[Federal Register Volume 75, Number 107 (Friday, June 4, 2010)]
[Notices]
[Pages 31830-31834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13461]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62194; File No. SR-Phlx-2010-48]


 Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by NASDAQ OMX PHLX, Inc. Relating to Market Data Fees

May 28, 2010.

I. Introduction

    On April 6, 2010, NASDAQ OMX PHLX, Inc. (``Phlx'' 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 
establish fees for a data product, Top of Phlx Options Plus Orders 
(``TOPO Plus Orders'' or ``TOPO Plus''), which currently provides 
disseminated Exchange top-of-market data (including orders, quotes and 
trades), together with all information that is included in the 
Exchange's Specialized Order Feed (``SOF''). The proposed rule change 
was published for comment in the Federal Register on April 16, 2010.\3\ 
The Commission received three comment letters on the proposed rule 
change.\4\ The Exchange submitted one letter in response to these 
comment letters.\5\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61878 (April 8, 
2010), 75 FR 20023 (April 16, 2010) (``Notice'').
    \4\ See Letter from Lawrence Lempert, Bullock Trading, LP, 
Michael Waber, Fairview Trading Corp., Andy Yang, Cutler Group, LP, 
Theodore Raven, TSR Associates, LLC, and Tim Lobach, Keystone 
Trading Partners to Mary Schapiro, Chairman, Commission, dated May 
3, 2010 (``Lempert Letter'') and Letter from Robert Sullivan, Empire 
Options Corporation to Mary Schapiro, Chairman, Commission, received 
May 3, 2010 (``Sullivan Letter''). See also Letter from Michael 
Waber, Fairview Trading, Inc., to Elizabeth M. Murphy, Secretary, 
Commission, dated May 23, 2010 (``Waber Letter'') (responding to the 
Phlx Letter, infra note 5).
    \5\ See Letter from Richard S. Rudolph, Assistant General 
Counsel, NASDAQ OMX PHLX, Inc. to Elizabeth M. Murphy, Secretary, 
Commission, dated May 13, 2010 (``Phlx Letter'').
---------------------------------------------------------------------------

    This order approves the proposed rule change.

II. Description of the Proposed Rule Change

    In June 2009, the Exchange launched Phlx XL II, an electronic 
trading platform on which all options on the Exchange are currently 
traded.\6\ In conjunction with the launch and rollout of the Phlx XL II 
system, the Exchange developed the Top of Phlx Options direct data feed 
(``TOPO''),\7\ which provides to subscribers the Exchange's best bid 
and offer position, with aggregate size, based on displayable order and 
quoting interest on the Phlx XL II system.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 59995 (May 28, 
2009), 74 FR 26750 (June 3, 2009) (SR-Phlx-2009-32).
    \7\ See Securities Exchange Act Release No. 60459 (August 7, 
2009), 74 FR 41466 (August 17, 2009) (SR-Phlx-2009-54). The Exchange 
represents that the data contained in the TOPO data feed is 
identical to the data sent to the processor for the Options Price 
Regulatory Authority (``OPRA''), and the TOPO and OPRA data leave 
the Phlx XL II system at the same time.
---------------------------------------------------------------------------

    In October 2009, the Exchange made the TOPO Plus Orders data feed 
available to all market participants for free.\8\ According to the 
Exchange, TOPO Plus Orders provides disseminated Exchange top-of-market 
data (including orders, quotes and trades) together with all 
information that is included in SOF, the Exchange's real-time full 
limit order book data feed. When it established TOPO Plus Orders, the 
Exchange stated that it planned to submit a proposed rule change to the 
Commission in order to implement fees for the use of TOPO Plus Orders.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 60877 (October 26, 
2009), 74 FR 56255 (October 30, 2009) (SR-Phlx-2009-92).
---------------------------------------------------------------------------

    SOF is currently available to any Exchange quoting participant 
(i.e., specialists, Streaming Quote Traders, and Remote Streaming Quote 
Traders (collectively, ``users'')) and is available to users on an 
issue-by-issue basis at the user's request. A user does not have to be 
assigned in an issue for the Exchange to provide SOF to such user in 
that issue. The SOF provides real-time information to keep track of the 
single order book(s), single and complex orders, complex strategy and 
Live Auction for all symbols for which the user is configured. Users 
may be configured for one or more symbols. SOF provides real-time data 
for the entire book to its users. It is a compilation of limit order 
data resident in the Exchange's limit order book for options traded on 
the Exchange that the Exchange provides through a real-time data feed. 
The Exchange updates SOF information upon receipt of each displayed 
limit order. For every limit

