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[Federal Register Volume 75, Number 106 (Thursday, June 3, 2010)]
[Notices]
[Pages 31488-31491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13336]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62181; File No. SR-NYSE-2010-30]

Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Order Approving Proposed Rule Change To Establish the NYSE BBO Service

May 26, 2010.

I. Introduction

    On April 1, 2010, the New York Stock Exchange, LLC (``NYSE'' or the 
``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 establish the NYSE BBO Service, a service that 
will make available the Exchange's best bids and offers and to 
establish fees for that service. The proposed rule change was published 
for comment in the Federal Register on April 22, 2010.\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. 61914 (April 15, 
2010), 75 FR 21077.
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II. Description of the Proposal

a. Subscribers and Data Feed Recipients

    The NYSE BBO Service is a NYSE-only market data service that allows 
a vendor to redistribute on a real-time basis the same best-bid-and-
offer information that NYSE reports under the CQ Plan for inclusion in 
the CQ Plan's consolidated quotation information data stream (``NYSE 
BBO Information''). NYSE BBO Information would include the best bids 
and offers for all securities that are traded on the Exchange and for 
which NYSE reports quotes under the CQ Plan. NYSE will make the NYSE 
BBO Service available over a single datafeed, regardless of the markets 
on which the securities are listed.
    The NYSE BBO Service would allow vendors, broker-dealers, private 
network providers and other entities (``NYSE-Only Vendors'') to make 
NYSE BBO Information available on a real-time basis. NYSE-Only Vendors 
may distribute the NYSE BBO Service to both professional and 
nonprofessional subscribers.
    The Exchange would make NYSE BBO Information available through its 
new NYSE BBO Service no earlier than

[[Page 31489]]

it makes that information available to the processor under the CQ Plan.

b. Fees

i. Access Fee
    For the receipt of access to the NYSE BBO datafeed, the Exchange 
proposes to charge $1500 per month. One $1500 monthly access fee 
entitles an NYSE-Only Vendor to receive both the NYSE BBO datafeed as 
well as the Exchange's NYSE Trades datafeed.\4\ The fee applies to 
receipt of NYSE market data within the NYSE-Only Vendor's organization 
or outside of it.
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    \4\ The Commission approved the Exchange's NYSE Trades service, 
a NYSE-only market data service that allows a vendor to redistribute 
on a real-time basis the same last sale information that the 
Exchange reports to the Consolidated Tape Association (``CTA'') for 
inclusion in CTA's consolidated data stream and certain other 
related data elements. See Securities Exchange Act Release No. 59606 
(March 19, 2009), 74 FR 13293 (March 26, 2009) (SR-NYSE-2009-04).
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ii. Professional Subscriber Fees
    For the receipt and use of NYSE BBO Information, the Exchange 
proposes to charge $15 per month per professional subscriber device.
    In addition, the Exchange proposes to offer an alternative 
methodology to the traditional device fee. Instead of charging $15 per 
month per device, it proposes to offer NYSE-Only Vendors the option of 
paying $15 per month per ``Subscriber Entitlement.'' The fee entitles 
the end-user to receive and use NYSE BBO Information relating to all 
securities traded on NYSE, regardless of the market on which a security 
is listed. For the purpose of calculating Subscriber Entitlements, the 
Exchange proposes to adopt the unit-of-count methodology approved by 
the Commission earlier this year with respect to its NYSE 
OpenBook[supreg] service (the ``Unit-of-Count Filing'').\5\
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    \5\ See Securities Exchange Act Release No. 62038 (May 5, 2010), 
75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22) (approving on a 
permanent basis the alternative unit-of-count methodology).
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iii. Nonprofessional Subscriber Fee
    The Exchange proposes to charge each NYSE-Only Vendor $5.00 per 
month for each nonprofessional subscriber to whom it provides NYSE BBO 
Information. The Exchange proposes to impose the charge on the NYSE-
Only Vendor, rather than on the nonprofessional Subscriber. In 
addition, the Exchange proposes, to establish as an alternative to the 
fixed $5.00 monthly fee, a fee of $.005 for each response that a NYSE-
Only Vendor disseminates to a nonprofessional Subscriber's inquiry for 
a best bid or offer under the NYSE BBO service. The Exchange proposes 
to limit a NYSE-Only Vendor's exposure under this alternative fee to 
$5.00 per month, the same amount as the proposed fixed monthly 
nonprofessional Subscriber flat fee. In order to take advantage of the 
per-query fee, a NYSE-Only Vendor must document in its Exhibit A that 
it can: (1) Accurately measure the number of queries from each 
nonprofessional Subscriber and (2) report aggregate query quantities on 
a monthly basis.
    The Exchange will impose the per-query fee only on the 
dissemination of best bids and offers to nonprofessional Subscribers. 
The per-query charge is imposed on NYSE-Only Vendors, not end-users, 
and is payable on a monthly basis. NYSE-Only Vendors may elect to 
disseminate the NYSE BBO service pursuant to the per-query fee rather 
than the fixed monthly fee.
    In establishing a nonprofessional Subscriber fee for the NYSE BBO 
Service, the Exchange proposes to apply the same criteria for 
qualification as a ``nonprofessional subscriber'' as the CTA and CQ 
Plan Participants use. Similar to the CTA and CQ Plans, classification 
as a nonprofessional subscriber is subject to Exchange review and 
requires the subscriber to attest to his or her nonprofessional 
subscriber status. A ``nonprofessional subscriber'' is a natural person 
who uses the data solely for his personal, non-business use and who is 
neither:
    A. Registered or qualified with the Securities and Exchange 
Commission, the Commodities Futures Trading Commission, any state 
securities agency, any securities exchange or association, or any 
commodities or futures contract market or association,
    B. Engaged as an ``investment adviser'' as that term is defined in 
Section 202(a)(11) of the Investment Advisors Act of 1940 (whether or 
not registered or qualified under that act), nor
    C. Employed by a bank or other organization exemption from 
registration under Federal and/or state securities laws to perform 
functions that would require him/her to be so registered or qualified 
if he/she were to perform such function for an organization not so 
exempt.

