Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 70311 

3See, e.g., Securities Exchange Act Release No. 

63053 (October 6, 2010), 75 FR 63237 (October 14, 

2010) (SR–EDGA–2010–14); Securities Exchange 

Act Release No. 63054 (October 6, 2010), 75 FR 

63227 (October 14, 2010) (SR–EDGX–2010–13); 

Securities Exchange Act Release No. 63149 (October 

21, 2010), 75 FR 66180 (October 27, 2010) (SR– 

BYX–2010–004). 

4 15 U.S.C. 78f. 

5 15 U.S.C. 78f(b)(4). 6 15 U.S.C. 78s(b)(3)(a)(ii). 7 17 CFR 200.30–3(a)(12). 

of quotes/orders posted on the BX book 

(i.e., quotes/orders that provide 

liquidity), while providing a rebate to 

orders that access liquidity. Currently, 

the charge to provide liquidity is 

$0.0003 per share executed, while the 

rebate for accessing liquidity is $0.0001 

per share executed. Effective November 

1, 2010, BX will increase the rebate for 

accessing liquidity to $0.0002 per share 

executed. In addition, BX will introduce 

a tiered pricing structure for the fee to 

add liquidity, under which members 

adding a daily average of more than 50 

million shares of liquidity during a 

month will be charged $0.00025 per 

share executed, while members adding 

a daily average of 50 million or fewer 

shares during the month will be charged 

$0.0004 per share executed. Thus, while 

the fee change will result in a small fee 

increase for members providing low 

volumes of liquidity on BX, it will 

reduce fees charged to members 

providing higher volumes of liquidity 

and members accessing liquidity. The 

fee changes are reflective of the ongoing 

intense level of competition for order 

flow in the cash equities markets.3

2. Statutory Basis 

BX believes that the proposed rule 

change is consistent with the provisions 

of Section 6 of the Act,4 in general, and 

with Section 6(b)(4) of the Act,5 in 

particular, in that it provides for the 

equitable allocation of reasonable dues, 

fees and other charges among members 

and issuers and other persons using any 

facility or system which BX operates or 

controls. The impact of the price 

changes upon the net fees paid by a 

particular market participant will 

depend upon a number of variables, 

including the relative availability of 

liquidity on BX and other venues, the 

prices of the market participant’s quotes 

and orders relative to the national best 

bid and offer (i.e., its propensity to add 

or remove liquidity), and the volume of 

liquidity provided by the member. 

BX notes that it operates in a highly 

competitive market in which market 

participants can readily direct order 

flow to competing venues if they deem 

fee levels at a particular venue to be 

excessive. Accordingly, if particular 

market participants object to the 

proposed fee changes, they can avoid 

paying the fees by directing orders to 

other venues. BX believes that its fees 

continue to be reasonable and equitably 

allocated to members on the basis of 

whether they opt to direct orders to BX. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

BX does not believe that the proposed 

rule change will result in any burden on 

competition that is not necessary or 

appropriate in furtherance of the 

purposes of the Act, as amended. 

Because the market for order execution 

and routing is extremely competitive, 

members may readily direct orders to 

BX’s competitors if they object to the 

proposed rule change. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments were neither 

solicited nor received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective pursuant to Section 

19(b)(3)(A)(ii) of the Act.6 At any time 

within 60 days of the filing of the 

proposed rule change, the Commission 

summarily may temporarily suspend 

such rule change if it appears to the 

Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–BX–2010–074 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–BX–2010–074. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of the filing will 

also be available for inspection and 

copying at the principal office of the 

self-regulatory organization. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–BX–2010–074 and should 

be submitted on or before December 8, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.7

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28892 Filed 11–16–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63291; File No. SR– 

NYSEArca–2010–97] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change by NYSE 

Arca, Inc. Relating to Fees for NYSE 

Arca Depth-of-Book Data 

November 9, 2010. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

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70312 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Exchange notes that it makes available to 

vendors the best bids and offers that are included 

in ArcaBook data no earlier than it makes those best 

bids and offers available to the processors under the 

CQ Plan and the ‘‘Reporting Plan for Nasdaq/ 

National Market System Securities Traded on an 

Exchange on an Unlisted or Listed Basis’’ (the ‘‘UTP 

Plan’’). 

4Securities Exchange Act Release No. 54597 

(October 12, 2006) 71 FR 62029 (October 20, 2006). 

5Petition for Commission Review submitted by 

Petitioner, dated November 14, 2006. 

6Securities Exchange Act Release No. 55011 

(December 27, 2006). 

7Securities Exchange Act Release No. 57917 

(June 4, 2008), 73 FR 32751 (June 10, 2008). 

8Securities Exchange Act Release No. 59039 

(December 2, 2008), 73 FR 74770 (December 9 

2008). 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on November 

1, 2010, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the Exchange. 

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange, through its wholly 

owned subsidiary, NYSE Arca Equities, 

Inc. (‘‘NYSE Arca Equities’’), is filing a 

proposed rule change to authorize 

market data fees for the receipt and use 

of depth-of-book market data that the 

Exchange makes available. The text of 

the proposed rule change is available at 

the Exchange, the Commission’s Public 

Reference Room, and the Exchange’s 

Web site at http://www.nyse.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filings with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of 

and basis for the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization has 

prepared summaries, set forth in 

sections (A), (B) and (C) below, of the 

most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

[i.] The Services and Fees 

A. Description 

Through NYSE Arca Equities, the 

Exchange’s equities trading facility, the 

Exchange makes ArcaBook SM, a 

compilation of all limit orders resident 

in the NYSE Arca limit order book, 

available on a real-time basis.3 In 

addition, the Exchange makes available 

real-time information relating to 

transactions and limit orders in debt 

securities that are traded through the 

Exchange’s facilities. 

The Exchange makes ArcaBook and 

the bond trade and limit order 

information (collectively, ‘‘NYSE Arca 

Data’’) available to market data vendors, 

broker-dealers, private network 

providers and other entities by means of 

data feeds. By making the data it 

includes available, ArcaBook enhances 

market transparency, fosters 

competition among orders and markets, 

and enables buyers and sellers to obtain 

better prices. 

B. Procedural Background 

The fees for which the Exchange is 

filing this proposed rule change have a 

procedural history, including the 

following: 

• On May 23, 2006, NYSE Arca 

submitted the 2006 Rule Change to 

establish fees for the receipt and use of 

ArcaBook data. 

• On October 12, 2006, the 

Commission issued an order, by 

delegated authority, approving the 2006 

Rule Change (the ‘‘Delegated Order’’).4

• On November 15, 2006, 

NetCoalition submitted a petition (the 

‘‘Petition’’) requesting that the 

Commission review and set aside the 

Delegated Order.5

• On December 27, 2006, the 

Commission issued an order granting 

NetCoalition’s request for the 

Commission to review the Delegated 

Order.6

• On June 4, 2008, the Commission 

published notice of a proposed order 

(the ‘‘Draft Order’’) approving the NYSE 

Arca proposed fees to give the public an 

additional opportunity to comment.7

• On December 8, 2008, the 

Commission set aside the Delegated 

Order and approved the 2006 Rule 

Change directly (the ‘‘Direct Order’’).8

• On or about January 1, 2009, the 

Exchange began charging the fees set 

forth in the 2006 Rule Change. 

