[Federal Register Volume 74, Number 56 (Wednesday, March 25, 2009)]
[Notices]
[Pages 12919-12921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6465]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59598; File No. SR-NYSEArca-2009-05]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change To Establish Fees for NYSE Arca Trades

March 18, 2009.

I. Introduction

    On January 21, 2009, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to introduce its NYSE Arca Trades service, a NYSE 
Arca-only market data service that allows a vendor to redistribute on a 
real-time basis the same last sale information that NYSE Arca reports 
to the Consolidated Tape Association (``CTA'') for inclusion in the 
CTA's consolidated data stream and certain other related data elements 
(``NYSE Arca Last Sale Information''), and to establish fees for that 
service. The proposed rule change was published for comment in the 
Federal Register on February 3, 2009.\3\ The Commission received no 
comment letters on the proposal. This order approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59308 (January 28, 
2009), 74 FR 5955 (February 3, 2009).
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II. Description of the Proposal

    The Exchange proposes to introduce NYSE Arca Trades, a new service 
pursuant to which it will allow vendors, broker-dealers, and others 
(``NYSE Arca-Only Vendors'') to make available NYSE Arca Last Sale 
Information on a real-time basis. NYSE Arca Last Sale Information would 
include last sale information for all securities that are traded on the 
Exchange. The Exchange will make NYSE Arca Last Sale Information 
available through its new NYSE Arca Trades service at the same time as 
it provides last sale information to the processor under the CTA Plan. 
In addition to the information that the Exchange provides to CTA, NYSE 
Arca Last Sale Information will also include a unique sequence number 
that the Exchange assigns to each trade and that allows an investor to 
track the context of the trade through such other Exchange market data 
products as ArcaBook[supreg].
    The Exchange proposes to charge $750 per month for access to each 
of the NYSE Arca Last Sale Information datafeeds that NYSE Arca makes 
available. The Exchange proposes to charge each subscriber to an NYSE 
Arca-Only Vendor's NYSE Arca Trades service: $5 per month per display 
device for the receipt and use of NYSE Arca Last Sale Information 
relating to Network A and Network B Eligible Securities (as the CTA 
Plan uses those terms); and $5 per month per display device for the 
receipt and use of NYSE Arca Last Sale Information relating to 
securities listed on Nasdaq.\4\ The access fee applies equally to all 
NYSE Arca-Only Vendors that receive the NYSE Arca Trades datafeed and 
the device fee applies equally to all subscribers that receive an NYSE 
Arca-Only Vendor's NYSE Arca Trades service. The Exchange does not 
propose to impose any program classification charges for the use of 
NYSE Arca Trades.
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    \4\ The Exchange does not currently perceive a demand for a 
nonprofessional subscriber fee for NYSE Arca Trades, but will 
monitor customer response.
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    NYSE Arca represents that no investors or broker-dealers are 
required to subscribe to the product, as they can find the same NYSE 
Arca last sale prices either in the Exchange's NYSE Arca Realtime 
Reference Prices service,\5\ or integrated with the prices that other 
markets make available under the CTA Plan. NYSE Arca anticipates that, 
even though NYSE Arca Trades' Last Sale Information provides a less 
expensive alternative to the consolidated price information that 
investors and broker-dealers receive from CTA, the information that 
NYSE Arca contributes to the CTA consolidated datafeed and

[[Page 12920]]

