73140 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices 

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

2 17 CFR 240.19b–4. 

3PHOTO Historical Data will be available for the 

month of August 2010 and for each calendar month 

dating back to January 2009. PHOTO Historical Data 

will not be available for any calendar month prior 

to January 2009. 

4See Securities Exchange Act Release No. 62887 

(September 10, 2010), 75 FR 57092 (September 17, 

2010) (SR–Phlx–2010–121). 

5PHOTO Historical Data will provide subscribers 

with the aggregate number of ‘‘opening purchase 

transactions’’ in the affected series for each trading 

session conducted during the calendar month(s) 

selected. An opening purchase transaction is an 

Exchange options transaction in which the 

purchaser’s intention is to create or increase a long 

position in the series of options involved in such 

transaction. See Exchange Rule 1000(b)(24). PHOTO 

Historical Data will also provide subscribers with 

the aggregate number of ‘‘opening writing 

transactions’’ in the affected series for each trading 

session conducted during the calendar month(s) 

selected. An opening writing transaction is an 

Exchange options transaction in which the seller’s 

(writer’s) intention is to create or increase a short 

position in the series of options involved in such 

transaction. See Exchange Rule 1000(b)(25). 

6PHOTO Historical Data will provide subscribers 

with the aggregate number of ‘‘closing purchase 

transactions’’ in the affected series for each trading 

session conducted during the calendar month(s) 

selected. A closing purchase transaction is an 

Exchange options transaction in which the 

purchaser’s intention is to reduce or eliminate a 

short position in the series of options involved in 

such transaction. See Exchange Rule 1000(b)(27). 

PHOTO Historical Data will also provide 

subscribers with the aggregate number of ‘‘closing 

sale transactions’’ in the affected series for each 

trading session conducted during the calendar 

month(s) selected. A closing sale transaction is an 

Exchange options transaction in which the seller’s 

intention is to reduce or eliminate a long position 

in the series of options involved in such 

transaction. See Exchange Rule 1000(b)(26). 

7An SQT is an Exchange Registered Options 

Trader (‘‘ROT’’) who has received permission from 

the Exchange to generate and submit option 

quotations electronically in options to which such 

SQT is assigned. See Exchange Rule 1014(b)(ii)(A). 

8An RSQT is an ROT that is a member or member 

organization with no physical trading floor 

presence who has received permission from the 

Exchange to generate and submit option quotations 

electronically in options to which such RSQT has 

been assigned. An RSQT may only submit such 

quotations electronically from off the floor of the 

Exchange. See Exchange Rule 1014(b)(ii)(B). 

9The term ‘‘professional’’ means any person or 

entity that (i) is not a broker or dealer in securities, 

and (ii) places more than 390 orders in listed 

options per day on average during a calendar month 

for its own beneficial account(s). A professional 

will be treated in the same manner as an off-floor 

broker-dealer for purposes of Rules 1014(g) (except 

with respect to all-or-none orders, which will be 

treated like customer orders), 1033(e), 1064.02 

(except professional orders will be considered 

customer orders subject to facilitation), and 1080.08 

as well as Options Floor Procedure Advices B–6, 

B–11 and F–5. Member organizations must indicate 

whether orders are for professionals. See Exchange 

Rule 1000(b)(14). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63351; File No. SR–Phlx– 

2010–154] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX, Inc.; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to 

Fees for the PHOTO Historical Data 

Product 

November 19, 2010. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on November 

8, 2010, NASDAQ OMX PHLX, Inc. 

(‘‘Phlx’’ or the ‘‘Exchange’’) 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 proposes to amend its 

fee schedule by establishing fees for a 

new market data product, PHLX 

Options Trade Outline (‘‘PHOTO’’) 

Historical Data. PHOTO Historical Data 

provides subscribers with historical 

information about the past activity on 

the Exchange during a particular 

calendar month, broken down by each 

option series traded on the Exchange.3

The proposed fees would become 

effective on and after November 15, 

2010. PHOTO Historical Data is 

available only for internal use and 

distribution by subscribers. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqtrader.com/ 

micro.aspx?id=PHLXfilings, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to establish fees for the 

PHOTO Historical Data market data 

product. 

