Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 2839 

29 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Chapter IX of the Pricing Schedule defines a 

distributor as ‘‘any entity that receives a feed or 

data file of data directly from Nasdaq PHLX or 

indirectly through another entity and then 

distributes it either internally (within that entity) or 

externally (outside that entity).’’ 

Chapter IX of the Pricing Schedule defines a NonProfessional Subscriber as ‘‘a natural person who is 

neither: (i) Registered or qualified in any capacity 

with the Commission, the Commodities Futures 

Trading Commission, any state securities agency, 

any securities exchange or association, or any 

commodities or futures contract market or 

association; (ii) engaged as an ‘investment adviser’ 

as that term is defined in Section 201(11) of the 

Investment Advisors Act of 1940 (whether or not 

registered or qualified under that Act); nor (iii) 

employed by a bank or other organization exempt 

from registration under federal or state securities 

laws to perform functions that would require 

registration or qualification if such functions were 

performed for an organization not so exempt. A 

Non-Professional Subscriber may only use the data 

provided for personal purposes and not for any 

commercial purpose.’’ 

Chapter IX of the Pricing Schedule defines a 

Professional Subscriber as ‘‘any Subscriber that is 

not a Non-Professional Subscriber. If the Nasdaq 

Subscriber agreement is signed in the name of a 

business or commercial entity, such entity would be 

considered a Professional Subscriber.’’ 

4See Securities Exchange Act Release No. 62194 

(May 28, 2010) 75 FR 31830 (SR–Phlx–2010–48) 

(approving TOPO Plus fees) (‘‘TOPO Plus approval 

order’’). 

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 website 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 

10:00 a.m. and 3:00 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– 

2018–02 and should be submitted on or 

before February 9, 2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.29

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00856 Filed 1–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82495; File No. SR–Phlx– 

2018–08] 

Self-Regulatory Organizations; Nasdaq 

PHLX LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend the 

Exchange’s Fee Schedule at Chapter 

IX 

January 12, 2018. 

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 9, 

2018, Nasdaq PHLX LLC (‘‘PHLX’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission (‘‘SEC’’ or 

‘‘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 the 

Exchange’s fee schedule at Chapter IX 

(Proprietary Data Feed Fees) to change 

the Internal Distributor fee for Top of 

PHLX Options Plus Orders to reflect 

substantial enhancements to the product 

since the current Distributor fees were 

set in 2010, as described further below. 

The text of the proposed rule change 

is available on the Exchange’s website at 

http://nasdaqphlx.cchwallstreet.com/, 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to amend the Exchange’s fee 

schedule at Chapter IX (Proprietary Data 

Feed Fees) to change the Internal 

Distributor fee for TOPO Plus Orders 

(‘‘TOPO Plus’’) to reflect substantial 

enhancements to the product since the 

current Distributor fees were set in 

2010. 

TOPO Plus is a direct, low-latency 

market data product that allows 

subscribers to connect to both the Top 

of PHLX Options (‘‘TOPO’’) data feed 

and the PHLX Orders data feed. TOPO 

provides subscribers a direct data feed 

that includes the Exchange’s best bid 

and offer position, with aggregate size, 

based on displayable order and quoting 

interest on the Exchange. TOPO also 

provides last sale information from 

PHLX. 

PHLX Orders includes the full limit 

order book and contains a real-time 

status of simple and complex orders on 

the PHLX order book for all PHLX-listed 

options. This includes new orders and 

changes to orders resting on the PHLX 

book. The PHLX Orders feed includes 

opening imbalance data, Price 

Improvement XL (PIXL) data and 

Complex Order Live Auction (COLA) 

information, in addition to the full limit 

order book data for both simple and 

complex orders. 

The fee for TOPO Plus varies, 

depending on whether the subscriber is 

an Internal Distributor, an External 

Distributor, a Non-Professional 

Subscriber, or a Professional 

Subscriber.3

Currently, the monthly fee for an 

Internal Distributor is $4,000, the 

monthly fee for an External Distributor 

is $5,000, the monthly fee for a NonProfessional Subscriber is $1, and the 

monthly fee for a Professional 

Subscriber is $40. The Exchange is now 

proposing to increase the monthly fee 

for an Internal Distributor to $4,500. 

