption.\2293\ One commenter said that ``[i]n a world of multiple 
consolidators, business continuity concerns will force many market 
participants to subscribe to more than one consolidator as a backup.'' 
\2294\ Other commenters stated that in absence of a backup, a competing 
consolidator's customers would be significantly impacted by a 
disruption of their original data source.\2295\
---------------------------------------------------------------------------

    \2293\ See, e.g., Angel Letter at 20; NYSE Letter II at 24; 
FINRA Letter at 4.
    \2294\ See Angel Letter at 20.
    \2295\ See NYSE Letter II at 24; Nasdaq Letter IV at 8, 36.

---------------------------------------------------------------------------

[[Page 18784]]

    Under the amendments, market participants will not be required to 
incur the costs of retaining a back-up competing consolidator, though 
some may choose to do so after evaluating the needs of their business 
and their customers. Currently, many market participants that rely on 
proprietary data use SIP data as their back-up \2296\ and market 
participants that rely on SIP data do not have a back-up option besides 
the exclusive SIPs' geographically diverse back-up system as required 
by Regulation SCI. Under amendments, market participants subscribing to 
``SCI competing consolidators'' will similarly benefit from the 
requirements that those competing consolidators have geographically 
diverse backup and recovery capabilities, pursuant to Regulation SCI.
---------------------------------------------------------------------------

    \2296\ One commenter said that some of the ATSs use SIP data 
``as a backstop'' to their proprietary data feeds. See BestEx 
Research Letter at 3.
---------------------------------------------------------------------------

    On the other hand, market participants that will receive 
consolidated market data products from competing consolidators that are 
not SCI entities might decide to maintain a connection to a back-up 
competing consolidator (i.e., from a secondary source) based on their 
business needs. The Commission is uncertain what costs may be 
associated with the need for backup competing consolidators in the 
decentralized consolidation model, but does not believe they are 
necessarily higher than costs to maintain backups today. This is 
because the new competing consolidator business might generate a 
secondary market where some competing consolidators compete to provide 
backup options, which might lower backup costs.\2297\ For example, some 
competing consolidators might provide a backup option with narrower 
data content and higher latency, similar to the current SIP data. But 
unlike the exclusive SIPs providing the current SIP data, these 
competing consolidators would be under competitive pressure and would 
be more likely to provide cheaper backup data and connectivity options 
than the SIP data. New backup costs will likely differ for different 
market participants and will be affected by the new competitive 
competing consolidator market as well as the new market data fees, both 
of which will have pricing decisions to make about the provision of 
backup services. The costs may also depend on decisions competing 
consolidators may make regarding the resiliency of their own products 
and what backup requirements would be necessary for their customers in 
light of such decisions.
---------------------------------------------------------------------------

    \2297\ One commenter said that ``[t]he existence of multiple SIP 
vendors will allow firms to choose the best offering for their 
purposes and others as backstops, reducing the reliance on a single 
SIP feed vendor.'' See BestEx Research Letter at 5.
---------------------------------------------------------------------------

(v) Indirect Costs to SROs
    One commenter said that the Proposing Release ``requires SROs to 
`make available' to every competing consolidator and self-aggregator 
`all data necessary to generate consolidated market data'--but does not 
make clear how SROs would be compensated for the cost of delivering 
such market data information.'' \2298\ The Proposing Release discusses 
that the SROs will receive data content fees and connectivity fees as 
well as how the various fees will need to be filed.\2299\ As discussed 
above, the SROs are allowed to provide their core data to competing 
consolidators and self-aggregators via the existing proprietary data 
feeds, a combination of proprietary data feeds, or a newly developed 
core data feed.\2300\ While the SROs are not required to, if they 
choose to offer core data via a newly developed core data feed, they 
might incur some development costs to provide that new data feed. 
However, the Commission believes that the SROs may not have an 
incentive to develop a dedicated core data feed because they could 
incur costs of doing so.\2301\ For example, if an SRO developed a 
dedicated core data feed, the SRO would have to take steps to ensure 
that any proprietary data feed is not made available on a more timely 
basis (i.e., by any time increment that could be measured by the SRO) 
than a core data feed. This means that if the core data feed were 
slower than the proprietary data feeds, the exchange would need to 
throttle any order-by-order proprietary data feeds.\2302\ An exchange 
lowering its proprietary data speeds might also increase the number of 
market participants that might switch from using the exchange's 
proprietary data feeds to consolidated market data, providing an 
incentive for exchanges to not create a slower dedicated core data 
feed.
---------------------------------------------------------------------------

    \2298\ See NYSE Letter II at 21.
    \2299\ The fees for consolidated market data content will be 
established by the effective national market system plan(s) and file 
with the Commission under Rule 608. Each SRO will have to file with 
the Commission any proposed new fees for connectivity to its 
individual data that underlies consolidated market data pursuant to 
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder and any 
proposed connectivity fee must satisfy the statutory standards. See 
Proposing Release, 85 FR at 16769, n. 433.
    \2300\ See supra Section III.B.9. See also supra note 795 for a 
discussion on how competing consolidators and self-aggregators are 
permitted to choose among the data feed options offered by the SROs 
to provide consolidated market data.
    \2301\ None of the commenters indicated that they would provide 
a dedicated core data feed instead of using their existing 
proprietary data infrastructure.
    \2302\ See supra Section III.B.9(b).
---------------------------------------------------------------------------

    One commenter said that one of the exchanges ``invested $4 million 
to build a new, dedicated network for consolidated tape data that will 
allow exchanges and subscribers to access CTA SIP data more quickly'' 
\2303\ and that this investment is undermined with the discontinuation 
of the centralized consolidation model.\2304\ The Commission 
understands that the commenter was planning to recover that investment 
cost with future revenue. The Commission acknowledges that the final 
amendments will impose a cost for SROs from losing SIP data content and 
access fees. However, the Commission believes that this loss of revenue 
will be offset by the data content and access fees paid to SROs by 
competing consolidators. Additionally, the exclusive SIPs' loss of 
consolidation and dissemination revenue will be mitigated by the 
opportunity to become competing consolidators.
---------------------------------------------------------------------------

    \2303\ See NYSE Letter II at 10-11.
    \2304\ See id. at 13.
---------------------------------------------------------------------------

    One commenter stated that the rules would ``eliminate'' the 
incentive for exchanges to compete for order flow in order to increase 
the amount of time that exchange offers the NBBO and thus increase its 
share of the equity plan(s) revenues, because the rule eliminates the 
exclusive SIPs.\2305\ The Commission disagrees with this commenter's 
description of the effects of the rule. Nothing about the final rules 
prohibits the national market system plan(s) from continuing to share 
NMS data revenues according to rules that reward exchanges for time 
during which the exchange has the NBBO quote. Further, any changes to 
the revenue allocation formula can be adopted as Plan amendments, which 
would then have to be filed with the Commission pursuant to Rule 608 
and would be subject to notice and comment and Commission review. 
Therefore, the Commission does not believe that these rules will effect 
exchange incentives to compete for order flow in the way described by 
this commenter.
---------------------------------------------------------------------------

    \2305\ See Nasdaq Letter IV at 29.
---------------------------------------------------------------------------

(vi) Multiple NBBOs
    Finally, the Commission recognizes that the decentralized 
consolidation model may result in multiple NBBO quotes observed by 
different market participants due to different aggregation methods used 
by competing consolidators. However, currently market participants may 
already observe

[[Page 18785]]

multiple NBBO quotes.\2306\ Therefore, the Commission believes that the 
decentralized consolidation model will result in no meaningful 
difference with respect to the existence of multiple NBBOs.
---------------------------------------------------------------------------

    \2306\ See supra Sections V.B.2(b), V.B.2(f).
---------------------------------------------------------------------------

    Several commenters disagreed with this conclusion, raising concerns 
related to the possibility of multiple NBBOs being observed as a result 
of the final rules.\2307\ In particular, commenters expressed the view 
that there would be significant costs to the market as a result of this 
possibility and expressed concern that these costs were not discussed 
in the Commission's proposal.\2308\ These commenters stated that the 
emergence of multiple NBBOs would complicate market structure; \2309\ 
hinder market surveillance and enforcement by SROs, including by adding 
reprogramming costs for surveillance systems and creating the 
likelihood of uneven enforcement; \2310\ decrease the accuracy and 
standardization of Rule 605 statistics; \2311\ introduce new sources of 
differing NBBOs through differences in NBBO calculation method among 
competing consolidators; \2312\ confuse investors, including retail 
investors, who might see more than one NBBO for the same stock at the 
same time; \2313\ and complicate and increase the cost of compliance 
with best execution obligations.\2314\
---------------------------------------------------------------------------

    \2307\ See supra Section III.B.10(b) for a discussion of the 
comments on complexity and confusion resulting from multiple NBBOs.
    \2308\ See, e.g., Joint CRO Letter at 2 (``Moreover, we are 
surprised and concerned by the Commission's limited analysis of the 
Proposal's potential downstream impacts on the regulation of U.S. 
markets, particularly those resulting from multiple competing 
consolidators and self-aggregators, as this analysis appears 
incomplete.'').
    \2309\ See, e.g., Nasdaq Letter IV at 3 (``A particularly 
worrisome result is that product differentiation among competing 
consolidators will render a single ``gold source'' National Best Bid 
and Offer (``NBBO'') a relic of the past.''); Angel Letter at 18-19.
    \2310\ See, e.g., Nasdaq Letter IV at 37 (``Even with these 
changes, the risk of differential treatment among similarly situated 
market participants will increase because an NBBO that applies to 
one market participant will simply not apply to another, creating a 
risk of uneven enforcement of the Exchange Act by introducing the 
subjective review of which NBBO to apply.''), Joint CRO Letter at 4 
(``Throughout the Proposal, hundreds of questions are posed to 
commenters, but none solicited feedback from SROs on the Proposal's 
impact on surveillance, any increased risk to investor protection, 
or whether reprogramming our systems to accommodate the proposed 
rules would create any burdens or complications for us.'').
    \2311\ See, e.g., Nasdaq Letter IV at 20; NYSE Letter II at 24.
    \2312\ See, e.g., TD Ameritrade Letter at 12.
    \2313\ See, e.g., Fidelity Letter at 10; TechNet Letter II at 2.
    \2314\ See, e.g., Nasdaq Letter IV at 3.
---------------------------------------------------------------------------

    The Commission continues to believe that the possibility of 
multiple NBBOs resulting from the decentralized consolidation model 
does not represent a significant cost. In the case of each specific 
issue raised, the potential difficulties that multiple NBBOs could 
create are already handled by the market (including SROs) today, 
because of the fact that multiple NBBOs at a given instant in time are 
a staple of today's financial markets.\2315\
---------------------------------------------------------------------------

    \2315\ See supra Section V.B.2(f).
---------------------------------------------------------------------------

    Specifically, the Commission does not believe that the potential 
for multiple NBBOs as a result of the decentralized consolidation model 
will complicate market structure. The market today has already 
developed adaptations to deal with the fact that meaningful differences 
in the observations of market participants about the prevailing NBBO 
can emerge.\2316\ As a result, the market structure in place today will 
be able to handle the potential multiple NBBOs resulting from the 
decentralized consolidation model in much the same way as it handles 
existing multiple NBBOs today.
---------------------------------------------------------------------------

    \2316\ See supra Section V.B.2(f) for a discussion of these 
adaptations to deal with multiple NBBOs.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model 
will not increase costs or impair the evenness of enforcement and 
surveillance by SROs. The fact that order routing decisions made at the 
same time but at different data centers will necessarily be based on 
different observations of the market is understood by SROs today, and 
surveillance programs and enforcement inspections already take this 
into account.\2317\ In fact, such programs already deal with the even 
larger discrepancy in market snapshots that emerge from the use of 
proprietary data feeds as a substitute for SIP data feeds in the 
routing of orders.\2318\
---------------------------------------------------------------------------

    \2317\ See supra Section V.B.2(f) for additional discussion of 
this point.
    \2318\ See supra Section III.B.10(d) for a discussion of the 
comments on impact of multiple NBBOs on surveillance and 
enforcement.
---------------------------------------------------------------------------

    The Commission does not believe that the decentralized 
consolidation model will contribute to confusion or a lack of 
standardization in the calculation of Rule 605 statistics. In the 
process of calculating Rule 605 statistics, firms must use the quote 
prevailing at the time the order is received. As discussed above, it is 
inevitable even today that different market centers will have different 
quotes in the space of small but meaningful time intervals given the 
amount of time it takes new quotes to travel to the geographically 
dispersed data centers where orders are received.\2319\ This remains 
true even if all market participants are using only a single source for 
the NBBO.
---------------------------------------------------------------------------

    \2319\ See supra Section V.B.2(f).
---------------------------------------------------------------------------

    The Commission does not believe that it is possible to 
``calculate'' the NBBO in more than one way. That is, we do not believe 
that, for a given set of quotes in the market at a given instant in 
time, it is possible to arrive at different conclusions as to what is 
the NBBO depending on different methods for determining the NBBO. 
Therefore, differences in aggregation methodology employed by competing 
consolidators and self-aggregators are unlikely to introduce further 
differences in the NBBO perceived by the various market participants by 
offering alternative ``calculations'' of the NBBO for a given moment in 
time.
    The Commission does not believe the decentralized consolidation 
model will cause confusion for investors through the propagation of 
multiple NBBOs. Those investors who have the technology and 
sophistication to detect differences in the NBBOs produced by different 
competing consolidators are, today, already aware of the potential for 
such differences and how to deal with them. On the other hand, those 
investors who typically do not have such latency-sensitive concerns 
(such as retail investors) are unlikely to detect differences in 
quotes, even if they are looking at multiple competing consolidator 
feeds.
    The Commission does not believe that the decentralized 
consolidation model will complicate and increase the cost of complying 
with best execution obligations through the propagation of multiple 
NBBOs. Since multiple NBBOs from different competing consolidators and 
self-aggregators will not represent a change from current market 
practice,\2320\ the Commission does not believe this introduces changes 
to the cost of compliance with best execution obligations.
---------------------------------------------------------------------------

    \2320\ See supra Section V.B.2(f), discussing current market 
practice with respect to obtaining NBBOs.
---------------------------------------------------------------------------

(e) Economic Effects of Competing Consolidators Being Subject to 
Regulation Systems Compliance and Integrity
    During the initial transition period all competing consolidators 
will be subject to the requirements of Rule 614(d)(9), which include 
requirements substantially similar to some of the key provisions of 
Regulation SCI.\2321\ After

[[Page 18786]]

the initial transition period, competing consolidators that are below 
the five percent (5%) market data revenue threshold will continue to be 
subject to Rule 614(d)(9), while competing consolidators above the 
threshold will be ``SCI competing consolidators'' and will be subject 
to the requirements of Regulation SCI.\2322\ The Commission expects 
that, under this approach, the requirements of Regulation SCI will 
apply to most competing consolidators following the initial transition 
period.\2323\
---------------------------------------------------------------------------

    \2321\ See supra Section III.F. Competing consolidators that are 
affiliated with exchanges that do not operate under the limited 
exemptive relief would be subject to Regulation SCI. However, the 
Commission believes that all competing consolidators that are 
affiliated with exchanges will choose to operate under the limited 
exemptive relief for competitive reasons. See supra Section 
V.C.2(a)(i)a.
    \2322\ See id.
    \2323\ See supra Section IV.G.
---------------------------------------------------------------------------

    The Commission believes that the requirements of Rule 614(d)(9) and 
Regulation SCI will help prevent market disruptions due to one or more 
competing consolidators' systems issues or cybersecurity incidents and 
reduce the severity and duration of any effects that may result if a 
systems issue or cybersecurity incident were to occur for a competing 
consolidator. The requirements of Rule 614(d)(9) will also impose 
direct and indirect costs on various entities. The requirements of 
Regulation SCI will also impose additional direct and indirect costs on 
competing consolidators that meet the threshold for being an SCI 
competing consolidator, as well as some indirect costs on other market 
participants because of their specific business relationships with SCI 
competing consolidators. However, competing consolidators will not need 
to incur the incremental costs associated with being an SCI competing 
consolidator until the end of the initial one year transition period or 
until they meet the threshold requirements for being an SCI competing 
consolidator.
(i) Benefits To Expanding Regulation SCI To Include Competing 
Consolidators
    Currently, the exclusive SIPs are SCI entities and the benefits 
discussed in Regulation SCI currently apply to them and to market 
participants.\2324\ Because many of the requirements of Rule 614(d)(9) 
are similar to the requirements of Regulation SCI and because competing 
consolidators that meet the five percent (5%) market data revenue 
threshold will be SCI entities,\2325\ the Commission believes that the 
benefits of Regulation SCI will apply to competing consolidators and 
will continue to apply to market participants, i.e., maintain the 
status quo, if the exclusive SIPs cease operating as exclusive plan 
processors. This section discusses the benefits that will apply to 
competing consolidators and will continue to apply to market 
participants from the requirements of Rule 614(d)(9) and the addition 
of the definition of SCI competing consolidator to Regulation 
SCI.\2326\
---------------------------------------------------------------------------

    \2324\ See SCI Adopting Release, supra note 1233, at 72404.
    \2325\ See supra Section III.F.
    \2326\ More specifically, the benefits discussed in this section 
are not measuring a change from the baseline but are discussing the 
benefits that will continue to apply to market participants from the 
requirements of Rule 614(d)(9) and the addition of the definition of 
SCI competing consolidator to Regulation SCI.
---------------------------------------------------------------------------

    The Commission believes that at least three benefits from 
Regulation SCI will continue to apply to market participants from the 
requirements of Rule 614(d)(9) and the addition of the definition of 
SCI competing consolidator to Regulation SCI.\2327\ First, the 
requirements of Rule 614(d)(9) and the addition of the definition of 
SCI competing consolidator to Regulation SCI will help prevent market 
disruptions due to one or more competing consolidators' systems issues 
or cybersecurity incidents. Second, they will help reduce the severity 
and duration of any effects that may result if a systems issue or 
cybersecurity incident were to occur for one of these competing 
consolidators. This may also help prevent potential catastrophic events 
that might start out as a minor systems problem but then quickly spread 
across the national market system, potentially causing damage to market 
participants, including investors. Third, they will help ensure 
effective Commission oversight of competing consolidators' systems.
---------------------------------------------------------------------------

    \2327\ As discussed in detail above, the Commission believes 
that some entities who will become competing consolidators are 
already subject to Regulation SCI. The Commission believes that many 
of the benefits described below will not apply to these entities, 
because they already are required to have systems that meet the 
requirements for Regulation SCI. Instead, the Commission believes 
that many of the benefits from the requirements of Rule 614(d)(9) 
and the addition of the definition of SCI competing consolidator to 
Regulation SCI will come from new entities who become competing 
consolidators who are not currently subject to Regulation SCI. See 
supra Section IV.F.4.
---------------------------------------------------------------------------

    First, the requirements of Rule 614(d)(9)(ii) and the addition of 
the definition of SCI competing consolidator to Regulation SCI will 
help prevent market disruptions by strengthening the infrastructure and 
improving the resiliency of the systems of new competing consolidators 
who are not currently SCI entities.\2328\ The Commission believes that 
some potential new competing consolidators may already have policies 
and procedures in place to maintain and test critical systems. However, 
the Commission believes that requirements of Rule 614(d)(9)(ii) and the 
addition of the definition of SCI competing consolidator to Regulation 
SCI will strengthen these policies and procedures, which will help 
improve the robustness of critical systems.
---------------------------------------------------------------------------

    \2328\ Commenters agreed that applying Regulation SCI to 
competing consolidators would improve their resiliency and 
reliability. See, e.g., Clearpool Letter at 9; MEMX Letter at 8; 
Fidelity Letter at 10.
---------------------------------------------------------------------------

    Second, the requirements of Rule 614(d)(9)(iii) and the addition of 
the definition of SCI competing consolidator to Regulation SCI will 
help reduce the severity and duration of any effects that may result if 
a systems issue or cybersecurity incident were to occur for one of the 
new competing consolidators who are not currently SCI entities. For 
example, Rule 614(d)(9)(iii) and Rule 1002(a) of Regulation SCI, will 
require a competing consolidator to notify the public and take 
corrective action if a system disruption, system intrusion, or 
cybersecurity incident occurs. This may reduce the length of these 
events and thus reduce the negative effects of those interruptions on 
the competing consolidator and market participants.
    Additionally, Rule 1001(a)(2) of Regulation SCI, which, among other 
things, will require an SCI competing consolidator to maintain 
geographically diverse backup and recovery systems that are reasonably 
designed to achieve next business day resumption and will help SCI 
competing consolidators restore their systems more quickly in the event 
of a disruption. The Commission acknowledges that Rule 614(d)(9) does 
not contain this geographically diverse backup requirement. Therefore, 
competing consolidators will not be subject to the requirement during 
the initial one year transition period and competing consolidators 
below the SCI threshold level will not be subject to it thereafter. 
Lack of a geographically diverse backup may reduce the reliability of a 
competing consolidator's systems. However, as discussed above, because 
of competitive pressures, competing consolidators that are not subject 
to Regulation SCI may still choose to develop robust backup systems in 
order to attract subscribers.\2329\ Additionally, the Commission 
believes most competing consolidators will meet the threshold to be SCI 
competing consolidators. Therefore, the Commission does not believe 
that the lack of a requirement for a geographical diverse backup system 
under Rule

[[Page 18787]]

614(d)(9) will significantly increase the risk of market participants 
being exposed to a competing consolidator system disruption.\2330\
---------------------------------------------------------------------------

    \2329\ See supra Section III.F.
    \2330\ As discussed above, market participants who subscribe to 
a competing consolidator that is not an SCI entity (or that does not 
have a sufficiently resilient backup system) may choose to subscribe 
to another competing consolidator as a backup in order to ensure 
they can still operate if their competing consolidator experiences a 
system disruption. See id. Market participants may incur additional 
costs for this. See supra Section V.C.2(d).
---------------------------------------------------------------------------

    The requirement for competing consolidators to establish procedures 
to disseminate information about system disruptions to responsible 
personnel, competing consolidator subscribers, the public, and the 
Commission will help reduce the duration and severity of any system 
distributions that do occur for one of the new competing consolidators 
who are not currently SCI entities. The procedures will help these 
competing consolidators quickly provide the affected parties with 
critical information in the event that it experiences a system 
disruption. This could allow the affected parties to respond more 
quickly and more appropriately to the incident, which could help 
shorten the duration and reduce the effects of a system event. This 
could also potentially help prevent an event that might start out as a 
minor systems issue from becoming a catastrophic problem that quickly 
spreads across the national market system, potentially causing damage 
to market participants, including investors.
    Additionally, the requirement, under Rule 614(d)(9)(iv) and Rule 
1004(c) of Regulation SCI, for a competing consolidator to conduct 
testing of its business continuity and disaster recovery plans with its 
designated participants and other industry SCI entities will help 
detect and improve the coordination of responses to system issues that 
could affect multiple market participants in the NMS stock market. This 
testing will help prevent these system disruptions from occurring and 
help reduce the severity of their effects, if they do occur.
    Third, Rule 614(d)(9) and the addition of the definition of SCI 
competing consolidator to Regulation SCI will help ensure effective 
Commission oversight of new competing consolidators who are not 
currently SCI entities. Both Regulation SCI and Rule 614(d)(9)(iii)(C) 
will require a competing consolidator to notify the Commission \2331\ 
and provide the Commission with updates if it experiences a systems 
disruption or systems intrusion that has more than a de minimis 
impact.\2332\ Each quarter, an SCI competing consolidator will have to 
inform the Commission of any planned material changes to its SCI 
systems and the security of indirect SCI systems. Each year an SCI 
competing consolidator also will have to provide the Commission with an 
SCI review of their compliance with Regulation SCI. This information 
will help ensure effective Commission oversight by enhancing the 
Commission's review of these competing consolidators and helping make 
the Commission aware of potential areas of weakness in the competing 
consolidator's systems that may pose risk to the entity or the market 
as a whole.
---------------------------------------------------------------------------

    \2331\ Regulation SCI requires SCI entities to notify the 
Commission immediately upon any responsible SCI personnel having a 
reasonable basis to conclude that an SCI event has occurred. 
Similarly, Rule 614(d)(9)(iii)(C) requires competing consolidators 
to promptly notify the Commission upon responsible personnel having 
a reasonable basis to conclude that a system disruption or systems 
intrusion has occurred. The requirement for immediate or prompt 
notification, as applicable, does not apply to such events that a 
competing consolidator reasonably estimates would have no, or a de 
minimis, impact on the competing consolidator's operations or on 
market participants. See e.g., Rule 614(d)(9)(iii)(B)-(C); 
Regulation SCI Rule 1002(b)(5).
    \2332\ An SCI competing consolidator will be required to notify 
the Commission on Form SCI, and a competing consolidator that is not 
an SCI competing consolidator will be required to notify the 
Commission on Form CC. Additionally, each quarter SCI competing 
consolidators will be required to submit a report to the Commission 
on Form SCI of systems disruptions or systems intrusions that had no 
or a de minimis impact.
---------------------------------------------------------------------------