• On January 30, 2009, NetCoalition 

and SIFMA petitioned the United States 

Court of Appeals for the DC Circuit (the 

‘‘DC Circuit’’) for review of the Direct 

Order. 

• On July 21, 2010, the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (the ‘‘Dodd-Frank Act’’) 

was signed into law. 

• On August 6, 2010, the DC Circuit 

issued a decision on the petitions for 

review (the ‘‘NetCoalition Decision’’). 

• On September 17, 2010, the 

Exchange filed a petition for panel 

rehearing asking the DC Circuit to 

remand rather than vacate the Direct 

Order. 

• On September 24, 2010, the DC 

Circuit ordered NetCoalition, SIFMA, 

and the Commission to respond to the 

Exchange’s petition for panel rehearing. 

• On October 12, 2010, NetCoalition, 

SIFMA, and the Commission filed 

responses to the Exchange’s petition for 

panel rehearing. 

• On October 25, 2010, the DC Circuit 

denied the petition for panel rehearing. 

In this filing, the Exchange proposes 

to continue to assess the same fees that 

have been in effect since the Direct 

Order. 

C. Fees 

This filing will enable the Exchange 

to continue to assess the Market Data 

Fee Schedule set forth in Exhibit 5 

hereto for the receipt and use of NYSE 

Arca Data. As the Market Data Fee 

Schedule details, this proposed rule 

change allows the Exchange to continue 

to assess access fees and professional 

and nonprofessional subscriber device 

fees. These are categories of fees that are 

consistent with the fees that the New 

York Stock Exchange (‘‘NYSE’’) and the 

Nasdaq Stock Market (‘‘Nasdaq’’), and 

the Participants in the CTA, CQ, UTP 

and OPRA Plans, charge for the receipt 

and use of their market data. They are 

the same fees that NYSE Arca has 

charged since it received approval of 

those fees pursuant to the Direct Order. 

1. Access Fees 

The Exchange will continue to charge 

a monthly $750 fee for a data recipient 

to gain direct access to the datafeeds 

through which the Exchange makes 

NYSE Arca Data available. This fee 

entitles the datafeed recipient to gain 

access to NYSE Arca Data for a set of up 

to four ‘‘Logons.’’ A ‘‘Logon’’ is activation 

of a means of direct access to any of the 

NYSE Arca datafeeds. For instance, if a 

datafeed recipient gains access to NYSE 

Arca Data one or more times during a 

month using an Exchange-provided and 

approved logon that provides access to 

the ArcaBook datafeed, that would 

constitute a ‘‘Logon.’’ It would constitute 

a second ‘‘Logon’’ if, during that month, 

the datafeed recipient uses a different 

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Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 70313 

9Through TotalView, Nasdaq provides 

information relating to the displayed quotes and 

orders of Nasdaq participants in UTP Plan 

Securities. TotalView displays quotes and orders at 

multiple prices and is similar to ArcaBook. 

10Through OpenView, Nasdaq provides 

information relating to the displayed quotes and 

orders of Nasdaq participants in CTA Plan 

Securities. OpenView displays quotes and orders at 

multiple prices and is similar to ArcaBook. 

11Through NYSE OpenBook, NYSE provides 

information relating to limit orders. 

12 ‘‘Composite share volume’’ for a calendar year 

refers to the aggregate number of shares in all 

securities that trade over NYSE Arca facilities for 

that calendar year. 

13This is the same annual increase calculation 

that the Commission approved for the CTA Monthly 

Maximum (discussed below). See File No. SR–CTA/ 

CQ–99–01, Release No. 34–41977, October 5, 1999. 

logon name that allows access to the 

ArcaBook datafeed. 

The Exchange will continue to charge 

a monthly $750 fee for a data recipient 

to gain indirect access to the datafeeds 

through which the Exchange makes 

NYSE Arca Data available for any 

number of Logons. ‘‘Indirect access’’ 

refers to access to a NYSE Arca datafeed 

indirectly through one or more 

intermediaries, rather than by means of 

a direct connection or linkage with the 

Exchange’s facilities. 

2. Device Fees 

The Exchange will continue to charge 

device fees for professional and 

nonprofessional subscribers for the 

display of ArcaBook. In differentiating 

between professional and 

nonprofessional subscribers, the 

Exchange applies the same criteria for 

qualification as a nonprofessional 

subscriber as the CTA and CQ Plan 

Participants use, as more fully set forth 

in Exhibit 5. 

a. For Professional Subscribers 

For professional subscribers, the 

Exchange will continue to charge (i) a 

monthly fee of $15 per device for the 

receipt of ArcaBook data relating to 

Exchange-Traded Funds and those 

equity securities for which reporting is 

governed by the CTA Plan (‘‘CTA Plan 

and ETF Securities’’) and (ii) a monthly 

fee of $15 per device for the receipt of 

ArcaBook data relating to those equity 

securities for which reporting is 

governed by the UTP Plan (excluding 

Exchange-Traded Funds; ‘‘UTP Plan 

Securities’’). 

The combined monthly professional 

subscriber device fee of $30 (i.e., for 

receipt of NYSE ArcaBook data relating 

to CTA Plan and ETF Securities and to 

UTP Plan Securities) compares 

favorably with fees charged by other 

exchanges for similar products. For 

instance, for professional subscribers, 

Nasdaq charges $76 for its combined 

TotalView 9 and OpenView 10 products 

and NYSE charges $60 for NYSE 

OpenBook.11

b. For Nonprofessional Subscribers 

For nonprofessional subscribers, the 

Exchange will continue to charge 

monthly fees of $5 per device for the 

receipt of ArcaBook data relating to CTA 

Plan and ETF Securities and $5 per 

device for the receipt of ArcaBook data 

relating to UTP Plan Securities (i.e., a 

combined fee of $10 for both CTA Plan 

and ETF Securities and UTP Plan 

Securities). 

The Exchange will continue to limit 

for any one month the maximum 

amount of device fees payable by any 

broker-dealers in respect of 

nonprofessional subscribers that 

maintain brokerage accounts with the 

broker-dealer. Professional subscribers 

may be included in the calculation of 

the monthly maximum amount, so long 

as: 

(i) Nonprofessional Subscribers 

comprise no less than 90 percent of the 

pool of subscribers that are included in 

the calculation; 

(ii) Each professional subscriber that 

is included in the calculation is not 

affiliated with the broker-dealer or any 

of its affiliates (either as an officer, 

partner or employee or otherwise); and 

(iii) Each such professional subscriber 

maintains a brokerage account directly 

with the broker-dealer (that is, with the 

broker-dealer rather than with a 

correspondent firm of the broker dealer). 

