Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices 2331 

10 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule 

19b–4(f)(6) requires a self-regulatory organization to 

give the Commission written notice of its intent to 

file the proposed rule change at least five business 

days prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 

11 Id. 

12See Securities Exchange Act Release No. 65196 

(August 25, 2011), 76 FR 54267 (August 31, 2011) 

(SR–EDGA–2011–28), stating the Exchange will 

provide notice to Members in an information 

circular when the proposed rule change will be 

effective, which will be no later than January 1, 

2012. 

13For the purposes only of waiving the 30-day 

operative delay, the Commission has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 14 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The proposed rule change establishing the 

NYSE Arca Integrated Data Feed was immediately 

Continued 

of filing.10 However, Rule 19b– 

4(f)(6)(iii) 11 permits the Commission to 

designate a shorter time if such action 

is consistent with the protection of 

investors and the public interest. The 

Exchange has requested that the 

Commission waive the 30-day operative 

delay. The Exchange notes that waiver 

of this requirement will permit the 

Exchange to immediately remove 

language from its rules that could 

otherwise create confusion for Members 

because the 7 a.m. ET start time has not 

been implemented.12 The Commission 

believes that waiving the 30-day 

operative delay is consistent with the 

protection of investors and the public 

interest because such waiver would 

allow the Exchange to notify its 

Members by January 1, 2012 as 

prescribed in the August 25 Rule Filing 

and would immediately provide 

certainty with respect to the Exchange’s 

rules regarding the start time for the PreOpening Session. For this reason, the 

Commission designates the proposed 

rule change to be operative upon filing 

with the Commission.13

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. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

EDGA–2011–41 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–EDGA–2011–41. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). 

Copies of the submission, all 

subsequent amendments, all written 

statements with respect to the proposed 

rule change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

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–EDGA– 

2011–41 and should be submitted on or 

before February 7, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.14

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–684 Filed 1–13–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66128; File No. SR– 

NYSEArca–2011–96] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Establish Fees for the 

NYSE Arca Integrated Data Feed 

January 10, 2012. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that, on December 

28, 2011, NYSE Arca, Inc. (the 

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

the Securities and Exchange 

Commission (‘‘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 establish 

fees for the NYSE Arca Integrated Data 

Feed. The text of the proposed rule 

change is available at the Exchange, the 

Commission’s Public Reference Room, 

and 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 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to establish 

fees for the NYSE Arca Integrated Data 

Feed.3 It is a market data product 


srobinson on DSK4SPTVN1PROD with NOTICES
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effective on October 26, 2011. See Securities 

Exchange Act Release No. 65669, (Nov. 2, 2011), 76 

FR 69311 (Nov. 8, 2011) (SR–NYSEArca–2011–78). 4See http://datasvr.tradearca.com/ 

arcadataserver/Auction.php. 5Security status information is available for other 

NYSE markets. NYSE Alerts and NYSE Amex Alerts 

are real-time data feed information services from 

the NYSE and NYSE Amex that provide real-time 

messages regarding certain conditions related to the 

trading of NYSE- and NYSE Amex-traded securities, 

including security trading status data. 

6Customers are separately responsible for the 

appropriate ArcaBook professional and 

nonprofessional user fees and NYSE Arca Trades 

user fees. 7NYSE Arca expects that data concerning 

quotations and transaction reports required to be 

disseminated under Rule 602 and 603 of Regulation 

NMS will be delivered from the Exchange’s 

matching engine to the Securities Information 

Processor, to the individual proprietary feeds 

described above, and to the NYSE Arca Integrated 

Data Feed at substantially the same time. The 

Commission notes that under Rule 603 NYSE Arca 

is required to distribute market data on terms that 

are fair and reasonable and not unreasonably 

discriminatory. See 17 CFR 242.603(a). In addition, 

the Commission notes that, ‘‘independently 

distributed data could not be made available on a 

more timely basis than core data is made available 

to a Network processor. Stated another way, * * * 

Rule 603(a) prohibits an SRO or broker-dealer from 

transmitting data to a vendor or user any sooner 

than it transmits the data to a Network processor.’’ 

Securities Exchange Act Release No. 51808 (June 9, 

2005), 70 FR 37496 (June 29, 2005), at 37567. 

Accordingly, the Commission notes that it would be 

inconsistent with Rule 603 for NYSE Arca to 

transmit data to the individual proprietary feeds 

any sooner than it transmits data to the Securities 

Information Processor. 