    Additionally, the Commission believes that an exclusive SIP that 
becomes a competing consolidator may realize an incremental benefit 
relative to the baseline from lower SCI-related costs.\2333\ Because 
the Commission assumes that enough competing consolidators will enter 
the market to provide for multiple viable sources of consolidated 
market data products,\2334\ the Commission believes that an exclusive 
SIP will not need to incur the additional costs associated with being 
subject to the heightened requirements applicable to ``critical SCI 
systems'' if it chooses to operate a competing consolidator after the 
initial transition period.
---------------------------------------------------------------------------

    \2333\ The systems of the exclusive SIPs are ``critical SCI 
systems'' and are subject to heightened requirements. For example a 
critical SCI system needs to maintain backup systems that are 
designed to allow them to resume operations within two hours of a 
system outage (SCI entities only have the requirement to resume 
operations the day following a system outage). See Proposing 
Release, 85 FR at Section IV.B.2(f).
    \2334\ See supra Section V.C.2(a) for a discussion of this 
assumption.
---------------------------------------------------------------------------

(ii) Costs of Expanding Regulation SCI To Include Competing 
Consolidators
    Competing consolidators will incur both direct and indirect 
compliance costs related to Rule 614(d)(9) and the addition of the 
definition of SCI competing consolidator to Regulation SCI.\2335\ 
Although all competing consolidators will initially be subject to Rule 
614(d)(9) during the initial transition period, the Commission believes 
that, after the transition period, many competing consolidators will be 
above the SCI competing consolidator threshold and eventually need to 
bear the higher costs Regulation SCI.\2336\ Because Regulation SCI 
imposes some indirect requirements on other market participants 
interacting with SCI entities (e.g., vendors providing SCI systems to 
SCI entities), those market participants will also incur indirect costs 
from SCI competing consolidators.
---------------------------------------------------------------------------

    \2335\ Direct compliance costs will include both costs that 
included in the PRA burden estimates as well as compliance costs 
that are not reflected in the PRA (``non-PRA''). See supra Section 
IV.D (for a discussion of the PRA burden estimates).
    \2336\ See supra Section IV.G.3.
---------------------------------------------------------------------------

    Competing consolidators will incur initial and ongoing direct PRA 
and non-PRA compliance costs related to Rule 614(d)(9) and Regulation 
SCI. These costs will vary based on whether the competing consolidator 
is an SCI competing consolidator or whether it is subject to the 
provisions of Rule 614(d)(9).\2337\
---------------------------------------------------------------------------

    \2337\ See id.
---------------------------------------------------------------------------

    The Commission believes that the 2018 estimates of initial PRA 
costs for new SCI entities and ongoing PRA costs for all SCI entities 
under Regulation SCI are largely applicable to SCI competing 
consolidators because the requirements are the same for all SCI 
entities and because the 2018 burden estimates were based on the 
Commission's experience over three years subsequent to Regulation SCI's 
adoption in 2014 including, for example, Commission staff's experience 
in conducting examinations of SCI entities and receiving and reviewing 
notifications and reports required by Regulation SCI.\2338\ The 2018 
SCI PRA Extension includes estimates distinguishing between new versus 
existing SCI entities. The Commission believes that, using the same new 
versus existing SCI entity framework, entrants that could become SCI 
competing consolidators can be divided into three groups: The existing 
exclusive SIPs; entrants that are existing SCI entities but with no 
direct experience operating in the consolidated market data business 
and needing to perform a new function with

[[Page 18788]]

new SCI systems (e.g., a national securities association or national 
securities exchanges that do not currently operate an exclusive SIP); 
and entrants that are not currently subject to Regulation SCI (e.g., 
third-party aggregators that are not currently subject to Regulation 
SCI). The Commission estimates that the exclusive SIPs will not have 
any initial PRA costs related to Regulation SCI from becoming a 
competing consolidator because they are already SCI entities and would 
be operating a substantially similar business and performing a similar 
function in their role as competing consolidators.\2339\ Because they 
would be entering an entirely new business and performing a new 
function with new SCI systems, SCI entities without direct experience 
operating in the consolidated market data business will each incur an 
initial PRA cost of approximately $326,000, which is approximately 50% 
of the Commission's initial cost estimates for an entirely new SCI 
entity.\2340\ SCI competing consolidators that are not currently 
subject to regulation SCI will each incur an initial PRA cost of 
approximately $625,000, which is the same estimated initial paperwork 
cost as those estimated for new SCI entities.\2341\ The Commission 
estimates that all SCI competing consolidators will each incur ongoing 
annual PRA costs of approximately $804,000, which is the same as the 
ongoing costs for existing SCI entities estimated in the 2018 SCI PRA 
Extension.\2342\
---------------------------------------------------------------------------

    \2338\ See supra note 1567. Two commenters stated that the 
Commission underestimated the costs of Regulation SCI in the 
Proposing Release. See IDS Letter I at 13 and STANY Letter II at 6-
7. As discussed in detail above, the Commission disagrees with these 
commenters and believes it did not underestimate the costs 
associated with Regulation SCI. See supra Section IV.G.2.
    \2339\ See supra note 1572 and accompanying text.
    \2340\ These cost estimates are based on the 2018 SCI PRA 
Extension. See 2018 SCI PRA Extension, supra note 1567. See also 
supra Section IV.G discussing PRA burden estimates related to 
compliance with Regulation SCI and supra note 1573 and accompanying 
text.
    \2341\ See supra note 1575 and accompanying text.
    \2342\ See supra Section IV.G.
---------------------------------------------------------------------------

    Although the requirements of Rule 614(d)(9) are similar to some of 
the key provisions of Regulation SCI, Rule 614(d)(9) does not contain 
all of the provisions of Regulation SCI and will have lower compliance 
costs than Regulation SCI.\2343\ For example, Rule 614(d)(9) does not 
contain a provision similar to the requirement for geographically 
diverse backup and recovery capabilities that is contained in Rule 
1001(a)(2) of Regulation SCI. Therefore, the Commission estimates that 
the requirements of Rule 614(d)(9) will have initial and ongoing PRA 
costs that are approximately 33% of the PRA costs for compliance with 
all of the provisions of Regulation SCI.\2344\ The Commission estimates 
that competing consolidators that are below the SCI competing 
consolidator threshold will each incur initial PRA costs of 
approximately $217,000 and ongoing annual PRA costs of approximately 
$268,000.
---------------------------------------------------------------------------

    \2343\ See supra Section III.F.
    \2344\ See supra note 1589 and accompanying text (discussing the 
PRA burden estimates for Rule 614(d)(9)).
---------------------------------------------------------------------------

    As SCI entities, SCI competing consolidators will also incur direct 
non-PRA related compliance costs. In 2014, the Regulation SCI adopting 
release estimated that an SCI entity will incur an initial non-PRA cost 
of between approximately $320,000 and $2.4 million.\2345\ Additionally, 
an SCI entity will incur an annual ongoing non-PRA cost of between 
approximately $213,600 and $1.6 million.\2346\ The Commission believes 
that similar to the PRA cost estimates, these non-PRA related costs are 
also largely applicable to SCI competing consolidators. But the 
Commission is uncertain about the actual level of costs SCI competing 
consolidators will incur, because these costs could differ based on the 
type of potential entrant that becomes an SCI competing consolidator. 
The Commission believes that there are two reasons why SCI competing 
consolidators' non-PRA costs are likely to be on the lower end of these 
cost estimates.
---------------------------------------------------------------------------

    \2345\ SCI Adopting Release, supra note 1233, at nn. 1943-44.
    \2346\ Id. at nn. 1945-46.
---------------------------------------------------------------------------

    First, these cost estimates include costs of having part of an SCI 
entity's system be a ``critical SCI system,'' and therefore be subject 
to certain heightened resilience and information dissemination 
provisions of Regulation SCI. SCI competing consolidators' systems are 
not included within the scope of ``critical SCI systems.'' \2347\ The 
Commission believes that if SCI competing consolidators' systems are 
subject to the standard requirements of Regulation SCI, they will not 
have to incur compliance costs of the heightened requirements for 
``critical SCI systems.'' To the extent that the incremental costs of 
being subject to the heightened requirements for ``critical SCI 
systems'' versus the standard requirements for ``SCI systems'' is 
small, these cost savings will be low.
---------------------------------------------------------------------------

    \2347\ See supra Section III.F.
---------------------------------------------------------------------------

    Second, among all of the SCI entities, SCI competing consolidators 
have relatively simpler systems and fewer functions, and thus will have 
compliance costs closer to the lower end of the above non-PRA cost 
estimates. The above non-PRA cost estimates provide an average for all 
SCI entities, without distinguishing between different categories of 
SCI entities. However, the Regulation SCI adopting release explains 
that compliance costs will depend on the complexity of SCI entities' 
systems and they would be higher for SCI entities with more complex 
systems.\2348\ SCI competing consolidators will likely have simpler 
systems and fewer functions relative to some of the other SCI entities, 
such as exchanges. As a result, the Commission believes that SCI 
competing consolidators' compliance costs are likely to be on the lower 
end of the average non-PRA cost estimates for all SCI entities.
---------------------------------------------------------------------------

    \2348\ SCI Adopting Release, supra note 1233, at 634.
---------------------------------------------------------------------------

    Because Rule 614(d)(9) does not contain all of the provisions of 
Regulation SCI, the Commission believes that Rule 614(d)(9) will have 
lower initial and ongoing non-PRA compliance costs than Regulation 
SCI.\2349\ Similar to the PRA cost estimates, the Commission estimates 
that the requirements of Rule 619(d)(9) will have initial and ongoing 
non-PRA costs that are approximately 33% of the non-PRA costs for 
compliance with all of the provisions of Regulation SCI. The Commission 
estimates that competing consolidators below the SCI competing 
consolidator threshold will each incur an initial non-PRA cost of 
between approximately $107,000 and $800,000.\2350\ Additionally, 
competing consolidators below the SCI competing consolidator threshold 
will also each incur an annual ongoing non-PRA cost of between 
approximately $71,000 and $533,000. The Commission is uncertain about 
the actual level of costs competing consolidators below the SCI 
competing consolidator threshold will incur, because these costs could 
differ based on the state of the systems of the entrant that becomes a 
competing consolidator. Should a competing consolidator meet the 
threshold to become an SCI entity after the initial transition period, 
there would be additional costs at that time in order to comply with 
Regulation SCI, which will vary depending on the type of competing 
consolidator.\2351\
---------------------------------------------------------------------------

    \2349\ See supra Section III.F.
    \2350\ SCI Adopting Release, supra note 1233, at nn.1943-44.
    \2351\ The Commission believes that the initial implementation 
costs for these entities to comply with Regulation SCI will 
approximately be the difference between their initial PRA and non-
PRA costs under Rule 614(d)(9)(iv) and the initial PRA and non-PRA 
burdens based on their entity type, as described above in this 
section.
---------------------------------------------------------------------------

    Additionally, the Commission believes that some competing 
consolidators' subscribers associated

[[Page 18789]]

with the testing of business continuity and disaster recovery plans 
will incur Regulation SCI-related connectivity costs. Rule 1004 of 
Regulation SCI sets forth the requirements for testing an SCI entity's 
business continuity and disaster recovery plans with its designated 
members or participants. Rule 614(d)(9)(iv) requires competing 
consolidators that are not affiliated with exchanges that do not meet 
the threshold requirements for being an SCI competing consolidator to 
participate in the testing outlined in Rule 1004 of Regulation SCI. 
Competing consolidators and their designated subscribers would be 
subject to these same costs.\2352\ The Regulation SCI adopting release 
estimated connectivity costs as part of these business continuity and 
disaster recovery plans to be approximately $10,000 per SCI entity 
member or participant.\2353\ The Commission believes that these 
connectivity cost estimates will also be applicable to competing 
consolidators' designated subscribers.
---------------------------------------------------------------------------

    \2352\ See supra Section III.F.
    \2353\ See SCI Adopting Release at n. 2065.
---------------------------------------------------------------------------

    The Commission believes that competing consolidators and various 
other market participants will incur certain indirect costs related to 
compliance requirements for SCI competing consolidators. The Commission 
believes that the costs to comply with Regulation SCI discussed above 
will also fall on third-party vendors employed by SCI competing 
consolidators to provide services used in their SCI systems. Regulation 
SCI requires that any system provided by a vendor to an SCI entity and 
used by that entity in its SCI system must also comply with Regulation 
SCI requirements. The Commission believes that all costs discussed 
above for competing consolidators to comply with Regulation SCI will 
also fall on third-party vendors employed by competing consolidators in 
the course of providing consolidated market data. Examples of such 
vendors may include communications firms employed by SCI competing 
consolidators to transport data from exchanges to the SCI competing 
consolidator's aggregation servers at various data centers. If many 
third-party vendors are employed by SCI competing consolidators in 
their consolidated market data business, the size of this cost may be 
significant.
    Additionally, the Commission believes there is the potential for 
these costs to cause vendors to end certain existing business 
relationships with market participants who become SCI competing 
consolidators. It is possible that third-party vendors will not want to 
incur the costs that SCI competing consolidators may impose to assure 
that the SCI competing consolidator can comply with Regulation SCI 
requirements, and as a result be unwilling to provide services to the 
SCI competing consolidator's consolidated market data business. To the 
extent that this occurs, SCI competing consolidators will incur costs 
from having to find new vendors, form a new business relationship, and 
adapt their systems to the infrastructure of the new vendor. SCI 
competing consolidators may also elect to perform the relevant 
functions internally. To the extent that SCI competing consolidators 
either find new vendors or perform the functions internally, it will 
represent an increased inefficiency in the market, since presumably the 
current market data vendors are the most efficient means of performing 
these functions.
    The Commission believes that the technology supporting some of the 
services provided by vendors to current data aggregators (notably 
communications, such as microwave transmission) require significant 
expertise in order to be competitive and are difficult to replicate. To 
the extent this is the case, and to the extent that Regulation SCI 
requirements prevent SCI competing consolidators from using these 
vendors, the ability of SCI competing consolidators to provide 
consolidated market data in a manner that rivals current third-party 
aggregation practices may be significantly reduced.
(f) Economic Effects of the Decentralized Consolidation Model 
Pertaining to Self-Aggregators
    As discussed above a number of market participants currently 
purchase proprietary data products from the exchanges and consolidate 
this data for their internal use or regulatory compliance.\2354\ To 
permit self-aggregation under the decentralized consolidation model, 
the Commission defines a new type of market data user, self-
aggregators.\2355\
---------------------------------------------------------------------------

    \2354\ Some commenters agreed. See, e.g., MEMX Letter at 7; NYSE 
Letter II at 18. See also supra Section III.D.
    \2355\ See supra Section III.D.2 for a definition of a self-
aggregator.
---------------------------------------------------------------------------

    Market participants that currently effectively self-aggregate and 
that decide to become self-aggregators under the decentralized 
consolidation model will have two choices. First, they may decide to 
limit the use of exchange data to the creation of consolidated market 
data, in which case they will be charged for data content underlying 
consolidated market data pursuant to the fee schedules of the effective 
national market system plan(s) for NMS stocks. In this case, market 
participants will likely benefit from lower data fees as compared to 
current fees they pay for proprietary data and connectivity 
products.\2356\
---------------------------------------------------------------------------

    \2356\ See infra Section V.C.4.
---------------------------------------------------------------------------

    Second, they may decide they need data beyond the scope of 
consolidated market data, in which case they will be additionally 
charged for the proprietary data and connectivity services pursuant to 
the individual exchange fee schedules. In this case, the potential 
price gain will be limited to the price decline for the portion of the 
data corresponding to the consolidated market data. The Commission is 
uncertain about the extent of this effect.
    Market participants that currently effectively act as self-
aggregators and that will choose to become self-aggregators under the 
decentralized consolidation model may incur some costs switching from 
proprietary data to consolidated market data. They could incur these 
costs especially if the exchanges provide components of the 
consolidated market data with feeds and connections other than what 
these market participants currently use and market participants choose 
to receive the data via those new feeds and connections.\2357\ Market 
participants could also incur some costs even if they choose to use 
their existing proprietary feeds and connections to receive 
consolidated market data, but, they do not currently consume all 
proprietary data needed to create consolidated market data.\2358\ 
However, since these market participants already have the 
infrastructure to receive proprietary data products from the exchanges, 
the Commission expects these costs to be minimal. Additionally, self-
aggregators may choose not to receive the entirety of consolidated 
market data, which could mitigate some of these costs.
---------------------------------------------------------------------------

    \2357\ See supra note 795 for a discussion on competing 
consolidators' and self-aggregators' permission to choose the feeds 
through which they receive the data content underlying consolidated 
market data from the SROs.
    \2358\ See supra note 795 for a discussion on the competing 
consolidators' and self-aggregators' option to choose how they 
receive consolidated market data or a subset of it.
---------------------------------------------------------------------------

    Some commenters stated that the introduction of a self-aggregator 
category will maintain the latency gap between different market 
participants.\2359\ One comment said that ``the Proposal would continue 
this two-tiered structure--with participants that can afford to act as 
self-aggregators able to obtain and use that data faster than

[[Page 18790]]

those relying on competing consolidators.'' \2360\ Another commenter 
said that even having multiple competing consolidators would not reduce 
the latency gap because competing consolidators ``would not be able to 
distribute consolidated data as quickly as the direct exchange feeds 
and their customers would not be able to consume it as quickly as self-
aggregators.'' \2361\ Another commenter stated that receiving data from 
competing consolidators will be a ``two-step process'' and can never be 
as fast as getting data directly from the exchanges, a ``one-step 
process.'' \2362\ On the other hand, one commenter said that self-
aggregators might enjoy a minor latency advantage and that they do not 
``believe this latency advantage would be material and therefore should 
not be an issue.'' \2363\ The Commission discusses the relationship 
between self-aggregators and competing consolidators and the related 
latency below.\2364\
---------------------------------------------------------------------------

    \2359\ See, e.g., NYSE Letter II at 23; Nasdaq Letter IV at 8; 
FINRA Letter at 8.
    \2360\ See NYSE Letter II at 23.
    \2361\ See Nasdaq Letter IV at 8.
    \2362\ See FINRA Letter at 8.
    \2363\ See Clearpool Letter at 10.
    \2364\ See infra Section V.C.4(b).
---------------------------------------------------------------------------

    Some commenters stated that the decentralized consolidation model 
will increase costs for market participants because they would have to 
contract with a backup competing consolidator to avoid disruptions 
should their primary competing consolidator experience a 
disruption.\2365\ The Commission believes these issues apply to self-
aggregators as well, in that self-aggregators may wish to obtain a 
backup feed in addition to their self-aggregated feed. To the extent 
this is the case the Commission believes that the primary means of 
obtaining a backup feed is likely to be through a competing 
consolidator, and as such the discussion of the associated costs 
discussed in Section V.C.2(d)(iv) applies to self-aggregators as well.
---------------------------------------------------------------------------

    \2365\ See, e.g., Angel Letter at 20; NYSE Letter II at 24; 
FINRA Letter at 4.
---------------------------------------------------------------------------

(g) Other Conforming Changes
    The Commission is adopting conforming changes for some of the 
previous Commission or SRO rules and regulations, which themselves can 
have economic effects. This section discusses the conforming changes 
and corresponding economic effects.
(i) Amendments to Regulation SHO
    As described in Proposal section III.D.1, the Commission is 
adopting amendments to Regulation SHO to adjust the process of 
determining whether a Short Sale Circuit Breaker has been triggered and 
disseminating such trigger information. First, the primary listing 
exchange will decide how to obtain the consolidated data necessary to 
determine whether a Short Sale Circuit Breaker should be triggered. 
Second, the primary listing exchange will be responsible for notifying 
competing consolidators and self-aggregators rather than a single plan 
processor. The first change allows the primary listing exchange to 
select the most cost-effective means of fulfilling its 
responsibilities. The second change could entail some compliance costs 
for competing consolidators but is necessary to ensure that all 
competing consolidators are on a level playing field. The resulting 
compliance costs for exchanges are included in the Commission's general 
compliance estimate above.\2366\ The resulting compliance costs for 
competing consolidators are included in the Commission's estimate of 
the general costs to becoming a competing consolidator above.\2367\
---------------------------------------------------------------------------

    \2366\ See supra Section IV.D. See also supra Section V.C.2(d).
    \2367\ See supra Section IV.D.
---------------------------------------------------------------------------

    In addition, the Commission defines ``primary listing exchange'' in 
Regulation NMS and amends the definition of ``listing market'' in 
Regulation SHO to refer to the new definition of primary listing 
exchange. The Commission believes that this change will have no direct 
economic effects, other than harmonizing Regulation SHO with Regulation 
NMS.
(ii) Effective Changes to Responsibilities Under the Limit Up Limit 
Down Plan and Market Wide Circuit Breaker Rules
    The definition of ``regulatory data'' requires the primary listing 
exchange to be the entity responsible for monitoring, calculating, and 
disseminating certain information necessary to implement the LULD Plan 
and the MWCB rules. These functions are currently the responsibility of 
a single exclusive SIP, however, the Commission requires that the 
primary listing exchanges be responsible for disseminating information 
regarding Price Bands and Limit States and the primary listing exchange 
with the largest portion of S&P 500 Index stocks be responsible for 
determining whether an MWCB has been triggered. While the Commission 
believes that these amendments could result in implementation and 
ongoing costs for primary listing markets that currently do not operate 
a SIP, these amendments ensure a single set of Price Bands and a 
consistent message that MWCBs have triggered. As discussed above, the 
Commission believes that the additional cost of calculating the 
information necessary to implement the LULD Plan and MWCB rules would 
not be burdensome and these costs are included in the general 
compliance cost the Commission has estimated for SROs above.\2368\
---------------------------------------------------------------------------

    \2368\ See supra Section IV.D.
---------------------------------------------------------------------------

    Some commenters said that the Commission overlooks additional costs 
imposed on SROs from these additional responsibilities and latency 
differentials.\2369\ The Commission acknowledged in the Proposing 
Release that the amendments might lead to some implementation and 
ongoing costs for the primary listing exchanges that do not operate an 
exclusive SIP. Additionally, the Commission does not believe that the 
decentralized consolidation model would make it more difficult for SROs 
to conduct their market surveillance with respect to the LULD Plan and 
MWCB rules, because there are currently latency differentials to 
consider when SROs conduct market surveillance. The amendments will not 
bring significant changes to this market reality.
---------------------------------------------------------------------------

    \2369\ See, e.g., NYSE Letter II at 20-21; Joint CRO Letter at 
3.
---------------------------------------------------------------------------

3. Economic Effects of Form CC
    As discussed above in Section III.C.7, Rule 614 will prohibit a 
person, other than an SRO, from acting as a competing consolidator 
unless that person files with the Commission an initial Form CC and the 
initial Form CC has become effective.\2370\ Rule 614 will require the 
public disclosure of Form CC, which itself will require disclosures 
regarding a competing consolidator's services, fees, and operations, as 
well as metrics related to the performance of the competing 
consolidator. As a result, Rule 614 will provide transparency regarding 
the services and performance of competing consolidators for investors 
who might purchase the products and services of a competing 
consolidator. The Commission believes that the information contained in 
Form CC and the resulting transparency will help market participants 
make better-informed decisions about which competing consolidator to 
subscribe to

[[Page 18791]]

in order to achieve their trading or investment objectives.\2371\
---------------------------------------------------------------------------

    \2370\ A competing consolidator that is affiliated with an 
exchange that is operating under the provisions of the limited 
exemptive relief will need to be registered as a competing 
consolidator under Rule 614 and be in compliance with the disclosure 
and other substantive regulatory requirements applicable to 
competing consolidators in Rule 603, Rule 614, and Form CC. See 
supra Section III.C.7(a)(iv). The Commission believes that competing 
consolidators that are affiliated with exchanges will choose to 
operate under the provisions of the exemption. See supra Section 
V.C.2(a)(i)a.
    \2371\ Commenters agreed the public disclosure of the 
information contained in Form CC and performance metrics would help 
investors evaluate competing consolidators and decide which one to 
subscribe to. See, e.g., Clearpool Letter at 9; ACS Execution 
Services Letter at 6.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the process for the 
Commission to declare an initial Form CC ineffective will improve the 
quality of information the Commission receives from competing 
consolidators, which will allow the Commission to better protect 
investors from potentially incomprehensible or incomplete disclosures 
that would misinform market participants about the operations and 
services of a competing consolidator.
(a) Public Disclosure of Form CC and Other Competing Consolidator 
Information
    Form CC will require competing consolidators to publicly disclose 
four sets of information on the Commission website.\2372\ First, Form 
CC will require competing consolidators to disclose general 
information, along with contact information. Second, Form CC will 
require competing consolidators to disclose information regarding their 
business organizations. Third, Form CC will require competing 
consolidators to disclose information regarding their operational 
capabilities. Fourth, Form CC will require competing consolidators to 
disclose information regarding their services and fees. Rule 614 also 
includes requirements for amendments to Form CC under defined 
circumstances and a notice of cessation of operations at least 90 
calendar days before the date the competing consolidator ceases to 
operate as a competing consolidator. Form CC, any amendments to it, and 
any notices of cessation will be made public via posting on the 
Commission's website. Rule 614(d)(5) also has a disclosure requirement 
about competing consolidators' performance metrics on their own 
websites. Additionally, Rule 614(d)(6) will require competing 
consolidators to disclose operational information on their websites 
related to vendor alerts, data quality and systems issues, and clock 
drift in the clocks they use to create timestamps. Generally, these 
requirements promote transparency and competition among competing 
consolidators and effective regulatory oversight within a streamlined 
approach to avoid significant barriers to entry.
---------------------------------------------------------------------------