Since its inception in 2010, the 

Exchange has not raised the Internal or 

External Distributor fee and yet has 

made substantial improvements to the 

product as illustrated below.4

While the Exchange has not raised the 

fees for TOPO Plus since its inception, 

the Exchange has added a number of 

functional enhancements to both TOPO 

and PHLX Orders in particular, and to 

Exchange systems in general, that 

enhance the value of the TOPO Plus 

data product. Specifically: 

• In July 2011, the Exchange began 

disseminating timestamp messages for 


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5See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2011-016. 

6See Securities Exchange Act Release No. 68517 

(December 21, 2012), 77 FR 77134 (December 31, 

2012) (SR–Phlx–2012–136). 

7See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2012-31. 

The Order Exposure auction message is sent 

when there is an exposed buy (or sell) order 

available for execution at the National Best Offer (or 

National Best Bid). The exposed order volume may 

be routed away. 

8See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2013-40. 

9See Securities Exchange Act Release No. 73545 

(November 6, 2014), 79 FR 67498 (November 13, 

2014) (SR–Phlx–2014–54) (approval order). 

10See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2014-35. 

Implied Orders are limit orders generated by the 

Exchange on behalf of Complex Orders which 

represent one leg of a two-legged Complex Order. 

Implied Orders are automatically generated on 

behalf of Complex Orders resting on the top of the 

Complex Order Book so that they are represented 

at the best bid and/or offer on the Exchange for the 

individual legs. 

11See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2015-19. 

12See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2015-29. 

13See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2017-34. 

14See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2015-17. 

15See http://www.nasdaqtrader.com/ 

TraderNews.aspx?id=dtn2017-02. 

16 15 U.S.C. 78f(b). 

17 15 U.S.C. 78f(b)(4) and (5). 

18Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496, 37499 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

19NetCoalition v. SEC, 615 F.3d 525 (DC Cir. 

2010). 

20See NetCoalition, at 534–535. 

21 Id. at 537. 

22 Id. at 539 (quoting Securities Exchange Act 

Release No. 59039 (December 2, 2008), 73 FR 

74770, 74782–83 (December 9, 2008) (SR– 

NYSEArca–2006–21)). 

TOPO and TOPO Plus Orders in 

nanoseconds instead of milliseconds to 

provide additional granularity to the 

order book data contained in those 

products.5

• In December 2012, the Exchange 

enhanced TOPO Plus to include an 

updated Auction Notification Message 

with an Order Exposure Auction Type, 

which notifies participants when there 

is an aggressively priced order available 

for execution that may be routed away.6

This change helps customers 

understand the types of auction 

messages coming into the system.7

• In September 2013, the Exchange 

updated the Complex Auction 

Notification Message in PHLX Orders to 

unmask the Price, Side and Debit or 

Credit fields, which had been 

previously marked with an asterisk, 

leading to more transparency on the 

complex auction message.8

• In November 2014, the Exchange 

added Implied Orders to the Simple 

Order Message of PHLX Orders.9 These 

orders serve to attract interest to trade 

with the resting Complex Order for 

which they represent.10

• In September 2015, the Exchange 

automated the expiration process 

relating to World Currency Options 

(‘‘WCO’’), and updated the TOPO and 

PHLX Orders market data specifications 

to accommodate a new value of ‘‘W’’ to 

represent the 12:00 p.m. ET closure of 

expiring WCO options in the Options 

Directory message and System Event 

messages.11

• In February 2016, the Exchange 

expanded the period pursuant to which 

the TOPO Plus product, among other 

products, will be made available at the 

beginning of the trading day. The 

Exchange moved up the dissemination 

times of the Start of Message process by 

two hours, to 4:00 a.m., ET., to provide 

members with additional time for 

connectivity testing and to better align 

with the opening times of the equity 

markets.12 On December 18, 2017, the 

Exchange further expanded the period 

for which TOPO Plus will be made 

available at the beginning of the trading 

day, to 2 a.m.13

• In August 2015, the Exchange 

launched its new Disaster Recovery 

(‘‘DR’’) facility in Chicago, Illinois. In 

addition to offering expanded 

geographic diversity, this new location 

enables firms to easily connect to 

numerous multi-asset engines, both to 

receive market data and to send orders, 

currently housed in or near this facility, 

potentially reducing overall networking 

costs. With this DR facility upgrade, 

new equipment was installed that 

improved performance and resilience as 

well.14

• In January 2017, the Exchange 

introduced additional multicast IP 

addresses for proprietary equity and 

options feeds, known as ‘‘B’’ feeds, for 

the feeds from its DR facility in Chicago. 