PHOTO 

In September 2010, the Exchange 

established fees for its PHOTO market 

data product.4 PHOTO is a market data 

product offered by the Exchange that is 

designed to provide proprietary 

electronic trade data to subscribers. 

PHOTO is available as either an ‘‘Endof-Day’’ data product or an ‘‘Intra-Day’’ 

data product, as described more fully 

below. PHOTO Historical Data will 

permit a subscriber to select a particular 

prior calendar month or months and 

receive the ‘‘End of Day’’ or ‘‘Intra-Day’’ 

data for each trading session conducted 

during the calendar month(s) selected. 

Like PHOTO, the PHOTO Historical 

Data product is available to any person 

who wishes to subscribe to it, regardless 

of whether or not they are a member of 

the Exchange. The fees for the PHOTO 

Historical Data product are uniform for 

all subscribers. 

PHOTO Historical Data 

PHOTO Historical Data provides 

information about the past activity of all 

option series for each trading session 

conducted during a particular prior 

calendar month, as selected by the 

subscriber. PHOTO Historical Data 

subscribers will receive the following 

data: 

• Aggregate number of buy and sell 

transactions in the affected series for 

each trading session conducted during 

the specified calendar month(s); 

• Aggregate volume traded 

electronically on the Exchange in the 

affected series for each trading session 

conducted during the specified calendar 

month(s); 

• Aggregate number of trades effected 

on the Exchange to open a position 5 for 

each trading session conducted during 

the specified calendar month(s); 

• Aggregate number of trades effected 

on the Exchange to close a position 6 for 

each trading session conducted during 

the specified calendar month(s); 

• Origin of the orders involved in 

trades on the Exchange in the affected 

series for each trading session 

conducted during the specified calendar 

month(s), specifically aggregated in the 

following categories of participants: 

Customers, broker-dealers, market 

makers (including specialists, 

Registered Options Traders (‘‘ROTs’’), 

Streaming Quote Traders (‘‘SQTs’’) 7 and 

Remote Streaming Quote Traders 

(‘‘RSQTs’’) 8), and professionals.9

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Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices 73141 

10For example, a subscriber who requests End of 

Day PHOTO Historical Data for the month of March, 

2009 would be charged $400.00. A subscriber who 

requests End of Day PHOTO Historical Data for the 

months of March, 2009 and April, 2009 would be 

charged $400.00 for the March, 2009 End of Day 

PHOTO Historical Data and $400.00 for the April, 

2009 End of Day PHOTO Historical Data, for a total 

of $800.00, etc. 

11For example, a subscriber who requests IntraDay PHOTO Historical Data for the Month of 

March, 2009 would be charged $750.00. A 

subscriber who requests Intra-Day PHOTO 

Historical Data for the months of March, 2009 and 

April, 2009 would be charged $750.00 for the 

March, 2009 Intra-Day PHOTO Historical Data and 

$750.00 for the April, 2009 Intra-Day PHOTO 

Historical Data, for a total of $1,500.00, etc. 

12 15 U.S.C. 78f. 

13 15 U.S.C. 78f(b)(4). 

14See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005). 

End of Day Product 

The End-of-Day product includes the 

aggregate data described above 

representing the entire trading session. 

It is calculated during an overnight 

process after each trading session and is 

available to subscribers for download 

the following morning at approximately 

7 a.m., ET. PHOTO Historical Data will 

provide this data for each trading 

session conducted during the calendar 

month(s) selected by the subscriber. 

The fee for the PHOTO Historical Data 

End of Day product for subscribers is 

$400.00 per calendar month selected.10

Intra-Day Product 

The Intra-Day product includes 

periodic, cumulative data for a 

particular trading session. The Intra-Day 

product is produced and updated every 

ten minutes during the trading day. Data 

is captured in ‘‘snapshots’’ taken every 

10 minutes throughout the trading day 

and is available to subscribers within 5 

minutes of the conclusion of each 10- 

minute period. For example, subscribers 

to the Intra-Day product will receive the 

first calculation of intra-day data at 9:44 

a.m. ET, which represents data captured 

from 9:30 a.m. to 9:39 a.m. Subscribers 

will receive the next update at 9:54 a.m., 

representing the data previously 

provided together with data captured 

from 9:40 a.m. through 9:49 a.m., and so 

forth. Each update will represent the 

aggregate data captured from the current 

‘‘snapshot’’ and all previous ‘‘snapshots.’’ 

