Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 1439 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

securities during the existence of any 

underwriting or selling syndicate of 

which a principal underwriter is the 

Depositor or a person of which the 

Depositor is an affiliated person (each, 

an ‘‘Underwriting Affiliate,’’ except any 

person whose relationship to the 

Unaffiliated Fund is covered by section 

10(f) of the Act is not an Underwriting 

Affiliate). An offering of securities 

during the existence of an underwriting 

or selling syndicate of which a principal 

underwriter is an Underwriting Affiliate 

is an ‘‘Affiliated Underwriting.’’ 

6. The board of an Unaffiliated 

Underlying Fund, including a majority 

of the disinterested board members, will 

adopt procedures reasonably designed 

to monitor any purchases of securities 

by the Unaffiliated Underlying Fund in 

an Affiliated Underwriting once an 

investment by a Series in the securities 

of the Unaffiliated Underlying Fund 

exceeds the limit of section 

12(d)(1)(A)(i) of the Act, including any 

purchases made directly from an 

Underwriting Affiliate. The board of the 

Unaffiliated Underlying Fund will 

review these purchases periodically, but 

no less frequently than annually, to 

determine whether the purchases were 

influenced by the investment by the 

Series in the Unaffiliated Underlying 

Fund. The board of the Unaffiliated 

Underlying Fund will consider, among 

other things: (a) Whether the purchases 

were consistent with the investment 

objectives and policies of the 

Unaffiliated Underlying Fund; (b) how 

the performance of securities purchased 

in an Affiliated Underwriting compares 

to the performance of comparable 

securities purchased during a 

comparable period of time in 

underwritings other than Affiliated 

Underwritings or to a benchmark such 

as a comparable market index; and (c) 

whether the amount of securities 

purchased by the Unaffiliated 

Underlying Fund in Affiliated 

Underwritings and the amount 

purchased directly from an 

Underwriting Affiliate have changed 

significantly from prior years. The board 

of the Unaffiliated Underlying Fund 

will take any appropriate actions based 

on its review, including, if appropriate, 

the institution of procedures designed to 

assure that purchases of securities in 

Affiliated Underwritings are in the best 

interests of shareholders. 

7. An Unaffiliated Underlying Fund 

will maintain and preserve permanently 

in an easily accessible place a written 

copy of the procedures described in the 

preceding condition, and any 

modifications to such procedures, and 

will maintain and preserve for a period 

not less than six years from the end of 

the fiscal year in which any purchase in 

an Affiliated Underwriting occurred, the 

first two years in an easily accessible 

place, a written record of each purchase 

of securities in Affiliated Underwritings 

once an investment by a Series in the 

securities of the Unaffiliated Underlying 

Fund exceeds the limit of section 

12(d)(1)(A)(i) of the Act, setting forth 

from whom the securities were 

acquired, the identity of the 

underwriting syndicate’s members, the 

terms of the purchase, and the 

information or materials upon which 

the determinations of the board of the 

Unaffiliated Underlying Fund were 

made. 

8. Before investing in an Unaffiliated 

Underlying Fund in excess of the limit 

in section 12(d)(1)(A)(i), each Series and 

the Unaffiliated Underlying Fund will 

execute a Participation Agreement 

stating, without limitation, that the 

Depositor and Trustee, and the board of 

directors or trustees of the Unaffiliated 

Underlying Fund and the investment 

adviser(s) to the Unaffiliated Underlying 

Fund, understand the terms and 

conditions of the order and agree to 

fulfill their responsibilities under the 

order. At the time of its investment in 

shares of an Unaffiliated Underlying 

Fund in excess of the limit in section 

12(d)(1)(A)(i), a Series will notify the 

Unaffiliated Underlying Fund of the 

investment. At such time, the Series 

also will transmit to the Unaffiliated 

Underlying Fund a list of the names of 

each Series Affiliate and Underwriting 

Affiliate. The Series will notify the 

Unaffiliated Underlying Fund of any 

changes to the list of names as soon as 

reasonably practicable after a change 

occurs. The Unaffiliated Underlying 

Fund and the Series will maintain and 

preserve a copy of the order, the 

Participation Agreement, and the list 

with any updated information for the 

duration of the investment, and for a 

period not less than six years thereafter, 

the first two years in an easily accessible 

place. 

9. Any sales charges and/or service 

fees charged with respect to Units of a 

Series will not exceed the limits 

applicable to a fund of funds as set forth 

in Rule 2830 of the NASD Conduct 

Rules. 

10. No Fund will acquire securities of 

any other investment company or 

company relying on section 3(c)(1) or 

3(c)(7) of the Act in excess of the limits 

contained in section 12(d)(1)(A) of the 

Act, except to the extent permitted by 

exemptive relief from the Commission 

permitting the Fund to purchase shares 

of other investment companies for shortterm cash management purposes. 