[[Page 31831]]

price, the SOF includes the aggregate order volume.
    The Exchange anticipates that it will generally phase out SOF as of 
June 1, 2010, and instead offer only TOPO Plus Orders to participants 
that wish to continue to receive the data currently included in SOF. 
Thus, current SOF users must migrate to TOPO Plus Orders by June 1, 
2010. The Exchange recognizes, however, that some SOF users may 
encounter issues beyond their control that render them unable to 
migrate from SOF to the TOPO Plus Orders feed on or before that date. 
Accordingly, the Exchange would make SOF available for a period of time 
after June 1, 2010 to current SOF users that have not migrated to TOPO 
Plus Orders. In the event that an SOF user is unable to migrate to TOPO 
Plus Orders due to circumstances beyond their control, by June 1, 2010, 
the Exchange would apply the same monthly fee applicable to TOPO Plus 
Orders users that are Internal Distributors (as defined below) to such 
SOF users. Once a user has migrated from SOF to TOPO Plus Orders, they 
would not have the option of reverting to SOF. New subscribers 
currently do not have, and would not be given, the option to use SOF. 
New subscribers must subscribe to TOPO Plus Orders to receive the 
market data feed.
    The Exchange proposes to charge monthly fees to distributors for 
use of TOPO Plus Orders. The amount of the monthly distributor fee 
would depend on whether the distributor is an ``Internal Distributor'' 
or an ``External Distributor.'' The Exchange's fee schedule currently 
reflects that a ``distributor'' of NASDAQ OMX PHLX data is any entity 
that receives a feed or data file of data directly from NASDAQ OMX PHLX 
or indirectly through another entity and then distributes it either 
internally (within that entity) or externally (outside that entity), 
and that all distributors would be required to execute a NASDAQ OMX 
PHLX distributor agreement.
    An Internal Distributor is an organization that subscribes to the 
Exchange for the use of TOPO or TOPO Plus Orders, and is permitted by 
agreement with the Exchange to provide TOPO or TOPO Plus Orders data to 
internal users (i.e., users within their own organization). Under the 
proposal, Internal Distributors of TOPO Plus Orders would be charged a 
monthly fee of $4,000 per organization.\9\ This charge would also apply 
to SOF users that have not migrated to TOPO Plus Orders on or before 
June 1, 2010.\10\
---------------------------------------------------------------------------

    \9\ Internal Distributors of TOPO are currently charged a 
monthly fee of $2,000 per organization. This fee would continue to 
apply to Internal Distributors that distribute the TOPO feed.
    \10\ SOF users do not distribute SOF to any external users. 
Therefore, the Exchange would assess the lesser fee applicable to 
internal distributors of TOPO Plus Orders on SOF users that have not 
migrated as of June 1, 2010.
---------------------------------------------------------------------------

    An External Distributor is an organization that subscribes to the 
Exchange for the use of TOPO Plus Orders, and is permitted by agreement 
with the Exchange to provide TOPO Plus Orders data to both internal 
users and to external users (i.e., users outside of their own 
organization). External Distributors would be charged a monthly fee of 
$5,000 per organization.\11\
---------------------------------------------------------------------------

    \11\ External Distributors of TOPO are currently charged a 
monthly fee of $2,500 per organization. This fee would continue to 
apply to External Distributors that distribute the TOPO feed.
---------------------------------------------------------------------------

    The Exchange also proposes to assess a monthly Subscriber Fee \12\ 
on External Distributors of TOPO Plus Orders. The monthly Subscriber 
Fee would be assessed on a per-subscriber basis depending upon whether 
the subscriber is a Non-Professional Subscriber \13\ or a Professional 
Subscriber.\14\ The monthly Subscriber Fee assessed to External 
Distributors would be $1 per Non-Professional Subscriber. The monthly 
Subscriber Fee assessed to External Distributors would be $20 per 
Professional Subscriber. The Monthly Subscriber Fee would also apply to 
SOF users that have not migrated to TOPO Plus Orders on or before June 
1, 2010.
---------------------------------------------------------------------------

    \12\ A ``subscriber'' is a person or entity to whom the External 
Distributor provides the TOPO Plus Orders data feed.
    \13\ A Non-Professional Subscriber is 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.
    \14\ A Professional Subscriber is any subscriber that is not a 
Non-Professional Subscriber. If the NASDAQ OMX PHLX distributor 
agreement is signed in the name of a business or commercial entity, 
such entity would be considered a Professional Subscriber.
---------------------------------------------------------------------------

