```

[Federal Register Volume 79, Number 223 (Wednesday, November 19, 2014)]
[Notices]
[Pages 68922-68927]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27314]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73588; File No. SR-NYSEARCA-2014-129]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Implementing Fees 
for the NYSE ArcaBook for Arca Options Complex Feed and Changing the 
NYSE Arca Options Proprietary Market Data Fee Schedule (``Market Data 
Fee Schedule'') Regarding Non-Display Use Fees

November 13, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 30, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to add fees for the NYSE ArcaBook for Arca 
Options Complex feed, operative on November 1, 2014. The text of the 
proposed rule change is available on the Exchange's Web site at 
www.nyse.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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
NYSE ArcaBook for Arca Options--Complex--Fee Changes
    The Exchange offers six NYSE Arca Options real-time options market 
data products: ArcaBook for Arca Options--Trades, ArcaBook for Arca 
Options--Top of Book, ArcaBook for Arca Options--Depth of Book, 
ArcaBook for Arca Options--Complex, ArcaBook for Arca Options--Series 
Status, and ArcaBook for Arca Options--Order Imbalance (collectively, 
``Arca Options Products'').\4\ The Exchange currently charges the 
following fees for receipt of all six Arca Options Products: \5\ an 
Access Fee of $3,000 per month; a Redistribution Fee of $2,000 per 
month; a Professional User Fee of $50 per month for each Professional 
User; and a Non-Professional User Fee of $1 per month for each Non-
Professional User. There is a Non-Professional User Fee Cap of $5,000 
per month per Redistributor. The fee for non-display use of all six 
Arca Options Products is $5,000 per data recipient for each category of 
organization (i.e., for Category 1, Category 2 and Category 3).\6\

[[Page 68923]]

The Exchange does not currently have separate pricing for each of the 
individual products.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 67720 (August 23, 
2012), 77 FR 52769 (August 30, 2012) (SR-NYSEArca-2012-89) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Proposing To Offer Certain Proprietary Options Data Products).
    \5\ See Securities Exchange Act Release No. 68005 (October 9, 
2012), 77 FR 63362 (October 16, 2012) (SR-NYSEArca-2012-106) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Establishing Fees for Certain Proprietary Options Market Data 
Products). See also Securities Exchange Act Release No. 69554 (May 
10, 2013), 78 FR 28917 (May 16, 2013) (SR-NYSEArca-2013-47) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Establishing Non-Display Usage Fees and Amending the Professional 
End-User Fees for NYSE Arca Options Market Data). See also 
Securities and Exchange Act Release No. 71933 (April 11, 2014), 79 
FR 21821 (April 17, 2014) (SR-NYSEArca-2014-34)(Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the 
Professional User Fees for NYSE Arca Options Market Data, Operative 
on April 1, 2014).
    \6\ See Securities Exchange Act Release No. 73010 (September 5, 
2014), 79 FR 54307 (September 11, 2014) (SR-NYSEArca-2014-94) 
(Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change Amending Its Fees for Non-Display Use of NYSE Arca Options 
Market Data) (``2014 Non-Display Filing'').
---------------------------------------------------------------------------

    Starting on May 1, 2014, the Exchange began offering one of the six 
feeds, ArcaBook for Arca Options--Complex, on a standalone basis 
without charge from May 1, 2014 to October 31, 2014.\7\ The Exchange 
proposes to charge fees for ArcaBook for Arca Options--Complex, 
beginning November 1, 2014, as follows: An Access Fee of $1,500 per 
month; a Redistribution Fee of $1,000 per month for ArcaBook for Arca 
Options--Complex; and fees of $20 per month for each Professional User 
and $1 per month for each Non-Professional User. The Exchange is not 
proposing a Non-Professional User Fee Cap. In addition, the Exchange 
proposes to charge a Non-Display Fee for non-display use of ArcaBook 
for Arca Options--Complex of $1,000 per data recipient for each 
category of organization (i.e., for Category 1, Category 2 and Category 
3).\8\ As with the fees for Arca Options Products, data recipients 
would not be liable for Category 2 Non-Display fees for which they are 
also paying Category 1 Non-Display fees; and similarly, Category 3 fees 
would be capped at $3,000.
