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[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Notices]
[Pages 13293-13295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6722]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59606; File No. SR-NYSE-2009-04]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Approving Proposed Rule Change To Establish Fees for NYSE Trades

March 19, 2009.

I. Introduction

    On January 27, 2009, the New York Stock Exchange LLC (``NYSE'' 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 Trades service, a new NYSE-
only market data service that allows a vendor to redistribute on a 
real-time basis the same last sale information that NYSE reports to the 
Consolidated Tape Association (``CTA'') for inclusion in the CTA's 
consolidated data stream and certain other related data elements 
(``NYSE Last Sale Information''), and to establish fees for that 
service. The proposed rule change was published for comment in the 
Federal Register on February 4, 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. 59309 (January 28, 
2009), 74 FR 5955 (February 4, 2009).
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II. Description of the Proposal

    The Exchange proposes to introduce NYSE Trades, a new service 
pursuant to which it will allow vendors, broker-dealers, and others 
(``NYSE-Only Vendors'') to make available NYSE Last Sale Information on 
a real-time basis. NYSE Last Sale Information would include last sale 
information for all securities that are traded on the Exchange. The 
Exchange will make NYSE Last Sale Information available through its new 
NYSE 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 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 other Exchange market data products, such 
as NYSE OpenBook[supreg] and NYSE Info Tools[supreg].
    The Exchange proposes to charge $1500 per month for the receipt of 
access to all of the datafeeds of NYSE Last Sale Information that the 
Exchange will make available.\4\ In addition, the Exchange proposes to 
charge each subscriber to an NYSE-Only Vendor's NYSE Trades service $15 
per month per display device for the receipt and use of NYSE Last Sale 
Information.\5\
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    \4\ Currently, the Exchange trades only Network A securities. 
The Exchange does not propose to impose any program classification 
charges for the use of NYSE Trades.
    \5\ The Exchange proposes to use the revised unit of count 
methodology to determine the device fees payable by data recipients 
applicable to NYSE OpenBook[supreg] products. See Securities 
Exchange Act Release No. 59544 (March 9, 2009), 74 FR 11162 (March 
16, 2009) (SR-NYSE-2008-131).
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    NYSE represents that no investors or broker-dealers are required to 
subscribe to the product, as they can find the same NYSE last sale 
prices either in the

[[Page 13294]]

Exchange's NYSE Realtime Reference Prices service,\6\ or integrated 
with the prices that other markets make available under the CTA Plan. 
NYSE anticipates that, even though NYSE 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 contributes to the CTA consolidated datafeed and 
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 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 Trades to power certain trading algorithms or smart order 
routers.\7\
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    \6\ See Securities Exchange Act Release No. 57966 (June 16, 
2008), 73 FR 35182 (June 20, 2008) (SR-NYSE-2007-04).
    \7\ The latency difference between accessing last sales through 
the NYSE datafeed or through the CTA datafeed can be measured in 
tens of milliseconds.
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    The Exchange will require NYSE-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-Only Vendor to provide the NYSE Trades service to its 
subscribers and customers. The Network A Participants drafted the 
Network A Vendor Form, it is sufficiently generic to accommodate NYSE 
Trades, and it has been in use in substantially the same form since 
1990.\8\ The Exchange will require professional and non-professional 
subscribers to NYSE 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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    \8\ 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.\9\ In 
particular, it is consistent with Section 6(b)(4) of the Act,\10\ 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,\11\ 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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    \9\ 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).
    \10\ 15 U.S.C. 78f(b)(4).
    \11\ 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,\12\ 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,\13\ 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.\14\
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    \12\ 15 U.S.C. 78f(b)(6).
    \13\ 17 CFR 242.603(a).
    \14\ NYSE is an exclusive processor of NYSE 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.\15\ 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.'' 
\16\ 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.'' \17\ 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.'' \18\
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    \15\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order''). 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.
    \16\ Id. at 74771.
    \17\ Id. at 74782.
    \18\ 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.\19\ 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'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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    \19\ 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 in setting the terms of this proposal for the NYSE Trades data 
product: (i) NYSE's compelling need to attract order flow from market 
participants; and (ii) the availability to

[[Page 13295]]

market participants of alternatives to purchasing NYSE'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: 
\20\
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    \20\ Source: ArcaVision (available at www.arcavision.com).

  Table 1--Reported Share Volume in U.S.-Listed Equities During January
                                2009 (%)
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                                            All       NYSE-     NASDAQ-
             Trading venue                 stocks     listed     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 
must compete vigorously for order flow to maintain its share of trading 
volume. The need to attract order flow imposes significant pressure on 
NYSE to act reasonably in setting its fees for NYSE market data, 
particularly given that the market participants that must pay such fees 
often will be the same market participants from whom NYSE 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.\21\
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    \21\ 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 market place).
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    In addition to the need to attract order flow, the availability of 
alternatives to NYSE Trades significantly affect the terms on which 
NYSE can distribute this market data.\22\ In setting the fees for its 
NYSE Trades, the Exchange must consider the extent to which market 
participants would choose one or more alternatives instead of 
purchasing the Exchange's data.\23\ 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.\24\ 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.\25\
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    \22\ 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 
Railway Co. v. U.S., 356 U.S. 1 (1958).
    \23\ See NYSE Arca Order at 74783.
    \24\ Id.
    \25\ 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 Trades. 
The Commission believes that the availability of those alternatives, as 
well as the NYSE's compelling need to attract order flow, imposed 
significant competitive pressure on the NYSE to act equitably, fairly, 
and reasonably in setting the terms of its proposal.
    Because NYSE 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,\26\ that the proposed rule change (SR-NYSE-2009-04), be, and it 
hereby is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).
    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-6722 Filed 3-25-09; 8:45 am]
BILLING CODE 8010-01-P
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