III. Summary of Comments and Phlx's Response

    The commenters argue that, contrary to the Exchange's claim in the 
Notice, at least some of the information contained in TOPO Plus should 
not qualify as ``non-core.'' In addition, the commenters argue that the 
proposed fees for TOPO Plus are not fair and reasonable.\15\
---------------------------------------------------------------------------

    \15\ In addition to the issues discussed here, the Commission 
notes the comment letters raise additional issues that are not 
pertinent or applicable to the subject matter of the current 
proposed rule change, and which are not discussed in this order.
---------------------------------------------------------------------------

A. Core Data vs. Non-Core Data

    The commenters argue that the TOPO Plus Order feed should not be 
considered non-core data, but instead that portions of it (e.g., single 
and complex order book, and Live Auction data) should be viewed as core 
data.\16\ For example, the Lempert Letter states that TOPO Plus 
epitomizes the type of essential data that should be included in core 
data, and believes that Phlx's TOPO Plus is distinguishable from other 
data products approved by the Commission \17\ because the SOF portion 
of TOPO Plus is critical information not available anywhere else.\18\ 
In addition, the Lempert Letter states that the complex order book 
should be classified as core data because ``customers have an 
expectation that those orders are displayed to all market participants 
in a transparent manner just as single option orders must be 
disseminated to OPRA.'' \19\
---------------------------------------------------------------------------

    \16\ See Lempert Letter at 2-3; Sullivan Letter at 1; see also 
Waber Letter at 1-2.
    \17\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order'').
    \18\ See Lempert Letter at 2.
    \19\ Id. at 3.
---------------------------------------------------------------------------

    Phlx disagrees and states in its response letter that the 
Commission has defined ``core data'' as ``the best priced quotations 
and comprehensive last sale reports of all market data,'' which is 
reported to OPRA and then disseminated to the market place as a 
whole.\20\ Phlx states that non-core data is defined as anything other 
than core data that an exchange produces on a voluntary basis, such as 
depth-of-market data, and notes that data such as TOPO Plus is not 
required to be produced by Phlx.\21\ The Exchange also notes that, 
while it provides last sale data regarding complex orders to OPRA as 
core data pursuant to the requirements of the OPRA Plan, it does not 
provide top of the complex order book data to the OPRA Plan because 
OPRA does not currently support such order types and the OPRA Plan 
explains that such information should not be reported to OPRA.\22\
---------------------------------------------------------------------------

    \20\ See Phlx Letter at 2 (citing the NYSE Arca Order).
    \21\ Id. at 2.
    \22\ Id. at 2-3.

---------------------------------------------------------------------------

[[Page 31832]]

B. Fees and Costs

    The commenters also argue that the proposed fees are not fair and 
reasonable, and believe that the proposed fees discriminate against 
smaller broker-dealers because they would charge the same amount per 
broker-dealer regardless of the quantity of issues traded.\23\ In 
addition, one commenter also expresses concern regarding the cost for 
broker-dealers of acquiring the technology necessary if they opt to 
receive the TOPO Plus raw data stream.\24\
---------------------------------------------------------------------------

    \23\ See Lempert Letter at 3; see also Sullivan Letter at 1 and 
Waber Letter at 1-2.
    \24\ See Lempert Letter at 3-4.
---------------------------------------------------------------------------

    In its response letter, Phlx contends that its TOPO Plus fees 
represent an equitable allocation of reasonable dues, fees and other 
charges among its members and issuers and other persons using its 
facilities.\25\ Phlx states that the commenters in the Sullivan and 
Lempert Letters would be considered Internal Distributors, and thereby 
subject to the $4,000 fee, only if they choose to receive a raw data 
feed from Phlx or any other vendor where the subscriber can interact 
with data in its raw form.\26\ In the Phlx Letter, the Exchange states 
that, based ``upon the use of TOPO Plus by [the commenters] and the 
manner in which External Distributors would distribute TOPO Plus to 
them, Phlx concludes that [they] are neither Internal Distributors nor 
External Distributors of TOPO Plus,'' and therefore not subject to the 
monthly $4,000 (for Internal Distributors) or $5,000 (for External 
Distributors) in monthly fees.\27\ Instead, Phlx believes they would be 
Professional Subscribers and subject to the fees charged them by the 
External Distributor from which they receive the feed. Such External 
Distributor would be assessed a $20 monthly fee for each of its 
Professional Subscribers, which Phlx believes would likely be passed 
through to subscribers, along with any other fees agreed upon by such 
External Distributor and its subscribers.\28\
---------------------------------------------------------------------------