    \2372\ See supra Section III.C.7(a)(ii). Competing consolidators 
will also need to include on their websites a hyperlink to the 
Commission's website containing information their Form CCs. See 
supra Section III.C.7(j)
---------------------------------------------------------------------------

    The business organization disclosures will give market participants 
a window into the ownership as well as the organizational structures of 
competing consolidators. The Commission believes that this information 
will help market participants make better-informed decisions about 
which competing consolidator to subscribe to as well as how to avoid 
any potential conflicts of interest. For example, if a broker-dealer is 
considering subscribing to a competing consolidator for consolidated 
data and any other potential additional services such as analytics, 
they may search for a competing consolidator that is not owned by a 
competitor or an affiliate of a competitor in the broker-dealer space. 
Purchases of data and additional market intelligence services between 
two competitors could potentially create conflicts of interest. Thus, 
the required disclosure of a competing consolidator's business 
organization--which will, for example, clarify the ownership 
information--will provide transparency on its potential conflicts of 
interest.
    The information on operational capabilities will provide market 
participants detailed information about each competing consolidator's 
product portfolio and technical capabilities. Since market participants 
vary in their data and technical capability needs, information on 
competing consolidators' operational capabilities will allow market 
participants to make better-informed purchase decisions. For example, 
market participants who trade frequently and who need robust backup 
systems might choose competing consolidators with those capabilities. 
Whereas other market participants who have longer term investment 
strategies with potentially less frequent trades might prefer competing 
consolidators with less aggressive backup systems. Form CC disclosures 
will facilitate a better match between market participants' needs and 
competing consolidators' offerings, and will also help to ensure 
consistent disclosures between competing consolidators.
    One commenter stated that the disclosure of ``all procedures'' in 
the operational capability section of Form CC could disclose a 
competing consolidator's proprietary tech, or ``secret sauce,'' which 
could discourage innovation.\2373\ The Commission disagrees with this 
commenter and does not believe that the disclosures required on Form CC 
will discourage innovation because the disclosures are not detailed 
enough to give away a competing consolidator's proprietary information 
or ``secret sauce.'' \2374\
---------------------------------------------------------------------------

    \2373\ See Data Boiler Letter I at 55.
    \2374\ See supra Section III.C.8(e)(ii).
---------------------------------------------------------------------------

    With the consistent disclosures on services and fees, market 
participants will be able to compare and contrast the various services 
provided and the corresponding fees asked by competing consolidators. 
Market participants may then make better purchase decisions, based on 
their individual needs. Additionally, the service and fee transparency 
resulting from these disclosures will promote competition in similar 
products and/or services across different competing consolidators, 
which may result in similar prices, and will help to protect market 
participants from unfair and unreasonable prices.
    The Commission believes that the requirement for competing 
consolidators to amend Form CC prior to implementing material changes 
to their pricing, products, or connectivity options will provide 
transparency into changes in the operations of competing consolidators 
and better inform subscribers and other market participants about 
significant changes in the fees and services offered by a competing 
consolidator. This will allow subscribers to a competing consolidator 
to better evaluate if it will continue to serve their business needs. 
Additionally, it will facilitate effective oversight by the Commission.
    Similarly, the Commission believes that the requirement for a 
notice of cessation will also benefit subscribers to the competing 
consolidator, because it will give them advanced notice before the 
competing consolidator ceases to operate. Thus those subscribers will 
have more time to find another competing consolidator to supply them 
with consolidated market data.
    The fact that the information on Form CC will be in a single 
location instead of dispersed across the competing consolidators' own 
websites should aid market participants by introducing only minimal 
search costs when evaluating and comparing potential competing 
consolidators to decide which one best suits their business interests.
    As discussed above,\2375\ the Commission believes the rule will 
cause each competing consolidator to incur approximately $93,540 in 
implementation compliance cost in order to collect the information 
required to fill out and file an initial Form CC as well as $16,812 in 
ongoing costs in order to file amendments to an effective Form CC. One 
commenter believes the

[[Page 18792]]

costs associated with Form CC are overly burdensome and will present a 
serious barrier to entry for potential competing consolidators.\2376\ 
The Commission disagrees with this commenter. While the Commission 
acknowledges that the costs associated with preparing and filing an 
initial Form CC and amendments to an effective Form CC may pose a minor 
barrier to entry for potential competing consolidators, the Commission 
does not believe that the costs associated with Form CC are large 
enough to pose a serious barrier to entry.\2377\
---------------------------------------------------------------------------

    \2375\ See supra Sections IV.D.1(a); IV.D.1(b)(iii); V.C.2(d); 
supra note 1402.
    \2376\ See ACTIV Financial Letter at 3.
    \2377\ See supra Sections IV.D.1 and V.C.2(d)(i) for discussions 
of cost estimates for competing consolidators related to Form CC. 
See also supra Section V.C.2(a)(i) for discussions of competing 
consolidator barriers to entry.
---------------------------------------------------------------------------

    Competing consolidators will also experience implementation costs 
because initial Form CC and any amendments to Form CC will be filed 
electronically with the Commission. The Commission believes that 
requiring Form CC to be filed electronically will reduce filing costs 
compared to requiring the competing consolidator to file paper forms.
    To file a Form CC, competing consolidators will need to access 
EFFS.\2378\ Each competing consolidator will have to file an 
application and register each individual who will access EFFS on behalf 
of the competing consolidator. The Commission believes that each 
competing consolidator will initially designate two individuals to 
access EFFS, with each application taking 0.15 hours for a total of 0.3 
hours per competing consolidator. On an ongoing basis, each competing 
consolidator will add one individual to access EFFS for amendments, 
adding 0.15 hours per competing consolidator. To make a submission into 
EFFS, the competing consolidator must download a proprietary viewer.
---------------------------------------------------------------------------

    \2378\ As discussed further below, those competing consolidators 
that are existing SCI entities are already required to use EFFS to 
make Form SCI filings, and therefore would not incur the access 
costs discussed here. See infra Section V.E.5.
---------------------------------------------------------------------------

    Because EFFS is not available to the public, when the Commission 
makes an effective Form CC available to the public, the Commission will 
transform the data into an unstructured format, meaning that it is not 
machine-readable. Market participants that seek to use the Form CC data 
to evaluate and compare competing consolidators will bear the costs of 
locating, comparing, and evaluating the information on the Commission's 
website and take steps to put the information ``side by side'' for 
comparison purposes.
    The Commission believes that the public disclosure of performance 
metrics and additional information will introduce transparency to the 
operations of competing consolidators. These metrics should allow 
subscribers and potential subscribers to better evaluate the 
performance and current and future capabilities of a competing 
consolidator. Market participants, based on their individual needs, 
will be able to review competing consolidators' performance statistics 
and choose ones that will best serve their trading needs. While the 
requirements to post the monthly performance metrics and operational 
information on websites will introduce transparency, they will not 
completely eliminate costs incurred when market participants want to 
compare competing consolidators because collecting the information will 
involve market participants expending some resources to go to each 
competing consolidator's website.
    Competing consolidators will also incur implementation and ongoing 
compliance costs in order to setup and maintain systems required to 
calculate and produce the information for the performance metrics as 
well as other information the competing consolidator will be required 
to post to its website.
    Each month, competing consolidators will be required to post the 
monthly performance metrics and operational information on their own 
websites. Excluding the cost of preparing the information, the 
Commission estimates an average competing consolidator will incur a 
one-time cost of $2,651 (6 hours (for website development) x $308.50 
per hour (blended rate for a senior systems analyst ($285) and senior 
programmer ($332)) + $800 for an external website developer to develop 
the web page = $2,651) for posting the required information to a 
website, and will incur an ongoing annual cost of up to $3,702 (1 hour 
(for website updates) x $308.50 per hour (blended rate for a senior 
systems analyst ($285) and senior programmer ($332)) x 12 monthly 
postings = $3,702) to update the relevant web page each month. Because 
the monthly performance metrics and operational information may be 
posted in any format the competing consolidator finds most convenient, 
market participants that seek to use the data to evaluate and compare 
competing consolidators will bear the costs of locating, comparing, and 
evaluating the information on each competing consolidator's website.
    The Commission believes that the operational information that 
competing consolidators will be required to publicly disclose on their 
websites will create a mechanism for market participants to hold 
competing consolidators accountable for any systems issues they may 
experience. One strong accountability mechanism market participants 
have is their purchasing power. The disclosure requirements will alert 
market participants to any system breaches or any data quality or 
systems issues a competing consolidator experiences. Market 
participants could hold competing consolidators accountable by 
abandoning competing consolidators that repeatedly experience system 
issues and gravitating toward competing consolidators that demonstrate 
more reliable systems through their disclosures. This demand shift 
could cause competing consolidators with less reliable systems to exit 
the market.
    In addition to the requirements of Rule 614(d)(9) and Regulation 
SCI promoting competing consolidators to develop resilient 
systems,\2379\ the requirement that competing consolidators publicly 
disclose information on systems issues as well as performance metrics 
regarding system availability could also encourage competing 
consolidators to make investments that will ensure the resiliency of 
their systems. These disclosures will help market participants 
determine which competing consolidators have more reliable systems. 
Competing consolidators who display more reliable systems with greater 
system availability will attract more subscribers. This should 
incentivize competing consolidators to invest in better backup systems 
or other technology that will improve the resiliency of their systems 
and increase their system uptime.
---------------------------------------------------------------------------

    \2379\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

    The Commission believes that information from the disclosures in 
Form CC and the performance metrics and operational information 
competing consolidators will provide on their websites will promote 
effective regulatory oversight of competing consolidators and increased 
investor protection by providing the Commission and relevant SROs with 
information about competing consolidators. With this information, the 
Commission and the SROs could identify competing consolidators that are 
not properly complying with the final amendments or parts of them. The 
Commission and SROs, then, could utilize this information to help 
prioritize examinations and possibly help identify potential issues.
    The Commission believes that the public disclosure of the 
information in

[[Page 18793]]

Form CC on the Commission's website and the public disclosure of 
performance metrics and operational information on competing 
consolidators' websites could also increase competition between 
competing consolidators and also expose some competing consolidators to 
certain competitive effects.\2380\ If the public disclosures show that 
certain competing consolidators have higher fees or poorer performance, 
it may result in those competing consolidators losing subscribers and 
earning lower revenues. Similarly, competing consolidators who display 
lower prices or superior system performance may be able to attract more 
subscribers and earn more revenue. The public disclosure of the fee and 
performance information on the Commission and competing consolidator 
websites will facilitate competing consolidator comparison and will 
also promote competition. Greater competition between competing 
consolidators could in turn incentivize competing consolidators to 
innovate--particularly in terms of their technology--so that they can 
attract more subscribers.\2381\
---------------------------------------------------------------------------

    \2380\ A commenter agreed the public disclosure of Form CC and 
monthly performance metrics would enhance competition between 
competing consolidators. See Clearpool Letter at 9.
    \2381\ See infra Section V.D.2 discussing the potential effects 
of the proposal on competition.
---------------------------------------------------------------------------

    As discussed above, Rule 614(d)(9)(iii)(C) will require a competing 
consolidator that is not an SCI competing consolidator to notify the 
Commission and provide the Commission with updates on Form CC if it 
experiences a systems disruption or intrusion.\2382\ The Commission 
believes that this information will help ensure more effective 
Commission oversight of competing consolidators by helping make the 
Commission aware of potential areas of weakness in the competing 
consolidator's systems that may pose a risk to the entity or the market 
as a whole.\2383\
---------------------------------------------------------------------------

    \2382\ See supra Section III.F.
    \2383\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

(b) Commission Review and Process for Declaring Initial Form CC 
Ineffective
    The Commission believes that the process of reviewing an initial 
Form CC will allow the Commission to evaluate, among other things, the 
completeness and comprehensibility of a competing consolidators' 
disclosures and, if necessary, declare the Form CC ineffective. To be a 
consolidated market data provider, a competing consolidator is required 
to have a Form CC that has become effective pursuant to Rule 
614(a)(1)(v). Thus, for competing consolidators that submit low quality 
and potentially inaccurate data, the Commission's review and 
declaration of their Form CC ineffective could start an iterative cycle 
of increasingly better information provision, until the competing 
consolidator can have an effective Form CC. The Commission believes 
that this public disclosure and review process will improve the quality 
of information the Commission receives from competing consolidators, 
which will allow the Commission to better protect investors from 
potentially incomprehensible or incomplete disclosures that will 
misinform market participants about the operations of the competing 
consolidator. Additionally, an entity cannot operate as a competing 
consolidator without an effective Form CC. The Commission's review will 
be designed to ensure that the competing consolidators serving the 
investors will be the ones that meet the Commission's qualification 
requirements.
    The Commission believes that the filing requirements of Form CC and 
the Commission review period could impose costs on competing 
consolidators. The Commission believes that declaring a Form CC 
ineffective could impose costs on a competing consolidator--such as 
delaying the start of operations while the competing consolidator 
refiles its Form CC--and could impose costs on individual market 
participants and the overall market for competing consolidators 
resulting from a potential reduction in competition. However, competing 
consolidators and market participants will not incur these costs unless 
the competing consolidator filed a deficient Form CC. Therefore, the 
Commission believes that a competing consolidator will be incentivized 
to file Form CC disclosures that are complete and comprehensive to 
avoid bearing the costs of refiling a Form CC filing or of having its 
Form CC declared ineffective.
    The Commission recognizes that the registration process will create 
uncertainty about whether the form will be declared ineffective. This 
uncertainty may create a disincentive for entities to become competing 
consolidators, which could potentially reduce competition in the 
competing consolidator market.\2384\
---------------------------------------------------------------------------

    \2384\ See infra Section V.D.2 (discussing the potential effects 
of the proposal on competition).
---------------------------------------------------------------------------

4. Economic Effects From the Interaction of Changes to Core Data and 
the Decentralized Consolidation Model
    The Commission believes that the final amendments would have a 
number of economic effects that are only possible as a result of a 
combination of the expanded content of core data and latency reductions 
due to the introduction of the decentralized consolidation model.\2385\ 
Specifically, the Commission believes that the combination of these 
factors would affect proprietary data feed business; market 
participants who choose to engage in market making, smart order 
routing, and other latency sensitive trading businesses; the 
Consolidated Audit Trail; and data vendor business.
---------------------------------------------------------------------------

    \2385\ See supra Section V.C.2(c) discussing the effect of the 
decentralized consolidation model on consolidated market data 
latency.
---------------------------------------------------------------------------

(a) Economic Effects on the Proprietary Data Feed Business
    The Commission believes that the expanded content of core data and 
latency reduction due to the introduction of the decentralized 
consolidation model could make consolidated market data a reasonable 
alternative to exchange proprietary data feeds for some market 
participants. This would have the effect of providing these market 
participants with a potentially lower cost option (relative to 
proprietary feeds) for low-latency, high-content market data. The lower 
cost of either self-aggregating consolidated market data or obtaining a 
competing consolidator's data feed will come at the expense of losing 
the full set of data currently available via proprietary feeds, because 
the consolidated market data definition does not include all data 
elements currently available via proprietary data feeds.\2386\ 
Nevertheless, some market participants may find that the expanded 
content of core data makes the trade-off worth it and may choose to 
drop their proprietary feed subscriptions in favor of the consolidated 
market data.
---------------------------------------------------------------------------

    \2386\ Commenters agreed that switching to new consolidated 
market data would come with this expense of losing some data 
compared to the proprietary data feeds. One commenter stated that it 
would be unable to remain competitive even after the final 
amendments are in place without continuing to purchase proprietary 
data feeds. See Virtu Letter at 2. See also Clearpool Letter at 3, 
supporting the idea that there may be broker-dealers who will still 
need proprietary feeds.
---------------------------------------------------------------------------

    This effect will represent a transfer from exchanges who sell 
proprietary data feeds to the market participants who would save money 
by either self-aggregating consolidated market data or subscribing to a 
competing consolidator's data feed. In the latter case, a portion of 
the benefit is also transferred to the competing consolidator in the 
form of additional business. The Commission believes that a transfer 
from the exchanges to market participants may help market participants 
enhance their product and

[[Page 18794]]

service offerings to their customers. Additional business and revenues 
for competing consolidators may enhance competing consolidators' 
efforts to offer higher quality products and a wider range of product 
offerings.\2387\
---------------------------------------------------------------------------

    \2387\ See supra Section V.C.2(c).
---------------------------------------------------------------------------

    It is possible that changes to the pricing and customer base of 
core and proprietary data feeds may not have a uniform impact across 
all exchanges. Some exchanges currently have more proprietary feed 
revenue than others, and some exchanges may currently rely more on 
revenue from SIP data fees than other exchanges. To the extent that an 
exchange receives a large share of revenue from its proprietary feed 
business, the impact of these potential reductions in proprietary feed 
subscriptions could be large for that exchange. To the extent that an 
exchange receives only a small portion of its revenue from proprietary 
feed subscriptions, the impact of these potential reductions in 
subscriptions could be small for that exchange.
    The Commission also notes that the exchanges' revenues from 
connectivity services may increase or decrease, depending on any new 
data connectivity fees that the exchanges may propose for data content 
use cases. The connectivity fees for consolidated market data must be 
fair and reasonable and not unreasonably discriminatory.\2388\ If these 
new connectivity fees are higher than current fees, there is a 
possibility that the exchanges' overall revenue from connectivity 
services would increase. It is also possible that exchanges could lose 
revenue from existing customers reducing the number of ports or the 
amount of bandwidth they purchase as they switch to competing 
consolidators for some use cases. The overall effect on the exchanges' 
connectivity revenues is uncertain, and the impact on connectivity 
revenues could differ across different exchanges.
---------------------------------------------------------------------------

    \2388\ See supra note 1134.
---------------------------------------------------------------------------

    The Commission believes that these competitive pressures on the 
exchange proprietary feed and connectivity business could also have the 
effect of causing the exchanges to lower the fees they charge for these 
services in an effort to stay competitive with the consolidated market 
data. This effect represents a transfer from the exchanges to the 
customers of these services. To the extent that existing customers of 
these services invest the money saved from lower fees in new products 
(such as expanding brokerage services) this effect will also have 
benefit of encouraging the creation of new products and services. To 
the extent that the lower fees for these services enable new market 
participants to subscribe to these feeds and offer the services that 
these feeds are required for (such as high quality execution brokerage 
services), this effect will also represent a benefit in the form of new 
competition in the broker-dealer business.
    One commenter stated that the final amendments would have the 
effect of increasing proprietary data fees, because ``demand is 
inelastic.'' \2389\ The Commission acknowledges that if some market 
participants no longer purchase proprietary data feeds after the rule 
is implemented, those who continue to purchase proprietary data feeds 
are likely to value those feeds more than the ones who no longer make 
these purchases. This means that the exchanges could infer that their 
remaining proprietary customers might actually be willing to pay more 
for the data then their old customer base, and consequently attempt to 
increase proprietary fees. However, the Commission believes that the 
need to remain competitive against new consolidated market data could 
overwhelm the effect of knowing that remaining customers might be 
willing to pay more. If this is the case, then the exchanges will 
instead lower their prices for proprietary data.
---------------------------------------------------------------------------

    \2389\ See Data Boiler Letter I at 2. For further support that 
proprietary fees could increase, see Clearpool Letter at 3.
---------------------------------------------------------------------------

    If exchanges increase proprietary fees as a result of these 
potential insights into the demand elasticity of the remaining customer 
base after the rules are implemented, it will result in a transfer from 
those market participants who continue to purchase proprietary data to 
the exchanges, while any market participants who stop purchasing 
proprietary data as a result of the fee increases will represent an 
economic cost. The Commission is uncertain as to whether fees will 
increase or decrease for proprietary data.
    The Commission believes, however, that if a small latency 
differential between competing consolidator feeds and the proprietary 
data feeds remains, then the above effects are likely to be small, 
owing to the nature of high speed competition.\2390\ However, this 
limitation would only be for the case where current subscribers to 
proprietary data feeds switch to using a competing consolidator feed. 
In the case of those proprietary feed subscribers who become self-
aggregators, the Commission believes that it is unlikely that this 
would result in a latency differential compared to receiving 
proprietary data.\2391\ It is also possible that the data that would 
remain exclusive to proprietary feeds would also reduce the incentives 
for market participants to switch to using consolidated market data 
only, further reducing the size of the above effects.
---------------------------------------------------------------------------

    \2390\ See supra Section V.B.2(b).
    \2391\ More generally, the final rule could enable some 
reduction in the latency differential between current market 
participants to the extent that such market participants would be 
willing to make the necessary technology and personnel investments 
to take advantage of the latency reductions provided by the 
decentralized consolidation model. Thus, while some differences in 
latency may remain, the barriers to entry for market participants to 
compete in the latency sensitive businesses at various levels of 
sophistication and competitiveness would be reduced. See also 
Sections V.B.2(f) and V.C.4(b) for further discussion of this point.
---------------------------------------------------------------------------

    In the event that proprietary data feed subscribers are willing to 
switch to receiving new consolidated market data products and a latency 
differential remains between these feeds and feeds provided by 
competing consolidators, the effects discussed in this section would 
apply only to those market participants who become self-aggregators. 
The Commission believes that the set of current subscribers of 
proprietary feeds willing to become self-aggregators may be smaller 
than the set of current subscribers willing to switch to using a 
competing consolidator, as it is possible that subscribing to a 
competing consolidator would be more convenient or less costly. To the 
extent this is the case, the size of the effects described in this 
section will be reduced. Furthermore, these self-aggregators may 
continue to enjoy a latency advantage over customers of competing 
consolidators.
    To the extent that the changes to proprietary feed subscriptions 
described above are realized, the exchanges would have corresponding 
losses in revenue or profit from the provision of proprietary data. 
Since the Commission is unable to determine how many broker-dealers or 
other market participants would no longer want to use proprietary data 
feeds as a result of this rule, it is unable to determine the size of 
this potential reduction in revenue or profit.
    One commenter stated that if the exchanges' revenues from market 
data are reduced, the price of trading services would likely increase, 
because the loss of revenue ``will have to be offset.'' \2392\ The 
Commission disagrees with this commenter because a reduction in total 
revenue in and of itself does not necessarily make it optimal for a 
firm to increase its prices. The Commission expects that prices are set 
to optimize the amount of profit the firm can extract

[[Page 18795]]

from the market, and given that this has been done an increase in 
prices today would not increase profit. A reduction in revenue by 
itself does not change any of these considerations. All firms must 
balance a loss in customers against an increase in the revenue received 
per customer when considering a price increase, and in order for it to 
be optimal to increase prices, something about this balance must 
change. Thus, the Commission does not believe that a reduction in total 
revenue for exchanges will necessarily make it optimal for them to 
adjust any of their fees, including fees for trading services.
---------------------------------------------------------------------------

    \2392\ See Nasdaq Letter IV at 30.
---------------------------------------------------------------------------

    This commenter also added that this scenario of increases in 
trading fees would follow ``if the all-in price of trading is already 
at the competitive level. . . .'' \2393\ It is not clear that this 
assumption is met in the market today. The Commission has discussed 
above the competition that exists in the market for trading 
services,\2394\ and separately, discussed indicia that the market for 
proprietary data may not be subject to robust competition.\2395\
---------------------------------------------------------------------------

    \2393\ See Nasdaq Letter IV at 30.
    \2394\ See supra Section V.B.3(d) for a discussion of 
competition in the market for trading services.
    \2395\ See supra Section V.B.3(b) for a discussion of the market 
for proprietary data products.
---------------------------------------------------------------------------

    To the extent that exchanges would find it profitable to increase 
their trading fees following the implementation of this rule, the 
Commission believes that the market for trading services is subject to 
competition, as discussed above, and, as a result, any potential for 
fees to increase will be constrained by this competition.\2396\
---------------------------------------------------------------------------

    \2396\ See supra Section V.B.3(d).
---------------------------------------------------------------------------

    A commenter stated that without profit from selling market data, 
exchanges would lack the funds necessary to finance improvements to 
their trading systems, including innovations in order types.\2397\ The 
Commission disagrees because it believes the exchanges only fund 
improvements and innovations in their trading businesses that have a 
positive net present value, because this would be consistent with the 
behavior of any firm seeking to maximize profit. While the Commission 
acknowledges that alternative sources of funding to internally held 
cash may be more expensive (or less convenient) sources of financing, 
the Commission nevertheless believes that the exchanges will continue 
to be able to finance their best investment opportunities, which are 
the same projects the exchanges finance today. This is because such 
opportunities will represent a profit opportunity to both the exchanges 
and potential sources of financing.
---------------------------------------------------------------------------