For the Commission, by the Division of 

Investment Management, pursuant to 

delegated authority. 

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2015–00137 Filed 1–8–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73987; File No. SR– 

NYSEMKT–2014–115] 

Self-Regulatory Organizations; NYSE 

MKT LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending the Fees for 

NYSE MKT OpenBook MKT Order 

Imbalances 

January 5, 2015. 

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 December 

23, 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 amend the 

fees for NYSE MKT OpenBook to 

establish eligibility requirements for 

redistribution on a managed nondisplay basis and to establish an access 

fee for managed non-display data 

recipients, operative on January 1, 2015. 

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 


rljohnson on DSK3VPTVN1PROD with NOTICES
1440 Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 

4See Securities Exchange Act Release Nos. 69285 

(Apr. 3, 2013), 78 FR 21172 (Apr. 9, 2013) (SR– 

NYSEMKT–2013–32) and 72020 (Sept. 9, 2014), 79 

FR 55040 (Sept. 15, 2014) (SR–NYSEMKT–2014– 

72) (‘‘Non-Display Fee filings’’). 

5 ‘‘Redistributor’’ means a vendor or any other 

person that provides an NYSE MKT data product 

to a data recipient or to any system that a data 

recipient uses, irrespective of the means of 

transmission or access. 

6See Non-Display Fee filings, supra note 4. 

7See Securities Exchange Act Release Nos. 70748 

(Oct. 23, 2013), 70748 (Oct. 23, 2013), 78 FR 64569 

(Oct. 29, 2013) (SR–Phlx–2013–105) (notice of filing 

and immediate effectiveness of proposed rule 

change to establish non-display Managed Data 

Solution for NASDAQ OMX PHLX (‘‘Phlx’’)); 70269 

(Aug. 27, 2013), 78 FR 54336 (Sept. 3, 2013) (SR– 

NASDAQ–2013–106) (notice of filing and 

immediate effectiveness of proposed rule change to 

establish non-display Managed Data Solution for 

NASDAQ Stock Market (‘‘Nasdaq’’)); and 69182 

(Mar. 19, 2013), 78 FR 18378 (Mar. 26, 2013) (SR– 

Phlx–2013–28) (notice of filing and immediate 

effectiveness of proposed rule change to establish 

non-display Managed Data Solution for Phlx 

equities market PSX). 

8 In order to harmonize its approach to fees for 

its market data products, the Exchange is proposing 

to establish an access fee for Managed Non-Display 

Services for NYSE MKT BBO, NYSE MKT Trades, 

and NYSE MKT Order Imbalances that are also half 

of the existing access fee for each respective data 

feed. See SR–NYSEMKT–2014–113 and SR– 

NYSEMKT–2014–114. 

9 15 U.S.C. 78f(b). 

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

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 

The Exchange proposes to amend the 

fees for NYSE MKT OpenBook,4 as set 

forth on the NYSE MKT LLC Equities 

Proprietary Market Data Fee Schedule 

(‘‘Fee Schedule’’) to establish eligibility 

requirements for redistribution of 

market data on a Managed Non-Display 

basis and to establish an access fee for 

Managed Non-Display data recipients, 

operative on January 1, 2015. 

Non-Display Use of NYSE MKT 

market data means accessing, 

processing, or consuming NYSE MKT 

market data delivered via direct and/or 

Redistributor 5 data feeds for a purpose 

other than in support of a data 

recipient’s display or further internal or 

external redistribution. A Redistributor 

approved for Managed Non-Display 

Services manages and controls the 

access to NYSE MKT OpenBook and 

does not allow for further internal 

distribution or external redistribution of 

NYSE MKT OpenBook by the data 

recipients. Managed Non-Display 

Services Fees apply when a data 

recipient’s non-display applications are 

hosted by a Redistributor that has been 

approved for Managed Non-Display 

Services. 

A Redistributor approved for 

Managed Non-Display Services is 

required to report to the Exchange on a 

monthly basis the data recipients that 

are receiving NYSE MKT OpenBook 

through the Redistributor’s Managed 

Non-Display Service. A data recipient 

receiving NYSE MKT OpenBook 

through a Redistributor’s Managed NonDisplay Service does not have any 

reporting requirements. 