PHOTO Historical Data will provide 

this regularly updated data for each 

trading session conducted during the 

specified calendar month(s) selected by 

the subscriber. The fee for the PHOTO 

Historical Data Intra-Day product 

subscribers is $750.00 per calendar 

month selected.11

PHOTO Historical Data provides 

subscribers data that should enhance 

their ability to analyze option trade and 

volume data, to evaluate historical 

trends in the trading activity of a 

particular option series, and to create 

and test trading models and analytical 

strategies. The Exchange believes that 

PHOTO Historical Data is a valuable 

tool that subscribers can use to gain 

comprehensive insight into the trading 

activity in a particular series. 

2. Statutory Basis 

PHLX believes that the proposed rule 

change is consistent with the provisions 

of Section 6 of the Act,12 in general, and 

with Section 6(b)(4) of the Act,13 in 

particular, in that it provides an 

equitable allocation of reasonable fees 

among users and recipients of PHLX 

data. In adopting Regulation NMS, the 

Commission granted self-regulatory 

organizations and broker-dealers 

increased authority and flexibility to 

offer new and unique market data to the 

public. It was believed that this 

authority would expand the amount of 

data available to consumers, and also 

spur innovation and competition for the 

provision of market data. 

The Commission concluded that 

Regulation NMS—by deregulating the 

market in proprietary data—would itself 

further the Act’s goals of facilitating 

efficiency and competition: 

‘‘[E]fficiency is promoted when brokerdealers who do not need the data beyond the 

prices, sizes, market center identifications of 

the NBBO and consolidated last sale 

information are not required to receive (and 

pay for) such data. The Commission also 

believes that efficiency is promoted when 

broker-dealers may choose to receive (and 

pay for) additional market data based on their 

own internal analysis of the need for such 

data.’’14

By removing ‘‘unnecessary regulatory 

restrictions’’ on the ability of exchanges 

to sell their own data, Regulation NMS 

advanced the goals of the Act and the 

principles reflected in its legislative 

history. If the free market should 

determine whether proprietary data is 

sold to broker-dealers at all, it follows 

that the price at which such data is sold 

should be set by the market as well. 

PHOTO is precisely the sort of market 

data product that the Commission 

envisioned when it adopted Regulation 

NMS. 

On July 21, 2010, President Barak 

Obama signed into law H.R. 4173, the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act of 2010 

(‘‘Dodd-Frank Act’’), which amended 

Section 19 of the Act. Among other 

things, Section 916 of the Dodd-Frank 

Act amended paragraph (A) of Section 

19(b)(3) of the Act by inserting the 

phrase ‘‘on any person, whether or not 

the person is a member of the selfregulatory organization’’ after ‘‘due, fee 

or other charge imposed by the selfregulatory organization.’’ As a result, all 

SRO rule proposals establishing or 

changing dues, fees, or other charges are 

immediately effective upon filing 

regardless of whether such dues, fees, or 

other charges are imposed on members 

of the SRO, non-members, or both. 

Section 916 further amended paragraph 

(C) of Section 19(b)(3) of the Exchange 

Act to read, in pertinent part, ‘‘At any 

time within the 60-day period beginning 

on the date of filing of such a proposed 

rule change in accordance with the 

provisions of paragraph (1) [of Section 

19(b)], the Commission summarily may 

temporarily suspend the change in the 

rules of the self-regulatory organization 

made thereby, 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 this title. If the Commission 

takes such action, the Commission shall 

institute proceedings under paragraph 

(2)(B) [of Section 19(b)] to determine 

whether the proposed rule should be 

approved or disapproved.’’ 