the low latency of the CTA datafeed will continue to satisfy the needs 
of the vast majority of individual and professional investors. The 
Exchange developed NYSE Arca Trades primarily at the request of traders 
who are very latency sensitive and anticipates that demand for the 
product will derive primarily from investors and broker-dealers who 
desire to use NYSE Arca Trades to power certain trading algorithms or 
smart order routers.\6\
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    \5\ See Securities Exchange Act Release No. 58444 (August 29, 
2008), 73 FR 51872 (September 5, 2008) (SR-NYSEArca-2008-96).
    \6\ The latency difference between accessing last sales through 
the NYSE Arca datafeed or through the CTA datafeed can be measured 
in tens of milliseconds.
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    The Exchange will require NYSE Arca-Only Vendors to enter into the 
form of ``vendor'' agreement into which the CTA Plan requires 
recipients of the Network A last sale prices information datafeeds to 
enter (the ``Network A Vendor Form''). The Network A Vendor Form will 
authorize the NYSE Arca-Only Vendor to provide the NYSE Arca Trades 
service to its subscribers and customers. The Network A Participants 
drafted the Network A Vendor Form, it is sufficiently generic to 
accommodate NYSE Arca Trades, and it has been in use in substantially 
the same form since 1990.\7\ The Exchange will require professional and 
non-professional subscribers to NYSE Arca Trades to undertake to comply 
with the same contract, reporting, payment, and other administrative 
requirements as to which the Network A Participants subject them in 
respect of Network A last sale information under the CTA Plan.
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    \7\ See Securities Exchange Act Release Nos. 28407 (September 6, 
1990), 55 FR 37276 (September 10, 1990); and 49185 (February 4, 
2004), 69 FR 6704 (February 11, 2004).
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III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\8\ In 
particular, it is consistent with Section 6(b)(4) of the Act,\9\ which 
requires that the rules of a national securities exchange provide for 
the equitable allocation of reasonable dues, fees, and other charges 
among its members and issuers and other parties using its facilities, 
and Section 6(b)(5) of the Act,\10\ which requires, among other things, 
that the rules of a national securities exchange be designed to promote 
just and equitable principles of trade, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system and, in general, to protect investors and the public interest, 
and not be designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(4).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposed rule change is 
consistent with the provisions of Section 6(b)(8) of the Act,\11\ which 
requires that the rules of an exchange not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. Finally, the Commission finds that the proposed rule change 
is consistent with Rule 603(a) of Regulation NMS,\12\ adopted under 
Section 11A(c)(1) of the Act, which requires an exclusive processor 
that distributes information with respect to quotations for or 
transactions in an NMS stock to do so on terms that are fair and 
reasonable and that are not unreasonably discriminatory.\13\
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    \11\ 15 U.S.C. 78f(b)(6).
    \12\ 17 CFR 242.603(a).
    \13\ NYSE Arca is an exclusive processor of NYSE Arca Trades 
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which 
defines an exclusive processor as, among other things, an exchange 
that distributes information with respect to quotations or 
transactions on an exclusive basis on its own behalf.
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    The Commission has reviewed the proposal using the approach set 
forth in the NYSE Arca Order for non-core market data fees.\14\ In the 
NYSE Arca Order, the Commission stated that ``when possible, reliance 
on competitive forces is the most appropriate and effective means to 
assess whether the terms for the distribution of non-core data are 
equitable, fair and reasonable, and not unreasonably discriminatory.'' 
\15\ It noted that the ``existence of significant competition provides 
a substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \16\ If an exchange ``was subject to 
significant competitive forces in setting the terms of a proposal,'' 
the Commission will approve a proposal unless it determines that 
``there is a substantial countervailing basis to find that the terms 
nevertheless fail to meet an applicable requirement of the Exchange Act 
or the rules thereunder.'' \17\
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    \14\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Oder''). In the NYSE Arca Order, the Commission describes the 
competitive factors that apply to non-core market data products. The 
Commission hereby incorporates by reference the data and analysis 
from the NYSE Arca Order into this order.
    \15\ Id. at 74771.
    \16\ Id. at 74782.
    \17\ Id. at 74781.
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    As noted in the NYSE Arca Order, the standards in Section 6 of the 
Act and Rule 603 of Regulation NMS do not differentiate between types 
of data and therefore apply to exchange proposals to distribute both 
core data and non-core data. Core data is the best-priced quotations 
and comprehensive last-sale reports of all markets that the Commission, 
pursuant to Rule 603(b), requires a central processor to consolidate 
and distribute to the public pursuant to joint-SRO plans.\18\ In 
contrast, individual exchanges and other market participants distribute 
non-core data voluntarily. The mandatory nature of the core data 
disclosure regime leaves little room for competitive forces to 
determine products and fees. Non-core data products and their fees are, 
by contrast, much more sensitive to competitive forces. The Commission 
therefore is able to use competitive forces in its determination of 
whether an exchange's proposal to distribute non-core data meets the 
standards of Section 6 and Rule 603. Because NYSE Arca's instant 
proposal relates to the distribution of non-core data, the Commission 
will apply the market-based approach set forth in the NYSE Arca Order.
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    \18\ See 17 CFR 242.603(b). (``Every national securities 
exchange on which an NMS stock is traded and national securities 
association shall act jointly pursuant to one or more effective 
national market system plans to disseminate consolidated 
information, including a national best bid and national best offer, 
on quotations for and transactions in NMS stocks. Such plan or plans 
shall provide for the dissemination of all consolidated information 
for an individual NMS stock through a single plan processor.'').
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    In the NYSE Arca Order, the Commission discussed two broad types of 
competitive forces that generally apply to exchanges in their 
distribution of a non-core data product--the need to attract order flow 
and the availability of data alternatives. These forces also applied to 
NYSE Arca in setting the terms of this proposal for the NYSE Arca 
Trades data product: (i) NYSE Arca's compelling need to attract order 
flow from market participants; and (ii) the availability to market 
participants of alternatives to purchasing NYSE Arca's data.
    Table 1 below provides a recent snapshot of the state of 
competition in the U.S. equity markets in the month of January 2009: 
\19\
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    \19\ Source: ArcaVision (available at http://www.arcavision.com).