Currently, to be approved for 

Managed Non-Display Services, a 

Redistributor of the Managed NonDisplay Services must be approved 

under the Unit-of-Count policy.6 The 

Exchange is proposing to retire the Unitof-Count Policy, and as a result, 

eligibility for Managed Non-Display 

Services of NYSE MKT Open Book 

would no longer be based on eligibility 

under the Unit-of-Count Policy. The 

Exchange proposes instead to establish 

eligibility requirements specifically for 

the redistribution of market data for 

Managed Non-Display Services. The 

Exchange also proposes to add an access 

fee that would apply to a data recipient 

that receives NYSE MKT OpenBook 

from an approved Redistributor of 

Managed Non-Display Services. 

The proposed eligibility requirements 

for the provision of Managed NonDisplay Services would be similar to the 

eligibility requirements for the Unit-ofCount Policy in that they would require 

the Redistributor to manage and control 

the access to NYSE MKT OpenBook for 

data recipients’ non-display 

applications and not allow for further 

internal distribution or external 

redistribution of the information by data 

recipients. In addition, to be eligible to 

provide Managed Non-Display Services, 

the Redistributor would be required to 

(a) host the data recipients’ non-display 

applications in equipment located in the 

Redistributor’s data center and/or 

hosted space/cage and (b) offer NYSE 

MKT OpenBook in the Redistributor’s 

own messaging formats (rather than 

using raw NYSE message formats) by 

reformatting and/or altering NYSE MKT 

OpenBook prior to retransmission 

without affecting the integrity of NYSE 

MKT OpenBook and without rendering 

NYSE MKT OpenBook inaccurate, 

unfair, uninformative, fictitious, 

misleading or discriminatory. The 

proposed eligibility requirements are 

similar to data distribution models 

currently in use and align the Exchange 

with other markets.7

The reporting requirements associated 

with the Managed Non-Display Service 

would not change. A Redistributor 

approved for Managed Non-Display 

Service would be required to report to 

the Exchange on a monthly basis the 

data recipients that are receiving NYSE 

MKT OpenBook through the 

Redistributor’s Managed Non-Display 

Service. A data recipient receiving 

NYSE MKT OpenBook through a 

Redistributor’s Managed Non-Display 

Service would continue not to have any 

reporting requirements. 

In addition, the Exchange proposes to 

adopt an Access Fee of $500/month 

applicable only to data recipients that 

receive NYSE MKT OpenBook from an 

approved Redistributor of Managed 

Non-Display Services, operative January 

1, 2015. Currently, data recipients, 

including recipients of Managed NonDisplay Services, are required to pay an 

Access Fee of $1,000/month to receive 

NYSE MKT OpenBook. Because the 

purpose of an access fee is to charge 

data recipients for access to the 

Exchange’s proprietary market data, the 

Exchange believes it is appropriate to 

charge an access fee to all data 

recipients, including recipients of 

Managed Non-Display Services.8 In 

recognition that data recipients of 

Managed Non-Display Services receive 

NYSE MKT OpenBook in a controlled 

format, the Exchange proposes to 

establish an Access Fee that would be 

applicable only to data recipients of 

Managed Non-Display Services and that 

would be half the size of the current 

Access Fee. In connection with this 

change, the Exchange also proposes to 

amend the Fee Schedule to specify that 

the current Access Fee of $1,000/month 

is charged to data recipients other than 

those receiving data through Managed 

Non-Display Services. The proposed 

Managed Non-Display Access fee would 

be in addition to the current Managed 

Non-Display Services Fee of $750/

month by each data recipient. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

the provisions of Section 6 of the Act,9

in general, and Sections 6(b)(4) and 

6(b)(5) of the Act,10 in particular, in that 

it provides 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 revising 

the eligibility requirements for Managed 

Non-Display Services so that the 

requirements are more closely aligned 


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 1441 

11See supra note 7. 

12See supra note 7. NASDAQ offers a Managed 

Data Solution that assesses a monthly Managed 

Data Solution Administration fee of $1,500 and 

monthly Subscriber fees of $60 for nonprofessionals to $300 for professionals. See 

NASDAQ Rule 7026(b). Phlx charges a monthly 

Managed Data Solution Administration fee of 

$2,000 and a monthly Subscriber fee of $500. The 

monthly License fee is in addition to the monthly 

Distributor fee of $3,500 (for external usage), and 

the $500 monthly Subscriber fee is assessed for 

each Subscriber of a Managed Data Solution. See 

Securities Exchange Act Release No. 70748 (Oct. 23, 

2013), 78 FR 64569 (Oct. 29, 2013) (SR–Phlx–2013– 

105). 