PHLX believes that these amendments 

to Section 19 of the Act reflect Congress’ 

intent to allow the Commission to rely 

upon the forces of competition to ensure 

that fees for market data are reasonable 

and equitably allocated. Although 

Section 19(b) had formerly authorized 

immediate effectiveness for a ‘‘due, fee 

or other charge imposed by the selfregulatory organization,’’ the 

Commission adopted a policy and 

subsequently a rule stipulating that fees 

for data and other products available to 

persons that are not members of the selfregulatory organization must be 

approved by the Commission after first 

being published for comment. At the 

time, the Commission supported the 

adoption of the policy and the rule by 

pointing out that unlike members, 

whose representation in self-regulatory 

organization governance was mandated 

by the Act, non-members should be 

given the opportunity to comment on 

fees before being required to pay them, 

and that the Commission should 

specifically approve all such fees. 

PHLX believes that the amendment to 

Section 19 reflects Congress’ conclusion 

that the evolution of self-regulatory 

organization governance and 

competitive market structure have 

rendered the Commission’s prior policy 

on non-member fees obsolete. 

Specifically, many exchanges have 

evolved from member-owned not-forprofit corporations into for-profit 

investor-owned corporations (or 

subsidiaries of investor owned 

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73142 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices 

15NetCoaltion [sic], at 15 (quoting H.R. Rep. No. 

94–229, at 92 (1975), as reprinted in 1975 

U.S.C.C.A.N. 321, 323). 16NetCoalition at 24. 

corporations). Accordingly, exchanges 

no longer have narrow incentives to 

manage their affairs for the exclusive 

benefit of their members, but rather 

have incentives to maximize the appeal 

of their products to all customers, 

whether members or nonmembers, so as 

to broaden distribution and grow 

revenues. Moreover, we believe that the 

change also reflects an endorsement of 

the Commission’s determinations that 

reliance on competitive markets is an 

appropriate means to ensure equitable 

and reasonable prices. Simply put, the 

change reflects a presumption that all 

fee changes should be permitted to take 

effect immediately, since the level of all 

fees are constrained by competitive 

forces. 

The recent decision of the United 

States Court of Appeals for the District 

of Columbia Circuit in NetCoaliton [sic] 

v. SEC, No. 09–1042 (DC Cir. 2010), 

although reviewing a Commission 

decision made prior to the effective date 

of the Dodd-Frank Act, upheld the 

Commission’s reliance upon 

competitive markets to set reasonable 

and equitably allocated fees for market 

data. ‘‘In fact, the legislative history 

indicates that the Congress intended 

that the market system ‘evolve through 

the interplay of competitive forces as 

unnecessary regulatory restrictions are 

removed’ and that the SEC wield its 

regulatory power ‘in those situations 

where competition may not be 

sufficient,’ such as in the creation of a 

‘consolidated transactional reporting 

system.’ ’’ 15

The court’s conclusions about 

Congressional intent are therefore 

reinforced by the Dodd-Frank Act 

amendments, which create a 

presumption that exchange fees, 

including market data fees, may take 

effect immediately, without prior 

Commission approval, and that the 

Commission should take action to 

suspend a fee change and institute a 

proceeding to determine whether the fee 

change should be approved or 

disapproved only where the 

Commission has concerns that the 

change may not be consistent with the 

Act. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

PHLX 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. 

Notwithstanding its determination that 

the Commission may rely upon 

competition to establish fair and 

equitably allocated fees for market data, 

the NetCoaltion [sic] court found that 

the Commission had not, in that case, 

compiled a record that adequately 

supported its conclusion that the market 

for the data at issue in the case was 

competitive. 

For the reasons discussed above, 

PHLX believes that the Dodd-Frank Act 

amendments to Section 19 materially 

alter the scope of the Commission’s 

review of future market data filings, by 

creating a presumption that all fees may 

take effect immediately, without prior 

analysis by the Commission of the 

competitive environment. 

Even in the absence of this important 

statutory change, however, PHLX 

believes that a record may readily be 

established to demonstrate the 

competitive nature of the market in 

question. 

There is intense competition between 

trading platforms that provide 

transaction execution and routing 

services and proprietary data products. 