When the Exchange first established 

the maximum amount in 2006, it set the 

maximum amount for any calendar 

month at $20,000. It provided that, for 

the months falling in a subsequent 

calendar year, the maximum monthly 

payment shall increase (but not 

decrease) by the percentage increase (if 

any) in the annual composite share 

volume 12 for the calendar year 

preceding that subsequent calendar 

year, subject to a maximum annual 

increase of five percent.13 For example, 

if the annual composite share volume 

for a calendar year increases by three 

percent over the annual composite share 

volume for the prior calendar year, then 

the monthly ‘‘Maximum Amount’’ for 

months falling in the next subsequent 

calendar year would increase by three 

percent. Given that the ArcaBook fees 

did not become effective until 2009 and 

composite share volume did not rise in 

2009, the Maximum Amount for 2010 

remains at $20,000. The Exchange will 

continue to apply the annual adjustment 

described above. 

The Maximum Amount compares 

favorably with monthly maximums 

payable to Nasdaq and to the CTA Plan 

Participants. Nasdaq set the maximum 

at $25,000 per month for 

nonprofessional subscribers’ receipt of 

TotalView and OpenView. The CTA 

Plan Participants currently set the 

maximum at $660,000 per month for 

internal distribution within a brokerdealer’s organization and for the brokerdealer’s distribution to nonprofessional 

subscribers that maintain brokerage 

accounts (the ‘‘CTA Monthly 

Maximum’’). 

D. Free Trial Period 

As an incentive to prospective 

subscribers, the Exchange will continue 

to offer NYSE Arca Data free of charge 

for the duration of the billable month in 

which the subscriber first gains access 

to the data. For example, if a subscriber 

(whether professional or 

nonprofessional) is billed on a calendarmonth basis and first gains access to 

NYSE Arca Data on October 10, the 

device fees set forth in this proposed 

rule change will not apply during that 

month of October. The Exchange has 

maintained this incentive since the 

Direct Order was issued. 

ii. Justification of Fees 

The market data fees that are the 

subject of this filing, in conjunction 

with fees for other services, provide for 

an equitable allocation of NYSE Arca’s 

overall costs among users of its services. 

The market data fees are fair and 

reasonable because they compare 

favorably to fees that other markets 

charge for similar products and because 

competition provides an effective 

constraint on the market data fees that 

the Exchange has the ability and 

incentive to charge. 

A. Other Markets’ Fees 

The combined monthly professional 

subscriber device fee of $30 (i.e., for 

receipt of NYSE Arca data relating to 

CTA Plan and ETF Securities and to 

UTP Plan Securities) compares 

favorably with the $76 that Nasdaq 

charges professional subscribers for its 

combined TotalView and OpenView 

products and the $60 that NYSE charges 

professional subscribers for NYSE 

OpenBook. 

Nonprofessional subscriber monthly 

fees of $5 per device for the receipt of 

ArcaBook data relating to CTA Plan and 

ETF Securities and $5 per device for the 

receipt of ArcaBook data relating to UTP 

Plan Securities (a combined $10) 

compare favorably with the fees NYSE 

and Nasdaq charge for limit order data 

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70314 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 

14The Exchange does not propose to impose 

device fees for the display of limit order, quotation 

and last sale price information relating to bonds 

that are traded through the Exchange’s facilities. 

15Securities Exchange Act Release No. 34–59544 

(March 9, 2009), 74 FR 11162 (March 16, 2006). 

16See Securities Exchange Act Release No. 34– 

62887 (September 10, 2010); 75 FR 57092 

(September 17, 2010); Securities Exchange Act 

Release No. 34–62907 (September 14, 2010); 75 FR 

57314 (September 20, 2010); and Securities 

Exchange Act Release No. 34–62908 (September 14, 

2010); 75 FR 57321 (September 20, 2010). 

17The NetCoalition Decision does not address the 

statutory amendments encompassed by the DoddFrank Act in any way. No questions relating to the 

operation or effect of those amendments were 

before the D.C. Circuit in connection with the 

petitions for review of the Direct Order. Nor did the 

D.C. Circuit have any occasion to discuss those 

amendments in connection with the NetCoalition 

Decision. 

18 Direct Order at 74,781. 

19 Id. 

20See infra section 3(a)(ii)(C)(4)(c); Direct Order 

at 74,782–74,784. 

21NetCoalition Decision at 14–15. 

22 Id. at 25–27. 

23An intermarket sweep order is a limit order 

designated for automatic execution in a specific 

market center even when another market center is 

publishing a better quotation; they are typically 

used by institutional algorithmic investors, not 

retail investors. 

services; 14 NYSE Arca proposes to 

continue to assess these fees. For 

nonprofessional subscribers, Nasdaq 

charges a device fee of $14 per month 

for its TotalView product and $1 per 

month for its OpenView product. NYSE 

charges nonprofessional subscribers a 

monthly device fee of $15, with a 

monthly maximum of $25,000.15 NYSE 

Arca subjects its monthly maximum for 

nonprofessional subscribers to the same 

annual escalator as NYSE. 

For direct access, NYSE Arca will 

continue to charge $750 per month for 

a set of up to four logons For indirect 

access, NYSE Arca will continue to 

charge $750 per month for any number 

of logons. In contrast, NYSE charges 

$5,000 per month for direct or indirect 

access to OpenBook and Nasdaq charges 

$2,500 per month for access to 

TotalView and another $2,500 per 

month for access to the OpenView 

datafeed. 

B. Dodd-Frank Act 

Some industry participants have 

expressed the view that the Dodd-Frank 

Act materially alters the scope of the 

Commission’s review of fee filings for 

proprietary market data products.16 In 

the Dodd-Frank Act, Congress allowed 

the Commission to rely upon the forces 

of competition to ensure that fees for 

market data are fair and reasonable. The 

Dodd-Frank Act creates a presumption 

that exchange fees, including market 

data fees imposed upon non-members, 

are to take effect immediately. It 

provides that the Commission should 

only take action to temporarily suspend 

a fee change (which suspension would 

then be followed by a proceeding to 

determine whether the fee change 

should be approved or disapproved) in 

certain specified situations.17 There is 

no basis to suspend the immediate 

effectiveness of this filing. 

C. Competition 

ArcaBook fees are fair and reasonable 

because competition for order flow 

provides an effective constraint on the 

level of fees that the Exchange has the 

ability and incentive to charge for its 

market data products. 

1. The Direct Order 

In approving the fees in the Direct 

Order, the Commission adopted a 

‘‘market-based approach’’ to assess 

whether non-core fees, such as the 

ArcaBook fees, satisfy the statutory 

requirements of fairness and 

reasonableness. Under this two-part 

approach, the Commission first 

determines ‘‘whether the exchange was 

subject to significant competitive forces 

in setting the terms of its proposal for 

non-core data, including the level of any 

fees.’’ 18 If so, the Commission approves 

the proposal ‘‘unless it determines that 

there is a substantial countervailing 

basis to find that the terms’’ violate the 

Exchange Act or Commission rules.19

In the Direct Order, the Commission 

approved the ArcaBook fees after 

determining that the market-based 

approach provided alternative 

indicators of price fairness and 

reasonableness that made Commission 

consideration of costs unnecessary. It 

cited the availability to market 

participants of alternatives to 

purchasing ArcaBook data. The Direct 

Order also cited NYSE Arca’s 

compelling need to attract order flow 

from market participants and the 

negative effect of higher market data 

fees on order flow. The Commission 

found no countervailing basis to find 

that the terms of the Exchange’s 

proposal violated the Exchange Act or 

the Commission’s rules.20

2. The NetCoalition Decision 

The D.C. Circuit held that the 

Commission’s market-based approach 

does not contravene the Exchange Act, 

rejecting the Petitioners’ claims that 

Congress intended for the Commission 

to apply a cost-based approach in 

determining whether market data fees 

are fair and reasonable.21 However, the 

Court found that the record did not 

provide adequate support for the 

Commission’s determinations that (i) 

the availability of alternatives to 

ArcaBook data and (ii) the adverse effect 

of higher ArcaBook fees on order flow 

and trading revenues provide effective 

constraints on the market data fees that 

the Exchange has the ability and 

incentive to charge.22

3. The Competitive Market for Market 

Data Products 

Several features of the market data 

business directly indicate that it is 

subject to competition. Investors can 

find suitable substitutes for most 

proprietary market data products. A 

market stands a high risk that investors 

may substitute another source of market 

information for its own because 

securities and investment 

methodologies are fungible. 