8 15 U.S.C. 78f(b). 

9 15 U.S.C. 78f(b)(4) and (5). 

10NetCoalition at 16. 

11Section 916 of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act of 2010 

(‘‘Dodd-Frank Act’’) amended paragraph (A) of 

Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to 

make clear that all exchange fees for market data 

may be filed by exchanges on an immediately 

effective basis. 

offered to vendors and subscribers that 

combines three existing market data 

feeds as well as additional market data 

from the Exchange into one integrated 

product. The three existing products are 

NYSE Arca BBO, NYSE Arca Trades, 

and ArcaBook. In addition, the NYSE 

Arca Integrated Data Feed includes 

order imbalance information prior to the 

opening and closing of trading and 

security status information (i.e., delayed 

openings and trading halts). The order 

imbalance information included in the 

NYSE Arca Integrated Data Feed is 

available pursuant to NYSE Arca 

Equities Rule 7.35 4 and as part of the 

NYSE ArcaBook data feed product. 

Security status information is not 

currently available through any other 

NYSE Arca market data products.5 The 

NYSE Arca Integrated Data Feed is 

available through the Exchange’s 

Liquidity Center Network (‘‘LCN’’) and 

the Secure Financial Transaction 

Infrastructure (‘‘SFTI’’) network. 

The proposed fees for the NYSE Arca 

Integrated Data Feed are as follows: 6

Fee type Monthly fee Description 

Direct Access Fee ............................................................................................................ $3,000 Applies to end users, market data vendors, and extranets. 

Redistribution Fee ............................................................................................................ 3,000 Additional fee applied to any end user, 

market data vendor, or extranet that redistributes the data feed. 

The Exchange notes that the three 

existing data feed products (NYSE Arca 

BBO, NYSE Arca Trades, and ArcaBook) 

would continue to be available to 

vendors and subscribers separately at 

the same prices at which they are 

currently available.7 The monthly 

access fee for each of those feeds on a 

separate basis is $750. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 8 in general and with Section 

6(b)(4) and 6(b)(5) of the Act 9 in 

particular in that it provides an 

equitable allocation of reasonable fees 

among users and recipients of the data 

and is not designed to permit unfair 

discrimination among customers, 

issuers, and brokers. The NYSE Arca 

Integrated Data Feed fees are reasonable 

because they represent not only the 

value of the three existing data feeds but 

also the value of the additional market 

data included (i.e., order imbalance 

information and security status 

information) and the value of receiving 

the data on an integrated basis. Some 

vendors and subscribers may not have 

the technology or resources to integrate 

the separate data feeds in a timely and/ 

or efficient manner, and thus the 

integration feature of the product may 

be valuable to them. The redistribution 

fee also is reasonable because vendors 

receive value from redistributing the 

NYSE Arca Integrated Data Feed in their 

business products for their customers. 

Moreover, the fees are equitably 

allocated and not unfairly 

discriminatory because vendors and 

subscribers may choose to continue to 

receive the separate feeds at current 

prices or can choose to pay more for the 

NYSE Arca Integrated Data Feed in 

order to receive additional and 

integrated data, thereby allowing the 

vendors and subscribers to choose the 

best business solution. 

The existence of alternatives to the 

NYSE Arca Integrated Data Feed, 

including real-time consolidated data, 

free delayed consolidated data, and 

proprietary data from other sources, as 

well as the continued availability of the 

Exchange’s separate data feeds, ensures 

that the Exchange cannot set 

unreasonable fees, or fees that are 

unreasonably discriminatory, when 

vendors and subscribers can elect such 

alternatives. The recent decision of the 

United States Court of Appeals for the 

District of Columbia Circuit in 

NetCoalition v. SEC, No. 09–1042 (DC 

Cir. 2010), upheld the Commission’s 

reliance upon the existence of 

competitive market mechanisms to set 

reasonable and equitably allocated fees 

for proprietary market data: 

In fact, the legislative history indicates that 

the Congress intended that the market system 

‘evolve through the interplay of competitive 

forces as unnecessary regulatory restrictions 

are removed’ and that the SEC wield its 

regulatory power ‘in those situations where 

competition may not be sufficient,’ such as 

in the creation of a ‘consolidated 

transactional reporting system.’ 

NetCoalition at 15 (quoting H.R. Rep. 