---------------------------------------------------------------------------

    \7\ See Securities Exchange Act Release No. 72074 (May 1, 2014), 
79 FR 26277 (May 7, 2014) (SR-NYSEArca-2014-51) (Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Offering 
ArcaBook for Arca Options--Complex on a Standalone Basis Without 
Charge from May 1, 2014 Through October 31, 2014).
    \8\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------

    The Exchange does not propose to make any other changes to the fees 
for Arca Options Products.
Changes to Fee Schedule Regarding Non-Display Use
    The Exchange proposes a change to the Market Data Fee Schedule 
regarding non-display use fees. Specifically, with respect to the three 
categories of, and fees applicable to, market data recipients for non-
display use, the Exchange proposes to describe the three categories in 
the Market Data Fee Schedule.
    In September 2014, the Exchange revised the fees for non-display 
use of and added fees for non-display use of NYSE ArcaBook for Arca 
Options.\9\ In the 2014 Non-Display Filing, the Exchange proposed 
certain changes to the categories of, and fees applicable to, data 
recipients for non-display use. As set forth in the 2014 Non-Display 
Filing: (i) Category 1 Fees apply when a data recipient's non-display 
use of real-time market data is on its own behalf as opposed to use on 
behalf of its clients; (ii) Category 2 Fees apply when a data 
recipient's non-display use of real-time market data is on behalf of 
its clients as opposed to use on its own behalf; and (iii) Category 3 
Fees apply when a data recipient's non-display use of real-time market 
data is for the purpose of internally matching buy and sell orders 
within an organization, including matching customer orders on a data 
recipient's own behalf and/or on behalf of its clients. The Market Data 
Fee Schedule currently lists each category as Category 1, Category 2, 
and Category 3, without further description.
---------------------------------------------------------------------------

    \9\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------

    The Exchange is proposing to amend the Market Data Fee Schedule to 
add the descriptions of the three categories, as set forth above, as a 
footnote to the Market Data Fee Schedule. Because there will now be 
multiple footnotes to the Market Data Fee Schedule, the Exchange 
proposes non-substantive edits to change the existing footnote 
references from asterisks to numbers.
    The Exchange does not propose to make any other changes to the fees 
for Arca Options Products.
Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ in particular, in that it 
would provide an equitable allocation of reasonable fees among users 
and recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change is reasonable 
because it would allow vendors and subscribers to pay the standalone 
fees associated with the one product rather than payment of the higher 
fees associated with all six Arca Options Products. In this regard, the 
Exchange notes that some vendors of, and subscribers, to the Arca 
Options Products currently utilize only ArcaBook for Arca Options--
Complex. The proposed change is also equitable and not unfairly 
discriminatory because the same levels of fees would be charged to 
similar types of users of the same market data products.
    The Exchange believes that the proposed change is reasonable 
because the proposed fees would be comparable to the fees that other 
option markets charge for comparable market data products. For example, 
CBOE charges, for its ``Complex Order Book Feed,'' a Distributor Fee of 
$3,000 per month, a Professional User Fee of $25 per month and a Non-
Professional User Fee of $1 per month.\12\ Similarly, the International 
Securities Exchange, LLC (``ISE'') offers a ``Spread Feed,'' which 
includes order and quote data for complex strategies, and charges 
related fees, including $3,000 per month for distributors and a monthly 
controlled device fee of $25 per controlled device for 
Professionals.\13\ NASDAQ OMX PHLX LLC (``PHLX'') also offers a market 
data product entitled ``PHLX Orders,'' which similarly includes order 
and last sale information for complex strategies and other market data, 
and charges a $3,000 internal monthly fee ($3,500 for external), $2,000 
per Distributor and $500 per subscriber.\14\
---------------------------------------------------------------------------

    \12\ See the Chicago Board Options Exchange, Inc. (``CBOE'') 
``Complex Order Book Feed'' product and pricing information, 
available at https://www.cboe.org/MDX/CSM/OBOOKMain.aspx. CBOE also 
applies a User Fee Cap of $2,000. The Exchange is not proposing a 
Non-Professional Fee Cap at this time.
    \13\ See ISE ``Spread Feed'' market data product and pricing 
information, available at http://www.ise.com/market-data/products/data-feeds/.