    \2397\ See Nasdaq Letter IV at 50.
---------------------------------------------------------------------------

(b) New Entrants Into the Market Making, Broker-Dealer and Other 
Latency Sensitive Trading Businesses
    The Commission believes that the final amendments may lead to new 
market participants entering the market making, smart order routing 
broker-dealer, and other latency sensitive trading businesses.\2398\ 
This is because the final amendments may help to reduce the information 
asymmetries between those who choose to rely on proprietary data feeds 
and those who rely on the feeds from the exclusive SIPs.\2399\ For 
instance, it is possible that currently there are broker-dealers who 
might want to compete in the business of sophisticated order routing 
but choose not to because of the cost of the market data necessary to 
be competitive. To the extent that the final amendments make 
consolidated market data a viable data product for smart order routing, 
the Commission believes that these changes could induce these broker-
dealers to enter the business.\2400\ This would have the benefit of 
increasing competition in the sophisticated order routing broker-dealer 
business.
---------------------------------------------------------------------------

    \2398\ One commenter stated that the rule would encourage 
participation in equity markets. See IEX Letter at 9.
    \2399\ One commenter said it would enhance competition, although 
not completely eliminate the two-tiered structure of the data 
market. See Virtu Letter at 2.
    \2400\ These would be broker dealers who have not entered these 
businesses because, currently, the only way to obtain the benefits 
associated with the new, expanded core data and decentralized 
consolidation model is to subscribe to proprietary data feeds.
---------------------------------------------------------------------------

    The Commission believes that access to this new, faster 
consolidated market data could encourage new entrants into the 
automated market maker business. This would not only improve the 
competitiveness of this business but also may increase liquidity in the 
corresponding markets.
    If these new entrants use a competing consolidator, and if a small 
latency differential between competing consolidator feeds and the 
proprietary data feeds remains, then this effect of encouraging new 
entrants is likely to be small.\2401\ If instead these potential new 
entrants were to become self-aggregators, then this effect of 
encouraging new entrants is not likely to be small, because the 
Commission believes that there is unlikely to be a significant latency 
differential between being a self-aggregator and using proprietary data 
feeds.\2402\ However, if self-aggregation is required to be a new 
entrant in these businesses, the number of potential new entrants could 
be small, since using a competing consolidator may be more convenient 
or less costly than self-aggregating.\2403\ It is also possible that 
potential participants in the sophisticated SOR, automated market 
making, and other latency sensitive trading businesses may find that 
they cannot compete effectively without using the data that would 
remain exclusive to proprietary feeds. To the extent this is the case, 
the effects discussed above would be further limited.
---------------------------------------------------------------------------

    \2401\ See supra Section V.B.2(b).
    \2402\ This is because the Commission believes that self-
aggregators will use substantially the same technology and methods 
to perform the self-aggregation function, including the same vendors 
for such technology, as are used today by those market participants 
who aggregate the proprietary data feeds.
    \2403\ For related discussion on latency advantages, see supra 
note 2391.
---------------------------------------------------------------------------

    One commenter stated that the final amendments would create new 
information asymmetries because of the possibility that competing 
consolidators could customize their products, which would lead to 
differences in information between their customers. This commenter 
stated that this is in contradiction to the claim that information 
asymmetries will be reduced.\2404\ The Commission does not believe that 
the possibility of a reduction in information asymmetry in the market 
is negated by the potential for product differentiation by competing 
consolidators. New consolidated market data, aggregated in a 
decentralized consolidation model, will present the opportunity for 
improvement in the quality of market data received today for those 
market participants capable of exploiting these improvements. These 
improvements are relative to the exclusive SIP feeds today. For these 
market participants who can take full advantage of expanded core data 
and the decentralized consolidation model, the improvements to their 
utilization of market data are likely to be more significant than the 
differences that might emerge between competing consolidators product 
offerings that improve over the current exclusive SIP feeds. Thus, such 
market participants will represent a reduction in information 
asymmetries between users of core data and users of proprietary data. 
On the other hand, the Commission believes that those market 
participants who elect to use any low cost, or display feed, options 
offered by competing consolidators are likely to be participants who 
currently do not make use of sophisticated market data access. Thus, 
for these market participants,

[[Page 18796]]

information asymmetries with respect to latency will be no worse than 
they are currently, though these market participants may still benefit 
from the expanded content.\2405\
---------------------------------------------------------------------------

    \2404\ See Nasdaq Letter IV at 48.
    \2405\ See supra Section V.C.1 for a discussion of the benefits 
of the expanded content of core data to market participants.
---------------------------------------------------------------------------

    In addition, many of the differences between competing consolidator 
products (and their use by market participants) will be driven by 
differences in what those market participants find most useful for 
their trading needs, and differences in the ability to process and take 
advantage of new consolidated market data products distributed by 
competing consolidators, and these differences exist today.\2406\
---------------------------------------------------------------------------

    \2406\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

    One commenter stated that the decentralized consolidation model 
would exacerbate the differences in advantage and information between 
market participants and perpetuate a ``multi-tiered'' market structure. 
The commenter pointed out the likelihood that different competing 
consolidators would likely develop products with different levels of 
performance and charge different prices for them. This commenter 
concluded that this would result in the promotion of even more tiers of 
separation in market data access than the two tiers separating those 
who can afford proprietary data and those who cannot.\2407\ Commenters 
also stated the rule would not reduce the difference that currently 
exists between those who access market data in a fast, sophisticated 
manner and those who do not. Specifically, these commenters stated that 
the self-aggregator option available in the final rules will enable the 
advantages of the fastest users of market data to remain, because these 
self-aggregators would inevitably have a significant speed advantage 
over competing consolidators.\2408\
---------------------------------------------------------------------------

    \2407\ See Nasdaq Letter IV at 8 (``Finally, the Commission 
ignores the likelihood that different consolidators will provide 
differing levels of service, replacing an allegedly two-tiered 
market with a multi-tiered market. Even if multiple competing 
consolidators end up racing against each other to produce unique or 
superior data products or to distribute data more quickly, they 
would likely charge premiums for better products and faster 
services. If so, whatever concerns the SEC may have now about market 
participants needing to pay high costs to access the best and 
fastest data will not be solved by its Proposal; to the contrary, 
the Proposal would only make this problem worse.'').
    \2408\ See, e.g., FINRA Letter at 8, NYSE Letter II at 23.
---------------------------------------------------------------------------

    The Commission disagrees with these commenters, and believes that 
the rule will reduce the differences between existing tiers of market 
data access, and that the self-aggregator option is essential in 
producing this outcome. This is because the distinctions between market 
data access capabilities that exist today are driven by more than just 
the price and availability of data (as explained further below), and so 
to the extent such differences remain they will not be a result of 
these rules. Additionally, the final rules will likely reduce one of 
the key cost barriers for market participants interested in self-
aggregation, thereby reducing the advantage held by those market 
participants that can afford and choose to pay for it today.
    In the context of market data access broadly, there exist many 
differences in the approaches taken to obtain, process, and use market 
data.\2409\ These differences arise because of differentiation across 
many aspects of the market data access processes, and the Commission 
does not expect these differences to go away as a result of these 
rules. Furthermore (and as explained above \2410\), it is the 
Commission's understanding that some of these differences exist because 
the strategies employed by market participants do not all require 
exactly the same level of sophistication in market data processing to 
run effectively, as such some participants will be unwilling to change 
how they consume real time data even if given the opportunity to do 
so.\2411\ What this means is that any discussion of multiple tiers of 
market data access must be understood within the context of the complex 
differences in data use across market participants that exist today.
---------------------------------------------------------------------------

    \2409\ See supra Section V.B.2(c), where additional details of 
the various approaches are described.
    \2410\ See supra Section V.B.2(c).
    \2411\ For example, the Commission believes that retail 
investors have no need for sub-millisecond improvements in latency, 
but do need timely and complete market data in order to make 
investment decisions.
---------------------------------------------------------------------------

    At the same time, there are market participants, within each of the 
levels of sophistication for market data access described above,\2412\ 
who may be able to significantly improve their ability to compete as a 
result of the rule, both at their current level of capability and 
beyond. This is because core data will now be delivered according to 
the decentralized consolidation model, which introduces an incentive 
structure that will likely result in improvements to latency; and 
because core data will now contain additional content.\2413\ To the 
extent that these rules result in greater affordability of high quality 
market data, firms may find they are able to use the savings obtained 
from substituting away from proprietary feeds to invest in the 
technology and personnel necessary to increase the level of 
sophistication at which they use market data. These investments may 
take the form of purchasing the highest quality, lowest latency 
aggregation technology from a competing consolidator (which may be 
priced at a premium compared to lower performing products) or investing 
in the infrastructure necessary to self-aggregate.\2414\ In either 
case, market participants have a greater opportunity to improve their 
quality of market data access, and therefore, the competitiveness at 
each level of market participation may be increased.
---------------------------------------------------------------------------

    \2412\ See supra Section V.B.2(c).
    \2413\ Furthermore, the Commission believes it is likely that at 
least some competing consolidators will provide all core data in 
their product offerings. See supra Section V.C.1(c) for additional 
discussion of this point.
    \2414\ It is the Commission's understanding that much of the 
infrastructure necessary to self-aggregate data today can be 
purchased from third-party vendors, so that in practice, the 
experience of purchasing the lowest latency access to consolidated 
market data may be similar whether the market participant choose to 
use a competing consolidator or to self-aggregate new consolidated 
market data.
---------------------------------------------------------------------------

    Also, the Commission does not believe that the self-aggregator 
option will further solidify the advantages held by sophisticated users 
of market data. To the contrary, the Commission continues to believe 
that the self-aggregator option assists in promoting the ability of a 
wider array of market participants to improve their access to market 
data. The Commission believes that the advantages of self-aggregators 
today come in part from the significant costs to self-aggregation, 
which prevent other market participants from becoming self-aggregators 
themselves and thereby preserves self-aggregators as the only market 
participants with such high quality information. To the extent that it 
happens that self-aggregation is necessary in order to obtain the 
maximum possible latency advantages,\2415\ the exclusive advantage this 
offers will be reduced, because, whereas today one must purchase 
proprietary data feeds in order to employ this methodology of self-
aggregation, under the final rule, the end user can purchase 
consolidated market data and employ this methodology through the self-
aggregator

[[Page 18797]]

option.\2416\ This has the effect of reducing the costs to employ such 
technology, because the fees for new consolidated market data will 
likely be lower than the fees for proprietary data. Thus, rather than 
institutionalizing the advantages enjoyed by current users of the self-
aggregation methodology, we expect the self-aggregator option in the 
decentralized consolidation model will reduce the barriers to entry 
into this level of market data access for other market participants.
---------------------------------------------------------------------------

    \2415\ See, e.g., NBIM Letter at 4 (``In our experience, 
therefore, broker/dealers that do not undertake data aggregation in-
house, and do not use the fastest connectivity available, will in 
general not be consistently competitive. This does not preclude 
using third-party technology to do the data aggregation, as long as 
it is done in-house to avoid incremental latency.'').
    \2416\ This of course depends on the extent to which the end 
user finds the content of new core data a viable substitute for 
proprietary data.
---------------------------------------------------------------------------

    While the final rules will not eliminate levels of sophistication 
in the utilization of market data, it will likely reduce the cost of 
moving between levels.\2417\ With lower costs to increase 
sophistication, the information asymmetry between the two tiers of 
market data access, of those who can afford and choose to purchase 
proprietary data and those who do not, will be reduced. This may lead 
to new entrants into the market making, executing broker-dealer, and 
latency sensitive trading businesses.
---------------------------------------------------------------------------

    \2417\ These costs are the costs discussed in moving along the 
continuum of market data utilization methods in Section V.B.2(c). 
Also, market participants may be able to improve their use of market 
data under the final rules even if they currently utilize 
proprietary market data, because they may be able to substitute new 
core data for proprietary data. If they do switch, the likely cost 
savings they will obtain may enable them to invest in other aspects 
of the data access process, thereby improving their ability to 
compete with more sophisticated market participants.
---------------------------------------------------------------------------

    One commenter stated that the rule would put ``retail investors who 
subscribe to a competing consolidator at a disadvantage relative to 
those traders who can afford to self-aggregate and generate their own 
`NBBO' more quickly than retail investors reliant on third parties to 
obtain the NBBO.'' \2418\ The Commission disagrees that retail 
investors in particular would be put at a disadvantage compared to 
self-aggregators as a result of the rule. As discussed above,\2419\ 
currently, retail investors typically access the market using display 
and per quote feeds, which are not competitive in terms of speed with 
typical market data feeds. Investors who use such feeds understand that 
it is not possible to compete on speed and make their investment 
decisions based on other kinds of strategies. Thus, differences 
measured in microseconds, even if they resulted from this rule, would 
be meaningless to retail investors at the moment when they are making 
investment or trading decisions. Furthermore, retail investors, like 
many professional investors, do not execute their own trades but 
instead leave that function to their broker-dealer. For example, retail 
broker-dealers route their customers' orders to exchanges, ATSs, or 
wholesalers, the latter of which may route the order to the exchanges 
itself. Once the order has reached such market participants, the 
execution decisions are made in a much more sophisticated fashion (and 
microsecond differences matter), but crucially, these players will be 
able to exploit the fastest competing consolidator or self-aggregator 
options available on behalf of their retail clients. At this level of 
market data access, the Commission believes that that market 
participants will make decisions about what sort of competing 
consolidator product to use (or whether to self-aggregate) based off of 
competitive business considerations, that the final rules will make the 
options available cheaper than today, and that this will all work to 
the benefit of retail investors when these market participants work on 
their behalf to execute orders.
---------------------------------------------------------------------------

    \2418\ See Nasdaq Letter IV at 41.
    \2419\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

(c) Effects From the Interaction With the Consolidated Audit Trail
(i) CAT Baseline
    Section 242.613 (Rule 613) of Regulation NMS requires the national 
securities exchanges and national securities associations (``SROs'') to 
jointly develop and file with the Commission a national market system 
plan to create, implement and maintain a consolidated audit trail 
(``CAT'').\2420\ At the time of adoption, and even today, trading data 
was and is inconsistent across the self-regulatory organizations and 
certain market activity is difficult to compile because it is not 
aggregated in one, directly accessible consolidated audit trail system. 
The goal of Rule 613 was to require the SROs to create a system that 
provides regulators with more timely access to a sufficiently 
comprehensive set of trading data, enabling regulators to more 
efficiently and effectively reconstruct market events, monitor market 
behavior, and identify and investigate misconduct. Rule 613 thus aims 
to modernize a reporting infrastructure to oversee the trading activity 
generated across numerous markets in today's national market system.
---------------------------------------------------------------------------

    \2420\ See supra note 1220.
---------------------------------------------------------------------------

    On November 15, 2016, the Commission approved the national market 
system plan required by Rule 613 (``CAT NMS Plan'' or ``Plan'') that 
was filed by the self-regulatory organizations.\2421\ In the CAT NMS 
Plan, the SROs described the numerous elements they proposed to include 
in the CAT, including, (1) requirements for the plan processor 
responsible for building, operating and maintaining the Central 
Repository,\2422\ (2) requirements for the creation and functioning of 
the Central Repository, (3) requirements applicable to the reporting of 
CAT Data by SROs and their members. ``CAT Data'' is defined in the CAT 
NMS Plan as ``data derived from Participant Data, Industry Member Data, 
SIP Data, and such other data as the Operating Committee may designate 
as `CAT Data' from time to time.'' \2423\
---------------------------------------------------------------------------

    \2421\ See id.
    \2422\ The Central Repository is the repository responsible for 
the receipt, consolidation, and retention of all information 
reported to the CAT. See CAT NMS Plan, supra note 1220, at Section 
1.1.
    \2423\ See id. The Operating Committee is the governing body of 
the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan requires SROs and their members to record and 
report various data regarding orders by 8:00 a.m. the day following an 
order event.\2424\ The Plan requires industry members to record 
timestamps for order events in millisecond or finer increments with a 
clock synchronization standard of within 50 milliseconds.\2425\ The CAT 
NMS Plan Processor, FINRA CAT, is then required to process the order 
data into a uniform format, link the entire lifecycle of each order, 
and combine it with other CAT Data such as SIP Data.\2426\ The Plan 
Processor is also required to store CAT Data to allow the ability to 
return results of queries on the status of order books at varying time 
intervals.\2427\ Regulators, such as the Commission and SROs will use 
the resulting CAT Data only for regulatory purposes such as 
reconstructing market events, monitoring market behavior, and 
identifying and investigating misconduct.\2428\ At this time, the 
Commission has little information about what specific data, in addition 
to CAT Data, such as proprietary depth of book and auction data, the 
SROs currently intend to include in their enhanced surveillance 
systems.\2429\
---------------------------------------------------------------------------

    \2424\ See id. at Sections 6.3 and 6.4.
    \2425\ See id. at Section 6.8.
    \2426\ See id. at Section 6.5.
    \2427\ See id. at Section 6.5(c)(ii).
    \2428\ See id. at Section 6.5(g); CAT NMS Plan Approval Order, 
supra note 1220, at 84833-34.
    \2429\ See 17 CFR 242.613(f) (Rule 613(f)) of Regulation NMS.
---------------------------------------------------------------------------

(ii) Economic Effects on CAT
    The Commission recognizes that the final rules could affect the 
Consolidated Audit Trail, resulting in benefits to investors from 
improved regulatory

[[Page 18798]]

oversight, costs to CAT from potentially switching from a current SIP 
to a competing consolidator, costs to CAT from integrating consolidated 
market data into the CAT Data model, and costs to SROs of updating 
their enhanced surveillance systems to use consolidated market data 
provided by the CAT.\2430\ Specifically, the Plan Processor for the 
Consolidated Audit Trail, FINRA CAT, is required to incorporate all 
data from SIPs or pursuant to an NMS plan into the Consolidated Audit 
Trail. If the Commission were to approve these amendments, the CAT NMS 
Plan Operating Committee could choose to purchase such data from a 
different entity and would be required to purchase the expanded 
consolidated data.
---------------------------------------------------------------------------

    \2430\ See supra Section IV.B.5 for a more detailed discussion 
of how the proposal would alter the requirements of the Consolidated 
Audit Trail NMS Plan.
---------------------------------------------------------------------------

    The Commission believes that the incorporation of the expanded data 
into CAT will improve regulatory oversight to the benefit of investors. 
As explained in the Approval order for the Consolidated Audit Trail, 
the expected benefits of the CAT include ``improvements in regulatory 
activities such as the analysis and reconstruction of market events, in 
addition to market analysis and research . . . , as well as market 
surveillance, examinations, investigations, and other enforcement 
functions,'' and derive from improvements in four data qualities: 
Accuracy, completeness, accessibility, and timeliness.\2431\ Accuracy 
refers to whether the data about a particular order or trade is correct 
and reliable. Completeness refers to whether a data source represents 
all market activity of interest to regulators, and whether the data is 
sufficiently detailed to provide the information regulators require. 
Accessibility refers to how the data is stored, how practical it is to 
assemble, aggregate, and process the data, and whether all appropriate 
regulators could acquire the data they need. Timeliness refers to when 
the data is available to regulators and how long it would take to 
process before it could be used for regulatory analysis.
---------------------------------------------------------------------------

    \2431\ See CAT NMS Plan Approval Order, supra note 1220, at 
84802-803.
---------------------------------------------------------------------------

    The Commission believes that the expanded consolidated data from 
the final rules could improve the completeness and accessibility of CAT 
Data.\2432\ In particular, the final rules will improve the 
completeness of CAT Data because CAT Data would contain quotes smaller 
than 100 shares, depth of book information, and auction information. 
While the CAT will contain query functionality capable of recreating 
limit order books, the depth of book information will allow regulators 
to see the displayed order books that others see around the time of the 
order events. While the Commission does not know if SROs plan to 
incorporate depth of book and auction information into their enhanced 
surveillance systems or other regulatory activities using CAT Data, the 
proposal will improve the accessibility of consolidated market data for 
SRO and Commission CAT-related uses because SROs would have access to 
such data in a standardized format through the Consolidated Audit Trail 
instead of through the variety of formats currently used in proprietary 
data. The final rules will also improve accessibility because the SROs 
and Commission would have such data on the same system as CAT Data.
---------------------------------------------------------------------------

    \2432\ The Commission believes the final rules will not affect 
the accuracy or timeliness of CAT Data. The Commission does not 
believe that the proposal would alter the accuracy of timestamps of 
trades and quotes. While some competing consolidators might offer 
data that more accurately represents the data observed by certain 
market participants at the time of an order event, the Commission 
does not expect that all market participants would observe the exact 
same data at that order event, much like the case today. In 
addition, industry member clock synchronization and timestamps on 
the order events in CAT Data are not fine enough for the latency 
improvements to affect the accuracy of assigning an order event to 
the consolidated market data likely observed at the time of the 
order event. Finally, the order data in CAT is not required to be 
reported until 8:00 a.m. the day following an order event. Hence, 
because latency improvements from the proposal would be measured in 
microseconds, the Commission does not believe that the final rules 
will improve the timeliness of CAT Data.
---------------------------------------------------------------------------

    The Commission believes that the improvements in completeness and 
accessibility would facilitate more efficient regulatory activities 
using CAT Data that will benefit investors. In particular, the final 
rules could make broad-based market reconstructions using CAT Data more 
efficient by increasing the depth of information that could be 
incorporated into such reconstructions with current CAT Data. The 
Commission believes that depth of book information, quote information 
in sizes less than 100 shares, and auction information are all valuable 
in a broad-based market reconstruction. Further, the improvements would 
allow for more targeted surveillances and risk-based examinations using 
current CAT Data. For example, the depth of book information will be 
valuable when building surveillances to detect spoofing or in 
investigating spoofing because spoofing often involves creating a false 
impression of depth at prices outside of the best bid or offer. In 
addition, the auction information will facilitate auction market 
reconstruction to evaluate manipulation concerns and inform policy. 
Quote information in sizes less than 100 shares will facilitate 
analysis by regulators of broker-dealers' best execution practices by 
providing potential execution prices that are better than the current 
NBBO in stocks priced over $250.\2433\
---------------------------------------------------------------------------

    \2433\ See supra Section V.C.1(b)(i) for data showing that odd-
lot quotes in higher priced securities often improve upon the 
current NBBO.
---------------------------------------------------------------------------

    The Commission recognizes that the interaction between the final 
rules and the Consolidated Audit Trail could also create additional 
costs. Such additional costs are likely to be borne by SROs and their 
members. These costs could include switching costs, additional data 
costs, and data storage and processing costs. The proposal will result 
in switching costs if the Central Repository has to obtain the data 
from a different source. The source of the switching costs could be 
from changing data input formats and technical specifications, which 
would require one-time implementation costs. The Commission recognizes 
that the SIP technical specifications change a few times a year such 
that the switching costs associated with the proposal would be the 
costs in excess of the regular costs incurred when the SIP technical 
specifications change.\2434\ The Commission at this time, cannot judge 
whether switching data providers would result in higher or lower on-
going data intake costs but data intake costs presumably could be 
factored into the selection of a competing consolidator. Also, in order 
to continue to receive certain quotation and transaction data for OTC 
equities currently included in the SIP feeds, CAT would have to obtain 
such data from a different source, and would have to incur any 
associated costs in doing so.\2435\ The Commission recognizes that 
increasing the amount of data managed and analyzed by CAT will increase 
the costs of data storage and processing to integrate the expanded data 
with other CAT Data. However, the Commission does not expect the final 
rules to substantially increase the costs of operating the CAT because 
any marginal increase in cost associated with consolidated market data 
will be dwarfed by the processing costs already

[[Page 18799]]

incurred by CAT, which includes processing for all options quotation 
activity among other order lifecycle events and is significantly larger 
in size than consolidated market data.
---------------------------------------------------------------------------

    \2434\ See CTA, Technical Documents, available at https://www.ctaplan.com/tech-specs (last accessed Jan. 30, 2020) (showing 
the SIP tech specs version history, which identifies the changes 
over the years); UTP Data Feed Services Specification, available at 
http://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf (showing the SIP 
tech specs version history, which identifies the changes over the 
years).
    \2435\ See supra Sections II.C.2(c) and V.C.1(a) for a 
discussion of these potential costs.
---------------------------------------------------------------------------

    The Commission recognizes that the final rules will result in SROs 
incurring costs to integrate additional CAT Data into their 
surveillances. Even if the SROs would otherwise include depth of book 
and auction information in the CAT-related surveillances, they would 
incur costs in changing their surveillances to use the data in CAT 
rather than using data from proprietary feeds.
    The Commission also considered whether the requirements in CAT will 
impose costs as a result of CAT's effect on the competition among 
competing consolidators. Because the Commission does not believe CAT 
will significantly affect the competition among competing 
consolidators,\2436\ it will not impose additional costs resulting from 
this effect.
---------------------------------------------------------------------------