No. 94–229 at 92 (1975), as reprinted in 

1975 U.S.C.C.A.N. 321, 323). The court 

agreed with the Commission’s 

conclusion that ‘‘Congress intended that 

‘competitive forces should dictate the 

services and practices that constitute the 

U.S. national market system for trading 

equity securities.’ ’’10

As explained below in the Exchange’s 

Statement on Burden on Competition, 

the Exchange believes that there is 

substantial evidence of competition in 

the marketplace for data and that the 

Commission can rely upon such 

evidence in concluding that the fees 

established in this filing are the product 

of competition and therefore satisfy the 

relevant statutory standards.11 As the 

NetCoalition decision noted, the 

Commission is not required to 


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12See Securities Exchange Act Release No. 63291 

(Nov. 9, 2010), 75 FR 70311 (Nov. 17, 2010) (SR– 

NYSEArca–2010–97). 

13Concept Release on Equity Market Structure, 

Securities Exchange Act Release No. 61358 (Jan. 14, 

2010), 75 FR 3594 (Jan. 22, 2010) (File No. S7–02– 

10). This Concept Release included data from the 

third quarter of 2009 showing that no market center 

traded more than 20% of the volume of listed 

stocks, further evidencing the dispersal of and 

competition for trading activity. Id. at 3598. 

14Press Release, U.S. Department of Justice, 

Assistant Attorney General Christine Varney Holds 

Conference Call Regarding NASDAQ OMX Group 

Inc. and IntercontinentalExchange Inc. Abandoning 

Their Bid for NYSE Euronext (May 16, 2011), 

available at http://www.justice.gov/iso/opa/atr/ 

speeches/2011/at-speech-110516.html. 

15See Securities Exchange Act Release No. 62887 

(Sept. 10, 2010), 75 FR 57092, 57095 (Sept. 17, 

2010) (SR–Phlx-2010–121); Securities Exchange Act 

Release No. 62907 (Sept. 14, 2010), 75 FR 57314, 

57317 (Sept. 20, 2010) (SR–NASDAQ–2010–110); 

and Securities Exchange Act Release No. 62908 

(Sept. 14, 2010) (SR–NASDAQ–2010–111), 75 FR 

57321, 57324 (Sept. 20, 2010) (‘‘all of the 

exchange’s costs are incurred for the unified 

purposes of attracting order flow, executing and/or 

routing orders, and generating and selling data 

about market activity. The total return that an 

exchange earns reflects the revenues it receives 

from the joint products and the total costs of the 

joint products.’’); see also August 1, 2008 Comment 

Letter of Jeffrey S. Davis, Vice President and Deputy 

General Counsel, NASDAQ OMX Group, Inc., 

Statement of Janusz Ordover and Gustavo 

Bamberger (‘‘because market data is both an input 

to and a byproduct of executing trades on a 

particular platform, market data and trade 

Continued 

undertake a cost-of-service or 

ratemaking approach, and the Exchange 

incorporates by reference into this 

proposed rule change its analysis of this 

topic in another recent rule filing.12

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. An 

exchange’s ability to price its data feed 

products is constrained by (1) 

competition among exchanges and other 

trading platforms that compete with one 

another in a variety of dimensions, (2) 

the existence of inexpensive real-time 

consolidated data and free delayed 

consolidated data, and (3) the inherent 

contestability of the market for 

proprietary data. 

The market for proprietary data 

products is currently competitive and 

inherently contestable because there is 

fierce competition for the inputs 

necessary to the creation of proprietary 

data and strict pricing discipline for the 

proprietary products themselves. 

Numerous exchanges compete with 

each other for listings, 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. 

It is common for broker-dealers to 

further exploit this competition by 

sending their order flow and transaction 

reports to multiple markets, rather than 

providing them all to a single market. 

As a recent Commission Concept 

Release noted, the ‘‘current market 

structure can be described as dispersed 

and complex’’ with ‘‘trading volume 

* * * dispersed among many highly 

automated trading centers that compete 

for order flow in the same stocks’’ and 

‘‘trading centers offer[ing] a wide range 

of services that are designed to attract 

different types of market participants 

with varying trading needs.’’ 13

Competitive markets for order flow, 

executions, and transaction reports 

provide pricing discipline for the inputs 

of proprietary data products and 

therefore constrain markets from 

overpricing proprietary market data. 