Transaction execution and proprietary 

data products are complementary in that 

market data is both an input and a byproduct of the execution service. In fact, 

market data and trade execution are a 

paradigmatic example of joint products 

with joint costs. The decision whether 

and on which platform to post an order 

will depend on the attributes of the 

platform where the order can be posted, 

including the execution fees, data 

quality and price and distribution of its 

data products. Without the prospect of 

a taking order seeing and reacting to a 

posted order on a particular platform, 

the posting of the order would 

accomplish little. 

Without trade executions, exchange 

data products cannot exist. Data 

products are valuable to many end users 

only insofar as they provide information 

that end users expect will assist them or 

their customers in making trading 

decisions. 

The costs of producing market data 

include not only the costs of the data 

distribution infrastructure, but also the 

costs of designing, maintaining, and 

operating the exchange’s transaction 

execution platform and the cost of 

regulating the exchange to ensure its fair 

operation and maintain investor 

confidence. The total return that a 

trading platform earns reflects the 

revenues it receives from both products 

and the joint costs it incurs. Moreover, 

an exchange’s customers view the costs 

of transaction executions and of data as 

a unified cost of doing business with the 

exchange. A broker-dealer will direct 

orders to a particular exchange only if 

the expected revenues from executing 

trades on the exchange exceed net 

transaction execution costs and the cost 

of data that the broker-dealer chooses to 

buy to support its trading decisions (or 

those of its customers). The choice of 

data products is, in turn, a product of 

the value of the products in making 

profitable trading decisions. If the cost 

of the product exceeds its expected 

value, the broker-dealer will choose not 

to buy it. Moreover, as a broker-dealer 

chooses to direct fewer orders to a 

particular exchange, the value of the 

product to that broker-dealer decreases, 

for two reasons. First, the product will 

contain less information, because 

executions of the broker-dealer’s orders 

will not be reflected in it. Second, and 

perhaps more important, the product 

will be less valuable to that brokerdealer because it does not provide 

information about the venue to which it 

is directing its orders. Data from the 

competing venue to which the brokerdealer is directing orders will become 

correspondingly more valuable. 

Thus, a super-competitive increase in 

the fees charged for either transactions 

or data has the potential to impair 

revenues from both products. ‘‘No one 

disputes that competition for order flow 

is ‘fierce’.’’ 16 However, the existence of 

fierce competition for order flow 

implies a high degree of price sensitivity 

on the part of broker-dealers with order 

flow, since they may readily reduce 

costs by directing orders toward the 

lowest-cost trading venues. A brokerdealer that shifted its order flow from 

one platform to another in response to 

order execution price differentials 

would both reduce the value of that 

platform’s market data and reduce its 

own need to consume data from the 

disfavored platform. Similarly, if a 

platform increases its market data fees, 

the change will affect the overall cost of 

doing business with the platform, and 

affected broker-dealers will assess 

whether they can lower their trading 

costs by directing orders elsewhere and 

thereby lessening the need for the more 

expensive data. 

Analyzing the cost of market data 

distribution in isolation from the cost of 

all of the inputs supporting the creation 

of market data will inevitably 

underestimate the cost of the data. Thus, 

because it is impossible to create data 

without a fast, technologically robust, 

and well-regulated execution system, 

system costs and regulatory costs affect 

the price of market data. It would be 

equally misleading, however, to 

attribute all of the exchange’s costs to 

the market data portion of an exchange’s 

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Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices 73143 

17The International Securities Exchange, Inc. 

(‘‘ISE’’) Open/Close Trade Profile and the ISE Open/ 

Close Trade Profile Intra-Day contain substantially 

similar data to that included in PHOTO End of Day 

and PHOTO Intra-Day. See Securities Exchange Act 

Release No. 56254 (August 15, 2007), 72 FR 47104 

(August 22, 2007) (SR–ISE–2007–70). ISE currently 

sells the ISE Open/Close Trade Profile with 

historical data available back to May 2005, and sells 

the ISE Open/Close Trade Profile Intraday with 

historical data available separately back to October 

2009. See Securities Exchange act Release No. 

61317 (January 8, 2010), 75 FR 2915 (January 19, 

2010) (SR–ISE–2009–103). 