    \2436\ See infra Section V.D.2 for a discussion of the 
interaction between the proposal and CAT on competition among 
competing consolidators.
---------------------------------------------------------------------------

    The Commission believes that CAT implementation milestones will not 
be impacted by the final rules given that sufficient lead time will be 
available and integration efforts could be scheduled as part of 
standard release planning. The Commission believes that switching 
market data providers and expanding consolidated market data within CAT 
will require limited resources relative to the current implementation 
activities. Further, any resources devoted by SROs to updating their 
surveillances are separate from the efforts to implement CAT.
(d) Effects on Data Vendors
    The Commission believes that the final amendments would have an 
effect on the broad financial data services industry. To the extent 
that the amendments lead to cheaper (relative to proprietary data 
feeds) and higher content consolidated market data products, the 
Commission expects that costs to data vendors would go down and the 
ability of such vendors to grow their customer base would increase. It 
is also possible that data vendors may increase the range and quality 
of products they offer using the new expanded core data and that new 
firms enter the data vendor business. To the extent that the risk of 
price increases for core data is realized instead, the Commission 
believes these businesses could potentially face higher costs, which 
when passed on to clients could cause their customer base to shrink. In 
the event that these outcomes are severe, it is possible that some data 
vendors could exit the market. The Commission is uncertain about the 
potential size and scope of these effects because it is unable to 
determine both the role of these costs in producing the products 
supplied by the data services industry and the extent to which the 
enhanced quality of new core data could play a role in the quality of 
their products.\2437\
---------------------------------------------------------------------------

    \2437\ One commenter stated that this information ``should be 
essential'' to the Commission's analysis. See Nasdaq Letter IV at 
47. The Commission requested comment on the costs of market data 
vendors and the effect of new core data on their products and did 
not receive any. Data vendors are not required to disclose 
information to the Commission about the costs of their business at a 
level of detail sufficient to improve the Commission's understanding 
beyond what is said here. The assertions the Commission does make in 
this section about the effect of the rule on market data vendors do 
not depend on this information.
---------------------------------------------------------------------------

D. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    The Commission believes that the adopted amendments will have a 
number of different effects on efficiency. In particular, the 
Commission believes that the amendments will lead to more efficient 
gains from trade, improve the efficiency of order execution for some 
market participants, improve price efficiency, and affect how 
efficiently core data is distributed. The rest of this section 
discusses these different effects of the amendments on efficiency.
    As discussed above, the Commission believes that the expansion of 
core data under the final amendments would increase transparency for 
market participants who do not currently access proprietary DOB feeds 
and allow them to more easily find liquidity that they can trade 
against.\2438\ Currently, some of these market participants may not 
trade because they cannot see the quotes available to them, either 
through a lack of information about odd-lots, depth of book, or auction 
information. The Commission believes that the final amendments will 
alleviate some of this information shortage and will allow traders to 
more easily find counterparties. This may result in more voluntary 
trades occurring between market participants, which could lead to more 
efficient gains from trade, since these are trades which currently do 
not take place only because of a lack of information.\2439\ However, if 
the inclusion of additional odd-lot, depth of book, or auction 
information does not induce additional voluntary trading from market 
participants who do not currently access proprietary DOB feeds, then 
the final amendments may not produce more efficient gains from 
trade.\2440\
---------------------------------------------------------------------------

    \2438\ See supra Sections V.C.1(b), V.C.1(c).
    \2439\ Id.
    \2440\ Id.
---------------------------------------------------------------------------

    The Commission believes that the expansion of core data could also 
improve the efficiency with which some market participants, or their 
broker-dealers, execute orders. As discussed above, by adding odd-lot, 
depth of book, and auction information to core data, the final 
amendments will reduce information asymmetry between broker-dealers and 
other market participants who subscribe to proprietary data feeds and 
users of current SIP data. This could improve the ability of broker-
dealers and other market participants who currently do not have access 
to this information to trade against those market participants who do. 
As a result, this could improve the efficiency with which they execute 
their orders by allowing them to select a better trading venue or 
method of executing their order. Furthermore, for market participants 
who currently rely on exclusive SIPs for their order executions, the 
reduction in latency provided by the decentralized consolidation model 
could reduce the risk that their orders are picked off, which could 
reduce their adverse selection costs. This could potentially reduce 
their transaction costs and allow them to more efficiently achieve 
their investment or trading objectives or those of their clients.\2441\
---------------------------------------------------------------------------

    \2441\ Id.
---------------------------------------------------------------------------

    As discussed previously, the Commission believes that there is some 
potential for new broker-dealers to become competitive in the market 
for sophisticated order execution as a result of this rule because they 
may be able to use the expanded content and lower latency of core data 
to develop SORs or other tools that allow them to compete more 
effectively with broker-dealers who currently base order execution 
decisions off of proprietary DOB data.\2442\ To the extent that this 
happens, the clients of these broker-dealers could see their orders 
executed more efficiently and their execution costs reduced.
---------------------------------------------------------------------------

    \2442\ See supra Section V.C.4(b).
---------------------------------------------------------------------------

    The current lack of certain odd-lot quote, depth of book, and 
auction information in SIP data could affect price efficiency. The gap 
in information between data provided by exclusive SIPs and proprietary 
data products may cause prices in some securities to be less efficient, 
i.e., to deviate further from fundamental values, if market

[[Page 18800]]

participants with access to proprietary data products do not 
incorporate this information into prices quickly enough through their 
trading or quoting activity. However, the Commission does not know the 
extent of this possible effect, but it believes the effect could be 
larger in less actively traded securities where the gap in information 
between SIP data and proprietary data products is larger.
    The Commission believes that, to the extent that there is 
information in the new core data elements that is not currently 
reflected in market prices, the final amendments may improve price 
efficiency.\2443\ In particular, the introduction of odd-lot quote, 
depth of book, and auction information into core data could result in 
the information becoming impounded in prices more rapidly and 
accurately as a result of the more widespread dissemination of this 
information. As the Commission understands that the most sophisticated 
traders already have access to this information and likely already 
compete to profit from it, the Commission expects that the size of this 
gain in price efficiency would be small because this information is 
already impounded quickly into prices.
---------------------------------------------------------------------------

    \2443\ See supra Section V.B.2(a).
---------------------------------------------------------------------------

    Finally, under the current rule, the exclusive SIPs operate like 
public utilities in their consolidation and distribution of the NMS 
stock data.\2444\ The changes will unbundle the data fees for 
consolidated market data from the fees for its consolidation and 
distribution.\2445\ The decentralized consolidation model will subject 
the fees charged by competing consolidators for the consolidation and 
distribution of consolidated market data to competition. The Commission 
believes that the decentralized consolidation model will lead to 
consolidated market data being distributed in a timelier, efficient, 
and cost-effective manner. The Commission believes that the changes to 
the consolidation and distribution of consolidated data is economically 
similar to the restructuring of public utilities and may have an impact 
on the efficiency with which the consolidation and distribution is 
carried out. In particular, as discussed above, the decentralized 
consolidation model is anticipated to produce better investment to 
lower costs and improve quality in the consolidation and distribution 
of consolidated market data, as well as promote better price 
competition (all of which translates into a more efficient allocation 
of capital) than the bidding process currently in place.\2446\
---------------------------------------------------------------------------

    \2444\ See Proposing Release, 85 FR at n. 390.
    \2445\ See supra Section V.C.2(c).
    \2446\ See id.
---------------------------------------------------------------------------

    The Commission acknowledges the uncertainty in this 
conclusion.\2447\ The literature on the economics of restructuring 
public utilities does not provide clear guidance. Some papers show 
efficiency gains from regulatory restructuring,\2448\ yet others claim 
no efficiency gains or efficiency declines after regulatory 
restructuring of public utilities.\2449\ The likely impact of the 
adopted changes rests on the strengths and weaknesses of the existing 
exclusive SIP model.
---------------------------------------------------------------------------

    \2447\ One commenter stated that this information ``should be 
essential'' to the Commission's analysis. See Nasdaq Letter IV 
Letter at 47. The Commission continues believe there is uncertainty 
in its conclusion, but does not believe this precludes the 
conclusion entirely.
    \2448\ See, e.g., Kira R. Fabrizio et al., Do Markets Reduce 
Costs? Assessing the Impact of Regulatory Restructuring on US 
Electric Generation Efficiency, 97 Am. Econ. Rev. 1250 (2007).
    \2449\ See, e.g., Severin Borenstein, The Trouble with 
Electricity Markets: Understanding California's Restructuring 
Disaster, 16 J. Econ. Persp. 191 (2002).
---------------------------------------------------------------------------

    The Commission believes that the existing exclusive SIP model has 
an important weakness: It does not provide sufficient competitive 
incentives.\2450\ SIPs have significant market power in the market for 
core and aggregated market data products and, as a result, do not need 
to compete to capture demand for their products. The Commission 
believes that the adoption of the decentralized consolidation model 
will open up the consolidation and distribution services to data 
consolidators that will need to vigorously compete to capture some 
demand for the data they provide. This need to compete for market share 
will create incentives to reduce costs. As discussed above, the 
Commission believes that this competition could incentivize competing 
consolidators to pass on some of those cost savings to customers by 
charging lower service fees in order to capture market share.\2451\ The 
focus to capture market share might also lead to technological 
improvements for competing consolidators to be able to differentiate 
themselves in the eyes of the customers and generate demand.\2452\ The 
Commission believes that these improvements in data provision 
technology and the introduction of competitive forces on fees for the 
consolidation and distribution of consolidated market data could result 
in a more efficient allocation of capital.
---------------------------------------------------------------------------

    \2450\ See supra Section V.B.3(a) discussing SIPs market power.
    \2451\ See supra Section V.C.2(b). However, the Commission also 
acknowledges the possibility that fees for the consolidation and 
distribution of consolidated market data may remain the same or 
increase, because consolidated market data will contain more 
information and/or there might not be enough competition among 
competing consolidators.
    \2452\ Several studies found evidence of efficiency gains and 
technological improvements from restructuring in the public 
utilities sector. In the electricity industry, for example, the 
introduction of competition to the electricity generation services 
created strong incentives to become more cost efficient and 
technologically advanced to improve operating performance. If a 
plant could not become efficient enough to compete, it would lose 
business and have to exit the market. Craig and Savage (2013) 
establish a 9% increase in efficiency in investor-owned electricity 
plants in response to the restructuring and increasing competition 
in the electricity sector. Similarly, Davis and Wolfram (2012) argue 
that electricity market restructuring is associated with a 10 
percent increase in operating performance for nuclear plants 
generating electricity. The authors state that increasing 
competition led to managers focusing more attention on financial 
costs of outages. See J. Dean Craig and Scott J. Savage, Market 
Restructuring, Competition and the Efficiency of Electricity 
Generation: Plant-level Evidence from the United States 1996 to 
2006, 34 Energy J. 1 (2013); Lucas W. Davis and Catherine D. 
Wolfram, Deregulation, Consolidation, and Efficiency: Evidence from 
US Nuclear Power, Am. Econ. J. Applied Econ. 194 (2012).
---------------------------------------------------------------------------

    Additionally, the decentralized consolidation model could allow 
market participants to receive consolidated market data more 
efficiently. Instead of having to receive separate consolidated market 
data feeds from two exclusive SIP plan processors, UTP and CTA/CQ 
Plans, market participants will have the option to receive all of their 
consolidated market data from one competing consolidator.\2453\ This 
could allow market participants to achieve efficiencies in the design 
and in making modifications to their systems for the intake of 
consolidated market data because they will only have to configure their 
systems to intake consolidated market data from one source.
---------------------------------------------------------------------------

    \2453\ The Commission acknowledges that market participants may 
subscribe to more than one competing consolidator for different core 
data products or as a backup feed.
---------------------------------------------------------------------------

2. Competition
    As discussed previously, the Commission believes this rule will 
have a substantial impact on competition. The Commission identifies 
seven markets or areas of the market for which the rule would have a 
substantial impact on competition. The Commission acknowledges that the 
seven markets or areas may not be a comprehensive list of all markets 
or areas for which the rule might have an impact on competition. 
However, the Commission believes that competition in these seven 
markets or areas are most likely to be impacted substantially by this 
rule.

[[Page 18801]]

    First, the adopted rule fosters a competitive environment for the 
consolidation and dissemination of consolidated market data to replace 
the centralized consolidation model, which is not currently subject to 
competitive pressures.\2454\ Under the final amendments multiple 
competing consolidators will be able to distribute consolidated market 
data products to market participants. The Commission believes that, 
since market participants could freely select the competing 
consolidator that charged the lowest distribution fee or offered better 
quality (i.e., lower latency, a more reliable system), the competing 
consolidators will be subject to competitive forces and the marketplace 
for the consolidation and dissemination of consolidated market data 
products will be competitive if enough competing consolidators enter 
the market.\2455\ As discussed above, the Commission believes that this 
introduction of competition could reduce the prices competing 
consolidators charge for the consolidation and distribution of 
consolidated market data products and improve the quality of 
consolidated market access.\2456\ The Commission recognizes the risk 
that there could be too few competing consolidators to realize these 
benefits fully, in which case the adopted competitive changes may have 
a number of costs,\2457\ including higher prices for the consolidation 
and dissemination of consolidated market data products, which could 
increase the overall prices market participants pay for consolidated 
market data.\2458\
---------------------------------------------------------------------------

    \2454\ See supra Section V.B.3(a).
    \2455\ The Commission assumes that enough competing 
consolidators will enter the market in order to make it competitive. 
See supra Section V.C.2(a).
    \2456\ See supra Sections V.C.2(a); V.C.2(b); V.C.2(c).
    \2457\ See supra Sections V.C.2(a); V.C.2(d).
    \2458\ See supra Section V.C.2(a).
---------------------------------------------------------------------------

    One commenter stated that the above characterization of the effects 
of the amendments on competition represented a ``false dichotomy'' 
because the current marketplace already has competition in the form of 
competing exchanges, and notes that the Commission failed to analyze a 
comparison with this feature.\2459\ This commenter stated that 
exchanges compete for order flow, and that the sale of proprietary data 
products is part of this competition, which offers trading services and 
data in return for the ``all-in costs'' of trading. This commenter 
stated that since exchanges compete for order flow, it is incorrect for 
the Commission to say that there is no competition today, and that 
there will be competition after the final amendments are implemented. 
The Commission disagrees that the above characterization is a false 
dichotomy. The market for the consolidation and dissemination of core 
data today does not have competition, but rather, exclusive processors 
in the form of the exclusive SIPs, from which all core data must 
originate.\2460\ Because the final amendments are designed to expand 
the content and improve the dissemination of core data, the appropriate 
comparison is to the manner in which core data is processed today, not 
to the competition between exchanges for trading services.
---------------------------------------------------------------------------

    \2459\ See Nasdaq Letter IV at 48. See also Nasdaq Letter IV at 
32, describing proprietary data products as competitive.
    \2460\ See supra Section V.B.3(a) (discussing the exclusive 
nature of the SIP processors).
---------------------------------------------------------------------------

    The Commission recognizes that Rule 614(d)(9) and the addition of 
the definition of SCI competing consolidator to Regulation SCI could 
impact competitive dynamics in the competing consolidator market. If 
the exclusive SIPs become competing consolidators, they could gain a 
competitive advantage over other competing consolidators with respect 
to Regulation SCI compliance because they would face lower barriers to 
entry since they are currently SCI entities and already incur many of 
these costs.\2461\ Comparatively, the Commission believes the costs 
associated with Rule 614(d)(9), along with the costs associated with 
later potentially being an SCI competing consolidator, could raise the 
barriers to entry for firms seeking to become competing consolidators 
who are not already exclusive SIPs.\2462\ Therefore, Rule 614(d)(9) and 
the addition of the definition of SCI competing consolidator to 
Regulation SCI could result in fewer firms seeking to become competing 
consolidators, which could lead to less competition in the competing 
consolidator market. Less competition and less innovation would reduce 
the incentives of competing consolidators to reduce the costs and 
improve the speed and quality of their consolidated market data 
aggregation and dissemination services. Additionally, after the initial 
transition period, the Commission believes that the lower burdens 
associated with Rule 614(d)(9) could potentially give a competing 
consolidator below the SCI competing consolidator threshold a 
competitive advantage over SCI competing consolidators because it would 
have lower compliance costs. However, the Commission does not believe 
that this competitive advantage will be significant because a competing 
consolidator with market share below the threshold that gained market 
share would become an SCI competing consolidator after it crossed the 
threshold.
---------------------------------------------------------------------------

    \2461\ See supra Section V.C.2(e)(ii) for a discussion of costs 
related to Regulation SCI and Rule 614(d)(9). See supra Section 
V.C.2(a)(i)a for additional discussion of other factors affecting 
the barriers to entry for competing consolidators.
    \2462\ SROs that do not operate an exclusive SIP could also be 
at a competitive disadvantage relative to an SRO that operates an 
exclusive SIP that became a competing consolidator, because they 
would face higher initial SCI related costs than an exclusive SIP 
would if it became a competing consolidator. See supra Section 
VI.C.2(a)(i)b.; supra Section V.C.2(e)(ii).
---------------------------------------------------------------------------

    The limited exemptive relief from the rule filing requirements of 
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, Section 
19(d), the requirements of Section 6(b), and from Regulation SCI 
provided to competing consolidators affiliated with exchanges will 
reduce the regulatory burdens that would otherwise be faced by such an 
entity in becoming a competing consolidator.\2463\ As a result, SROs 
and their affiliates may find it less burdensome to operate a competing 
consolidator, and therefore may be more likely to enter the market, 
which will promote competition in the provision of consolidated market 
data.
---------------------------------------------------------------------------

    \2463\ The Commission believes that competing consolidators 
affiliated with exchanges will choose to operate under the 
provisions of the exemption. See supra Section V.C.2(a)(i)a for 
additional discussion of the impact of the limited exemptive relief 
on barriers to entry.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the public disclosure of 
the information in Form CC and the performance metrics and operational 
information competing consolidators will provide on their websites 
would enhance competition between competing consolidators.\2464\ The 
public disclosure of competing consolidator fees and performance 
metrics will allow market participants to more easily compare competing 
consolidators and select the ones that charged the lowest fees or 
offered the best performance. This could enhance competition between 
competing consolidators. For example, if the public disclosures show 
that certain competing consolidators have higher fees or poor 
performance, it may result in those competing consolidators losing 
subscribers and earning lower revenues. Similarly, competing 
consolidators who display lower prices or superior system performance 
may be able to attract more subscribers and earn more revenue. This, in 
turn, could enhance

[[Page 18802]]

competition by incentivizing competing consolidators to lower fees and/
or innovate and make investments in their systems in order to improve 
system performance in order to attract more subscribers. The Commission 
acknowledges that the public disclosure of Form CC could harm 
competition by making firms reluctant to enter the competing 
consolidator market and reducing the incentives of competing 
consolidators to innovate if it discloses certain information that a 
competing consolidator might view as a ``trade secret'' or giving it a 
competitive advantage. However, the Commission believes that these 
effects are not likely to occur because the disclosures on Form CC are 
not detailed enough to allow other market participants to reproduce a 
competing consolidator's ``trade secret.'' \2465\ Additionally, the 
delayed public disclosure of material amendments to Form CC should 
prevent another competing consolidator from replicating a competing 
consolidator's innovations before it has a chance to implement 
them.\2466\
---------------------------------------------------------------------------

    \2464\ See supra Section V.C.3.
    \2465\ See supra Section III.C.8(e)(ii) for additional 
discussion about Form CC disclosures.
    \2466\ See supra Sections III.C.7, V.C.3.
---------------------------------------------------------------------------

    The Commission recognizes that the registration process for Form CC 
could create uncertainty about whether a Form CC would be declared 
ineffective. This could potentially harm competition in the market for 
competing consolidators by raising the barriers to entry and creating a 
disincentive for entities to become competing consolidators. However, 
the Commission believes that these effects will not be significant 
because the Commission will not declare a Form CC ineffective without 
notice and opportunity for hearing. Additionally, entities whose Form 
CC is declared ineffective will still have the opportunity to file a 
new Form CC with the Commission.
    The Commission considered the effect of the interaction between the 
proposal and the CAT NMS Plan on competition among competing 
consolidators, but believes that this interaction will not have a 
significant effect on the competitive landscape. In particular, the 
Commission considered two effects: First, the effect in the event that 
there is a bias toward an exchange-operated competing consolidator over 
other competing consolidators and second, any competitive advantage for 
the competing consolidator selected for the CAT NMS Plan. In relation 
to any bias, the Commission notes that the CAT NMS Plan will be only 
one of many potential customers of the competing consolidator, so this 
bias is not likely to affect the market unless the selection produces a 
competitive advantage. In particular, a competing consolidator could 
enjoy a competitive advantage only if broker-dealers believe that 
market surveillances would be less likely to appear to show violations 
if the broker-dealers made trading decisions using the same data used 
in SRO surveillances. However, the latency differences across the 
competing consolidators are likely to measure in the microseconds while 
the clock synchronization requirements for industry members in the CAT 
NMS Plan is 50 milliseconds for electronic order flow.\2467\ Therefore, 
the Commission does not believe the CAT's choice of competing 
consolidator will confer any regulatory value on the competing 
consolidator or their broker dealer clients.
---------------------------------------------------------------------------

    \2467\ See CAT NMS Plan, supra note 1220, at Section 6.8.
---------------------------------------------------------------------------

    Second, the Commission believes that the expanded content and 
reduced latency of consolidated market data will make it a more viable 
substitute for proprietary data feeds.\2468\ The Commission believes 
that this will increase competition between consolidated market data 
and exchange proprietary data feeds. These competitive pressures could 
lead to lower prices for proprietary data feeds and may reduce the data 
costs that market participants pay, at the expense of the SROs who 
charge the fees.\2469\ The Commission recognizes the risk that Rule 
614(d)(9) and the extension of Regulation SCI to include competing 
consolidators could lead to less competition in the competing 
consolidator market,\2470\ which could reduce the incentives of 
competing consolidators to reduce the cost and improve the speed and 
quality of consolidated market data. However, the Commission believes 
that the risk that there will be insufficient competition among 
competing consolidators is low.\2471\ To the extent there is not 
sufficient competition among competing consolidators, it could make 
consolidated market data less of a viable substitute for proprietary 
data feeds, which would reduce the competitive pressures consolidated 
market data would impose on proprietary data feeds.
---------------------------------------------------------------------------

    \2468\ However, consolidated market data would not be a perfect 
substitute for the proprietary data feeds because it would not 
contain all the information in proprietary data feeds. For example, 
the expanded core data would not include full depth of book 
information or information on all odd-lots. See supra Section V.C.4.
    \2469\ See supra Section V.C.4(a).
    \2470\ For discussion of Regulation SCI requirements on 
competition, see supra Section V.C.2(a)(i)a.
    \2471\ See supra Section V.C.2(a)(ii).
---------------------------------------------------------------------------

    Third, the Commission expects the new decentralized consolidation 
model for consolidated market data to create competitors to market data 
aggregators for two reasons. First, the potential revenues from 
becoming a competing consolidator may cause new firms to enter the 
market for the consolidation and distribution of market data. Second, 
some market participants who currently use market data aggregators that 
do not choose to become competing consolidators may switch to getting 
consolidated market data products from a competing consolidator. This 
could have two effects: The competition could lead to lower prices and 
higher quality in the market data aggregator business, but it could 
also lead to fewer market data aggregators if the competition from the 
consolidated market data system makes it no longer viable for some 
market data aggregators to offer their services to market participants 
who still wish to use proprietary data feeds.\2472\ The latter could 
lead to higher prices in the market data aggregator space.\2473\ In 
addition, some of these market data aggregators may choose to become 
competing consolidators, which could have two effects: It could cause 
market data aggregators to leave the proprietary feed aggregation space 
thereby reducing the competition in that space, or it could cause 
market data aggregators to use the economies of scale and the 
additional profits they may derive from being a competing consolidator 
to improve their offerings as a market data aggregator of proprietary 
feeds. Depending on which effect dominates, competition in the market 
data aggregator space could increase or decrease, which in turn could 
lead to lower or higher prices, respectively. The Commission recognizes 
that subjecting competing consolidators that fall above the market data 
revenue threshold to the requirements of Regulation SCI could diminish 
the ability of market data aggregators who become SCI competing 
consolidators to compete in the market

[[Page 18803]]

data aggregator space.\2474\ If a market data aggregator becomes an SCI 
competing consolidator, the requirements of being an SCI entity could 
also extend to their aggregation of proprietary market data.\2475\ 
These requirements could raise their costs, which could reduce their 
ability to compete with other market data aggregators that are not 
competing consolidators.
---------------------------------------------------------------------------

    \2472\ The Commission acknowledges that fewer competitors could 
decrease or increase efficiency in the market data aggregator 
business. On the one hand, fewer competitors could reduce the 
incentives for market data aggregators to innovate, which could 
reduce efficiency. On the other hand, fewer competitors could also 
improve efficiency if the firms that exited the market did not 
aggregate market data as efficiently as the firms that remained.
    \2473\ As discussed above, consolidated market data would not be 
a perfect substitute for proprietary data feeds, so there would 
still be demand for proprietary data. Since not all firms' aggregate 
proprietary data themselves, there would still be a demand for 
third-party aggregators to perform this function.
    \2474\ See supra Section III.F.
    \2475\ See supra Section V.C.2(e)(ii).
---------------------------------------------------------------------------

