Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices 68933 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release No. 67719 

(August 23, 2012), 77 FR 52767 (August 30, 2012) 

(SR–NYSEMKT–2012–40) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

Proposing To Offer Certain Proprietary Options 

Data Products). 

5See Securities Exchange Act Release No. 68004 

(October 9, 2012), 77 FR 62582 (October 15, 2012) 

(SR–NYSEMKT–2012–49) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

To Establish Fees for Certain Proprietary Options 

Market Data Products). See also Securities 

Exchange Act Release No. 69553 (May 10, 2013), 78 

FR 28926 (May 16, 2013) (SR–NYSEMKT–2013–40) 

(Notice of Filing and Immediate Effectiveness of 

Proposed Rule Change Establishing Non-Display 

Usage Fees and Amending the Professional EndUser Fees for NYSE Amex Options Market Data). 

See also Securities and Exchange Act Release No. 

71934 (April 11, 2014), 79 FR 21818 (April 17, 

2014) (SR–NYSEMKT–2014–30) (Notice of Filing 

and Immediate Effectiveness of Proposed Rule 

Change Amending the Professional User Fees for 

NYSE Amex Options Market Data, Operative on 

April 1, 2014). 

6See Securities Exchange Act Release No. 73008 

(September 5, 2014), 79 FR 54325 (September 11, 

2014) (SR–NYSEMKT–2014–73) (Notice of Filing 

and Immediate Effectiveness of Proposed Rule 

Change Amending Its Fees for Non-Display Use of 

NYSE Amex Options Market Data) (‘‘2014 NonDisplay Filing’’). 

7See Securities Exchange Act Release No. 72075 

(May 1, 2014), 79 FR 26290 (May 7, 2014) (SR– 

NYSEMKT–2014–40) (Notice of Filing and 

Immediate Effectiveness of Proposed Rule Change 

Offering ArcaBook for Amex Options—Complex on 

a Standalone Basis Without Charge from May 1, 

2014 Through October 31, 2014). 

8See 2014 Non-Display Filing, supra n.6. 

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

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73589; File No. SR– 

NYSEMKT–2014–94] 

Self-Regulatory Organizations; NYSE 

MKT LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Implementing Fees for 

the NYSE ArcaBook for Amex Options 

Complex Feed and a Change to the 

NYSE Amex Options Proprietary 

Market Data Fee Schedule (‘‘Market 

Data Fee Schedule’’) Regarding NonDisplay 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 MKT LLC (the 

‘‘Exchange’’ or ‘‘NYSE MKT’’) 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 selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to add fees for 

the NYSE Arcabook for Amex Options 

Complex Feed, operative on November 

1, 2014, and change the NYSE Amex 

Options Proprietary Market Data Fee 

Schedule (‘‘Market Data Fee Schedule’’) 

regarding non-display use fees. 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 Amex Options— 

Complex—Fee Changes 

The Exchange offers six NYSE Amex 

Options real-time options market data 

products: ArcaBook for Amex Options— 

Trades, ArcaBook for Amex Options— 

Top of Book, ArcaBook for Amex 

Options—Depth of Book, ArcaBook for 

Amex Options—Complex, ArcaBook for 

Amex Options—Series Status, and 

ArcaBook for Amex Options—Order 

Imbalance (collectively, ‘‘Amex Options 

Products’’).4 The Exchange currently 

charges the following fees for receipt of 

all six Amex 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 Amex Options Products is 

$5,000 per data recipient for each 

category of organization (i.e., for 

Category 1, Category 2 and Category 3).6

The Exchange does not currently have 

separate pricing for each of the 

individual products. 

Starting on May 1, 2014, the Exchange 

began offering one of the six feeds, 

ArcaBook for Amex 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 Amex 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 Amex 

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 nondisplay use of ArcaBook for Amex 

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 Amex Options Products, data 

recipients would not be liable for 

Category 2 Non-Display fees for which 

they are also paying Category 1 NonDisplay fees; and similarly, Category 3 

fees would be capped at $3,000. 