A high correlation exists among the 

fee levels that NYSE, NYSE Arca, 

Nasdaq, and NASDAQ OMX BX charge 

and among the characteristics of their 

respective proprietary data products. 

That itself is consistent with the 

presence of competition in general, and 

of competition among those participants 

in particular. Similarly, the history and 

continued schedule of product 

innovation are consistent with the 

presence of competition. Examples 

include the advent of multicast feeds, 

format improvements, new execution 

messages, improvements in message 

efficiency, enterprise licensing, unified 

pricing for multiple categories of data, 

free trials, nonprofessional subscriber 

discounts, and new alternative 

methodologies for counting usage. 

These changes and innovations, and the 

fact that other markets adopted similar 

changes, provide strong evidence of 

competition in the market for depth-ofbook data products among exchanges. 

4. Availability of Alternatives to 

ArcaBook 

One reason that ArcaBook fees are fair 

and reasonable is that market 

participants have alternatives to 

purchasing ArcaBook data. For example, 

market participants can use depth-ofbook data from BATS, NYSE, and/or 

Nasdaq to gauge liquidity and place 

orders at NYSE Arca and/or at other 

markets. Indeed, NYSE Arca’s data 

indicates that ten of the top 30 users of 

intermarket sweep orders (‘‘ISOs’’) 23 on 

NYSE Arca do not subscribe to 

ArcaBook. They believe they have 

adequate sources of data to submit ISOs 

without purchasing ArcaBook data. 

To illustrate how the availability of 

alternatives constrains fees for depth-ofbook data, suppose there were a 

hypothetical increase in the fee for a 

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Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 70315 

24Copies of all charts and tables referenced 

herein are included in Exhibit 3 B. 

25 It should also be noted that before NYSE Arca 

began charging for ArcaBook, many users were not 

required to report their ArcaBook usage to the 

Exchange. Table 8’s pre-2009 figures thus likely 

understate both the number of users before the 

Exchange began to charge and the magnitude of the 

decline in users after NYSE Arca began to charge. 

26Together, these 30 firms accounted for 

approximately 56% of NYSE Arca’s Tape A and 

Tape B volume for June 2010. 

27These statistics likely understate the 

comparative contributions of sophisticated users of 

depth-of-book data. Because of the way market 

participants submit, execute, and report trades, the 

data the Exchange used to derive these statistics 

does not include all trades that are attributable to 

these firms. (For example, ‘‘Firm A’’ may purchases 

ArcaBook data under the name ‘‘Firm A’’ but submit 

trades under many different names. This data 

would not capture trades by entities other than 

‘‘Firm A’’.) 

28See NetCoalition Decision at 26 n.14. 

market’s depth-of-book data from $10 to 

$15, where $10 is the fair and 

reasonable level. Suppose that at $10 

the depth-of-book data would have 

1,000 subscribers, and thus total 

revenue of $10,000. Suppose that an 

increase in the fee to $15 would cause 

400 users to cancel their subscriptions 

in favor of available alternatives (which 

might include not purchasing depth-ofbook data at all), leaving 600 subscribers 

and total revenue of $9,000. Assuming 

there are no variable costs that depend 

on the number of subscribers, the 

hypothetical fee increase would reduce 

net revenue by $1,000, and hence the 

Exchange would not have an incentive 

to raise the price from $10 to $15. 

NYSE Arca’s experience also 

demonstrates that its proprietary market 

data customers are sensitive to the price 

charged for access to ArcaBook, and that 

the elasticity of demand for access to 

ArcaBook would deter the Exchange 

from requesting a fee unconstrained by 

competitive forces. The Commission 

issued the Direct Order in December 

2008, and NYSE Arca started charging 

for ArcaBook soon after. As Table 8 24

shows, there was an immediate and 

significant reduction in the number of 

accounts with at least one subscription 

for ArcaBook after the Exchange started 

charging for ArcaBook.25 One can infer 

that any unreasonable increase in the 

fee would cause a loss in subscribers, 

and therefore a loss of the fee revenue 

that NYSE Arca would earn from these 

subscribers. 

Another way to examine this issue is 

to examine the nature of the market for 

depth-of-book data. The D.C. Circuit 

noted that depth-of-book data might be 

of more use for certain types of market 

participants than others, and NYSE Arca 

agrees. One important category of users 

of depth-of-book data are those who use 

ISOs. The primary type of ISO on NYSE 

Arca is the ‘‘PNP ISO’’ order type. In July 

2010, 30 firms generated approximately 

99% of the PNP ISO orders on NYSE 

Arca (by both trade and order 

volume).26 There are several important 

pieces of information that go with that 

statistic: First, ten of the firms 

(approximately 33.3% of the firms, 

representing approximately 7.4% of the 

PNP ISO orders) did not subscribe to 

ArcaBook in June 2010, indicating that 

they believed they had viable alternative 

sources of the data necessary to submit 

large ISOs on NYSE Arca). 

Second, the top 20 firms that used 

ISOs on NYSE Arca and did subscribe 

to ArcaBook accounted for 54.72% of 

NYSE Arca’s Tape A and Tape B 

volume for June 2010.27

This confirms that users of depth-ofbook data account for significant trading 

volume, even though they only amount 

to a small percentage of all traders.28

In assessing the competitive 

landscape for depth-of-book data, one 

must determine whether the availability 

of alternative depth-of-book products 

would make this subset of market 

participants sensitive to one market’s 

unreasonable depth-of-book product 

pricing. We believe that it is self-evident 

that it does. All of the investors within 

this subset make rapid decisions 

regarding what market data to purchase 

and where to direct their orders. They 

base those decisions on all their costs to 

trade (including the costs of market data 

they choose to purchase). They invest 

significant amounts of capital based on 

those decisions. 

In contrast, the primary objectors to 

the 2006 Rule Change were data vendors 

(as opposed to market participants) 

whose business interests lie firmly 

rooted in reselling the exchanges’ 

market data at significant mark-ups (or 

in attracting ‘‘eyeballs’’ to their sites to 

generate advertising revenue). For acting 

as middlemen in distributing the 

exchanges’ market data to investors, 

traditional market data vendors, such as 

several that are SIFMA members, 

receive from investors a large multiple 

of the amounts that those vendors pay 

the exchanges for the right to distribute 

the data. No statutory standard 

constrains the amounts that those 

vendors may charge investors. 