    Fourth, the Commission expects that the expanded content and 
reduced latency of core market data provided by this final rule may 
increase competition in the broker-dealer business by improving the 
ability of some broker-dealers who currently access core data to 
execute orders.\2476\ It is the Commission's understanding that some 
broker-dealers that do not subscribe to all of the current proprietary 
DOB feeds rely solely on the exclusive SIPs today and that this makes 
them uncompetitive in the market for offering execution services to the 
most transaction-cost-sensitive market participants. The new 
decentralized consolidation model with expanded core data will reduce 
the latency and expand the information delivered to broker-dealers who 
subscribe to core data, possibly without raising data prices. This in 
turn would allow broker-dealers that subscribe to consolidated data to 
improve their order execution services and compete more effectively 
with broker-dealers who subscribe to proprietary DOB feeds. This will 
lead to greater competition between broker-dealers, which could benefit 
investors by resulting in lower prices for and higher quality of 
broker-dealer execution services.\2477\
---------------------------------------------------------------------------

    \2476\ See supra Section V.C.4(b).
    \2477\ See supra Sections V.B.3(e), V.C.4(b).
---------------------------------------------------------------------------

    Fifth, the Commission believes that the final rule could affect 
competition between exchanges. As discussed above, the final 
enhancements to core data could increase competition between 
consolidated market data and proprietary data feeds, which could lead 
to exchanges charging lower fees for proprietary market data.\2478\ If 
these lower fees do not result in more subscribers to proprietary 
market data, it would lead to a decline in revenues from proprietary 
market data for SROs.\2479\ Additionally, the amendments could affect 
competition in the market for exchange data connectivity. If some 
current subscribers to proprietary market data decide to only receive 
consolidated market data products from competing consolidators, they 
could also reduce the exchange connectivity services that they 
currently use. In turn, this could reduce the revenue that some 
exchanges earn from connectivity services. Additionally, new 
connectivity fees may be proposed for core data use cases, which could 
potentially increase or decrease the revenue exchanges earn from 
connectivity.\2480\ It is the Commission's understanding that revenues 
from proprietary market data and connectivity services are a 
substantial portion of overall revenues for many exchanges.\2481\ It is 
also the case that changes to the fees set by the effective national 
market system plan(s) for consolidated market data may result in lower 
revenues redistributed back to the exchanges, further contributing to a 
loss of revenue. It is possible that an exchange group could close some 
or all of its exchanges if the revenues from consolidated market data 
did not increase and revenues from proprietary market data and 
connectivity services were to decline to a level that a given exchange 
or exchange group is no longer able to cover operating expenses. The 
Commission is unable to quantify the likelihood that an exchange will 
cease operating because it would depend on the fees and revenue 
allocation for consolidated market data. However, the Commission 
believes that it is unlikely exchanges will be forced to leave the 
market.
---------------------------------------------------------------------------

    \2478\ See supra Section V.C.4(a). One commenter stated that it 
was ``not clear how such competition could occur, given that the 
Proposal is to authorize the NMS Plan to set all fees, including 
fees for proprietary data products, which contain core data.'' See 
Nasdaq Letter IV at 48. The amendments do not authorize the 
effective national market system plan(s) to set fees for proprietary 
data products, but instead for the data content underlying 
consolidated market data.
    \2479\ In addition to adjusting fees, SROs could also redesign 
their proprietary market data product lines to try and increase 
revenue. However, it is possible that demand for these new products 
would not be sufficient to offset the decline in revenues from 
proprietary market data.
    \2480\ See supra Section V.C.4(a).
    \2481\ See supra Section V.B.3(b).
---------------------------------------------------------------------------

    Even if an exchange were to exit, the Commission does not believe 
this would significantly impact competition in the market for trading 
services because the market is served by multiple competitors, 
including off-exchange trading venues. Consequently, if an exchange 
were to exit the market, demand is likely to be swiftly met by existing 
competitors. The Commission recognizes that small exchanges may have 
unique business models that are not currently offered by competitors, 
but the Commission believes a competitor could create similar business 
models if demand were adequate, and if they did not do so, it seems 
likely new entrants would do so if demand were sufficient.
    One commenter stated that exchanges might be forced to increase 
fees for trading services in order to offset losses that might result 
from changes to core data fees.\2482\ The Commission does not believe 
that the final amendments are likely to result in an increase in 
trading service fees, because losing revenue does not necessarily make 
it optimal for a firm to increase its fees. The Commission has 
discussed this point in the context of lost revenue specifically in 
proprietary data fees above,\2483\ and believes that the same logic 
applies to the case of lost revenue from changes to core data fees as 
well.
---------------------------------------------------------------------------

    \2482\ See, e.g., Nasdaq Letter IV at 4.
    \2483\ See supra Section V.C.4(a) for additional discussion of 
the potential for trading fees to increase.
---------------------------------------------------------------------------

    A commenter stated that the Commission did not consider the impact 
of ``changes to market data fees'' on SRO funding.\2484\ The Commission 
acknowledges that if NMS data plan fees change such that revenue to 
SROs decline, then this could be an additional source of revenue loss 
to SROs from this rule. This would be in addition to the loss in 
proprietary data and connectivity discussed here, and the Commission 
believes the above discussion of the consequences of such losses, which 
was included in the Proposing Release,\2485\ adequately analyzes the 
potential effects of SROs losing revenue, including from effective 
national market system plan data revenue. Furthermore, in response to 
this commenter's concern that the Commission does not recognize that 
there will be a ``reduction in funding from proprietary feeds,'' \2486\ 
this discussion of the effect of the loss of proprietary data revenue 
above, which was included in the Proposing Release,\2487\ analyzes such 
possibilities and their effects.
---------------------------------------------------------------------------

    \2484\ See NYSE Letter II at 22.
    \2485\ See Proposing Release, 85 FR at 16860.
    \2486\ See NYSE Letter II ant 22.
    \2487\ See Proposing Release, 85 FR at 16860.
---------------------------------------------------------------------------

    A commenter stated that the Commission failed to consider the 
possibility that SROs would be unable to perform their regulatory 
responsibilities if they were to lose revenue as a result of these 
final amendments.\2488\ The Commission believes that this possibility 
is covered in the above discussion, which was included in the Proposing 
Release,\2489\ through the discussion of the potential for exchanges to 
exit.
---------------------------------------------------------------------------

    \2488\ See Nasdaq Letter IV at 50.
    \2489\ See Proposing Release, 85 FR at 16860.
---------------------------------------------------------------------------

    Sixth, the Commission believes that the final rule will affect 
competition

[[Page 18804]]

between traders.\2490\ The Commission believes that traders will be 
affected differently based on the type of market data they use when 
making trading decisions. For the purposes of this discussion, traders 
who subscribe to different types of market data can broadly be grouped 
into three categories: (1) Traders who use proprietary DOB feeds 
received directly from the SROs and self-aggregate, (2) traders who use 
market data aggregators to aggregate proprietary DOB feeds, and (3) 
traders who use core data (currently from the exclusive SIPs and, under 
the final rule, competing consolidators).\2491\ The Commission believes 
that under the final rule the core data would be of higher quality, and 
thus the value to traders from acquiring proprietary DOB data would 
decrease.\2492\ As a result, it might be harder for traders who use 
proprietary DOB feeds (both self-aggregators and traders who use market 
data aggregators) to generate profits and the competition between those 
traders would increase. For traders who use core data, the Commission 
believes that the competition between those traders will increase 
because the final amendments will reduce the latency and expand the 
information included in core data, which will allow those traders to 
devise better trading strategies with bigger profit potential. The 
Commission believes that the most substantial change in competition 
will occur between traders who use proprietary DOB feeds (both self-
aggregators and traders who use market data aggregators) and traders 
who use core data. As described, the final rule expands the information 
and reduces the latency of core data, thereby closing the gap between 
core data and proprietary DOB feeds. This will allow traders who use 
core data to compete on a more level playing field with traders who use 
proprietary DOB feeds. This will lead to a transfer of profits from 
traders who use proprietary DOB feeds to traders who use consolidated 
market data.
---------------------------------------------------------------------------

    \2490\ In this context the term traders could refer to either 
proprietary traders executing orders on their own behalf or broker-
dealers executing orders on behalf of their customers.
    \2491\ Traders who currently subscribe to proprietary DOB feeds 
may also subscribe to the exclusive SIPs as part of their backup 
systems. However, the Commission believes that these traders 
primarily rely on proprietary DOB feeds when making trading 
decisions because proprietary DOB feeds contain more information and 
have lower latency than the exclusive SIPs. For additional details 
and discussion about methods of market data access, see supra 
Section V.B.2(c).
    \2492\ See supra Section V.C.4(a).
---------------------------------------------------------------------------

    Seventh, the Commission believes that the rule changes will affect 
competition between off-exchange trading venues and exchanges in the 
market for trading services. As discussed above, the Commission 
believes that the amendments will reduce the latency of core 
data.\2493\ This could improve the competitive positions of some off-
exchange trading venues in the market for trading services. Off-
exchange trading venues that currently rely on the exclusive SIPs to 
calculate the NBBO will benefit from the latency reductions in the 
distribution of core data provided by the competing 
consolidators.\2494\ These venues will now receive a more timely view 
of the NBBO, which could improve the execution quality of trades that 
take place on these venues. This could make them more attractive venues 
to trade on and they could attract more order flow, from both exchanges 
and other off-exchange venues. Off-exchange trading venues that 
currently subscribe to proprietary data feeds could also see their 
competitive positions improve. If the new core data represents an 
alternative to the proprietary data feeds for their order executions, 
they could substitute core data for proprietary data, which could lower 
their costs. Off-exchange trading venues might be able to pass along 
these cost reductions as reduced fees to subscribers, which could 
improve their competitive position relative to exchanges and other off-
exchange trading venues. Reductions in the fees charged by these off-
exchange trading venues could in turn potentially benefit investors if 
broker-dealers who subscribe to these venues passed along these cost 
savings by, in turn, reducing their fees.\2495\
---------------------------------------------------------------------------

    \2493\ See supra Section V.C.2(c).
    \2494\ Id.
    \2495\ Broker-dealer subscribers could potentially pass along 
the cost savings from the reduction in off-exchange trading venue 
fees to investors either directly, if they reduced fees for 
investors who were clients of the broker-dealer, or indirectly, if 
they reduced fees for institutional clients, such as mutual funds, 
who, in turn, passed along the cost savings to their end investors.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission believes the final rule will have a modest impact on 
capital formation. However, the Commission is unable to quantify the 
effects on capital formation because, as discussed above, it is unable 
to quantify the additional gains from trade and the effects of 
improvements in order routing that may be realized from the rule.\2496\ 
However, in the section below the Commission provides a qualitative 
description of the effects it believes the rule will have on capital 
formation.
---------------------------------------------------------------------------

    \2496\ See supra Sections V.C.1(b), V.C.1(c), V.D.1.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that the addition of 
information about odd-lot quotes, depth of book, and auction 
information to core data may result in more voluntary trades occurring 
between market participants, which could lead to more efficient gains 
from trade.\2497\ Improved gains from trade may result in a more 
efficient allocation of capital, which would improve capital formation.
---------------------------------------------------------------------------

    \2497\ See supra Section V.D.1.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the final amendments 
will improve order execution for market participants who currently rely 
upon SIP data, which may lower their transaction costs.\2498\ Lower 
transaction costs could reduce firms' cost of raising capital.\2499\ 
This, in turn could improve capital formation.
---------------------------------------------------------------------------

    \2498\ See supra Sections V.C.1(b), V.C.1(c), V.D.1.
    \2499\ See Yakov Amihud and Haim Mendelson, Asset Pricing and 
the Bid--Ask Spread, 17 J. Fin. Econ. 223 (1986).
---------------------------------------------------------------------------

E. Alternatives

    The Commission considered potential alternatives to the adopted 
rules that broadly fall into two categories: Introduce the 
decentralized consolidation model and make alternative changes to the 
core data definition, and maintain the new core data definition in the 
adopted rules and consider alternative models of SIP competition.
1. Introduce Decentralized Consolidation Model With Addition of Full 
Depth of Book to Core Data Definition
    The Commission considered an alternative that would introduce the 
decentralized consolidation model and expand core data more than the 
adopted rules to include information on quotations and aggregate size 
at all prices in the limit order book (``full depth of book''), 
including information on aggregated odd-lot sizes at each depth of book 
level, instead of the depth of book information contained in the 
adopted rule, i.e., five round lot price levels from the NBBO.\2500\ 
Under this alternative, the definition of a round lot would remain the 
same as in the adopted rules, which means the costs and benefits 
associated with the changes in the round lot definition, including 
changes in the NBBO would be similar to the adopted rule.\2501\
---------------------------------------------------------------------------

    \2500\ See supra Section II.F.1.
    \2501\ See supra Section II.D.
---------------------------------------------------------------------------

    Relative to the adopted rule, full depth of book information would 
provide market participants who currently do not access proprietary DOB 
feeds, as well as market participants

[[Page 18805]]

who currently access proprietary DOB feeds and would have switched to 
using consolidated market data under the adopted rule, with additional 
information on liquidity provision across more price levels. To the 
extent that these market participants can utilize full depth of book 
information, the Commission believes that this alternative could result 
in increased benefits to such market participants relative to the 
adopted rule.\2502\ Certain commenters on the Roundtable stated that 
without full depth of book information, broker-dealers may not be able 
to provide best execution to their clients,\2503\ indicating that full 
depth of book information would provide valuable information to market 
participants. However, as discussed above, the Commission believes that 
the marginal benefit of including additional information on price 
levels further away from the best quotes may decrease as the price 
level moves away from the best quote because orders at these price 
levels are less likely to execute.\2504\
---------------------------------------------------------------------------

    \2502\ This alternative could increase costs relative to the 
adopted rule for market participants that access full depth of book 
information and execute trading that earn profits at the expense of 
other market participants who do not access this information. As 
discussed above, this cost would represent a partial transfer from 
traders who currently have access to depth of book to those who do 
not. See supra Section V.C.1(c)(iv).
    \2503\ See Proposing Release, 85 FR at n. 284-85.
    \2504\ See supra Section V.C.1(c)(ii).
---------------------------------------------------------------------------

    Relative to the adopted rules, the inclusion of full depth of book 
information in core data would increase the ability of market 
participants to use it as a substitute for proprietary DOB feeds.\2505\ 
Currently, market participants interested in full depth of book data 
rely on proprietary DOB feeds offered by exchanges, which provide 
varying degrees of the depth of book information. To the extent that 
there are market participants who utilize full depth of book 
information via proprietary DOB feeds in trading, this alternative 
could increase the benefits for some of these market participants 
relative to the adopted rules by potentially reducing their data costs 
if they would switch to using core data under this alternative but 
would not have done so under the adopted rules. Subscribers of 
proprietary DOB feeds would realize these cost savings if they switched 
to receiving consolidated market data through a competing consolidator 
product or if they registered as a self-aggregator.\2506\
---------------------------------------------------------------------------

    \2505\ Including full depth of book information in core data 
would not make it a perfect substitute for all proprietary DOB 
feeds. For example, some proprietary DOB feeds contain more detailed 
information than full depth of information, such as messages on 
individual orders.
    \2506\ See supra Section V.C.2(b).
---------------------------------------------------------------------------

    The Commission believes that the alternative to include full depth 
of the book in core data would result in greater costs for exchanges 
than would the adopted rules. To the extent that the alternative 
results in fewer market participants subscribing to proprietary DOB 
data or purchasing connectivity services from the exchanges than under 
the adopted rules, exchanges' business for their proprietary feeds and 
connectivity services could be less profitable.\2507\ Additionally, to 
the extent that not all exchanges sell full depth of book, certain 
exchanges would incur additional costs to set up systems and produce 
full depth of book information to be included in the core data. 
However, the Commission is unable to quantify this cost because it 
lacks information on the modifications exchanges would need to make to 
their systems in order to provide full depth of book information.
---------------------------------------------------------------------------

    \2507\ More broadly, this could have differential effects 
between exchanges who derive significant revenue from proprietary 
data feeds and those who derive significant revenue primarily from 
SIP revenue. These effects would also depend on the effective 
national market system plan(s) fees for consolidated market data 
offerings as well as their method for allocating revenue received 
from consolidated market data among the SROs. See supra Section 
V.C.4(a).
---------------------------------------------------------------------------

    Compared to the adopted amendments, this alternative could result 
in additional costs for competing consolidators to create 
infrastructure and expand capacity to distribute full depth of book 
information.\2508\ The costs are likely to vary substantially according 
to the existing infrastructure of the entity seeking to be a competing 
consolidator. The Commission believes that these incremental costs for 
market data aggregators and existing exclusive SIPs will be small, 
because they already work with proprietary DOB data.
---------------------------------------------------------------------------

    \2508\ See supra Section V.C.2(d).
---------------------------------------------------------------------------

    Additionally, including full depth of book information would 
require market participants who subscribed to core data and wished to 
receive the additional depth of book information to make more extensive 
upgrades to their systems than under the adopted rules. However, the 
Commission is unable to estimate the associated costs because it does 
not have access to information about the infrastructure expenses a 
market participant incurs to process market data and because of the 
likelihood that such costs vary substantially according to the existing 
infrastructure of the market participant. To the extent that some 
market participants who subscribe to the exclusive SIPs do not need 
full depth of book information, they would not need to expand their own 
proprietary technology or that of a third-party vendor to process the 
full depth of the book data. Therefore, this alternative would not 
result in additional costs for these market participants compared to 
the adopted rules.
2. Introduce Changes in Core Data and Introduce a Distributed SIP Model
    The Commission considered an alternative that would expand the core 
data as proposed and would introduce a distributed SIP model whereby 
the current exclusive SIP processors would establish multiple instances 
of their systems in multiple data centers.\2509\ As the Roundtable 
panelists \2510\ stated this alternative would achieve a similar 
reduction in exclusive SIP geographic latency to the adopted rule by 
allowing firms to consume data under the current structure without 
making any changes or to consume data at the nearest exclusive SIP 
instance depending on the firms' latency concerns.\2511\ However, this 
alternative would still provide exclusive rights to one operator to 
provide exclusive SIP services for a given tape.
---------------------------------------------------------------------------

    \2509\ See also Proposing Release, 85 FR at Section IV.C.2 for a 
discussion about a single SIP alternative.
    \2510\ See Proposing Release, 85 FR at Section IV.C.1(a).
    \2511\ Several commenters agreed. See, e.g., NYSE Letter II at 
26; Nasdaq IV Letter at 36, 49; Cboe Letter at 25 for a discussion 
on the advantages of the distributed SIP alternative and how the 
commenters believe the Commission did not properly consider it.
---------------------------------------------------------------------------

    The Commission believes that this alternative would produce lower 
benefits compared to the decentralized consolidation model.\2512\ The 
Commission believes that under this alternative, the exclusive SIPs 
would not be subject to the same competitive forces that competing 
consolidators may be subject to under the decentralized consolidation 
model.\2513\ This lack of competition would reduce the incentives to 
innovate and would not improve efficiency or reduce the transmission 
and aggregation latencies of core data as much as the proposal. If core 
data does not achieve the same overall latency reduction as under the 
adopted rule, then market participants would be less likely to 
substitute using core data for proprietary data than they would be 
under the adopted rule. This could mean that the potential decline in 
profits from exchanges' proprietary data

[[Page 18806]]

fees may not be as large as they would be under the proposal.\2514\
---------------------------------------------------------------------------

    \2512\ See supra Section V.C.2(c). See also Proposing Release, 
85 FR at Section IV.C.1.
    \2513\ One commenter agreed. See MEMX Letter at 8. See also 
supra Sections V.C.2, V.D.2.
    \2514\ See supra Section V.C.4(a).
---------------------------------------------------------------------------

    Under this alternative, the exclusive SIPs would still need to make 
upgrades to their systems to account for the expansion of core data and 
would still need to install systems in multiple data centers. The 
Commission believes that the costs of these SIP system upgrades would 
be similar to those under the adopted rule for the exclusive SIPs that 
registers to become a competing consolidator.\2515\ However, under this 
alternative, market participants may experience higher costs to access 
consolidated market data compared to the adopted rule. Instead of 
having the option to receive all consolidated market data from one 
competing consolidator, as they would under the adopted rule, market 
participants would still need to receive data from both exclusive SIP 
plan processors.\2516\ This means that under this alternative, the 
total price market participants would pay to access consolidated market 
data may be greater than under the adopted rule because it would 
include the costs of the two plan processors to aggregate and transmit 
the data. Under the adopted rule, the total price market participants 
would pay to receive consolidated market data may only include the 
costs of one processor, because market participants would have the 
option to receive all of their consolidated market data products from 
one competing consolidator.\2517\
---------------------------------------------------------------------------

    \2515\ See supra Section V.C.2(d).
    \2516\ See supra Section V.B.2.
    \2517\ See supra Section V.C.2(c).
---------------------------------------------------------------------------

    One commenter stated that the Commission relies on a limited set of 
information when examining potential solutions to the latency 
differential between the proprietary and SIP data feeds and ``does not 
consider any other approaches to resolving its latency concerns.'' 
\2518\ Commenters also emphasized that a distributed SIP alternative 
would introduce much less regulatory disruption and would create a more 
resilient market than the one with competing consolidators.\2519\ The 
Commission disagrees with the first comment because the Commission 
considered a Distributed SIP alternative in its Proposing Release. 
However, as mentioned above, the Commission believes this alternative 
would produce lower benefits compared to the decentralized 
consolidation model because it lacks the competitive incentives 
achieved in the decentralized consolidation model. Additionally, the 
Commission disagrees with the second comment and believes that the 
decentralized consolidation model will increase market resiliency, as 
discussed above.\2520\
---------------------------------------------------------------------------

    \2518\ See Nasdaq Letter IV at 45.
    \2519\ See, e.g., Cboe Letter at 25; Nasdaq Letter IV at 36; 
Data Boiler Letter I at 66-67.
    \2520\ See supra Section V.C.2(c)(iv) for a discussion on the 
resiliency benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

3. Require Competing Consolidators' Fees Be Subject to the Commission's 
Approval
    The Commission considered an alternative to the decentralized 
consolidation model that would require competing consolidators' fees to 
be subject to the Commission's regulatory approval. Some commenters 
supported this alternative \2521\ and one commenter stated its 
recommendation ``that the Commission should scrutinize competing 
consolidator fees, and fee changes, in a manner similar to the process 
for review and approval of proposed rule changes currently filed by 
SROs.'' \2522\
---------------------------------------------------------------------------

    \2521\ See, e.g., Clearpool Letter at 4; ACS Execution Services 
Letter at 5-6.
    \2522\ See Clearpool Letter at 4.
---------------------------------------------------------------------------

    The Commission believes that, relative to the adopted rule, this 
alternative would potentially reduce the risk and uncertainty 
surrounding the total price of consolidated market data. This 
alternative would provide for Commission review and approval of the 
fees of competing consolidators. Therefore, compared to the amendments, 
this alternative could reduce the risk that market participants are 
exposed to unreasonably high fees, which could reduce the risk that 
some market participants or data vendors would no longer provide 
services in the equity market because the price of consolidated market 
data products becomes too high.\2523\
---------------------------------------------------------------------------

    \2523\ See supra Section V.C.2(b).
---------------------------------------------------------------------------

    The Commission believes, however, that this alternative would 
impose additional regulatory burdens on the competing consolidator 
business compared to the adopted rule, and may inhibit competing 
consolidators from being able to respond effectively and quickly to 
free market forces. These burdens would reduce the incentive for firms 
to become competing consolidators and lead to less robust competition 
in the decentralized consolidation model than under the adopted 
rule.\2524\ With less competitive forces to discipline competing 
consolidators' service fees, competing consolidators would have less 
incentive to innovate in their consolidating business. Moreover, less 
competing consolidators in the market would reduce the extent to which 
the pricing is based on market forces. Finally, the Commission believes 
that under the amendments, there will be a competitive market for 
consolidated market data products with several competing consolidators 
operating. Thus, competitive forces will constrain the prices competing 
consolidators can charge without the need to impose additional 
regulatory burdens on the competing consolidator business.
---------------------------------------------------------------------------

    \2524\ See supra Section V.C.2(a).
---------------------------------------------------------------------------

4. Do Not Extend Regulation SCI To Include Competing Consolidators
    The Commission considered an alternative that would not extend 
Regulation SCI to include SCI competing consolidators.\2525\ Under this 
alternative, there would be no SCI competing consolidators and the 
Commission would have required all competing consolidators to be 
subject to the provisions of Rule 614(d)(9).\2526\ The Commission 
believes that this alternative would reduce some of the benefits as 
well as some of the costs compared to the adopted rules.\2527\
---------------------------------------------------------------------------