joint product. Rather, all of the 

exchange’s costs are incurred for the 

unified purposes of attracting order 

flow, executing and/or routing orders, 

and generating and selling data about 

market activity. The total return that an 

exchange earns reflects the revenues it 

receives from the joint products and the 

total costs of the joint products. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products, but 

different platforms may choose from a 

range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. For 

example, some platforms may choose to 

pay rebates to attract orders, charge 

relatively low prices for market 

information (or provide information free 

of charge) and charge relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower rebates (or no rebates) 

to attract orders, setting relatively high 

prices for market information, and 

setting relatively low prices for 

accessing posted liquidity. In this 

environment, there is no economic basis 

for regulating maximum prices for one 

of the joint products in an industry in 

which suppliers face competitive 

constraints with regard to the joint 

offering. This would be akin to strictly 

regulating the price that an automobile 

manufacturer can charge for car sound 

systems despite the existence of a highly 

competitive market for cars and the 

availability of aftermarket alternatives to 

the manufacturer-supplied system. 

The market for market data products 

is competitive and inherently 

contestable because there is fierce 

competition for the inputs necessary to 

the creation of proprietary data and 

strict pricing discipline for the 

proprietary products themselves. 

Numerous exchanges compete with 

each other for listings, trades, and 

market data itself, providing virtually 

limitless opportunities for entrepreneurs 

who wish to produce and distribute 

their own market data. This proprietary 

data is produced by each individual 

exchange, as well as other entities, in a 

vigorously competitive market. Brokerdealers currently have numerous 

alternative venues for their order flow, 

including ten self-regulatory 

organization (‘‘SRO’’) markets, as well as 

internalizing broker-dealers (‘‘BDs’’) and 

various forms of alternative trading 

systems (‘‘ATSs’’), including dark pools 

and electronic communication networks 

(‘‘ECNs’’). Each SRO market competes to 

produce transaction reports via trade 

executions, and two FINRA regulated 

Trade Reporting Facilities (‘‘TRFs’’) 

compete to attract internalized 

transaction reports. Competitive markets 

for order flow, executions, and 

transaction reports provide pricing 

discipline for the inputs of proprietary 

data products. For example, the 

Exchange notes that at least one other 

U.S. options exchange offers a market 

data product that is substantially similar 

to the PHOTO Historical Data product, 

which the PHLX must consider in its 

pricing discipline in order to compete 

for listings, trades, and the market data 

itself.17

The large number of SROs, TRFs, BDs, 

and ATSs that currently produce 

proprietary data or are currently capable 

of producing it provides further pricing 

discipline for proprietary data products. 

Each SRO, TRF, ATS, and BD is 

currently permitted to produce 

proprietary data products, and many 

currently do or have announced plans to 

do so, including PHLX, NASDAQ, 

NYSE, NYSE Amex, NYSEArca, and 

BATS. 

Any ATS or BD can combine with any 

other ATS, BD, or multiple ATSs or BDs 

to produce joint proprietary data 

products. Additionally, order routers 

and market data vendors can facilitate 

single or multiple broker-dealers’ 

production of proprietary data products. 

The potential sources of proprietary 

products are virtually limitless. 

The fact that proprietary data from 

ATSs, BDs, and vendors can by-pass 

SROs is significant in two respects. 

First, non-SROs can compete directly 

with SROs for the production and sale 

of proprietary data products, as BATS 

and Arca did before registering as 

exchanges by publishing proprietary 

book data on the Internet. Second, 

because a single order or transaction 

report can appear in an SRO proprietary 

product, a non-SRO proprietary 

product, or both, the data available in 

proprietary products is exponentially 

greater than the actual number of orders 

and transaction reports that exist in the 

marketplace. 

Market data vendors provide another 

form of price discipline for proprietary 

data products because they control the 

primary means of access to end users. 

Vendors impose price restraints based 

upon their business models. For 

example, vendors such as Bloomberg 

and Reuters that assess a surcharge on 

data they sell may refuse to offer 

proprietary products that end users will 

not purchase in sufficient numbers. 