The purpose of this change was to 

promote resiliency and provide 

additional recovery options to market 

participants within the same facility.15

Given these specific enhancements to 

TOPO and PHLX Orders, and to the 

Exchange’s system generally, and given 

the fact that the Exchange has not 

increased the Distributor fees for TOPO 

Plus since its inception, the Exchange 

believes that the proposed fee increase 

is appropriate. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,16 in general, and furthers the 

objectives of Sections 6(b)(4) and 6(b)(5) 

of the Act,17 in particular, in that it 

provides for the equitable allocation of 

reasonable dues, fees and other charges 

among members and issuers and other 

persons using any facility, and is not 

designed to permit unfair 

discrimination between customers, 

issuers, brokers, or dealers. 

The Commission and the courts have 

repeatedly expressed their preference 

for competition over regulatory 

intervention in determining prices, 

products, and services in the securities 

markets. In Regulation NMS, while 

adopting a series of steps to improve the 

current market model, the Commission 

highlighted the importance of market 

forces in determining prices and selfregulatory organization (‘‘SRO’’) 

revenues and, also, recognized that 

current regulation of the market system 

‘‘has been remarkably successful in 

promoting market competition in its 

broader forms that are most important to 

investors and listed companies.’’ 18

Likewise, in NetCoalition v. Securities 

and Exchange Commission 19

(‘‘NetCoalition’’) the DC Circuit upheld 

the Commission’s use of a market-based 

approach in evaluating the fairness of 

market data fees against a challenge 

claiming that Congress mandated a costbased approach.20 As the court 

emphasized, the Commission ‘‘intended 

in Regulation NMS that ‘market forces, 

rather than regulatory requirements’ 

play a role in determining the market 

data . . . to be made available to 

investors and at what cost.’’ 21

Further, ‘‘[n]o one disputes that 

competition for order flow is ‘fierce.’ 

. . . As the SEC explained, ‘[i]n the U.S. 

national market system, buyers and 

sellers of securities, and the brokerdealers that act as their order-routing 

agents, have a wide range of choices of 

where to route orders for execution’; 

[and] ‘no exchange can afford to take its 

market share percentages for granted’ 

because ‘no exchange possesses a 

monopoly, regulatory or otherwise, in 

the execution of order flow from broker 

dealers’. . . .’’ 22 Although the court 

and the SEC were discussing the cash 

equities markets, the Exchange believes 

that these views apply with equal force 

to the options markets. 

The Exchange believes that the 

proposed fee increase for Internal 

Distributors is reasonable. While the 

Exchange has not increased the 

Distributor fees for TOPO Plus since its 

inception, the Exchange has added a 

number of functional enhancements 

since that time to TOPO and PHLX 

Orders in particular, and to Exchange 

systems in general. These 

enhancements, which are described in 

greater detail above, correspondingly 


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23As noted above, TOPO Plus was launched in 

2010. A $4,000 monthly fee with an interest rate 

increase of 2.85%, compounded annually for 8 

years, would result in a fee of $5,000 monthly. 

24See, e.g., Nasdaq Rules 7019 (Market Data 

Distributor Fees); 7022(c) (Short Interest Report); 

7023(c) (Enterprise License Fees for Depth-of-Book 

Data); and 7052(c) (Distributor Fees for Nasdaq 

Daily Short Volume and Monthly Short Sale 

Transaction Files). 

25See Securities Exchange Act Release No. 61878 

(April 8, 2010), 75 FR 20023 (April 16, 2010) (SR– 

Phlx–2010–48) (notice of filing). 

26Securities Exchange Act Release No. 59039 

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

2008) (SR–NYSEArca–2006–21). 