    \2525\ One commenter preferred a similar alternative to the 
proposed requirement that all competing consolidators be SCI 
entities. This commenter believed that even if a firm's systems met 
the standards of Regulation SCI, demonstrating compliance with 
Regulation SCI would be costly and overly burdensome and act as a 
barrier to entry for firms seeking to become competing 
consolidators. See ACTIV Financial Letter at 2. As discussed above, 
the Commission agrees that the costs of Regulation SCI would serve 
as a barrier to entry to new competing consolidators. As discussed 
above, the Commission has adopted Rule 614(d)(9) that will apply to 
all competing consolidators during the initial one year transition 
period and competing consolidators below a threshold thereafter. The 
Commission believes that Rule 614(d)(9) will be less costly than 
Regulation SCI and will lower the barriers to entry for new 
competing consolidators. See supra Section III.F and Section 
V.C.2(e)(i).
    \2526\ Under this alternative, the Commission would also exempt 
competing consolidators affiliated with exchanges from the 
requirements of Regulation SCI if they complied with the provisions 
of Rule 614(d)(9), so they would not face higher regulatory burdens 
and be placed at a competitive disadvantage relative to competing 
consolidators that are not affiliated with exchanges.
    \2527\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

    The Commission believes that this alternative could result in 
larger competing consolidators, that would have met the threshold for 
SCI competing consolidators under the adopted rules, producing systems 
that would be less secure and resilient than they would be under the 
adopted rules because they would not be subject to all of the 
requirements of being an SCI competing consolidator.\2528\ If these

[[Page 18807]]

competing consolidators produce less secure and resilient systems 
compared to if they were SCI competing consolidators, then there could 
be a greater risk of more market disruptions due to systems issues in 
competing consolidators compared to the adopted rules.\2529\ 
Additionally, if one of these competing consolidators does experience a 
systems issue, it could result in more severe and longer disruptions 
compared to the adopted rules. However, the increase in competing 
consolidator systems issues compared to the adopted rules may not be 
significant. Under this alternative, competing consolidators would 
still be subject to the requirements of Rule 614(d)(9) and would need 
to establish policies and procedures to ensure that their systems have 
levels of capacity, integrity, resiliency, availability, and security 
adequate to maintain operational capability. They would also still need 
to post information on systems issues on their websites as well as 
monthly reports containing statistics on their capacity and systems 
availability.\2530\ This would place competitive pressure on competing 
consolidators to ensure that their systems are reliable and resilient. 
Otherwise, they could lose subscribers to competing consolidators that 
had more reliable and resilient systems.
---------------------------------------------------------------------------

    \2528\ For example, under this alternative, larger competing 
consolidators would not have the requirements to have geographically 
diverse back-up and recovery capabilities. See supra Sections III.F 
and V.C.2(e)(i).
    \2529\ Id.
    \2530\ See supra Section V.C.3(a).
---------------------------------------------------------------------------

    The Commission believes that this alternative would result in lower 
costs for larger competing consolidators compared to the adopted rule. 
Under this alternative, these competing consolidators would not incur 
the costs that are associated with being an SCI competing consolidator 
that are discussed above.\2531\ Instead, these competing consolidators 
would have to bear the lower costs associated with Rule 
614(d)(9).\2532\
---------------------------------------------------------------------------

    \2531\ See supra Section V.C.2(e)(ii).
    \2532\ See id.
---------------------------------------------------------------------------

    The Commission believes that these lower costs could result in more 
firms becoming competing consolidators and could increase competition 
in the competing consolidator market compared to the adopted rules. 
Although, under the adopted rules, competing consolidators will 
initially be subject to the lower costs of Rule 614(d)(9), the 
Commission believes that many competing consolidators will eventually 
meet the market data revenue threshold for SCI competing consolidators 
and be subject to the higher costs associated with Regulation SCI. The 
lower costs under this alternative may result in more firms becoming 
competing consolidators compared to the adopted rules, which could 
increase competition. An increase in competition may increase the 
benefits from the decentralized consolidation model. However, these 
effects may not be significant because the Commission believes that the 
risk under the adopted rules that the anticipated benefits of the 
decentralized consolidation model will not materialize because of 
insufficient competition among competing consolidators is low.\2533\ To 
the extent these effects do occur, it could lower the costs and 
increase the speed and quality of consolidated market data products 
compared to the adopted rule. This, in turn, could make consolidated 
market data products a more viable substitute for proprietary data 
feeds and result in greater competition between consolidated market 
data and proprietary data feeds compared to the adopted rules.
---------------------------------------------------------------------------

    \2533\ See supra Section V.C.2(a)(ii).
---------------------------------------------------------------------------

5. Require Competing Consolidators To Submit Form CC in the EDGAR 
System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing 
consolidators to submit Form CC using the Commission's EDGAR system and 
using the Inline XBRL format.\2534\ Relative to the adopted rules, 
these requirements could benefit market participants by facilitating 
retrieval, aggregation, and comparison of disclosed information across 
competing consolidators. The requirements could also allow a competing 
consolidator to efficiently benchmark key aspects of its operations 
(e.g., operational capabilities or fee structures) against the rest of 
the potential competing consolidator population.
---------------------------------------------------------------------------

    \2534\ One commenter stated that an XBRL requirement would be 
acceptable, as would the proposed EFFS filing location. See Data 
Boiler Letter I at 96 (``We are good with XBRL if that is needed.'') 
and 50 (``EFFS is fine, no further comment.'').
---------------------------------------------------------------------------

    However, many potential competing consolidators may not be familiar 
with Inline XBRL and thus could incur increased costs if they were 
required to learn Inline XBRL and apply Inline XBRL tags to their Form 
CC disclosures, compared to the adopted rules' requirement to submit 
Form CC and various exhibits through EFFS--a system with which some of 
the competing consolidators subject to Form CC filing requirements may 
already be familiar.\2535\ For the reasons discussed above, the 
Commission is requiring Form CC to be filed through EFFS.\2536\
---------------------------------------------------------------------------

    \2535\ The Commission estimates that 3 of the estimated 8 
competing consolidators that will be subject to Form CC filing 
requirements under Rule 614(a)(1) under the adopted rules are 
already SCI entities. See supra Section IV.G.3. These entities 
currently use EFFS to file Form SCI.
    \2536\ See supra Section III.C.7(b).
---------------------------------------------------------------------------

6. Require Competing Consolidators To Submit Monthly Disclosures in the 
EDGAR System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing 
consolidators to submit their monthly performance metrics and 
operational information using the Commission's EDGAR system and using 
the Inline XBRL format.\2537\ Relative to the adopted rules, this 
alternative could benefit market participants by having the monthly 
information of each competing consolidator in a centralized location. 
Additionally, the alternative could facilitate retrieval, aggregation, 
and comparison of disclosed information across competing consolidators 
and time periods.
---------------------------------------------------------------------------

    \2537\ One commenter expressed that XBRL would be acceptable, 
but also stated that website publication would be acceptable. See 
Data Boiler Letter I at 96 (``We are good with XBRL if that is 
needed.'') and 53 (``We are okay with the publishing 
requirement.'').
---------------------------------------------------------------------------

    However, competing consolidators would incur increased costs to 
file the information with the Commission compared to the adopted rules' 
requirement to post the monthly information on the competing 
consolidator's website without a format requirement. The difference in 
costs would likely vary across competing consolidators, depending on 
the systems and processes they currently have in place, such as for 
internal reporting, posting of website updates, and submission of 
regulatory filings, and the manner in which competing consolidators 
currently maintain data required for the additional disclosures. In 
addition, similar to submitting Form CC information on EDGAR using the 
Inline XBRL format, competing consolidators would be required to incur 
the additional costs of learning Inline XBRL under the alternative when 
compared to the adopted rules. For the reasons discussed above, the 
Commission is requiring monthly disclosures to be posted on competing 
consolidator websites without a format requirement.\2538\
---------------------------------------------------------------------------

    \2538\ See supra Section III.C.8(c).
---------------------------------------------------------------------------

7. Prescribing the Format of NMS Information
    The Commission considered an alternative in which it would 
prescribe a single format that SROs would use to provide NMS 
information to competing

[[Page 18808]]

consolidators and self-aggregators. Each SRO would still be required to 
make all methods of access available to competing consolidators and 
self-aggregators as such SRO makes available to any other person.\2539\ 
Each SRO would still be able to offer proprietary data products in 
other formats.
---------------------------------------------------------------------------

    \2539\ See Proposing Release, 85 FR at n. 428.
---------------------------------------------------------------------------

    By prescribing the format, the Commission could better ensure 
consistency of the data. Compared to the adopted rule, a standard 
format could reduce the costs for competing consolidators and self-
aggregators to aggregate the data to create consolidated market data. 
However, the Commission believes that these costs may not be 
significantly reduced. As discussed above, the SROs currently use a 
variety of formats for their proprietary data feeds and some broker-
dealers, market data aggregators, and the exclusive SIPs are already 
adept and experienced in aggregating and normalizing the data across 
different formats.\2540\ Therefore, some potential competing 
consolidators and self-aggregators may not experience significant cost 
reductions relative to the adopted rule if the Commission required that 
SROs provide NMS information in a prescribed format.
---------------------------------------------------------------------------

    \2540\ See supra Section V.B.2(b).
---------------------------------------------------------------------------

    Requiring a single format for SROs to deliver NMS information to 
competing consolidators and self-aggregators would also increase the 
costs to SRO's compared to the adopted rule. SROs would incur a greater 
cost to conform their existing data to a format they do not already 
use. It could also increase the costs of exchanges making future 
changes to their data because they may need to make alterations to both 
their proprietary data products and to data in the standard format they 
would supply to competing consolidators and self-aggregators, assuming 
the changes would need to be included in consolidated market data. 
Additionally, compared to the adopted rule, this increased cost could 
reduce the likelihood that the effective national market systems 
plan(s) for NMS stocks or SROs introduce additional elements into 
consolidated data in the future.\2541\
---------------------------------------------------------------------------

    \2541\ See Proposing Release, 85 FR at Sections III.C, III.D.
---------------------------------------------------------------------------

    Requiring the SROs to deliver data to competing consolidators and 
self-aggregators in a single format could also impact the latency 
between consolidated market data and aggregated proprietary DOB feeds. 
On one hand, receiving all of the data in a single format should 
expedite the aggregation and normalization process for consolidated 
data. This could potentially reduce the latency differential between 
consolidated market data and aggregated proprietary data feeds compared 
to the adopted rule. However, it is possible that the format of certain 
proprietary data feeds may allow for faster aggregation initially than 
the single format specified by the Commission because of certain SROs' 
existing familiarity with its format. If this occurred, it could 
increase the latency differential compared to the amendments.
    In addition, if the SROs are required to transform their existing 
data to a different format, it could hinder the timeliness of the data 
competing consolidators receive compared to data delivered via the 
proprietary feeds. Any changes in the timeliness with which the 
competing consolidators receive the data or any difference in latency 
between consolidated core data and proprietary data feeds would affect 
the viability of consolidated core data as a substitute for proprietary 
data feeds and affect many of the benefits of the decentralized 
consolidation model.\2542\ If the latency differential is reduced, more 
market participants may substitute consolidated market data for 
proprietary data feeds and the benefits of the decentralized 
consolidation model could increase compared to the amendments. If 
competing consolidators receive less timely data or the latency 
differential increases, fewer market participants would switch to 
consolidated market data and the benefits would be smaller than under 
the adopted rule.
---------------------------------------------------------------------------

    \2542\ See supra Section V.C.2(c).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \2543\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) \2544\ of the Administrative 
Procedure Act,\2545\ as amended by the RFA, generally requires the 
Commission to undertake a regulatory flexibility analysis of all 
proposed rules to determine the impact of such rulemaking on ``small 
entities.'' \2546\ Section 605(b) of the RFA states that this 
requirement shall not apply to any proposed rule or proposed rule 
amendment which, if adopted, would not have a significant economic 
impact on a substantial number of small entities. The Commission 
certified in the Proposing Release, pursuant to Section 605(b) of the 
RFA, that the proposed rules would not, if adopted, have a significant 
economic impact on a substantial number of small entities.\2547\ The 
Commission received no comments on this certification.
---------------------------------------------------------------------------

    \2543\ 5 U.S.C. 601 et seq.
    \2544\ 5 U.S.C. 603(a).
    \2545\ 5 U.S.C. 551 et seq.
    \2546\ Although Section 601(b) of the RFA defines the term 
``small entity,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
``small entity'' for purposes of Commission rulemaking in accordance 
with the RFA. Those definitions, as relevant to this proposed 
rulemaking, are set forth in 17 CFR 240.0-10 (Rule 0-10).
    \2547\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    The amendments to Rules 600 and 603 and the new Rule 614 apply to 
national securities exchanges registered with the Commission under 
Section 6 of the Exchange Act, national securities associations 
registered with the Commission under Section 15A of the Exchange Act, 
and competing consolidators. None of the exchanges registered under 
Section 6 that will be subject to the proposed amendments are ``small 
entities'' for the purposes of the RFA.\2548\ There is only one 
national securities association, and the Commission has previously 
stated that it is not a small entity as defined by 13 CFR 
121.201.\2549\ For purposes of the Commission rulemaking in connection 
with the RFA\2550\ as it relates to competing consolidators, a small 
entity includes a SIP that (1) Had gross revenues of less than $10 
million during the preceding fiscal year (or in the time it has been in 
business, if shorter); (2) Provided service to fewer than 100 
interrogation devices or moving tickers at all times during the 
preceding fiscal year (or in the time that it has been in business, if 
shorter); and (3) Is not affiliated with any person (other than a 
natural person) that is not a small business or small organization 
under this section.\2551\
---------------------------------------------------------------------------

    \2548\ See 17 CFR 240.0-10(e). Paragraph (e) of Rule 0-10 states 
that the term ``small business,'' when referring to an exchange, 
means any exchange that has been exempted from the reporting 
requirements of Rule 601 of Regulation NMS, 17 CFR 242.601, and is 
not affiliated with any person (other than a natural person) that is 
not a small business or small organization as defined in Rule 0-10. 
Under this standard, none of the exchanges subject to the amendments 
to Rule 600 or 603(b) or to Rule 614 are ``small entities'' for the 
purposes of the RFA. See Proposing Release, 85 FR at n. 1219.
    \2549\ See, e.g., Securities Exchange Act Release No. 62174 (May 
26, 2010), 75 FR 32556, 32605 n. 416 (June 8, 2010) (``FINRA is not 
a small entity as defined by 13 CFR 121.201.'').
    \2550\ See supra note 2546.
    \2551\ 17 CFR 240.0-10(g).
---------------------------------------------------------------------------

    Based on the Commission's information about the 10 potential 
entities the Commission estimates may become competing consolidators, 
the Commission believes that all such entities will exceed the 
thresholds defining ``small entities'' set out above. Competing 
consolidators will be participating in a sophisticated business

[[Page 18809]]

that requires significant resources to compete effectively. For 
example, as noted above, the Commission estimates that new entrants to 
the competing consolidator market--entities without prior experience in 
the business of collecting, consolidating, and disseminating market 
data--will incur initial startup costs of $2,683,000,\2552\ and each 
competing consolidator will incur total ongoing annual costs of 
$5,141,895 per entity.\2553\ While other competing consolidators may 
emerge and seek to register as competing consolidators with the 
Commission, the Commission does not believe that any such entities 
would be ``small entities'' as defined in 17 CFR 240.0-10(g). 
Accordingly, the Commission believes that any such registered competing 
consolidators will exceed the thresholds for ``small entities'' set 
forth in 17 CFR 240.0-10.
---------------------------------------------------------------------------

    \2552\ See supra note 1491 and accompanying text.
    \2553\ See supra note 1526 and accompanying text.
---------------------------------------------------------------------------

    For the reasons described above, the Commission certifies that the 
amendments to Rules 600 and 603 and the new Rule 614 will not have a 
significant economic impact on a substantial number of small entities.

VII. Other Matters

    Pursuant to the Congressional Review Act,\2554\ the Office of 
Information and Regulatory Affairs has designated these rules as a 
``major rule,'' as defined by 5 U.S.C. 804(2). If any of the provisions 
of these final rules, or the application thereof to any person or 
circumstance, is held to be invalid, such invalidity shall not affect 
other provisions or application of such provisions to other persons or 
circumstances that can be given effect without the invalid provision or 
application.
---------------------------------------------------------------------------

    \2554\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

VIII. Statutory Authority

    Pursuant to the Exchange Act, and particularly Sections 3(b), 5, 6, 
11A, 15, 17, and 23(a) thereof, 15 U.S.C. 78c, 78e, 78f, 78k-1, 78o, 
78q, and 78w(a), the Commission is amending Sec. Sec.  240.3a51-1, 
240.13h-1, 242.105, 242.201, 242.204, 242.600, 242.602, 242.603, 
242.611, and 242.1000 of chapter II of title 17 of the Code of Federal 
Regulations and adopts Rule 614, as set forth below.

List of Subjects

17 CFR Part 240

    Brokers, Dealers, Registration, Securities.

17 CFR Parts 242 and 249

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of the Amendments

    For the reasons stated in the preamble, the Commission is amending 
title 17, chapter II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *


Sec.  240.3a51-1  [Amended]

0
2. Amend Sec.  240.3a51-1 by, in paragraph (a) introductory text, 
removing the text ``Sec.  242.600(b)(48)'' and adding in its place 
``Sec.  242.600(b)(55) of this chapter''.


Sec.  240.13h-l   [Redesignated as Sec.  240.13h-1 and Amended]

0
3. Section 240.13h-l is redesignated as Sec.  240.13h-1 and amended in 
paragraph (a)(5) by removing the text ``Section 242.600(b)(47)'' and 
adding in its place ``Sec.  242.600(b)(54)''.

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
4. The authority citation for part 242 continues to read as follows:

    Authority:  15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 
80a-37.


Sec.  242.105  [Amended]

0
5. Amend Sec.  242.105 by:
0
a. In paragraph (b)(1)(i)(C), removing the text ``Sec.  
242.600(b)(23)'' and adding in its place ``Sec.  242.600(b)(30)''; and
0
b. In paragraph (b)(1)(ii), removing the text ``Sec.  242.600(b)(68)'' 
and adding in its place ``Sec.  242.600(b)(77)''.


Sec.  242.201   [Amended]

0
6. Amend Sec.  242.201 by:
0
a. In paragraph (a)(1), removing the text ``Sec.  242.600(b)(48)'' and 
adding in its place ``Sec.  242.600(b)(55)'';
0
b. In paragraph (a)(2), removing the text ``Sec.  242.600(b)(23)'' and 
adding in its place ``Sec.  242.600(b)(30)'';
0
c. In paragraph (a)(3), removing the text ``the term ``listing market'' 
as defined in the effective transaction reporting plan for the covered 
security'' and adding in its place ``the term ``primary listing 
exchange'' as defined in Sec.  242.600(b)(68)'';
0
d. In paragraph (a)(4), removing the text ``Sec.  242.600(b)(43)'' and 
adding in its place ``Sec.  242.600(b)(50)'';
0
e. In paragraph (a)(5), removing the text ``Sec.  242.600(b)(51)'' and 
adding in its place ``Sec.  242.600(b)(58)'';
0
f. In paragraph (a)(6), removing the text ``Sec.  242.600(b)(59)'' and 
adding in its place ``Sec.  242.600(b)(67)'';
0
g. In paragraph (a)(7), removing the text ``Sec.  242.600(b)(68)'' and 
adding in its place ``Sec.  242.600(b)(77)'';
0
h. In paragraph (a)(9), removing the text ``Sec.  242.600(b)(82)'' and 
adding in its place ``Sec.  242.600(b)(95)'';
0
i. In paragraph (b)(1)(ii), removing the text ``by a plan processor''; 
and
0
j. In paragraph (b)(3):
0
i. Removing the text ``notify the single plan processor responsible for 
consolidation of information for the covered security pursuant to Sec.  
242.603(b)'' and adding in its place ``make such information available 
as provided in Sec.  242.603(b)''.
0
ii. Removing the last sentence of the paragraph.


Sec.  242.204  [Amended]

0
7. In Sec.  242.204, paragraph (g)(2) is amended by removing the text 
``Sec.  600(b)(68) of Regulation NMS (17 CFR 242.600(b)(68))'' and 
adding in its place ``Sec.  242.600(b)(77) (Rule 600(b)(77) of 
Regulation NMS)''.

0
8. Amend Sec.  242.600 by:
0
a. Redesignating paragraphs (b)(73) through (87) as paragraphs (b)(86) 
through (100);
0
b. Adding new paragraph (b)(85);
0
c. Redesignating paragraph (b)(72) as paragraph (b)(84);
0
d. Adding new paragraphs (b)(82) and (83);
0
e. Redesignating paragraphs (b)(69) through (71) as paragraphs (b)(79) 
through (81);
0
f. Adding new paragraph (b)(78);
0
g. Redesignating paragraphs (b)(60) through (68) as paragraphs (b)(69) 
through (77);
0
h. Revising newly redesignated paragraph (b)(70);
0
i. Adding new paragraph (b)(68);
0
j. Redesignating paragraphs (b)(52) through (59) as paragraphs (b)(60) 
through (67);
0
k. Adding new paragraph (b)(59);

[[Page 18810]]

0
l. Redesignating paragraphs (b)(20) through (51) as paragraphs (b)(27) 
through (58);
0
m. Revising newly redesignated paragraph (b)(50);
0
n. Adding new paragraph (b)(26);
0
o. Redesignating paragraphs (b)(16) through (19) as paragraphs (b)(22) 
through (25);
0
p. Adding new paragraphs (b)(19), (20), and (21);
0
q. Redesignating paragraphs (b)(14) and (15) as paragraphs (b)(17) and 
(18);
0
r. Adding new paragraph (b)(16);
0
s. Redesignating paragraphs (b)(4) through (13) as paragraphs (b)(6) 
through (15);
0
t. Adding new paragraph (b)(5);
0
u. Redesignating paragraphs (b)(2) and (3) as paragraphs (b)(3) and 
(4); and
0
v. Adding new paragraph (b)(2).
    The additions and revisions read as follows:


Sec.  242.600  NMS security designation and definitions.