c. Justification of Fees

    The Exchange believes that the proposed monthly access fee, 
professional subscriber fee and nonprofessional subscriber fee for the 
NYSE BBO Service will enable NYSE-Only Vendors and their subscribers to 
contribute to the Exchange's operating costs in a manner that is 
appropriate for the distribution of NYSE BBO Information in the form 
taken by the proposed services. In setting the level of the proposed 
fees, the Exchange considered several factors, including:
    (i) NYSE's expectation that the NYSE BBO Service is likely to be a 
premium service, used by investors most concerned with receiving NYSE 
BBO Information on a low latency basis;
    (ii) The fees that the CQ Plan Participants, Nasdaq, NYSE Amex and 
NYSE Arca are charging for similar services (or that NYSE anticipates 
they will soon propose to charge);
    (iii) Consultation with some of the entities that the Exchange 
anticipates will be the most likely to take advantage of the proposed 
service;
    (iv) The contribution of market data revenues that the Exchange 
believes is appropriate for entities that are most likely to take 
advantage of the proposed service;
    (v) The contribution that revenues accruing from the proposed fee 
will make to meet the overall costs of the Exchange's operations;
    (vi) The savings in administrative and reporting costs that the 
NYSE BBO Service will provide to NYSE-Only Vendors (relative to 
counterpart services under the CQ Plan); and
    (vii) The fact that the proposed fees provide alternatives to 
existing fees under the CQ Plan, alternatives that vendors will 
purchase only if they determine that the perceived benefits outweigh 
the cost.

d. Administrative Requirements

    The Exchange will require each NYSE-Only Vendor to enter into a 
vendor agreement just as the CTA and CQ Plans require recipients of the 
Network A datafeeds to enter (the ``Consolidated Vendor Form''). The 
agreement will authorize the NYSE-Only Vendor to provide NYSE BBO 
Information to its customers or to distribute the data internally.
    In addition, the Exchange will require each professional end-user 
that receives NYSE BBO Information from a vendor or broker-dealer to 
enter into the form of professional subscriber agreement into which the 
CTA and CQ Plans require end users of Network A data to enter. It will 
also require NYSE-Only Vendors to subject nonprofessional subscribers 
to the same contract requirements as the CTA and CQ Plan Participants 
require of Network A nonprofessional subscribers.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to