27 Id. 

enhance the value of the TOPO Plus 

data product. The proposed fee increase 

is therefore reflective of, and closely 

aligned to, these enhancements and the 

corresponding increased value of the 

TOPO Plus data product. The Exchange 

also believes that the amount of the fee 

increase is reasonable when comparing 

the amount of the proposed Internal 

Distributor fee to the amount of the 

current Internal Distributor fee and 

factoring in time and inflation.23 The 

Exchange also notes that the proposed 

Internal Distributor fee for TOPO Plus is 

still less than if an Internal Distributor 

purchased TOPO and PHLX Orders 

separately ($2,000 monthly for TOPO + 

$3,000 monthly for PHLX Orders). 

The Exchange also believes that the 

proposed fee increase is equitably 

allocated, and is not designed to permit 

unfair discrimination between 

customers, issuers, brokers, or dealers. 

The Exchange makes all services and 

products subject to this fee available on 

a non-discriminatory basis to similarlysituated recipients, and the proposed fee 

increase here will apply equally to all 

entities that meet the definition of an 

Internal Distributor. 

The Exchange notes that it is only 

proposing to increase the fee for Internal 

Distributors, not for External 

Distributors, Non-Professional 

Subscribers, or Professional Subscribers. 

As noted above, the Exchange has made 

a number of product and system 

enhancements since the inception of 

TOPO Plus that have increased the 

value of that data product. While 

External Distributors have also received 

the benefit of these enhancements, the 

Exchange is not increasing the External 

Distributor fee at this time. The 

Exchange believes that this is equitable 

and not unfairly discriminatory for 

several reasons. First, a fee differential 

for external, as opposed to internal, 

distribution is well-recognized in the 

financial services industry as a 

reasonable distinction, and has been 

repeatedly accepted by the Commission 

as an equitable allocation of reasonable 

dues, fees and other charges.24 External 

Distributors already pay, and will 

continue to pay, a higher monthly fee 

than Internal Distributors. 

Second, the Exchange believes that 

External Distributors of TOPO Plus, in 

comparison to Internal Distributors, may 

confer an additional benefit on market 

participants generally and the Exchange 

in particular. As the Exchange noted 

when it filed a proposed rule change to 

establish the fees for TOPO Plus, the 

higher fee for External Distributors in 

comparison to Internal Distributors 

reflected the fact that External 

Distributors had fewer limitations on 

their scope of distribution of TOPO Plus 

than Internal Distributors, and the 

reasonable expectation that External 

Distributors would distribute TOPO 

Plus to a higher number of subscribers 

than Internal Distributors; specifically, 

to Professional Subscribers who would 

use the data for commercial purposes.25

The Exchange believes that the value of 

external distribution of TOPO Plus 

extends beyond External Distributors to 

other market participants and to the 

Exchange as well. In distributing TOPO 

Plus externally, External Distributors 

provide market participants that 

purchase this product (and who may be 

unwilling or unable to purchase TOPO 

Plus as an Internal Distributor) with a 

greater awareness of order activity on 

the Exchange. This, in turn, may result 

in those market participants directing 

more order flow to the Exchange, 

benefitting both the Exchange and 

market participants that desire to 

transact on the Exchange. Currently, the 

majority of Distributors for TOPO Plus 

are Internal Distributors, with relatively 

few External Distributors. Given the 

increased benefits that may accompany 

the external distribution of TOPO Plus, 

and the Exchange’s corresponding 

desire to retain External Distributor 

interest in TOPO Plus, the Exchange 

believes that it is equitable and not 

unfairly discriminatory to not impose a 

similar fee increase on External 

Distributors. 

The Exchange also believes that it is 

equitable and not unfairly 

discriminatory to not assess a fee 

increase on Professional and NonProfessional Subscribers. By definition, 

Subscribers (either Professional or NonProfessional) are categorically different 

than Distributors (either Internal or 

External). The Exchange believes that it 

is equitable and not unfairly 

discriminatory to implement a fee 

increase for one category of market 

participants (Distributors) and not for 

another category of market participants 

(Subscribers), because these two 

categories are not similarly situated, 

both in terms of the fees that they pay, 

and the permissible ways in which they 

may use the data. Additionally, there is 

already a significant difference between 

the current amount paid by NonProfessional and Professional 

Subscribers ($1 and $40 monthly, 

respectively), and Internal and External 

distributors ($4,000 and $5,000, 

respectively). 