Obviously, protesting the exchanges’ 

fees is in their business interests 

because, if successful, it would increase 

their profit margins. 

5. Competition for Orders and Trades 

In addition, ArcaBook fees are fair 

and reasonable because competition for 

order flow and trade executions 

provides an effective constraint on the 

level of fees that the Exchange has the 

ability and incentive to charge for its 

market data products. NYSE Arca 

competes for orders, which represent 

liquidity, by offering liquidity rebates 

and by advertising those orders through 

dissemination of depth-of-book data. 

NYSE Arca competes for trades by 

offering liquidity, competitive trading 

fees, and high quality, efficient trading 

services. 

a. Hypothetical 

The hypothetical discussed above can 

be adapted to demonstrate how (i) the 

availability of alternatives to an 

exchange’s depth-of-book data, 

combined with (ii) the adverse effect of 

a higher fee for depth-of-book data on 

net revenue from execution of trades, 

together constrain the fee for depth-ofbook data to a fair and reasonable level. 

As before, suppose there were a 

hypothetical increase in the fee for 

depth-of-book data from $10 to $15, 

where $10 is the fair and reasonable 

level. Suppose that at $10, the depth-ofbook data product would have 1,000 

subscribers, and thus total revenue of 

$10,000. Suppose that an increase in the 

fee to $15 would cause 200 users (rather 

than 400, as in the preceding 

hypothetical) to cancel their 

subscriptions, leaving 800 subscribers 

and total revenue of $12,000. Assuming 

no variable costs that depend on 

number of subscribers, the hypothetical 

fee increase would increase net revenue 

by $2,000, and hence the exchange 

would have an incentive to raise the 

price from $10 to $15. However, 

suppose that the increase in the price of 

depth-of-book data caused a reduction 

in order flow and net trading revenue 

(above variable costs) from $25,000 to 

$21,000. In that case, the sum of net 

revenues from the depth-of-book data 

and execution of trades would decline 

from $35,000 to $33,000 as a result of 

the increase in the fee for depth of book 

data, and the exchange would not have 

an incentive to raise the fee. This 

hypothetical is consistent with the 

record evidence regarding the linkage 

between market data and order flow. 

b. The Record Regarding Order Flow 

Competition 

Considerable evidence exists to 

support the conclusion that competition 

for order flow and the availability of 

suitable alternatives constrain fees for 

non-core market data to levels that are 

fair and reasonable, both within the 

existing record and as supplemented 

herein. 

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70316 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 

29 18 Review of Financial Studies 743 (2005). A 

copy of Hendershott & Jones is attached hereto as 

Exhibit 3 A. 30 Direct Order at 74,784 n. 218. 31 Id. at 755–58. 32 Id. at 764. See also id. at 765 (‘‘Given that 

Island’s going dark is a change in transparency that 

leads to order flow migration * * *.’’). 

33 Id. at 769. 

34 Id. at 779. 

35 Id. at 782–84. 

36 In addition, Hendershott & Jones noted that the 

introduction of NYSE’s OpenBook real-time limit 

order book data feed was associated with increased 

order flow to NYSE. Id. at 747. 

37This volatility evidences the speed and 

frequency with which market participants change 

their order routing determinations. 

38The TRF data includes non-exchange trades 

through NYSE, Nasdaq, BSE, NSX, and FINRA. 

39Ease of entry into this market is further 

evidenced by the recent entry of Direct Edge, which 

began operating two exchanges in July 2010. For the 

month of July 2010, the Direct Edge exchanges, 

EDGA and EDGX, accounted for 1.69% and 2.57%, 

respectively, of all tape-reported trade volume. For 

the month of August, those numbers increased to 

3.79% and 4.75%. This rapid increase in trading 

volume evidences both the ease of entry into this 

market and the speed with which market 

participants change the venues to which they route 

orders. Direct Edge’s rapid market share growth is 

not unique, NYSE Arca experienced a similarly 

rapid increase in market share when it commenced 

operations in 2004, and, as shown in Tables 4, 5, 

and 6, BATS’s trading volume grew quickly, further 

evidencing ease of entry. 

i. Hendershott & Jones 

Prior studies provide evidence that 

order flow on a market depends directly 

and substantially on the availability of 

depth-of-book data for that market. Of 

particular importance is an empirical 

study by Terrence Hendershott & 

Charles M. Jones, Island Goes Dark: 

Transparence, Fragmentation, and 

Regulation (‘‘Hendershott & Jones’’).29

Hendershott & Jones is an independent, 

exhaustive, refereed, published, and 

publicly available study, based on 

substantial empirical data and economic 

and statistical analysis, of the effects of 

one market’s decision to stop displaying 

depth-of-book data entirely for certain 

products (because it did not wish to 

comply with the then-current version of 

Regulation ATS). The Commission 

previously relied on this study in 

concluding that order flow competition 

constrains market data fees 30 (although 

the NetCoalition Decision did not refer 

to it). Hendershott and Jones are wellrespected academics. 

Hendershott and Jones studied the 

impact of Island ECN ceasing to display 

its limit order book in the three most 

active ETFs for which it was the 

dominant venue; this occurred in late 

2002. Hendershott and Jones found that 

Island’s share of trading activity in each 

of these three ETFs fell when Island 

ceased displaying its limit order book 

for those ETFs. The following are among 

the elements of this empirical study that 

support the Commission’s conclusion in 

the Direct Order that competition for 

order flow provides an effective 

constraint on the market data fees that 

the Exchange has the ability and 

incentive to charge: 

• Hendershott & Jones examined ‘‘all 

trades and quotes’’ for the three ETFs. 

Their analysis of these data demonstrate 

the direct and substantial relationship 

between order flow and the availability 

of market data. Island’s decision to 

cease displaying depth-of-book and 

other market data caused a 40% to 55% 

decline in trading in each of these ETFs 

on Island, and a comparable increase in 

trading in these ETFs at other venues, 

and those effects were immediate and 

statistically significant at a high level.31

Hendershott & Jones make clear that 

they found ‘‘order flow migration’’ to 

other venues after Island ceased 

displaying depth-of-book and other 

market data.32 Indeed, they concluded 

that the date Island went dark 

represented a ‘‘shift in regime’’ that not 

only caused order flow to migrate 

‘‘substantially’’ from Island to other 

markets, but also from ETFs to E-mini 

futures (a different product entirely).33

Hendershott & Jones also specifically 

addressed the point that even nonprofessional traders are likely to direct 

their order flow to venues in which 

more information about the likely terms 

of a trade is available.34

• Hendershott & Jones also analyzed 

what happened to order flow when 

Island eventually re-displayed depth-ofbook and other market data. When 

Island did so, it regained some (but not 

all) of the order flow it had lost.35

Hendershott & Jones thus provides 

detailed and persuasive evidence that 

availability of depth-of-book and other 

data relating to one trading venue has a 

substantial effect on the level of order 

flow at that venue.36

Hendershott & Jones supports an 

inference that an increase in the price of 

depth-of-book data for a market will 

cause a reduction in order flow at that 

market. Therefore, it is clear that, if a 

market were to consider charging a 

higher price for its depth-of-book data, 

it would need to weigh the increased 

revenues it would receive from depthof-book customers that continue to 

purchase the product against the 

reduced revenues from (a) subscription 

cancellations, and (b) fewer trade 

executions. Thus, the effect of 

availability of depth-of-book data on 

order flow constrains the ability and 

incentive of a market to charge a higher 

price for its depth-of-book data. 

ii. Pricing of Depth-of-Book Data by 

Exchanges Other Than NYSE and 

Nasdaq 

Observations of past and current 

behavior of markets support the 

conclusion that because of order flow 

competition markets do not have the 

ability or incentive to set supracompetitive prices for non-core market 

data. BATS (a recent entrant that has 

experienced significant market share 

growth) has publicly noted that part of 

its strategy to gain order flow is to 

provide its depth-of-book data for free, 

because BATS believes that the widest 

possible dissemination of these data is 

essential to attract order flow at the 

current stage of BATS’s development. 