    \14\ See PHLX ``PHLX Orders'' market data product and pricing 
information, available at http://www.nasdaqtrader.com/Micro.aspx?id=PHLXOrders and http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListOptions#PHLX, respectively.
---------------------------------------------------------------------------

    The Exchange believes that it is reasonable for the proposed Non-
Display Fee for ArcaBook for Arca Options--Complex to be lower than the 
fee for non-display use for all six Arca Options Products (i.e., $5,000 
per month). Specifically, some vendors of, and subscribers to, the Arca 
Options Products currently utilize only ArcaBook for Arca Options--
Complex and the proposed rate reflects this use of only one of the six 
Arca Options Products. This proposal would also be equitable and not 
unfairly discriminatory because it would establish an overall monthly 
fee that reflects the value of the data to the data recipients in their 
profit-generating activities.
    The Exchange also believes that it is reasonable for the proposed 
Non-Professional User Fee to be the same as the existing fee for all 
six Arca Options Products (i.e., $1 per User per month) because the 
current fee is already set at a very reasonable and competitive level. 
This is also equitable and not unfairly discriminatory because the 
current fee of $1 per Non-Professional User is charged if the Non-
Professional User receives the six Arca Options Products, and not on 
the basis of how many of the six Arca Options Products a Non-

[[Page 68924]]

Professional User utilizes. Therefore, currently, a Non-Professional 
User that is receiving all six Arca Options Products but using only one 
feed would pay the $1 per User fee, and similarly, as proposed, a Non-
Professsional User that is only subscribing to the ArcaBook for Arca 
Options--Complex feed would pay the same $1 per User fee.
    The Exchange also believes that it is reasonable not to propose a 
Non-Professional User Fee Cap at this time because such a cap is not 
anticipated to encourage greater subscription to or distribution of 
ArcaBook for Arca Options--Complex. The absence of a Non-Professional 
User Fee Cap is equitable and not unfairly discriminatory because each 
Redistributor would be charged the same amount for each additional Non-
Professional User that subscribes to ArcaBook for Arca Options--
Complex, regardless of how many Non-Professional Users to which the 
Redistributor makes ArcaBook for Arca Options--Complex available.
    The Exchange also notes that purchasing Arca Options Products is 
entirely optional. Firms are not required to purchase them and have a 
wide variety of alternative options market data products from which to 
choose. Moreover, the Exchange is not required to make these 
proprietary data products available or to offer any specific pricing 
alternatives to any customers.
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld reliance by the Securities and Exchange Commission 
(``Commission'') upon the existence of competitive market mechanisms to 
set reasonable and equitably allocated fees for proprietary market 
data:

In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.'

    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted 
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's 
conclusion that ``Congress intended that `competitive forces should 
dictate the services and practices that constitute the U.S. national 
market system for trading equity securities.' '' \15\ The Exchange 
believes that this is also true with respect to options markets.
---------------------------------------------------------------------------

    \15\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------

    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for data and that the Commission can 
rely upon such evidence in concluding that the fees proposed in this 
filing are the product of competition and therefore satisfy the 
relevant statutory standards.\16\ In addition, the existence of 
alternatives to these data products, such as options data from other 
sources, as described below, further ensures that the Exchange cannot 
set unreasonable fees, or fees that are unreasonably discriminatory, 
when vendors and subscribers can elect such alternatives.
---------------------------------------------------------------------------

    \16\ Section 916 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended 
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), 
to make clear that all exchange fees for market data may be filed by 
exchanges on an immediately effective basis.
---------------------------------------------------------------------------

    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach.\17\ The Exchange 
believes that, even if it were possible as a matter of economic theory, 
cost-based pricing for non-core market data would be so complicated 
that it could not be done practically.\18\
---------------------------------------------------------------------------

    \17\ NetCoalition, 615 F.3d at 536.