    \25\ See Phlx Letter at 3.
    \26\ Id. at 4.
    \27\ Id.
    \28\ Id. at 4.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposal is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\29\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(4) of 
the Act,\30\ which requires that the rules of a national securities 
exchange provide for the equitable allocation of reasonable dues, fees 
and other charges among members and issuers and other persons using its 
facilities. The Commission also believes that the proposed rule change 
is consistent with Section 6(b)(5) of the Act,\31\ which requires, 
among other things, that the rules of an exchange be designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and facilitating 
transactions in securities, 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. The Commission further believes that the proposed 
rule change is consistent with Section 6(b)(8) of the Act,\32\ in that 
it does not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \29\ 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).
    \30\ 15 U.S.C. 78f(b)(4).
    \31\ 15 U.S.C. 78f(b)(5).
    \32\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    The Commission has reviewed the proposal using the approach set 
forth in the NYSE Arca Order for non-core market data fees.\33\ There, 
the Commission stated that ``core'' data related to data ``that 
Commission rules require to be consolidated and distributed to the 
public by a single central processor'' whereas ``no Commission rule 
requires exchange or market participants either to distribute non-core 
data to the public or to display non-core data to investors.'' \34\ In 
the NYSE Arca Order, the Commission also 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.'' \35\ 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.'' \36\ 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.'' \37\
---------------------------------------------------------------------------

    \33\ See NYSE Arca Order, supra note 17.
    \34\ Id. at 74771.
    \35\ Id.
    \36\ Id. at 74782.
    \37\ Id. at 74781.
---------------------------------------------------------------------------

    As noted in the NYSE Arca Order, the standards in Section 6 of the 
Act do not differentiate between types of data and therefore apply to 
exchange proposals to distribute both core data and non-core data.\38\ 
All U.S. options exchanges are required pursuant to the OPRA Plan to 
provide core data--the best-priced quotations and comprehensive last 
sale reports--to OPRA, which data is then distributed to the public 
pursuant to the OPRA Plan.\39\ In contrast, individual exchanges and 
other market participants distribute non-core data voluntarily.\40\ The 
mandatory nature of the core data disclosure regime leaves little room 
for competitive forces to determine products and fees.\41\ Non-core 
data products and their fees are, by contrast, much more sensitive to 
competitive forces. The Commission therefore is able to rely on 
competitive forces in its determination of whether an exchange's 
proposal to distribute non-core data meets the standards of Section 
6.\42\
---------------------------------------------------------------------------

    \38\ Id. at 74779.
    \39\ See Plan for Reporting of Consolidated Options Last Sale 
Reports and Quotation Information (``OPRA Plan''), Sections V(a)-
(c).
    \40\ See NYSE Arca Order at 74779.
    \41\ Id.
    \42\ Id.
---------------------------------------------------------------------------

    The Commission agrees with Phlx that, contrary to the commenters' 
assertions, the Exchange's instant proposal relates to the distribution 
of non-core data. The Commission will, therefore, apply the market-
based approach set forth in the NYSE Arca Order. Pursuant to this 
approach, the first step is to determine whether Phlx was subject to 
significant competitive forces in setting the terms of its non-core 
market data proposal, including the level of any fees. As in the 
Commission's NYSE Arca Order, in determining whether Phlx was subject 
to significant competitive forces in setting the terms of its proposal, 
the Commission has analyzed Phlx's need to attract order flow from 
market participants, and the availability to market participants of 
alternatives to purchasing Phlx's non-core market data.
    The Commission believes that the options industry is currently 
subject to

[[Page 31833]]

significant competitive forces.\43\ It is generally accepted that the 
start of wide-spread multiple listing of options across exchanges in 
August 1999 greatly enhanced competition among the exchanges.\44\ The 
launch of four new options exchanges since that time, numerous market 
structure innovations, and the start of the options penny pilot \45\ 
have all further intensified intermarket competition for order flow.
---------------------------------------------------------------------------