Internet portals, such as Yahoo, impose 

a discipline by providing only data that 

will enable them to attract ‘‘eyeballs’’ 

that contribute to their advertising 

revenue. Retail broker-dealers, such as 

Schwab and Fidelity, offer their 

customers proprietary data only if it 

promotes trading and generates 

sufficient commission revenue. 

Although the business models may 

differ, these vendors’ pricing discipline 

is the same: They can simply refuse to 

purchase any proprietary data product 

that fails to provide sufficient value. 

PHLX and other producers of 

proprietary data products must 

understand and respond to these 

varying business models and pricing 

disciplines in order to market 

proprietary data products successfully. 

In addition to the competition and 

price discipline described above, the 

market for proprietary data products is 

also highly contestable because market 

entry is rapid, inexpensive, and 

profitable. The history of electronic 

trading is replete with examples of 

entrants that swiftly grew into some of 

the largest electronic trading platforms 

and proprietary data producers: 

Archipelago, Bloomberg Tradebook, 

Island, RediBook, Attain, TracECN, 

BATS Trading and Direct Edge. A 

proliferation of dark pools and other 

ATSs operate profitably with 

fragmentary shares of consolidated 

market volume. 

Regulation NMS, by deregulating the 

market for proprietary data, has 

increased the contestability of that 

market. While broker-dealers have 

previously published their proprietary 

data individually, Regulation NMS 

encourages market data vendors and 

broker-dealers to produce proprietary 

products cooperatively in a manner 

never before possible. Multiple market 

data vendors already have the capability 

to aggregate data and disseminate it on 

a profitable scale, including Bloomberg, 

and Thomson-Reuters. 

The court in NetCoalition concluded 

that the Commission had failed to 

demonstrate that the market for market 

data was competitive based on the 

reasoning of the Commission’s 

NetCoalition order because, in the 

court’s view, the Commission had not 

adequately demonstrated that the depthof-book data at issue in the case is used 

to attract order flow. PHLX believes, 

however, that evidence not before the 

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73144 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices 

18 15 U.S.C. 78s(b)(3)(A)(ii). 

19 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 53104 

(Jan. 11, 2006), 71 FR 2142 (Jan. 19, 2006) (Notice 

of Filing and Immediate Effectiveness of SR–ISE– 

2006–02). 

4See Securities Exchange Act Release No. 53103 

(Jan. 11, 2006), 71 FR 3144 (Jan. 19, 2006) (Notice 

of Filing of SR–ISE–2006–01). 

court clearly demonstrates that 

availability of depth data attracts order 

flow. 

Competition among platforms has 

driven PHLX continually to improve its 

platform data offerings and to cater to 

customers’ data needs. For example, 

PHLX offers front end applications such 

as its Top of PHLX Options (‘‘TOPO’’) 

and TOPO Plus Orders data products to 

help customers utilize data. 

For the foregoing reasons, PHLX 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 

purpose of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or 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.18 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–Phlx–2010–154 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–Phlx–2010–154. 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, 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–Phlx–2010–154 and should 

be submitted on or before December 20, 

2010. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.19

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2010–29892 Filed 11–26–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63357; File No. SR–ISE– 

2010–110] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change Relating to the Extension of a 

Pilot Program for Directed Orders 

November 22, 2010. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on November 16, 2010, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

the proposed rule change, as described 

in Items I and II below, which items 

have been prepared by the selfregulatory organization. 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 ISE is proposing to extend the 

pilot period for the system change that 

identifies to a Directed Market Maker 

(‘‘DMM’’) the identity of the firm 

entering a Directed Order until May 31, 

2011. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of 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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On January 5, 2006, the ISE initiated 

a system change to identify to a DMM 

the identity of the firm entering a 

Directed Order. The ISE filed this 

system change on a pilot basis under 

Section 19(b)(3)(A) of the Exchange Act 

of 1934 (the ‘‘Exchange Act’’) and Rule 

19b–4(f)(5) thereunder 3 so that it would 

be effective while the Commission 

considered a separate proposed rule 

change filed under Section 19(b)(2) of 

the Exchange Act to amend the ISE’s 

rules to reflect the system change on a 

permanent basis (the ‘‘Permanent Rule 

Change’’).4 The current pilot expires on 

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