    \18\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, and as 
described below, it is impossible to regulate market data prices in 
isolation from prices charged by markets for other services that are 
joint products. Cost-based rate regulation would also lead to 
litigation and may distort incentives, including those to minimize 
costs and to innovate, leading to further waste. Under cost-based 
pricing, the Commission would be burdened with determining a fair 
rate of return, and the industry could experience frequent rate 
increases based on escalating expense levels. Even in industries 
historically subject to utility regulation, cost-based ratemaking 
has been discredited. As such, the Exchange believes that cost-based 
ratemaking would be inappropriate for proprietary market data and 
inconsistent with Congress's direction that the Commission use its 
authority to foster the development of the national market system, 
and that market forces will continue to provide appropriate pricing 
discipline. See Appendix C to NYSE's comments to the Commission's 
2000 Concept Release on the Regulation of Market Information Fees 
and Revenues, which can be found on the Commission's Web site at 
http://www.sec.gov/rules/concept/s72899/buck1.htm.
---------------------------------------------------------------------------

    For these reasons, the Exchange believes that the proposed fees are 
reasonable, equitable, and not unfairly discriminatory.
    The Exchange believes that adding the description of the three 
categories of data recipients for non-display use to the Market Data 
Fee Schedule would remove impediments to and help perfect a free and 
open market by providing greater transparency for the Exchange's 
customers regarding the category descriptions that have been previously 
filed with the Commission and are applicable to the existing Market 
Data Fee Schedule.\19\
---------------------------------------------------------------------------

    \19\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------

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 that is not necessary or appropriate 
in furtherance of the purposes of the Act. An exchange's ability to 
price its proprietary data products is constrained by actual 
competition for the sale of proprietary data products, the joint 
product nature of exchange platforms, and the existence of alternatives 
to the Exchange's proprietary data.
    The Existence of Actual Competition. The market for proprietary 
options data products is currently competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary for the creation of proprietary data and strict pricing 
discipline to the proprietary products themselves. Numerous exchanges 
compete with each other for options trades and sales of options market 
data itself, providing ample opportunities for entrepreneurs who wish 
to compete in any or all of those areas, including producing and 
distributing their own options market data. Proprietary options data 
products are produced and distributed by each individual exchange, as 
well as other entities, in a vigorously competitive market. Indeed, the 
U.S. Department of Justice (``DOJ'') (the primary antitrust regulator) 
has expressly acknowledged the aggressive actual competition among 
exchanges, including for the sale of proprietary market data itself. In 
2011, the DOJ stated that exchanges ``compete head to head to offer 
real-time equity data products. These data products include the best 
bid and offer of every exchange and information on each equity trade, 
including the last sale.'' \20\ Similarly, the options markets 
vigorously compete with respect to options data products.\21\
---------------------------------------------------------------------------

    \20\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
    \21\ See, e.g., Securities Exchange Act Release No. 67466 (July 
19, 2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93), which 
describes a variety of options market data products and their 
pricing.

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

[[Page 68925]]

    Moreover, competitive markets for order flow, executions, and 
transaction reports provide pricing discipline for the inputs of 
proprietary options data products and therefore constrain markets from 
overpricing proprietary options market data. Broker-dealers send their 
order flow to multiple venues, rather than providing them all to a 
single venue, which in turn reinforces this competitive constraint. 
Options markets, similar to the equities markets, are highly 
fragmented.\22\
---------------------------------------------------------------------------

    \22\ See, e.g., Press Release, TABB Says US Equity Options 
Market Makers Need Scalable Technology to Compete in Today's Complex 
Market Structure (February 25, 2013), available at http://www.tabbgroup.com/PageDetail.aspx?PageID=16&ItemID=1231; 
Fragmentation Vexes Options Markets (April 21, 2014), available at 
http://marketsmedia.com/fragmentation-vexes-options-market/.
---------------------------------------------------------------------------

    If an exchange succeeds in its competition for quotations, order 
flow, and trade executions, then it earns trading revenues and 
increases the value of its proprietary options market data products 
because they will contain greater quote and trade information. 
Conversely, if an exchange is less successful in attracting quotes, 
order flow, and trade executions, then its options market data products 
may be less desirable to customers using them in support of order 
routing and trading decisions in light of the diminished content; data 
products offered by competing venues may become correspondingly more 
attractive. Thus, competition for quotations, order flow, and trade 
executions puts significant pressure on an exchange to maintain both 
execution and data fees at reasonable levels.