NYSE Arca notes that it used the same 

strategy initially to attract order flow. If 

the price charged for depth-of-book data 

did not have a significant effect on order 

flow and revenue from the execution of 

trades, it would not be rational for 

BATS to provide its depth-of-book data 

free of charge, and it would not have 

been rational for NYSE Arca to have 

done so initially. 

iii. Effects of Competition on Shares of 

Trading 

In the Direct Order, the Commission 

concluded that there is fierce 

competition for order flow. More recent 

data show that this conclusion was 

correct and that competition has 

intensified. 

Table 1 shows the monthly trading 

volume of U.S. equities on NYSE Arca 

from 2001 through July 2010. After 

initially climbing, volume on NYSE 

Arca has been volatile, and, indeed, 

since October 2008 has fallen 

significantly. Table 2 shows NYSE 

Arca’s percentage share of U.S. equities 

trading. Together, Tables 1 and 2 show 

that market participants are not wedded 

to NYSE Arca’s platform and that NYSE 

Arca must continually compete to sell 

its trading services.37

The volatility and trends in the shares 

of total trading volume on each of the 

various markets demonstrate that 

competition among these markets in the 

sale of trading services is intense. Tables 

3, 4, 5, and 6 provide graphical 

decompositions of shares from 2001 

through July 2010 for NYSE Arca, 

NYSE, Nasdaq, the trade reporting 

facilities (‘‘TRFs’’), BATS, and other 

markets.38 Table 3 shows shares for all 

U.S. equities trading. It demonstrates 

that NYSE, NYSE Arca, and Nasdaq’s 

shares of trading have fallen, while the 

TRFs and BATS have taken a larger 

share of trading. This shows not only 

that the market for trading equities is 

competitive but also that entry has been 

easy.39 Table 4 shows similar results for 

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Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 70317 

40See Securities Exchange Act Release No. 34– 

62887 (September 10, 2010); 75 FR 57092 

(September 17, 2010); Securities Exchange Act 

Release No. 34–62907 (September 14, 2010); 75 FR 

57314 (September 20, 2010); and Securities 

Exchange Act Release No. 34–62908 (September 14, 

2010); 75 FR 57321 (September 20, 2010); see also 

attachment to August 1, 2008 Comment Letter of 

Jeffrey S. Davis, Vice President and Deputy General 

Counsel, NASDAQ OMX Group, Inc. (Statement of 

Janusz Ordover and Gustavo Bamberger) (a copy of 

which is attached hereto as Exhibit 3 C.). 

41See generally Mark Hirschey, Fundamentals of 

Managerial Economics at 600 (2009) (‘‘It is 

important to note, however, that although it is 

possible to determine the separate marginal costs of 

goods produced in variable proportions, it is 

impossible to determine their individual average 

costs. This is because common costs are expenses 

necessary for manufacture of a joint product. 

Common costs of production—raw material and 

equipment costs, management expenses, and other 

overhead—cannot be allocated to each individual 

by-product on any economically sound basis. * * * 

Any allocation of common costs is wrong and 

arbitrary.’’). This is not new economic theory. See, 

e.g., F.W. Taussig, ‘‘A Contribution to the Theory of 

Railway Rates,’’ Quarterly Journal of Economics 

V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division 

is purely arbitrary. These items of cost, in fact, are 

jointly incurred for both sorts of traffic; and I cannot 

share the hope entertained by the statistician of the 

Commission, Professor Henry C. Adams, that we 

shall ever reach a mode of apportionment that will 

lead to trustworthy results.’’). 

42See Report of the Staffs of the CFTC and SEC 

to the Joint Advisory Committee on Emerging 

Regulatory Issues—Findings Regarding the Market 

Events of May 6, 2010 at 76–79 (Sept. 30, 2010). 

That report again recognized that most retail order 

flow is handled by internalizers. See id. at 77. 

43 In addition, the evidence of competitive 

constraints on market data pricing (both directly 

and in the context of joint platforms) is so strong 

that it makes devoting the resources that would be 

necessary to try to incorporate a cost-based pricing 

model unnecessary. Because of the level of 

competition that already exists and the compelling 

need to devote regulatory resources to other issues, 

the Exchange does not believe there is any need for 

the Commission and markets to become embroiled 

in what would almost certainly become prolonged 

rate-making proceedings. Indeed, the amendment of 

Section 19 effected by the Dodd-Frank Act is further 

evidence that Congress intended market data fees to 

be governed by the development of competition in 

the markets rather than cost-based ratemaking. 

44See ‘‘Issues Surrounding Cost-Based Regulation 

of Market Data Prices,’’ which provides a view of 

cost-based pricing from a historical regulatory 

perspective, and ‘‘The Economic Perspective on 

Regulation of Market Data,’’ which provides an 

economic assessment of cost-based pricing. The two 

reports constitute Appendix C to NYSE’s comments 

to the 2000 Concept Release (‘‘NYSE Comments’’) 

and can be found on the Commission’s Web site at 

http://www.sec.gov/rules/concept/s72899/ 

buck1.htm. They are attached hereto as Exhibits 2 

D. and E. for the Commission’s convenience. 

45Footnote 11 to the NYSE Comments describes 

the significant nature of the burdens associated 

with cost-based pricing and the Exchange 

incorporates that discussion here by reference. 

Tape A, and in particular shows that the 

TRFs have captured a significant share 

of trading from other markets. Table 5 

shows shares for Tape B. Interestingly, 

Table 5 shows NYSE Arca coming into 

the market and quickly capturing a 

share of other exchanges’ trading 

activity. It goes on to show the TRFs 

then coming in and doing the same 

(including capturing a share of NYSE 

Arca’s trading activity), eventually 

achieving a share of nearly 30%. Table 

6 shows a similar result for Tape C. 

Table 7 shows data on the same shares 

for the period January 2010–July 2010. 