[[Page 31490]]

a national securities exchange.\6\ In particular, it is consistent with 
Section 6(b)(4) of the Act,\7\ 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,\8\ 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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    \6\ 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).
    \7\ 15 U.S.C. 78f(b)(4).
    \8\ 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,\9\ 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,\10\ 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.\11\
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    \9\ 15 U.S.C. 78f(b)(8).
    \10\ 17 CFR 242.603(a).
    \11\ NYSE is an exclusive processor of the NYSE BBO service 
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.\12\ 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.'' 
\13\ 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.'' \14\ 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.'' \15\
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    \12\ 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 in 
great detail 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.
    \13\ Id. at 74771.
    \14\ Id. at 74782.
    \15\ 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.\16\ In 
contrast, individual exchanges and other market participants distribute 
non-core data voluntarily.\17\ The mandatory nature of the core data 
disclosure regime leaves little room for competitive forces to 
determine products and fees.\18\ 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.\19\ 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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    \16\ 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.'')
    \17\ See NYSE Arca Order at 74779.
    \18\ Id.
    \19\ Id.
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    The Exchange proposes to establish a service that would allow a 
vendor to redistribute best bids and offers for all securities that are 
traded on the Exchange and for which NYSE reports quotes under the CQ 
Plan. The Exchange proposes to establish a monthly vendor fee and an 
alternative fee rate that uses the unit-of-count methodology. The 
Exchange represents that this change would provide investors with a 
less expensive alternative to access bids and offer calculations than 
the CQ Plan's consolidated data.
    The proposal before the Commission relates to fees for NYSE BBO 
Information which is a non-core, market data product. As in the 
Commission's NYSE Arca Order analysis, at least two broad types of 
significant competitive forces applied to NYSE in setting the terms of 
this proposal: (i) NYSE's compelling need to attract order flow from 
market participants; and (ii) the availability to market participants 
of alternatives to purchasing NYSE's BBO Information.
    Attracting order flow is the core competitive concern of any equity 
exchange, including NYSE. Attracting order flow is an essential part of 
NYSE's competitive success. If NYSE cannot attract order flow to its 
market, it will not be able to execute transactions. If NYSE cannot 
execute transactions on its market, it will not generate transaction 
revenue. If NYSE cannot attract orders or execute transactions on its 
market, it will not have market data to distribute, for a fee or 
otherwise, and will not earn market data revenue and thus not be 
competitive with other exchanges that have this ability. Table 1 below 
provides a useful recent snapshot of the state of competition in the 
U.S. equity markets in the month of September 2009:\20\
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    \20\ The Commission recently published estimated trading 
percentages in NMS Stocks in its Concept Release on Equity Market 
Structure. See Securities Exchange Act Release No. 61358 (January 
14, 2010), 75 FR 3594, 3597 n. 21 (January 21, 2010) (File No. S7-
02-10).

  Table 1--Trading Centers and Estimated % of ShareVolume in NMS Stocks
                             September 2009
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                                                                Share
                       Trading Venue                          Volume in
                                                              NMS Stocks
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Registered Exchanges:
 
  NASDAQ...................................................         19.4
 
  NYSE.....................................................         14.7
 
  NYSE Arca................................................         13.2
 
  BATS.....................................................          9.5
 
  NASDAQ OMX BX............................................          3.3

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  Other Registered Exchanges...............................          3.7
ECNs:
  5 ECNS...................................................         10.8
Dark Pools:
  32 Dark Pools (Estimated)................................          7.9
Broker-Dealer Internatization:
  200+ Broker-Dealers (Estimated)..........................         17.5
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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. This compelling 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 seeks 
to charge unreasonably high data fees would risk alienating many of the 
same customers on whose orders it depends for competitive survival.\21\
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    \21\ See NYSE Arca Order at 74783.
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    In addition to the need to attract order flow, the availability of 
alternatives to NYSE's BBO Information data significantly affect the 
terms on which NYSE can distribute this market data.\22\ In setting the 
fees for its NYSE BBO Service, NYSE 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\ The various self-regulatory 
organizations, the several Trade Reporting Facilities of FINRA, and 
ECNs that produce proprietary data are all sources of competition.
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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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    In sum, there are a variety of alternative sources of information 
that impose significant competitive pressures on the NYSE in setting 
the terms for distributing its NYSE BBO Information. 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 the 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.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NYSE-2010-30) be, and hereby 
is, approved.
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    \26\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13336 Filed 6-2-10; 8:45 am]
BILLING CODE 8010-01-P
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