    \43\ The Commission has previously stated that the options 
industry is subject to significant competitive forces. See 
Securities Exchange Act Release No. 59949 (May 20, 2009), 74 FR 
25593 (May 28, 2009) (SR-ISE-2007-97) (order approving the 
International Stock Exchange's proposal establishing fees for a 
real-time depth of market data offering).
    \44\ See, generally, Concept Release: Competitive Developments 
in the Options Markets, Securities Exchange Act Release No. 49175 
(date), 69 FR 6124 (February 9, 2004); see also Battalio, Robert, 
Hatch, Brian, and Jennings, Robert, Toward a National Market System 
for U.S. Exchange-Listed Equity Options, The Journal of Finance 59 
(933-961); De Fontnouvelle, Patrick, Fishe, Raymond P., and Harris, 
Jeffrey H., The Behavior of Bid-Ask Spreads and Volume in Options 
Markets During the Competition for Listings in 1999, The Journal of 
Finance 58 (2437-2463); and Mayhew, Stewart, Competition, Market 
Structure, and Bid-Ask Spreads in Stock Option Markets, The Journal 
of Finance 57 (931-958).
    \45\ See, e.g., Securities Exchange Act Release Nos. 55162 
(January 24, 2007), 72 FR 4738 (February 1, 2007) (SR-Amex-2006-
106); 55073 (January 9, 2007), 72 FR 4741 (February 1, 2007) (SR-
BSE-2006-48); 55154 (January 23, 2007), 72 FR 4743 (February 1, 
2007) (SR-CBOE-2006-92); 55161 (January 24, 2007), 72 FR 4754 
(February 1, 2007) (SR-ISE-2006-62); 55156 (January 23, 2007), 72 FR 
4759 (February 1, 2007) (SR-NYSEArca-2006-73); and 55153 (January 
23, 2007), 72 FR 4553 (January 31, 2007) (SR-Phlx-2006-74).
---------------------------------------------------------------------------

    Phlx currently competes with seven other options exchanges for 
order flow.\46\ Attracting order flow is an essential part of Phlx's 
competitive success.\47\ If Phlx cannot attract order flow to its 
market, it will not be able to execute transactions. If Phlx cannot 
execute transactions on its market, it will not generate transaction 
revenue. If Phlx 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. This 
compelling need to attract order flow imposes significant pressure on 
Phlx 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. These market participants include broker-dealers that 
control the handling of a large volume of customer and proprietary 
order flow. Given the portability of order flow from one exchange 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.
---------------------------------------------------------------------------

    \46\ In its filing, Phlx discusses ``the intensity of the 
competition for order flow,'' and states that ``Phlx currently 
competes with seven other options exchanges for order flow'' and 
``the ISE and CBOE enjoy close to thirty percent market share of 
volume, followed by NYSE Arca and Phlx at close to fifteen percent 
market share, followed by four other exchanges with meaningful 
market share.'' See Notice at 20025.
    \47\ Phlx states in its filing that ``it has a compelling need 
to attract order flow from market participants * * * in order to 
maintain its share of trading volume.'' Id.
---------------------------------------------------------------------------

    Phlx also notes that it currently trades options on seven 
proprietary index products that are not traded on any other exchange. 
These seven options currently represent less than 0.04% of Phlx's total 
contract volume.\48\ The Commission believes that, given the small 
percentage of Phlx's total contract volume represented by these seven 
products, the inclusion of data on these products in the TOPO Plus 
Orders product does not confer market power on Phlx to compel market 
participants to purchase the entire Phlx data feed and the inclusion of 
depth-of-book data for these products in Phlx's TOPO Plus Orders 
product does not undermine the fact that Phlx is subject to significant 
competitive forces in setting the TOPO Plus fees.
---------------------------------------------------------------------------

    \48\ Notice at 20025.
---------------------------------------------------------------------------

    In addition to the need to attract order flow, the availability of 
alternatives to Phlx's TOPO Plus product significantly affect the terms 
on which Phlx can distribute this market data.\49\ In setting the fees 
for its TOPO Plus product, Phlx must consider the extent to which 
market participants would choose one or more alternatives instead of 
purchasing its data.\50\ The most basic source of information 
concerning the depth generally available at an exchange is the complete 
record of an exchange's transactions that is provided in the core data 
feeds.\51\ 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.\52\ Further, other options 
exchanges can produce their own data products, and thus are sources of 
potential competition for Phlx.\53\ In addition, one or more securities 
firms could act independently and distribute their own order data, with 
or without a fee.
---------------------------------------------------------------------------

    \49\ See NYSE Arca Order at 74784.
    \50\ See NYSE Arca Order at 74783.
    \51\ Id.
    \52\ Id. Information on transactions executed on Phlx is 
available through OPRA.
    \53\ For example, ISE and CBOE each enjoy greater market shares 
than Phlx and thus have the ability to offer data products that 
could compete favorably with the Exchange's products.
---------------------------------------------------------------------------