Moreover, this data provides 

additional support for the platform 

competition concept discussed below 

and further demonstrates that 

individual market depth-of-book 

products are substitutable to the extent 

market participants might not wish to 

purchase all such products. For 

example, large market participants place 

orders on many markets simultaneously, 

so they may not need all markets’ depthof-book products or may choose to 

purchase some but not others based on 

price and/or other features. Table 7 

shows that Nasdaq had approximately 

the same share in Tape A and B 

securities that NYSE Arca did during 

the January–July 2010 period, meaning 

that a market participant placing orders 

in both markets could choose one 

depth-of-book product rather than the 

other based on price and/or other 

features. 

iv. Effects of Competition on Trading 

Revenues 

Since July 2007 NYSE Arca’s per 

share net revenue capture has fallen and 

market share has declined, although its 

trading volume has increased somewhat 

due to growth in industry volumes. This 

is the result of fierce competition for 

order flow and is not consistent with 

NYSE Arca being able to set prices for 

its proprietary market data (such as 

ArcaBook) at its whim; it is also further 

support for the platform competition 

discussion below. As the Commission is 

aware, transaction fees have generally 

fallen across markets. The competition 

between those markets is passed 

through to traders in the form of lower 

net prices for trading services. 

D. Pricing for Joint Products 

Other market participants have noted 

that the liquidity provided by the order 

book, trade execution, core market data, 

and non-core market data are joint 

products of a joint platform and have 

common costs.40 The Exchange agrees 

with and adopts those discussions and 

the arguments therein. The Exchange 

also notes that the economics literature 

confirms that there is no way to allocate 

common costs between joint products 

that would shed any light on 

competitive or efficient pricing.41

That large market participants, 

including internalizers handling retail 

order flow, use proprietary exchange 

feeds (rather than CTS and CQS feeds) 

to make trade and routing decisions 

further demonstrates the joint nature of 

market data and order flow.42 So does 

the fact that some exchanges use certain 

market data quote revenue as a form of 

direct market maker liquidity provider 

rebate to drive more liquidity to their 

books in less active stocks. This 

highlights that market data and trade 

executions are joint products that are 

linked on a platform basis. Charts 3–7 

provide additional support for the 

existence of this type of platform 

competition. 

E. Pricing Non-Core Data Based on Cost 

Is Impractical 

The Exchange believes that, even if it 

were possible as a matter of economic 

theory, cost-based pricing for non-core 

market data would be so complicated 

that it could not be done practically.43

The record relating to the 2006 Rule 

Change includes several documents 

attesting to the difficulty of cost-based 

pricing in this area. In addition to those, 

we respectfully direct the Commission’s 

attention to two reports issued by PHB 

Hagler Bailly, Inc. (‘‘PHB’’).44 The New 

York Stock Exchange retained PHB to 

assist it in connection with its response 

to the Commission’s 2000 Concept 

Release on the Regulation of Market 

Information Fees and Revenues (the 

‘‘2000 Concept Release’’). The PHB 

reports conclude that cost-based pricing 

would inevitably stifle competition and 

innovation and entangle both the 

industry and the Commission in timeconsuming, expensive, and ultimately 

fruitless proceedings and data analysis. 

Their conclusions include the 

following: 

• Enormous Administrative Burdens. 

The administrative burdens that costbased pricing would place on all parties, 

in particular the Commission, would be 

‘‘enormous.’’ The Commission would 

have to cost-regulate a large number of 

participants. Extraordinary amounts of 

information, accounts, and reports 

would have to be standardized and 

analyzed to make determinations that 

would stand the scrutiny and challenges 

to which rate-making decisions are often 

subject. This is the source of the 

Exchange’s belief that cost-based rate 

regulation is infeasible.45

• Joint Products. It is impossible to 

regulate market data prices in isolation 

from prices charged by markets for other 

services that are joint products. Market 

data and transaction execution are ‘‘joint 

products,’’ linked in a way that pricing 

of one inevitably affects pricing of the 

other. If rate regulation were to reduce 

the revenues that could be realized from 

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70318 Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 

46See Report of the Staffs of the CFTC and SEC 

to the Joint Advisory Committee on Emerging 

Regulatory Issues—Findings Regarding the Market 

Events of May 6, 2010 at 77 (Sept. 30, 2010). 

47See NetCoalition Decision at 6 n.6; Direct Order 

at 74,788 & nn. 259–266. 48 15 U.S.C. 78f(b)(4). 

market data fees, then other fees— 

transaction fees or, in the case of the 

primary markets, listing fees—would 

have to be increased to maintain the 

total revenue infrastructure and the 

same level of services. However, 

because the three types of fees fall 

differently on broker-dealers following 

different business models and 

differently on broker-dealers, investors, 

and listed companies, the result would 

be a reallocation of market costs based 

not on competition and constituent 

governance but rather as a side-effect of 

governmental intervention. 

• Litigation. Under cost-based rate 

regulation, litigation is inevitable, if 

only to delay rate decisions deemed 

unfavorable by one party or another. 

• Waste and Negative Incentives. 

Consistently across industries where it 

has been used, cost-based regulation of 

pricing has been found to distort 

incentives, including incentives to 

minimize costs and to innovate, and to 

lead to considerable waste. Making 

arbitrary cost allocations provides 

disincentives for markets to invest in 

more resilient systems and to make their 

data services more widely available. It 

encourages padding and crosssubsidization of costs, yet provides no 

incentive to reduce costs through 

operating or administrative efficiencies. 

It would create incentives to use 

accounting practices to shift the 

recovery of costs to market data fees and 

away from transaction and listing fees. 

• Fee Increases. In contrast to the 

dramatic decline in market data costs 

over the past quarter century, under 

cost-based regulation of prices, it is 

quite possible the industry would 

experience over time frequent rate 

increases based on escalating expense 

levels. Without the demonstration of a 

strong need to move to this form of 

regulation, such a result cannot be 

justified. 

• Rate of Return. Rate regulation is 

never aimed solely at minimizing rates 

to consumers, since very low rates may 

affect the attractiveness of the business 

to competitors and potential 

competitors, or the level of service 

provided. The regulator must determine 

what rate of return is ‘‘fair’’ and provide 

a suitable incentive for service providers 

while protecting consumers as well. No 

one has demonstrated why the 

Commission needs to be the arbiter of 

this issue to enforce its responsibilities 

under Section 19 of the Exchange Act. 

• Market Forces. Rate regulation 

implies a belief that an industry cannot 

rely upon market forces. We believe that 

constituent boards and customer control 

have in fact provided the pricing 

discipline that any government would 

expect and desire in the area of market 

data services and fees. Indeed, the 

discussion above demonstrates that the 

competitive constraints that apply to 

market data pricing are formidable. 

• Trends. In contrast to cost-based 

pricing, the Commission’s market-based 

approach to approving market data fees 

is currently the goal of many other 

regulatory bodies in other industries. 

Even in industries historically subject to 

utility regulation, cost-based rate 

making has been discredited and other 

regulated industries are moving away 

from cost-based rate-making. Proprietary 

market data dissemination is far from an 

ordinary utility function, and cost-based 

regulation is particularly inappropriate 

in the proprietary market data arena. 

Such results would not be in the best 

interests of market participants and 

would be inconsistent with Congress’s 

direction that the Commission use its 

authority to foster the development of 

the national market system. 