[[Page 12921]]



                                                     Table 1
                     [Reported Share Volume in U.S.-Listed Equities during January 2009 (%)]
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                          Trading venue                             All stocks      NYSE-listed   NASDAQ- listed
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NASDAQ..........................................................            27.1            20.5            39.9
All Non-Exchange................................................            26.7            26.2            31.0
NYSE Arca.......................................................            17.9            15.7            15.8
NYSE............................................................            14.8            26.2             0.0
BATS............................................................            10.7             9.0            10.8
International Stock Exchange....................................             1.3             1.4             1.4
National Stock Exchange.........................................             0.6             0.7             0.7
Chicago Stock Exchange..........................................             0.4             0.4             0.3
CBOE Stock Exchange.............................................             0.2             0.0             0.1
NYSE Alternext..................................................             0.1             0.0             0.0
NASDAQ OMX BX...................................................             0.0             0.0             0.0
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    The market share percentages in Table 1 strongly indicate that NYSE 
Arca must compete vigorously for order flow to maintain its share of 
trading volume. The need to attract order flow imposes significant 
pressure on NYSE Arca to act reasonably in setting its fees for NYSE 
Arca market data, particularly given that the market participants that 
must pay such fees often will be the same market participants from whom 
NYSE Arca must attract order flow. These market participants 
particularly include the large broker-dealer firms that control the 
handling of a large volume of customer and proprietary order flow. 
Given the portability of order flow from one trading venue to another, 
any exchange that sought to charge unreasonably high data fees would 
risk alienating many of the same customers on whose orders it depends 
for competitive survival. Moreover, distributing data widely among 
investors, and thereby promoting familiarity with the exchange and its 
services, is an important exchange strategy for attracting order 
flow.\20\
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    \20\ See NYSE Arca Order at 74784 nn. 218-219 and accompanying 
text (noting exchange strategy of offering data for free as a means 
to gain visibility in the marketplace).
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    In addition to the need to attract order flow, the availability of 
alternatives to NYSE Arca Trades significantly affect the terms on 
which NYSE Arca can distribute this market data.\21\ In setting the 
fees for its NYSE Arca Trades, the Exchange must consider the extent to 
which market participants would choose one or more alternatives instead 
of purchasing the Exchange's data.\22\ Of course, the most basic source 
of information generally available at an exchange is the complete 
record of an exchange's transactions that is provided in the core data 
feeds.\23\ In this respect, the core data feeds that include an 
exchange's own transaction information are a significant alternative to 
the exchange's market data product.\24\
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    \21\ See Richard Posner, Economic Analysis of Law Sec.  9.1 (5th 
ed. 1998) (discussing the theory of monopolies and pricing). See 
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger 
Guidelines Sec.  1.11 (1992), as revised (1997) (explaining the 
importance of alternatives to the presence of competition and the 
definition of markets and market power). Courts frequently refer to 
the Department of Justice and Federal Trade Commission merger 
guidelines to define product markets and evaluate market power. See, 
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C. 
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In 
considering antitrust issues, courts have recognized the value of 
competition in producing lower prices. See, e.g., Leegin Creative 
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta 
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990); 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific 
Raliway Co. v. U.S., 356 U.S. 1 (1958).
    \22\ See NYSE Arca Order at 74783.
    \23\ Id.
    \24\ Id.
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    The various self-regulatory organizations, the several Trade 
Reporting Facilities of FINRA, and ECNs that produce proprietary data, 
as well as the core data feed, are all sources of competition in non-
core data products. As Table 1 illustrates, share volume in U.S.-listed 
equities is widely dispersed among trading venues, and these venues are 
able to offer competitive data products as alternatives to NYSE Arca 
Trades. The Commission believes that the availability of those 
alternatives, as well as the NYSE Arca's compelling need to attract 
order flow, imposed significant competitive pressure on the NYSE Arca 
to act equitably, fairly, and reasonably in setting the terms of its 
proposal.
    Because NYSE Arca was subject to significant competitive forces in 
setting the terms of the proposal, the Commission will approve the 
proposal in the absence of a substantial countervailing basis to find 
that its terms nevertheless fail to meet an applicable requirement of 
the Act or the rules thereunder. An analysis of the proposal does not 
provide such a basis. No comments were submitted on this proposal, and 
the Commission notes that the proposal does not unreasonably 
discriminate among types of users.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-NYSEArca-2009-05), be, and 
it hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-6465 Filed 3-24-09; 8:45 am]
BILLING CODE 8010-01-P