Finally, the Exchange notes that the 

Act does not prohibit all distinctions 

among customers, but rather 

discrimination that is unfair. As the 

Commission has recognized, ‘‘[i]f 

competitive forces are operative, the 

self-interest of the exchanges themselves 

will work powerfully to constrain 

unreasonable or unfair behavior.’’ 26

Accordingly, ‘‘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.’’ 27 The proposed fee, 

like all market data fees, is constrained 

by the Exchange’s need to compete for 

order flow as discussed below, and is 

subject to competition from other 

exchanges. If the Exchange is incorrect 

in its assessment of price, it will lose 

market share as a result. 

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. The 

proposed fee structure is designed to 

ensure a fair and reasonable use of 

Exchange resources by allowing the 

Exchange to recoup costs while 

continuing to offer its data products at 

competitive rates to firms. 

The Exchange does not believe that 

the proposed fee increase will impose 

any burden on intra-market competition 

that is not necessary or appropriate. As 

discussed above, the proposed increase 

to the Internal Distributor fee will apply 

equally to all market participants that 

qualify as Internal Distributors. While 

the Exchange is only proposing to 

increase the fee for Internal Distributors, 

the Exchange does not believe that this 

will impose a burden on intra-market 

competition, including on External 

Distributors that is not necessary or 

appropriate. The Exchange’s rules set 

forth different standards for the use of 

Internal Distributor data versus External 

Distributor data, and this proposal does 

not alter those terms of use. As such, the 


daltland on DSKBBV9HB2PROD with NOTICES
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Exchange does not believe that the 

proposal will impact the current 

competitive dynamic between Internal 

Distributors and External Distributors, 

to the extent such a dynamic exists. 

Moreover, the Exchange notes the 

majority of TOPO Plus subscribers are 

Internal Distributors; in not assessing a 

similar fee increase on External 

Distributors in order to encourage 

market participants to remain External 

Distributors, the Exchange is attempting 

to promote a more diverse ecosystem of 

market data Distributors. Finally, the 

Exchange notes that Distributors may 

always elect to not distribute TOPO Plus 

at all if they deem the distribution fee 

to be excessive. 

For the same reasons, the Exchange 

believes that the proposed fee increase 

does not impose a burden on 

Professional and Non-Professional 

Subscribers that is not necessary or 

appropriate. As discussed above, 

Professional and Non-Professional 

Subscribers are categorically different 

than Distributors, and have significantly 

different terms of usage for TOPO Plus 

than Distributors. As with Distributors, 

those terms of use remain unchanged by 

this proposal. Therefore, the Exchange 

does not believe that the proposal will 

impact that any competitive dynamic 

that may exist between Distributors and 

Subscribers. 

With respect to inter-market 

competition, the Exchange notes that 

the market for data products is 

extremely competitive and firms may 

freely choose alternative venues and 

data vendors based on the aggregate fees 

assessed, the data offered, and the value 

provided. This rule proposal does not 

burden competition, since other SROs 

and data vendors continue to offer 

alternative data products and, like the 

Exchange, set fees, but rather reflects the 

competition between data feed vendors 

and will further enhance such 

competition. TOPO Plus competes 

directly with existing similar products. 

The product is part of the existing 

market for proprietary last sale data 

products that 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. 

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 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, 

the operation of the exchange is 

characterized by high fixed costs and 

low marginal costs. This cost structure 

is common in content and content 

distribution industries such as software, 

where developing new software 

typically requires a large initial 

investment (and continuing large 

investments to upgrade the software), 

but once the software is developed, the 

incremental cost of providing that 

software to an additional user is 

typically small, or even zero (e.g., if the 

software can be downloaded over the 

internet after being purchased). 