    In addition, in the case of products that are distributed through 
market data vendors, such as Bloomberg and Thompson Reuters, the 
vendors themselves provide additional price discipline for proprietary 
data products because they control the primary means of access to 
certain end users. These vendors impose price discipline based upon 
their business models. For example, vendors that assess a surcharge on 
data they sell are able to refuse to offer proprietary products that 
their end users do not or will not purchase in sufficient numbers. 
Vendors will not elect to make available Arca Options Products 
described herein unless their customers request them, and customers 
will not elect to pay the proposed fees unless this data product can 
provide value by sufficiently increasing revenues or reducing costs in 
the customer's business in a manner that will offset the fees. All of 
these factors operate as constraints on pricing proprietary data 
products.
    Joint Product Nature of Exchange Platform. 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, 
proprietary market data and trade executions 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 
platforms where the order can be posted, including the execution fees, 
data availability and quality, and price and distribution of their data 
products. Without a platform to post quotations, receive orders, and 
execute trades, exchange data products would not exist.
    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 platform for posting quotes, 
accepting orders, and executing transactions 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, an exchange's broker-dealer customers generally view the 
costs of transaction executions and market data as a unified cost of 
doing business with the exchange. A broker-dealer will only choose to 
direct orders to an exchange if the revenue from the transaction 
exceeds its cost, including the cost of any market data that the 
broker-dealer chooses to buy in support of its order routing and 
trading decisions. If the costs of the transaction are not offset by 
its value, then the broker-dealer may choose instead not to purchase 
the product and trade away from that exchange. There is substantial 
evidence of the strong correlation between order flow and market data 
purchases. For example, in July 2014 more than 80% of the options 
transaction volume on each of NYSE Arca and NYSE MKT LLC (``NYSE MKT'') 
was executed by market participants that purchased one or more 
proprietary market data products. A super-competitive increase in the 
fees for either executions or market data would create a risk of 
reducing an exchange's revenues from both products.
    Other market participants have noted that proprietary market data 
and trade executions are joint products of a joint platform and have 
common costs.\23\ The Exchange agrees with and adopts those discussions 
and the arguments therein. The Exchange also notes that the economics 
literature confirms that there is no way to allocate common costs 
between joint products that would shed any light on competitive or 
efficient pricing.\24\
---------------------------------------------------------------------------

    \23\ See Securities Exchange Act Release No. 72153 (May 12, 
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045) 
(``[A]ll of the exchange's costs are incurred for the unified 
purposes of attracting order flow, executing and/or routing orders, 
and generating and selling data about market activity. The total 
return that an exchange earns reflects the revenues it receives from 
the joint products and the total costs of the joint products.''). 
See also Securities Exchange Act Release No. 62907 (September 14, 
2010), 75 FR 57314, 57317 (September 20, 2010) (SR-NASDAQ-2010-110), 
and Securities Exchange Act Release No. 62908 (September 14, 2010), 
75 FR 57321, 57324 (September 20, 2010) (SR-NASDAQ-2010-111).
    \24\ See generally Mark Hirschey, Fundamentals of Managerial 
Economics, at 600 (2009) (``It is important to note, however, that 
although it is possible to determine the separate marginal costs of 
goods produced in variable proportions, it is impossible to 
determine their individual average costs. This is because common 
costs are expenses necessary for manufacture of a joint product. 
Common costs of production--raw material and equipment costs, 
management expenses, and other overhead--cannot be allocated to each 
individual by-product on any economically sound basis . . . . Any 
allocation of common costs is wrong and arbitrary.''). This is not 
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to 
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4) 
438, 465 (July 1891) (``Yet, surely, the division is purely 
arbitrary. These items of cost, in fact, are jointly incurred for 
both sorts of traffic; and I cannot share the hope entertained by 
the statistician of the Commission, Professor Henry C. Adams, that 
we shall ever reach a mode of apportionment that will lead to 
trustworthy results.'').
---------------------------------------------------------------------------

    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products because it is 
impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, and system and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.

[[Page 68926]]

    As noted above, the level of competition and contestability in the 
market is evident in the numerous alternative venues that compete for 
order flow, including 12 self-regulatory organization (``SRO'') options 
markets. Two of the 12 have launched operations since December 
2012.\25\ The Exchange believes that these new entrants demonstrate 
that competition is robust.