The Exchange does not propose to 

make any other changes to the fees for 

Amex 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 Amex 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 

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68934 Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices 

10 15 U.S.C. 78f(b). 

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

12See 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. 

13See ISE ‘‘Spread Feed’’ market data product 

and pricing information, available at http://

www.ise.com/market-data/products/data-feeds/. 

14See 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. 15NetCoalition, 615 F.3d at 535. 

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. 

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 

Amex Options Products. 

2. 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. 

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 Amex Options Products. In 

this regard, the Exchange notes that 

some vendors of, and subscribers, to the 

Amex Options Products currently 

utilize only ArcaBook for Amex 

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

The Exchange believes that it is 

reasonable for the proposed NonDisplay Fee for ArcaBook for Amex 

Options—Complex to be lower than the 

fee for non-display use for all six Amex 

Options Products (i.e., $5,000 per 

month). Specifically, some vendors of, 

and subscribers to, the Amex Options 

Products currently utilize only 

ArcaBook for Amex Options—Complex 

and the proposed rate reflects this use 

of only one of the six Amex 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 NonProfessional User Fee to be the same as 

the existing fee for all six Amex 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 Amex Options Products, 

and not on the basis of how many of the 

six Amex Options Products a NonProfessional User utilizes. Therefore, 

currently, a Non-Professional User that 

is receiving all six Amex 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 Amex Options—Complex feed 

would pay the same $1 per User fee. 

The Exchange also believes that it is 

reasonable not to propose a NonProfessional User Fee Cap at this time 

because such a cap is not anticipated to 

encourage greater subscription to or 

distribution of ArcaBook for Amex 

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 NonProfessional User that subscribes to 

ArcaBook for Amex Options—Complex, 

regardless of how many NonProfessional Users to which the 

Redistributor makes ArcaBook for Amex 

Options—Complex available. 

The Exchange also notes that 

purchasing Amex 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. 

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 

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Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices 68935 

16Section 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. 

17NetCoalition, 615 F.3d at 536. 

18The 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. 

19See 2014 Non-Display Filing, supra n.5 [sic]. 

20Press 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. 

21See, 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. 

22See, 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/. 

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. 

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

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

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

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

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 Amex 

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 

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68936 Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices 

23See 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). 

24See 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.’’). 

25See 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’’)). 

26See 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. 

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 brokerdealer customers generally view the 

costs of transaction executions and 

market data as a unified cost of doing 

business with the exchange. A brokerdealer 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 

MKT and NYSE Arca, Inc. (‘‘NYSE 

Arca’’) 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

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 wellregulated 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. 

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. 

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. 

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 

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Federal Register / Vol. 79, No. 223 / Wednesday, November 19, 2014 / Notices 68937 

27See supra note 25. 

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

29 15 U.S.C. 78s(b)(3)(A). 

30 17 CFR 240.19b–4(f)(2). 

31 15 U.S.C. 78s(b)(2)(B). 32 17 CFR 200.30–3(a)(12). 

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

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

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. 

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. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEMKT–2014–94 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–NYSEMKT–2014–94. 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– 

NYSEMKT–2014–94 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

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–27310 Filed 11–18–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73592; File No. SR–EDGA– 

2014–20] 

Self-Regulatory Organizations; EDGA 

Exchange, Inc.; Notice of Filing of 

Amendment Nos. 1 and 2 and Order 

Granting Accelerated Approval of a 

Proposed Rule Change, as Modified by 

Amendment Nos. 1 and 2, To Amend 

EDGA Rule 1.5 and Chapter XI 

Regarding Current System 

Functionality Including the Operation 

of Order Types and Order Instructions 

November 13, 2014. 

I. Introduction 

On August 1, 2014, EDGA Exchange, 

Inc. (‘‘Exchange’’ or ‘‘EDGA’’) filed with 

the Securities and Exchange 

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