    The Commission believes that there are a number of alternative 
sources of information that impose significant competitive pressures on 
Phlx in setting the terms for distributing its TOPO Plus product. The 
Commission believes that the availability of those alternatives, as 
well as Phlx's compelling need to attract order flow, impose 
significant competitive pressure on Phlx to act equitably, fairly, and 
reasonably in setting the terms of its proposal.\54\
---------------------------------------------------------------------------

    \54\ The Commission stated in the NYSE Arca Order that broker-
dealers are not required to obtain depth-of-book order data to meet 
their duty of best execution. See id. at 74788 for a more detailed 
discussion. Likewise, the Commission does not view obtaining depth-
of-book data as a necessary prerequisite to broker-dealers 
satisfying the duty of best execution with respect to the trading of 
standardized options.
---------------------------------------------------------------------------

    Because Phlx 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 the terms of the proposal fail to meet the applicable requirements 
of the Act or the rules thereunder. An analysis of the proposal does 
not provide such a basis. The fees do not unreasonably discriminate 
among types of distributors, such as by favoring participants in the 
Phlx market or penalizing participants in other markets.\55\ The 
Commission notes that the Exchange will assess on External Distributors 
a monthly subscriber fee of $20 per Professional Subscriber, and $1 per 
Non-Professional Subscriber. The monthly subscriber fees assessed upon 
External Distributors are based upon the manner in which the data will 
ultimately be used, i.e., for commercial vs. non-commercial 
purposes.\56\
---------------------------------------------------------------------------

    \55\ Phlx notes that TOPO Plus Orders are lower for Internal 
Distributors than for External Distributors. Because Internal 
Distributors are by definition more limited in the scope of their 
distribution of TOPO Plus Orders data than External Distributors, it 
is reasonable to expect that Internal Distributors will provide TOPO 
Plus Orders data to a smaller number of internal subscribers. 
Conversely, External Distributors can reasonably be expected to 
distribute the TOPO Plus Orders data to a higher number of 
subscribers because they do not have the same limitation. See Notice 
at 20025.
    \56\ The Commission notes that the CTA participants' fees have 
long provided for a lower fee for non-professional subscribers, and 
that the fees approved by the Commission in the NYSE Arca Order also 
provided for lower fees for non-professional subscribers. See NYSE 
Arca Order at 74772.
---------------------------------------------------------------------------

    As discussed above, the commenters also argue that the proposed 
TOPO Plus fees are not fair and reasonable, and that the fee amounts 
discriminate against smaller broker-dealers because the proposed fees 
would charge the same

[[Page 31834]]

amount per broker-dealer regardless of the quantity of issues traded, 
and concern regarding the cost of acquiring the technology necessary if 
they opt to receive the TOPO Plus raw data stream.\57\ The Commission 
believes that, in the Phlx Letter, the Exchange addressed the 
commenters' concerns in clarifying that the Exchange would only 
consider them to be Internal Distributors (and thus subject to a $4,000 
monthly fee) if they opt to receive the TOPO Plus data as a raw data 
feed. The Exchange noted that the commenters could opt to receive TOPO 
Plus from an External Distributor, whereby they would be considered 
Professional Subscribers. In such a case, the proposal would charge an 
External Distributor $20 per month for each Professional Subscriber to 
whom it distributes the feed and Phlx notes that the External 
Distributor may pass through the Professional Subscriber fee to its 
subscribers, along with any other fees agreed upon, which should be 
significantly less than the monthly distributor fees proposed under the 
proposed rule change.
---------------------------------------------------------------------------

    \57\ See supra notes 23-24 and accompanying text.
---------------------------------------------------------------------------

    Though the Commission notes the commenters cost concerns regarding 
receiving the TOPO Plus raw data stream, if the commenters choose to 
receive the raw data stream, they would be subject to the same 
technology constraints and costs in dealing with the data as other 
market participants. In addition, the Commission notes that the 
Exchange has stated that it would make the SOF data feed available for 
those current SOF users that may encounter issues beyond their control 
that render them unable to migrate to TOPO Plus before June 1, 2010.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange and, in 
particular, with Section 6(b)(4), (5), and (8) of the Act.\58\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78f(b)(4), (5), and (8).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\59\ that the proposed rule change (SR-Phlx-2010-48) is approved.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
---------------------------------------------------------------------------

    \60\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13461 Filed 6-3-10; 8:45 am]
BILLING CODE 8010-01-P