    (b) * * *
    (2) Administrative data means administrative, control, and other 
technical messages made available by national securities exchanges and 
national securities associations pursuant to the effective national 
market system plan or plans required under Sec.  242.603(b) or the 
technical specifications thereto as of April 9, 2021.
* * * * *
    (5) Auction information means all information specified by national 
securities exchange rules or effective national market system plans 
that is generated by a national securities exchange leading up to and 
during auctions, including opening, reopening, and closing auctions, 
and publicly disseminated during the time periods and at the time 
intervals provided in such rules and plans.
* * * * *
    (16) Competing consolidator means a securities information 
processor required to be registered pursuant to Sec.  242.614 (Rule 
614) or a national securities exchange or national securities 
association that receives information with respect to quotations for 
and transactions in NMS stocks and generates a consolidated market data 
product for dissemination to any person.
* * * * *
    (19) Consolidated market data means the following data, 
consolidated across all national securities exchanges and national 
securities associations:
    (i) Core data;
    (ii) Regulatory data;
    (iii) Administrative data;
    (iv) Self-regulatory organization-specific program data; and
    (v) Additional regulatory, administrative, or self-regulatory 
organization-specific program data elements defined as such pursuant to 
the effective national market system plan or plans required under Sec.  
242.603(b).
    (20) Consolidated market data product means any data product 
developed by a competing consolidator that contains consolidated market 
data or data components of consolidated market data. For purposes of 
this paragraph (b)(20), data components of consolidated market data 
include the enumerated elements, and any subcomponent of the enumerated 
elements, of consolidated market data in paragraph (b)(19) of this 
section. All consolidated market data products must reflect data 
consolidated across all national securities exchanges and national 
securities associations.
    (21) Core data means:
    (i) The following information with respect to quotations for, and 
transactions in, NMS stocks:
    (A) Quotation sizes;
    (B) Aggregate quotation sizes;
    (C) Best bid and best offer;
    (D) National best bid and national best offer;
    (E) Protected bid and protected offer;
    (F) Transaction reports;
    (G) Last sale data;
    (H) Odd-lot information;
    (I) Depth of book data; and
    (J) Auction information.
    (ii) For purposes of the calculation and dissemination of core data 
by competing consolidators, as defined in paragraph (b)(16) of this 
section, and the calculation of core data by self-aggregators, as 
defined in paragraph (b)(84) of this section, the best bid and best 
offer, national best bid and national best offer, protected bid and 
protected offer, and depth of book data shall include odd-lots that 
when aggregated are equal to or greater than a round lot; such 
aggregation shall occur across multiple prices and shall be 
disseminated at the least aggressive price of all such aggregated odd-
lots.
    (iii) Competing consolidators shall represent the quotation sizes 
of the following data elements, if disseminated in a consolidated 
market data product as defined in paragraph (b)(20) of this section, as 
the number of shares rounded down to the nearest multiple of a round 
lot: The best bid and best offer, national best bid and national best 
offer, protected bid and protected offer, depth of book data, and 
auction information.
    (iv) Competing consolidators shall attribute the following data 
elements, if disseminated in a consolidated market data product as 
defined in paragraph (b)(20) of this section, to the national 
securities exchange or national securities association that is the 
source of each such data element: Best bid and best offer, national 
best bid and national best offer, protected bid and protected offer, 
transaction reports, last sale data, odd-lot information, depth of book 
data, and auction information.
* * * * *
    (26) Depth of book data means all quotation sizes at each national 
securities exchange and on a facility of a national securities 
association at each of the next five prices at which there is a bid 
that is lower than the national best bid and offer that is higher than 
the national best offer. For these five prices, the aggregate size 
available at each price, if any, at each national securities exchange 
and national securities association shall be attributed to such 
exchange or association.
* * * * *
    (50) National best bid and national best offer means, with respect 
to quotations for an NMS stock, the best bid and best offer for such 
stock that are calculated and disseminated on a current and continuing 
basis by a competing consolidator or calculated by a self-aggregator 
and, for NMS securities other than NMS stocks, the best bid and best 
offer for such security that are calculated and disseminated on a 
current and continuing basis by a plan processor pursuant to an 
effective national market system plan; provided, that in the event two 
or more market centers transmit to the plan processor, a competing 
consolidator or a self-aggregator identical bids or offers for an NMS 
security, the best bid or best offer (as the case may be) shall be 
determined by ranking all such identical bids or offers (as the case 
may be) first by size (giving the highest ranking to the bid or offer 
associated with the largest size), and then by time (giving the highest 
ranking to the bid or offer received first in time).
* * * * *
    (59) Odd-lot information means:
    (i) Odd-lot transaction data disseminated pursuant to the effective 
national market system plan or plans required under Sec.  242.603(b) as 
of April 9, 2021; and
    (ii) Odd-lots at a price greater than or equal to the national best 
bid and less than or equal to the national best offer, aggregated at 
each price level at each national securities exchange and national 
securities association.
* * * * *

[[Page 18811]]

    (68) Primary listing exchange means, for each NMS stock, the 
national securities exchange identified as the primary listing exchange 
in the effective national market system plan or plans required under 
Sec.  242.603(b).
* * * * *
    (70) Protected bid or protected offer means a quotation in an NMS 
stock that:
    (i) Is displayed by an automated trading center;
    (ii) Is disseminated pursuant to an effective national market 
system plan; and
    (iii) Is an automated quotation that is the best bid or best offer 
of a national securities exchange, or the best bid or best offer of a 
national securities association.
* * * * *
    (78) Regulatory data means:
    (i) Information required to be collected or calculated by the 
primary listing exchange for an NMS stock and provided to competing 
consolidators and self-aggregators pursuant to the effective national 
market system plan or plans required under Sec.  242.603(b), including, 
at a minimum:
    (A) Information regarding Short Sale Circuit Breakers pursuant to 
Sec.  242.201;
    (B) Information regarding Price Bands required pursuant to the Plan 
to Address Extraordinary Market Volatility (LULD Plan);
    (C) Information relating to regulatory halts or trading pauses 
(news dissemination/pending, LULD, Market-Wide Circuit Breakers) and 
reopenings or resumptions;
    (D) The official opening and closing prices of the primary listing 
exchange; and
    (E) An indicator of the applicable round lot size.
    (ii) Information required to be collected or calculated by the 
national securities exchange or national securities association on 
which an NMS stock is traded and provided to competing consolidators 
and self-aggregators pursuant to the effective national market system 
plan or plans required under Sec.  242.603(b), including, at a minimum:
    (A) Whenever such national securities exchange or national 
securities association receives a bid (offer) below (above) an NMS 
stock's lower (upper) LULD price band, an appropriate regulatory data 
flag identifying the bid (offer) as non-executable; and
    (B) Other regulatory messages including subpenny execution and 
trade-though exempt indicators.
    (iii) For purposes of paragraph (b)(78)(i)(C) of this section, the 
primary listing exchange that has the largest proportion of companies 
included in the S&P 500 Index shall monitor the S&P 500 Index 
throughout the trading day, determine whether a Level 1, Level 2, or 
Level 3 decline, as defined in self-regulatory organization rules 
related to Market-Wide Circuit Breakers, has occurred, and immediately 
inform the other primary listing exchanges of all such declines.
* * * * *
    (82) Round lot means:
    (i) For any NMS stock for which the prior calendar month's average 
closing price on the primary listing exchange was $250.00 or less per 
share, an order for the purchase or sale of an NMS stock of 100 shares;
    (ii) For any NMS stock for which the prior calendar month's average 
closing price on the primary listing exchange was $250.01 to $1,000.00 
per share, an order for the purchase or sale of an NMS stock of 40 
shares;
    (iii) For any NMS stock for which the prior calendar month's 
average closing price on the primary listing exchange was $1,000.01 to 
$10,000.00 per share, an order for the purchase or sale of an NMS stock 
of 10 shares;
    (iv) For any NMS stock for which the prior calendar month's average 
closing price on the primary listing exchange was $10,000.01 or more 
per share, an order for the purchase or sale of an NMS stock of 1 
share; and
    (v) For any NMS stock for which the prior calendar month's average 
closing price is not available, an order for the purchase or sale of an 
NMS stock of 100 shares.
    (83) Self-aggregator means a broker, dealer, national securities 
exchange, national securities association, or investment adviser 
registered with the Commission that receives information with respect 
to quotations for and transactions in NMS stocks, including all data 
necessary to generate consolidated market data, and generates 
consolidated market data solely for internal use. A self-aggregator may 
make consolidated market data available to its affiliates that are 
registered with the Commission for their internal use. Except as 
provided in the preceding sentence, a self-aggregator may not 
disseminate or otherwise make available consolidated market data, or 
components of consolidated market data, as provided in paragraph 
(b)(20) of this section, to any person.
* * * * *
    (85) Self-regulatory organization-specific program data means:
    (i) Information related to retail liquidity programs specified by 
the rules of national securities exchanges and disseminated pursuant to 
the effective national market system plan or plans required under Sec.  
242.603(b) as of April 9, 2021; and
    (ii) Other self-regulatory organization-specific information with 
respect to quotations for or transactions in NMS stocks as specified by 
the effective national market system plan or plans required under Sec.  
242.603(b).
* * * * *


Sec.  242.602  [Amended]

0
9. Amend Sec.  242.602 by:
0
a. In paragraph (a)(5)(i), removing the text ``Sec.  242.600(b)(77)'' 
and adding in its place ``Sec.  242.600(b)(90)'' and
0
b. In paragraph (a)(5)(ii), removing the text ``Sec.  242.600(b)(77)'' 
and adding in its place ``Sec.  242.600(b)(90)''.

0
10. Amend Sec.  242.603 by revising paragraph (b) to read as follows:


Sec.  242.603   Distribution, consolidation, and display of information 
with respect to quotations for and transactions in NMS stocks.

* * * * *
    (b) Dissemination of information. Every national securities 
exchange on which an NMS stock is traded and national securities 
association shall act jointly pursuant to one or more effective 
national market system plans for the dissemination of consolidated 
market data. Every national securities exchange on which an NMS stock 
is traded and national securities association shall make available to 
all competing consolidators and self-aggregators its information with 
respect to quotations for and transactions in NMS stocks, including all 
data necessary to generate consolidated market data, in the same manner 
and using the same methods, including all methods of access and the 
same format, as such national securities exchange or national 
securities association makes available any information with respect to 
quotations for and transactions in NMS stocks to any person.
* * * * *


Sec.  242.611   [Amended]

0
11. Amend Sec.  242.611 by, in paragraph (c), removing the text ``Sec.  
242.600(b)(31)'' and adding in its place ``Sec.  242.600(b)(38)''.

0
12. Add Sec.  242.614 to read as follows:


Sec.  242.614   Registration and responsibilities of competing 
consolidators.

    (a) Competing consolidator registration--(1) Initial Form CC--(i) 
Filing and effectiveness requirement. No person, other than a national 
securities exchange or a national securities association:

[[Page 18812]]

    (A) May receive directly, pursuant to an effective national market 
system plan, from a national securities exchange or national securities 
association information with respect to quotations for and transactions 
in NMS stocks; and
    (B) Generate a consolidated market data product for dissemination 
to any person unless the person files with the Commission an initial 
Form CC and the initial Form CC has become effective pursuant to 
paragraph (a)(1)(v) of this section.
    (ii) Electronic filing and submission. Any reports to the 
Commission required under this section shall be filed electronically on 
Form CC (17 CFR 249.1002), include all information as prescribed in 
Form CC and the instructions thereto, and contain an electronic 
signature as defined in Sec.  240.19b-4(j) of this chapter.
    (iii) Commission review period. The Commission may, by order, as 
provided in paragraph (a)(1)(v)(B) of this section, declare an initial 
Form CC filed by a competing consolidator ineffective no later than 90 
calendar days from the date of filing with the Commission.
    (iv) Withdrawal of initial Form CC due to inaccurate or incomplete 
disclosures. During the review by the Commission of the initial Form 
CC, if any information disclosed in the initial Form CC is or becomes 
inaccurate or incomplete, the competing consolidator shall promptly 
withdraw the initial Form CC and may refile an initial Form CC pursuant 
to paragraph (a)(1) of this section.
    (v) Effectiveness; ineffectiveness determination. (A) An initial 
Form CC filed by a competing consolidator will become effective, unless 
declared ineffective, no later than the expiration of the review period 
provided in paragraph (a)(1)(iii) of this section and publication 
pursuant to paragraph (b)(2)(i) of this section.
    (B) The Commission shall, by order, declare an initial Form CC 
ineffective if it finds, after notice and opportunity for hearing, that 
such action is necessary or appropriate in the public interest, and is 
consistent with the protection of investors. If the Commission declares 
an initial Form CC ineffective, the competing consolidator shall be 
prohibited from operating as a competing consolidator. An initial Form 
CC declared ineffective does not prevent the competing consolidator 
from subsequently filing a new Form CC.
    (2) Form CC amendments. A competing consolidator shall amend a Form 
CC:
    (i) Prior to the implementation of a material change to the 
pricing, connectivity, or products offered (``material amendment''); 
and
    (ii) No later than 30 calendar days after the end of each calendar 
year to correct information that has become inaccurate or incomplete 
for any reason and to provide an Annual Report as required under Form 
CC (each a ``Form CC amendment'').
    (3) Notice of cessation. A competing consolidator shall notice its 
cessation of operations on Form CC at least 90 calendar days prior to 
the date the competing consolidator will cease to operate as a 
competing consolidator. The notice of cessation shall cause the Form CC 
to become ineffective on the date designated by the competing 
consolidator.
    (4) Date of filing. For purposes of filings made pursuant to this 
section:
    (i) The term business day shall have the same meaning as defined in 
Sec.  240.19b-4(b)(2) of this chapter.
    (ii) If the conditions of this section and Form CC are otherwise 
satisfied, all filings submitted electronically on or before 5:30 p.m. 
Eastern Standard Time or Eastern Daylight Saving Time, whichever is 
currently in effect, on a business day, shall be deemed filed on that 
business day, and all filings submitted after 5:30 p.m. Eastern 
Standard Time or Eastern Daylight Saving Time, whichever is currently 
in effect, shall be deemed filed on the next business day.
    (b) Public disclosures. (1) Every Form CC filed pursuant to this 
section shall constitute a ``report'' within the meaning of sections 
11A, 17(a), 18(a), and 32(a) of the Act (15 U.S.C. 78k-1, 78q(a), 
78r(a), and 78ff(a)), and any other applicable provisions of the Act.
    (2) The Commission will make public via posting on the Commission's 
website:
    (i) Identification of each competing consolidator that has filed an 
initial Form CC with the Commission and the date of filing;
    (ii) Each effective initial Form CC, as amended;
    (iii) Each order of ineffective initial Form CC;
    (iv) Each Form CC amendment. The Commission will make public the 
entirety of any Form CC amendment no later than 30 calendar days from 
the date of filing thereof with the Commission; and
    (v) Each notice of cessation.
    (c) Posting of hyperlink to the Commission's website. Each 
competing consolidator shall make public via posting on its website a 
direct URL hyperlink to the Commission's website that contains the 
documents enumerated in paragraphs (b)(2)(ii) through (v) of this 
section.
    (d) Responsibilities of competing consolidators. Each competing 
consolidator shall:
    (1) Collect from each national securities exchange and national 
securities association, either directly or indirectly, any information 
with respect to quotations for and transactions in NMS stocks as 
provided in Sec.  242.603(b) that is necessary to create a consolidated 
market data product, as defined in Sec.  242.600(b)(20).
    (2) Calculate and generate a consolidated market data product, as 
defined in Sec.  242.600(b)(20), from the information collected 
pursuant to paragraph (d)(1) of this section.
    (3) Make a consolidated market data product, as defined in Sec.  
242.600(b)(20), as timestamped as required by paragraph (d)(4) of this 
section and including the national securities exchange and national 
securities association data generation timestamp required to be 
provided by the national securities exchange and national securities 
association participants by paragraph (e)(2) of this section, available 
to subscribers on a consolidated basis on terms that are not 
unreasonably discriminatory.
    (4) Timestamp the information collected pursuant to paragraph 
(d)(1) of this section upon:
    (i) Receipt from each national securities exchange and national 
securities association;
    (ii) Receipt of such information at its aggregation mechanism; and
    (iii) Dissemination of a consolidated market data product to 
subscribers.
    (5) Within 15 calendar days after the end of each month, publish 
prominently on its website monthly performance metrics, as defined by 
the effective national market system plan(s) for NMS stocks, that shall 
include at least the information in paragraphs (d)(5)(i) through (v) of 
this section. All information must be publicly posted in downloadable 
files and must remain free and accessible (without any encumbrances or 
restrictions) by the general public on the website for a period of not 
less than three years from the initial date of posting.
    (i) Capacity statistics;
    (ii) Message rate and total statistics;
    (iii) System availability;
    (iv) Network delay statistics; and
    (v) Latency statistics for the following, with distribution 
statistics up to the 99.99th percentile:
    (A) When a national securities exchange or national securities 
association sends an inbound message to a competing consolidator 
network

[[Page 18813]]

and when the competing consolidator network receives the inbound 
message;
    (B) When the competing consolidator network receives the inbound 
message and when the competing consolidator network sends the 
corresponding consolidated message to a subscriber; and
    (C) When a national securities exchange or national securities 
association sends an inbound message to a competing consolidator 
network and when the competing consolidator network sends the 
corresponding consolidated message to a subscriber.
    (6) Within 15 calendar days after the end of each month, publish 
prominently on its website the information in paragraphs (d)(6)(i) 
through (v) of this section. All information must be publicly posted 
and must remain free and accessible (without any encumbrances or 
restrictions) by the general public on the website for a period of not 
less than three years from the initial date of posting.
    (i) Data quality issues;
    (ii) System issues;
    (iii) Any clock synchronization protocol utilized;
    (iv) For the clocks used to generate the timestamps described in 
paragraph (d)(4) of this section, the clock drift averages and peaks, 
and the number of instances of clock drift greater than 100 
microseconds; and
    (v) Vendor alerts.
    (7) Keep and preserve at least one copy of all documents, including 
all correspondence, memoranda, papers, books, notices, accounts, and 
such other records as shall be made or received by it in the course of 
its business as such and in the conduct of its business. Competing 
consolidators shall keep all such documents for a period of no less 
than five years, the first two years in an easily accessible place.
    (8) Upon request of any representative of the Commission, promptly 
furnish to the possession of such representative copies of any 
documents required to be kept and preserved by it.
    (9) Each competing consolidator that is not required to comply with 
the requirements of Sec. Sec.  242.1000 through 242.1007 regarding 
systems compliance and integrity (Regulation SCI) shall comply with the 
following:
    (i) Definitions. For purposes of this paragraph (d)(9), the 
following definitions shall apply:
    Systems disruption means an event in a competing consolidator's 
systems involved in the collection and consolidation of consolidated 
market data, and dissemination of consolidated market data products, 
that disrupts, or significantly degrades, the normal operation of such 
systems.
    Systems intrusion means any unauthorized entry into a competing 
consolidator's systems involved in the collection and consolidation of 
consolidated market data, and dissemination of consolidated market data 
products.
    (ii) Obligations relating to policies and procedures. (A)(1) 
Establish, maintain, and enforce written policies and procedures 
reasonably designed to ensure: That its systems involved in the 
collection and consolidation of consolidated market data, and 
dissemination of consolidated market data products have levels of 
capacity, integrity, resiliency, availability, and security adequate to 
maintain the competing consolidator's operational capability and 
promote the maintenance of fair and orderly markets; and the prompt, 
accurate, and reliable dissemination of consolidated market data 
products.
    (2) Such policies and procedures shall be deemed to be reasonably 
designed if they are consistent with current industry standards, which 
shall be comprised of information technology practices that are widely 
available to information technology professionals in the financial 
sector and issued by an authoritative body that is a U.S. governmental 
entity or agency, association of U.S. governmental entities or 
agencies, or widely recognized organization. Compliance with such 
current industry standards, however, shall not be the exclusive means 
to comply with the requirements of this paragraph (d)(9)(ii)(A);
    (B) Periodically review the effectiveness of the policies and 
procedures required by paragraph (d)(9)(ii)(A) of this section, and 
take prompt action to remedy deficiencies in such policies and 
procedures; and
    (C) Establish, maintain, and enforce reasonably designed written 
policies and procedures that include the criteria for identifying 
responsible personnel, the designation and documentation of responsible 
personnel, and escalation procedures to quickly inform responsible 
personnel of potential systems disruptions and systems intrusions; and 
periodically review the effectiveness of the policies and procedures, 
and take prompt action to remedy deficiencies.
    (iii) Systems disruptions or systems intrusions. (A) Upon 
responsible personnel having a reasonable basis to conclude that a 
systems disruption or systems intrusion has occurred, begin to take 
appropriate corrective action which shall include, at a minimum, 
mitigating potential harm to investors and market integrity resulting 
from the event and devoting adequate resources to remedy the event as 
soon as reasonably practicable.
    (B) Promptly upon responsible personnel having a reasonable basis 
to conclude that a systems disruption (other than a system disruption 
that has had, or the competing consolidator reasonably estimates would 
have, no or a de minimis impact on the competing consolidator's 
operations or on market participants) has occurred, publicly 
disseminate information relating to the event (including the system(s) 
affected and a summary description); when known, promptly publicly 
disseminate additional information relating to the event (including a 
detailed description, an assessment of those potentially affected, a 
description of the progress of corrective action and when the event has 
been or is expected to be resolved); and until resolved, provide 
regular updates with respect to such information.
    (C) Concurrent with public dissemination of information relating to 
a systems disruption pursuant to paragraph (d)(9)(iii)(B) of this 
section, or promptly upon responsible personnel having a reasonable 
basis to conclude that a systems intrusion (other than a system 
intrusion that has had, or the competing consolidator reasonably 
estimates would have, no or a de minimis impact on the competing 
consolidator's operations or on market participants) has occurred, 
provide the Commission notification and, until resolved, updates of 
such event. Notifications required pursuant to this paragraph 
(d)(9)(iii)(C) shall include information relating to the event 
(including the system(s) affected and a summary description); when 
known, additional information relating to the event (including a 
detailed description, an assessment of those potentially affected, a 
description of the progress of corrective action and when the event has 
been or is expected to be resolved); and until resolved, regular 
updates with respect to such information. Notifications relating to 
systems disruptions and systems intrusions pursuant to this paragraph 
(d)(9)(iii)(C) shall be submitted to the Commission on Form CC.
    (iv) Coordinated testing. Participate in the industry- or sector-
wide coordinated testing of business recovery and disaster recovery 
plans required of SCI entities pursuant to Sec.  242.1004(c).
    (e) Amendment of the effective national market system plan(s) for 
NMS stocks. The participants to the effective national market system 
plan(s) for NMS

[[Page 18814]]

stocks shall file with the Commission, pursuant to Sec.  242.608, an 
amendment that includes the following provisions within 150 calendar 
days from June 8, 2021:
    (1) Conforming the effective national market system plan(s) for NMS 
stocks to reflect provision of information with respect to quotations 
for and transactions in NMS stocks that is necessary to generate 
consolidated market data by the national securities exchange and 
national securities association participants to competing consolidators 
and self-aggregators;
    (2) The application of timestamps by the national securities 
exchange and national securities association participants on all 
information with respect to quotations for and transactions in NMS 
stocks that is necessary to generate consolidated market data, 
including the time that such information was generated as applicable by 
the national securities exchange or national securities association and 
the time the national securities exchange or national securities 
association made such information available to competing consolidators 
and self-aggregators;
    (3) Assessments of competing consolidator performance, including 
speed, reliability, and cost of data provision and the provision of an 
annual report of such assessment to the Commission, and the Commission 
will make the annual report publicly available on the Commission's 
website;
    (4) The development, maintenance, and publication of a list that 
identifies the primary listing exchange for each NMS stock; and
    (5) The calculation and publication on a monthly basis of 
consolidated market data gross revenues for NMS stocks as specified by:
    (i) Listed on the New York Stock Exchange (NYSE);
    (ii) Listed on Nasdaq; and
    (iii) Listed on exchanges other than NYSE or Nasdaq.

0
13. Amend Sec.  242.1000 by:
0
a. In the definition of ``Critical SCI systems,'' removing the text 
``consolidated market data'' in paragraph (1)(v) and adding in its 
place ``market data by a plan processor''.
0
b. In the definition of ``Plan processor,'' removing the text ``Sec.  
242.600(b)(59)'' and adding in its place ``Sec.  242.600(b)(67)''.
0
c. Adding in alphabetical order the definition of ``SCI competing 
consolidator''.
0
d. In the definition of ``SCI entity,'' removing ``or exempt clearing 
agency subject to ARP'' and adding ``exempt clearing agency subject to 
ARP, or SCI competing consolidator'' in its place.
    The addition reads as follows:


Sec.  242.1000   Definitions.

* * * * *
    SCI competing consolidator means:
    (1) Any competing consolidator, as defined in Sec.  242.600, which, 
during at least four of the preceding six calendar months, accounted 
for five percent (5%) or more of consolidated market data gross revenue 
paid to the effective national market system plan or plans required 
under Sec.  242.603(b), for NMS stocks:
    (i) Listed on the New York Stock Exchange LLC;
    (ii) Listed on The Nasdaq Stock Market LLC; or
    (iii) Listed on exchanges other than the New York Stock Exchange 
LLC or The Nasdaq Stock Market LLC, as reported by such plan or plans 
pursuant to the terms thereof.
    (2) Provided, however, that such SCI competing consolidator shall 
not be required to comply with the requirements of this section and 
Sec. Sec.  242.1001 through 242.1007 (Regulation SCI) until six months 
after satisfying any of paragraph (1) of this definition, as 
applicable, for the first time; and
    (3) Provided, however, that such SCI competing consolidator shall 
not be required to comply with the requirements of Regulation SCI prior 
to one year after the compliance date for Sec.  242.614(d)(3).
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
14. The general authority citation for part 249 continues to read in 
part as follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *

0
15. Add Sec.  249.1002 to read as follows:


Sec.  249.1002   Form CC, for application for registration as a 
competing consolidator or to amend such an application or registration.

    This form shall be used for application for registration as a 
competing consolidator, pursuant to section 11A of the Securities 
Exchange Act of 1934 (15 U.S.C. 78k-1) and Sec.  242.614 of this 
chapter, or to amend such an application or registration.

    By the Commission.

    Dated: December 9, 2020.
Vanessa A. Countryman,
Secretary.

    Note:  The form in the following appendix will not appear in the 
Code of Federal Regulations.

Appendix A--Form CC

BILLING CODE 8011-01-P

[[Page 18815]]

[GRAPHIC] [TIFF OMITTED] TR09AP21.001


[[Page 18816]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.002


[[Page 18817]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.003


[[Page 18818]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.004


[[Page 18819]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.005


[[Page 18820]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.006


[[Page 18821]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.007


[[Page 18822]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.008


[[Page 18823]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.009


[[Page 18824]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.010


[[Page 18825]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.011


0
16. Amend Form SCI (referenced in Sec.  249.1900) to read as follows:

    Note:  The text of Form SCI does not, and the amendments will 
not, appear in the Code of Federal Regulations.

[GRAPHIC] [TIFF OMITTED] TR09AP21.012


[[Page 18826]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.013


[[Page 18827]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.014

[GRAPHIC] [TIFF OMITTED] TR09AP21.015


[[Page 18828]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.016


[[Page 18829]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.017


[[Page 18830]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.018


[[Page 18831]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.019


[[Page 18832]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.020


[[Page 18833]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.021


[[Page 18834]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.022


[[Page 18835]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.023


[[Page 18836]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.024


[[Page 18837]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.025


[[Page 18838]]


[GRAPHIC] [TIFF OMITTED] TR09AP21.026

[FR Doc. 2020-28370 Filed 4-8-21; 8:45 am]
BILLING CODE 8011-01-C