The U.S. Department of Justice recently 

acknowledged the aggressive 

competition among exchanges. In 

announcing the abandoned bid for 

NYSE Euronext by NASDAQ OMX 

Group Inc. and 

IntercontinentalExchange Inc., Assistant 

Attorney General Christine Varney 

stated that exchanges ‘‘compete head to 

head to offer real-time equity data 

products. These data products include 

the best bid and offer of every exchange 

and information on each equity trade, 

including the last sale.’’ 14

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 trade 

executions, exchange data products 

cannot exist. Moreover, 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 Exchange notes in that 

respect that the NYSE Arca Integrated 

Data Feed would provide greater 

efficiencies and reduce errors for 

vendors and subscribers, including 

high-frequency traders, that otherwise 

would have to integrate the data feeds 

manually. 

The costs of producing market data 

include not only the costs of the data 

distribution infrastructure, but also the 

costs of designing, maintaining, and 

operating the exchange’s transaction 

execution platform and the cost of 

regulating the exchange to ensure its fair 

operation and maintain investor 

confidence. The total return that a 

trading platform earns reflects the 

revenues it receives from both products 

and the joint costs it incurs. Moreover, 

an exchange’s broker-dealer customers 

view the costs of transaction executions 

and of data as a unified cost of doing 

business with the exchange. A brokerdealer 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 brokerdealer 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 brokerdealer 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 importantly, the product will be 

less valuable to that broker-dealer 

because it does not provide information 

about the venue to which it is directing 

its orders. Data from the competing 

venue to which the broker-dealer is 

directing orders will become 

correspondingly more valuable. 

Similarly, in the case of products that 

are distributed through market data 

vendors, the vendors provide price 

discipline for proprietary data products 

because they control the primary means 

of access to certain end users. Vendors 

impose price restraints based upon their 

business models. For example, vendors 

such as Bloomberg and Thomson 

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 Google, impose a 

discipline by providing only data that 

will enable them to attract ‘‘eyeballs’’ 

that contribute to their advertising 

revenue. 

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.15 The Exchange agrees 


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2334 Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices 

execution services are an example of ‘joint 

products’ with ‘joint costs.’’’), attachment at pg. 4, 

available at sec.gov/comments/34–57917/3457917– 

12.pdf. 

16See 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.’’). 

17See 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 retail order flow 

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

18See Exhibit 3B to Securities Exchange Act 

Release No. 63291 (Nov. 9, 2010), 75 FR 70311 

(Nov. 17, 2010) (SR–NYSEArca-2010–97). 

19This is simply a securities market-specific 

example of the well-established principle that in 

certain circumstances more sales at lower margins 

can be more profitable than fewer sales at higher 

margins; the BATS example is additional evidence 

that market data is an inherent part of a market’s 

joint platform. 

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.16

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.17 So does 

the fact that some exchanges use certain 

market data quote revenue as a form of 

a direct market-maker and/or liquidity 

provider rebate to drive more liquidity 

to their books in less active stocks. This 

fact highlights that market data and 

trade executions are joint products that 

are linked on a platform basis.18

The Exchange believes that 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. The Exchange 

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. 

Moreover, the Exchange believes that 

products can enhance order flow to the 

Exchange by providing more 

widespread distribution of information 

about transactions in real time, thereby 

encouraging wider participation in the 

market by investors with access to the 

Internet or television. Conversely, the 

value of such products to distributors 

and investors decreases if order flow 

falls because the products contain less 

content. 

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 an exchange’s costs to the 

market data portion of an exchange’s 

joint product. Rather, all of an 

exchange’s costs are incurred for the 

unified purposes of attracting order 

flow, executing and/or routing orders, 

and generating and selling data about 

market activity. The total return that an 

exchange earns reflects the revenues it 

receives from the joint products and the 

total costs of the joint products. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return that each platform 

earns from the sale of its joint products, 

but different platforms may choose from 

a range of possible, and equally 

reasonable, pricing strategies as the 

means of recovering total costs. For 

example, some platforms may choose to 

pay rebates to attract orders, charge 

relatively low prices for market 

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. 

The level of competition and 

contestability in the market is evident in 

the numerous alternative venues that 

compete for order flow, including 12 

equities self-regulatory organization 

(‘‘SRO’’) markets, as well as 

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

various forms of alternative trading 

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

and electronic communication networks 

(‘‘ECNs’’). 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. 