---------------------------------------------------------------------------

    \25\ See Securities Exchange Act Release Nos. 70050 (July 26, 
2013), 78 FR (August 1, 2013) (approving exchange registration for 
Topaz Exchange, LLC) (known as ISE Gemini); and 68341 (December 3, 
2012), 77 FR 73065 (December 7, 2012) (approving exchange 
registration for Miami International Securities Exchange LLC 
(``Miami Exchange'')).
---------------------------------------------------------------------------

    Competition among trading platforms can be expected to constrain 
the aggregate return that each platform earns from the sale of its 
joint products, but different trading platforms may choose from a range 
of possible, and equally reasonable, pricing strategies as the means of 
recovering total costs. For example, some platforms may choose to pay 
rebates to attract orders, charge relatively low prices for market data 
products (or provide market data products free of charge), and charge 
relatively high prices for accessing posted liquidity. Other platforms 
may choose a strategy of paying lower rebates (or no rebates) to 
attract orders, setting relatively high prices for market data 
products, and setting relatively low prices for accessing posted 
liquidity. For example, BATS Exchange, Inc. (``BATS''), which 
previously operated as an ATS and obtained exchange status in 2008, has 
provided certain market data at no charge on its Web site in order to 
attract more order flow, and uses revenue rebates from resulting 
additional executions to maintain low execution charges for its 
users.\26\ 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.
---------------------------------------------------------------------------

    \26\ See description of free market data from BATS Options, 
available at http://www.batsoptions.com/market_data/products/. This 
is simply a securities market-specific example of the well-
established principle that in certain circumstances more sales at 
lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
---------------------------------------------------------------------------

    Existence of Alternatives. The large number of SROs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO is currently permitted to produce and sell proprietary data 
products, and many currently do or have announced plans to do so, 
including but not limited to the Exchange, NYSE Arca; CBOE; C2 Options 
Exchange, Incorporated; ISE; ISE Gemini; NASDAQ; Phlx; BX; BATS; and 
Miami Exchange.
    The fact that proprietary data from vendors can bypass SROs is 
significant in two respects. First, non-SROs can compete directly with 
SROs for the production and sale of proprietary data products. By way 
of example, BATS and NYSE Arca both published proprietary data on the 
Internet before registering as exchanges. Second, because a single 
order or transaction report can appear in an SRO proprietary product, a 
non-SRO proprietary product, or both, the amount of data available via 
proprietary products is greater in size than the actual number of 
orders and transaction reports that exist in the marketplace. Because 
market data users can find suitable substitutes for most proprietary 
market data products, a market that overprices its market data products 
stands a high risk that users may substitute one or more other sources 
of market data information for its own.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, and BATS. As noted above, BATS launched as 
an ATS in 2006 and became an exchange in 2008. Two new options 
exchanges have launched operations since December 2012.\27\
---------------------------------------------------------------------------

    \27\ See supra note 25.
---------------------------------------------------------------------------

    In establishing the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary options market data and 
all of the implications of that competition. The Exchange believes that 
it has considered all relevant factors, and has not considered 
irrelevant factors, in order to establish fair, reasonable, and not 
unreasonably discriminatory fees and an equitable allocation of fees 
among all users. The existence of numerous alternatives to the 
Exchange's products, including proprietary data from other sources, 
ensures that the Exchange cannot set unreasonable fees, or fees that 
are unreasonably discriminatory, when vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if the attendant fees are not justified by the returns 
that any particular vendor or data recipient would achieve through the 
purchase.
    The Exchange does not believe that the proposed rule change to 
describe the three categories of data recipients for non-display use in 
the Market Data Fee Schedule would impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act because the Exchange is merely adding to the Market Data Fee 
Schedule information that has been previously filed with the 
Commission.\28\
---------------------------------------------------------------------------

    \28\ See 2014 Non-Display Filing, supra n.6.
---------------------------------------------------------------------------

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \29\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \30\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(3)(A).
    \30\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \31\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File

[[Page 68927]]

Number SR-NYSEARCA-2014-129 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2014-129. 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 Web site (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 Web site 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 will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-NYSEARCA-2014-129 and should be submitted on or before 
December 10, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27314 Filed 11-18-14; 8:45 am]
BILLING CODE 8011-01-P
```