In the Exchange’s case, it is costly to 

build and maintain a trading platform, 

but the incremental cost of trading each 

additional share on an existing platform, 

or distributing an additional instance of 

data, is very low. Market information 

and executions are each produced 

jointly (in the sense that the activities of 

trading and placing orders are the 

source of the information that is 

distributed) and are each subject to 

significant scale economies. In such 

cases, marginal cost pricing is not 

feasible because if all sales were priced 

at the margin, the Exchange would be 

unable to defray its platform costs of 

providing the joint products. 

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 

broker-dealer will disfavor a particular 

exchange if the expected revenues from 

executing trades on the exchange do not 

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 trading activity 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 more orders will 

become correspondingly more valuable. 

Similarly, in the case of products such 

as TOPO Plus that may be distributed 

through market data vendors, the 

vendors provide 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 

Google, 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 retail 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. Exchanges 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 such as TOPO Plus 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 


daltland on DSKBBV9HB2PROD with NOTICES
Federal Register / Vol. 83, No. 13 / Friday, January 19, 2018 / Notices 2843 

28See TOPO Plus approval order, 75 FR at 31833. 

29 Id. 

30 15 U.S.C. 78s(b)(3)(A)(ii). 31 17 CFR 200.30–3(a)(12). 

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. 

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. The 

Exchange pays rebates to attract orders, 

charges relatively low prices for market 

information and charges relatively high 

prices for accessing posted liquidity. 

Other platforms may choose a strategy 

of paying lower liquidity rebates to 

attract orders, setting relatively low 

prices for accessing posted liquidity, 

and setting relatively high prices for 

market information. Still others may 

provide most data free of charge and 

rely exclusively on transaction fees to 

recover their costs. Finally, some 

platforms may incentivize use by 

providing opportunities for equity 

ownership, which may allow them to 

charge lower direct fees for executions 

and data. 

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. Such regulation is 

unnecessary because an ‘‘excessive’’ 

price for one of the joint products will 

ultimately have to be reflected in lower 

prices for other products sold by the 

firm, or otherwise the firm will 

experience a loss in the volume of its 

sales that will be adverse to its overall 

profitability. In other words, an increase 

in the price of data will ultimately have 

to be accompanied by a decrease in the 

cost of executions, or the volume of both 

data and executions will fall. 

Indeed, in approving the fees for 

TOPO Plus in 2010, the Commission 

noted that the Exchange was subject to 

competitive pressures in setting its fees 

for TOPO Plus. First, the Commission 

noted that the Exchange had a 

‘‘compelling need’’ to attract order flow, 

which imposed ‘‘significant pressure’’ 

on the Exchange to act reasonably in 

setting its fees for PHLX market data, 

particularly given that ‘‘the market 

participants that will pay such fees 

often will be the same market 

participants from whom Phlx must 

attract order flow.’’ 28 The Commission 

also found that there were a number of 

alternative sources of information that 

imposed significant competitive 

pressures on the Exchange in setting the 

terms for distributing TOPO Plus. The 

Commission found that the availability 

of those alternatives, as well as the 

Exchange’s compelling need to attract 

order flow, imposed ‘‘significant 

competitive pressure on Phlx to act 

equitably, fairly, and reasonably in 

setting the terms of its proposal.’’ 29 The 

Exchange believes that the same 

analysis and conclusions apply here. 

In sum, the proposed fee structure is 

designed to ensure a fair and reasonable 

use of Exchange resources by allowing 

the Exchange to recoup costs while 

continuing to offer its data products at 

competitive rates to firms 

3. 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.30

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: (i) Necessary or appropriate in 

the public interest; (ii) for the protection 

of investors; or (iii) 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 email to rule-comments@

sec.gov. Please include File Number SR– 

Phlx–2018–08 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2018–08. 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 website (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 website 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 

10:00 a.m. and 3:00 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. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. All 

submissions should refer to File 

Number SR–Phlx–2018–08, and should 

be submitted on or before February 9, 

2018. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2018–00852 Filed 1–18–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–82501; File No. SR–OCC– 

2017–808] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of No Objection to Advance Notice, as 

Modified by Amendment No. 1, 

Concerning the Adoption of a New 

Minimum Cash Requirement for the 

Clearing Fund 

January 12, 2018. 

The Options Clearing Corporation 

(‘‘OCC’’) filed on November 14, 2017 


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