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 but not limited to the 

Exchange, NYSE, NYSE Amex, 

NASDAQ OMX, BATS, and Direct Edge. 

The fact that proprietary data from 

ATSs, BDs, and vendors can bypass 

SROs is significant in two respects. 

First, non-SROs can compete directly 

with SROs for the production and sale 

of proprietary data products. Second, 

because a single order or transaction 

report can appear in an SRO proprietary 

product, a non-SRO proprietary 

product, or both, the amount of data 

available via proprietary products is 

greater in size than the actual number of 

orders and transaction reports that exist 

in the marketplace. Because investors 

can thus find suitable substitutes for 

most proprietary market data products, 

a market that overprices its market data 

products stands a high risk that 

investors may substitute another source 

of market information for its own 

because securities and investment 

methodologies are fungible. 

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, TrackECN, 

BATS Trading and Direct Edge. Today, 

BATS has represented that it publishes 

its market data at no charge on its Web 

site in order to attract more order flow, 

and it uses market data revenue rebates 

that it can provide from resulting 

additional executions to maintain low 

execution charges for its users.19 A 

proliferation of dark pools and other 


srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 10 / Tuesday, January 17, 2012 / Notices 2335 

20 15 U.S.C. 78s(b)(3)(A). 

21 17 CFR 240.19b–4(f)(2). 

22 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3The Penny Pilot was established in March 2008 

and in October 2009 was expanded and extended 

through December 31, 2011. See Securities 

Exchange Act Release Nos. 57579 (March 28, 2008), 

73 FR 18587 (April 4, 2008)(SR–NASDAQ–2008– 

026)(notice of filing and immediate effectiveness 

establishing Penny Pilot); 60874 (October 23, 2009), 

74 FR 56682 (November 2, 2009)(SR–NASDAQ– 

Continued 

ATSs operate profitably with 

fragmentary shares of consolidated 

market volume. 

In this environment, a supercompetitive increase in the fees charged 

for either transactions or data has the 

potential to impair revenues from both 

products. A broker-dealer 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. If a 

platform increases its market data fees, 

the change may affect the overall cost of 

doing business with the platform, and 

affected market participants will assess 

whether they can lower their trading 

costs by directing orders elsewhere, 

thereby lessening the need for the more 

expensive data, or simply not purchase 

the data. 

In establishing the price for the NYSE 

Arca Integrated Data Feed, the Exchange 

considered the competitiveness of the 

market for data and all of the 

implications of that competition. The 

Exchange believes that it has considered 

all relevant factors and has not 

considered irrelevant factors in order to 

establish fair, reasonable, and not 

unreasonably discriminatory fees and an 

equitable allocation of fees among all 

users. The existence of alternatives to 

the Exchange’s product, including realtime consolidated data, free delayed 

consolidated data, and proprietary data 

from other sources, as well as the 

continued availability of the Exchange’s 

separate data feeds at a lower price, 

ensures that the Exchange cannot set 

unreasonable fees, or fees that are 

unreasonably discriminatory, when 

vendors and subscribers can elect these 

alternatives. Accordingly, the Exchange 

believes that the acceptance of data feed 

products in the marketplace 

demonstrates the consistency of these 

fees with applicable statutory standards. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 20 of the Act and 

subparagraph (f)(2) of Rule 19b–4 21

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

NYSE Arca. 

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2011–96 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–2011–96. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street, NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

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–2011–96 and should be 

submitted on or before February 7, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.22

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–686 Filed 1–13–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66126; File No. SR– 

NASDAQ–2012–003] 

Self-Regulatory Organizations; 

NASDAQ Stock Market LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change Relating to the 

Customer Rebate To Add Liquidity in 

Penny Pilot Options 

January 10, 2012. 

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

Securities Exchange Act of 1934 

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

notice is hereby given that on January 3, 

2012, The NASDAQ Stock Market LLC 

(‘‘NASDAQ’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by NASDAQ. 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 NASDAQ Stock Market LLC 

proposes to modify Rule 7050, 

governing pricing for NASDAQ 

members using the NASDAQ Options 

Market (‘‘NOM’’), NASDAQ’s facility for 

executing and routing standardized 

equity and index options. Specifically, 

NOM proposes to amend the 

applicability of the Customer Rebate to 

Add Liquidity for the Penny Pilot 3

Options (‘‘Penny Options’’). 


srobinson on DSK4SPTVN1PROD with NOTICES