F. Impact on Retail Investors 

Pricing for non-core data products 

generally does not impact retail 

investors. As the Commission and the 

Commodities Futures Trading 

Commission recently noted, most retail 

equities transactions are internalized by 

a broker-dealer.46

That makes depth-of-book data of 

little relevance to retail investors. And 

retail broker-dealers are not required to 

purchase depth-of-book data to fulfill 

their duties of best execution.47

iii. Contracts 

As before, the Exchange will require 

or continue to require each recipient of 

a datafeed containing NYSE Arca Data 

to enter into the form of ‘‘vendor’’ 

agreement into which the CTA and CQ 

Plans require recipients of the Network 

A datafeeds to enter. That agreement 

will authorize the datafeed recipient to 

provide NYSE Arca Data services to its 

customers or to distribute the data 

internally. 

In addition, the Exchange will require 

or continue to require each professional 

end-user that receives NYSE Arca Data 

displays from a vendor or broker-dealer 

to enter into the form of professional 

subscriber agreement into which the 

CTA and CQ Plans require end users of 

Network A data to enter. It will also 

require or continue to require vendors 

and broker-dealers to subject 

nonprofessional subscribers to the same 

contract requirements as the CTA and 

CQ Plan Participants require of Network 

A nonprofessional subscribers. 

The Network A Participants drafted 

the vendor and Network A professional 

subscriber agreements as one-size-fitsall forms to capture most categories of 

market data dissemination. They are 

sufficiently generic to accommodate or 

continue to accommodate NYSE Arca 

Data. The Participants in the CTA and 

CQ Plans have submitted the vendor 

form and the professional subscriber 

form to the Commission on Form 19b– 

4 on multiple occasions. (See Release 

Nos. 34–22851 (January 31, 1986), 34– 

28407 (September 10, 1990), and 34– 

49185 (February 4, 2004). 

2. Statutory Basis 

For the foregoing reasons, NYSE Arca 

believes that the proposed rule change 

is consistent with the provisions of 

Section 6 of the Act, in general, and 

with Section 6(b)(4) 48 of the Act, in 

particular, in that it provides for the 

equitable allocation of reasonable dues, 

fees and other charges among members 

and issuers and other persons using the 

facilities of NYSE Arca. In this regard, 

the market data fees that are the subject 

of this filing, in conjunction with fees 

for other services, provide for an 

equitable allocation of NYSE Arca’s 

overall costs among users of its services. 

The market data fees are fair and 

reasonable because they compare 

favorably to fees that other markets 

charge for similar products and because 

competition provides an effective 

constraint on the market data fees that 

the Exchange has the ability and 

incentive to charge. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

For the reasons described above, the 

Exchange believes that the re-proposed 

fees will not impose any burden on 

competition that is not necessary or 

appropriate in the furtherance of the 

purposes of the Exchange Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

The Exchange has not solicited, and 

does not intend to solicit, comments 

regarding the proposed rule change or 

re-authorization. Subsequent to the 

NetCoaliton Decision, the Exchange has 

not received any unsolicited written 

comments from Exchange participants 

or other interested parties. 

mstockstill on DSKH9S0YB1PROD with NOTICES

Federal Register / Vol. 75, No. 221 / Wednesday, November 17, 2010 / Notices 70319 

49 15 U.S.C. 78s(b)(3)(A)(ii). 

50 17 CFR 240.19b–4(f)(2). 

51The text of the proposed rule change is 

available on the Commission’s Web site at http:// 

www.sec.gov/rules/sro.shtml. 

52 17 CFR 200.30–3(a)(12). 

1 15 U.S.C.78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Form 19b–4 Information of the proposed 

rule change at 3. 

4NYSE Arca Equities Rule 8.600(c)(1) provides 

that, among other criteria, a Managed Fund Share 

is a security that represents an interest in an 

investment company registered under the 

Investment Company Act of 1940 (15 U.S.C. 80a) 

(‘‘1940 Act’’) organized as an open-end investment 

company or similar entity that invests in a portfolio 

of securities selected by its investment adviser 

consistent with its investment objectives and 

policies. In contrast, an open-end investment 

company that issues Investment Company Units, 

listed and traded on the Exchange under NYSE 

Arca Equities Rule 5.2(j)(3), seeks to provide 

investment results that correspond generally to the 

price and yield performance of a specific foreign or 

domestic stock index, fixed income securities index 

or combination thereof. 

5The Commission approved NYSE Arca Equities 

Rule 8.600 and the listing and trading of certain 

shares of the PowerShares Actively Managed Funds 

Trust on the Exchange pursuant to Rule 8.600 in 

Securities Exchange Act Release No. 57619 (April 

4, 2008), 73 FR 19544 (April 10, 2008) (SR– 

NYSEArca–2008–25). The Commission also 

previously approved listing and trading on the 

Exchange of Managed Fund Shares under Rule 

8.600. See, e.g., Securities Exchange Act Release 

Nos. 57801 (May 8, 2008), 73 FR 27878 (May 14, 

2008) (SR–NYSEArca–2008–31) (order approving 

Exchange listing and trading of twelve activelymanaged funds of the WisdomTree Trust); 60981 

(November 10, 2009), 74 FR 59594 (November 18, 

2009) (SR–NYSEArca–2009–79) (order approving 

listing of five fixed income funds of the PIMCO ETF 

Continued 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change has become 

effective upon filing pursuant to Section 

19(b)(3)(A)(ii) of the Act 49 and 

subparagraph (f)(2) of Rule 19b–4 

thereunder 50 because it establishes a 

due, fee, or other charge imposed by the 

Exchange. At any time within 60 days 

of the filing of the proposed rule change, 

the Commission summarily may 

suspend such rule change if it appears 

to the Commission that such action is 

necessary or appropriate in the public 

interest, for the protection of investors, 

or otherwise in furtherance of the 

purposes of the Act. If the Commission 

takes such action, the Commission shall 

institute proceedings to determine 

whether the proposed rule should be 

approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSEArca–2010–97 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2010–97. This 

file number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission,51 all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, on official business 

days between the hours of 10 a.m. and 

3 p.m. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–NYSEArca–2010–97 and 

should be submitted on or before 

December 8, 2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.52

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–28893 Filed 11–16–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63292; File No. SR– 

NYSEArca-2010–98] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change Relating to the Listing 

and Trading of the WisdomTree 

Managed Futures Strategy Fund 

November 9, 2010. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that, 

on November 1, 2010, NYSE Arca, Inc. 

(‘‘Exchange’’ or ‘‘NYSE Arca’’ or 

‘‘Corporation’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to list and 

trade the shares of the following fund of 

the WisdomTree Trust (‘‘Trust’’) under 

NYSE Arca Equities Rule 8.600: 

WisdomTree Managed Futures Strategy 

Fund (‘‘Fund’’). The shares of the Fund 

are collectively referred to herein as the 

‘‘Shares.’’ 3 The text of the proposed rule 

change is available at the Exchange, the 

Commission’s Public Reference Room, 

and http://www.nyse.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of, and basis for, 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of those 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares of the Fund under 

NYSE Arca Equities Rule 8.600,4 which 

governs the listing and trading of 

‘‘Managed Fund Shares’’ on the 

Exchange.5

mstockstill on DSKH9S0YB1PROD with NOTICES