13See NASDAQ Rule 7023 (Nasdaq Totalview) 

and BATS Rule 11.22.(a) and (c)(BATS TCP Pitch 

and Multicast Pitch. 14See In the Matter of the Application of 

Securities Industry And Financial Markets 

Association For Review of Actions Taken by SelfRegulatory Organizations, Release Nos. 34–72182; 

AP–3–15350; AP–3–15351 (May 16, 2014). 15For example, Goldman Sachs Execution and 

Clearing, L.P. has disclosed that it does not use 

proprietary market data in connection with Sigma 

X, its ATS. See response to Question E3, available 

at http://www.goldmansachs.com/media-relations/

in-the-news/current/pdf-media/gsec-orderhandling-practices-ats-specific.pdf. By way of 

comparison, IEX has disclosed that it uses 

proprietary market data feeds from all registered 

stock exchanges and the LavaFlow ECN. See 

http://www.iextrading.com/about/. 

16NetCoalition, 615 F.3d at 535. 

17The Exchange believes that cost-based pricing 

would be impractical because it would create 

enormous administrative burdens for all parties and 

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. 

with the nature of the services being 

provided is reasonable. The proposed 

additional requirements for hosting in 

the Redistributor’s data center and for 

reformatting and/or altering the market 

data prior to retransmission are also 

consistent with similar requirements of 

other markets for the provision of 

managed data.11

The Exchange believes that the 

proposed Access Fee for Managed NonDisplay Services is reasonable, because 

the data is of value to recipients, and it 

is reasonable to charge them a lower 

access fee because they are receiving the 

data through a Redistributor in a 

controlled form rather than from the 

Exchange in raw form. The Exchange 

believes that the proposed fee directly 

and appropriately reflects the significant 

value of using non-display data in a 

wide range of computer-automated 

functions relating to both trading and 

non-trading activities and that the 

number and range of these functions 

continue to grow through innovation 

and technology developments. 

NASDAQ and Phlx also both offer 

managed non-display data solutions and 

charge access fees for such services.12

The fee is also equitable and not 

unfairly discriminatory because it 

would apply to all data recipients that 

choose to subscribe to Managed NonDisplay Services for NYSE MKT 

OpenBook. 

The fees are also equitable and not 

unfairly discriminatory because they 

will apply to all data recipients that 

choose to subscribe to the feeds. 

The Exchange notes that NYSE MKT 

OpenBook is entirely optional. The 

Exchange is not required to make NYSE 

MKT OpenBook available or to offer any 

specific pricing alternatives to any 

customers, nor is any firm required to 

purchase NYSE MKT OpenBook. Firms 

that do purchase NYSE MKT OpenBook 

do so for the primary goals of using it 

to increase revenues, reduce expenses, 

and in some instances compete directly 

with the Exchange (including for order 

flow); those firms are able to determine 

for themselves whether NYSE MKT 

OpenBook or any other similar products 

are attractively priced or not. 

Firms that do not wish to purchase 

NYSE MKT OpenBook at the new prices 

have a variety of alternative market data 

products from which to choose,13 or if 

NYSE MKT OpenBook does not provide 

sufficient value to firms as offered based 

on the uses those firms have or planned 

to make of it, such firms may simply 

choose to conduct their business 

operations in ways that do not use 

NYSE MKT OpenBook. The Exchange 

notes that broker-dealers are not 

required to purchase proprietary market 

data to comply with their best execution 

obligations.14 Similarly, there is no 

requirement in Regulation NMS or any 

other rule that proprietary data be 

utilized for order routing decisions, and 

some broker-dealers and ATSs have 

chosen not to do so.15

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.’ ’’ 16

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 proprietary market 

data and that the Commission can rely 

upon such evidence in concluding that 

the fees established in this filing are the 

product of competition and therefore 

satisfy the relevant statutory standards. 

In addition, the existence of alternatives 

to these data products, such as 

consolidated data and proprietary 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 

select such alternatives. 

As the NetCoalition decision noted, 

the Commission is not required to 

undertake a cost-of-service or 

ratemaking approach. 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 or offer any significant 

benefits.17

For these reasons, the Exchange 

believes that the proposed fees are 

reasonable, equitable, and not unfairly 

discriminatory. 

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 market data feed products is 

constrained by actual competition for 


rljohnson on DSK3VPTVN1PROD with NOTICES
1442 Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 

18Press 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; see also 

Complaint in U.S. v. Deutsche Borse AG and NYSE 

Euronext, Case No. 11–cv–2280 (DC Dist.) 24 

(‘‘NYSE and Direct Edge compete head-to-head . . . 

in the provision of real-time proprietary equity data 

products.’’). 

19Concept Release on Equity Market Structure, 

Securities Exchange Act Release No. 61358 (Jan. 14, 

2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02– 

10). This Concept Release included data from the 

third quarter of 2009 showing that no market center 

traded more than 20% of the volume of listed 

stocks, further evidencing the dispersal of and 

competition for trading activity. Id. at 3598. Data 

available on ArcaVision show that from June 30, 

2013 to June 30, 2014, no exchange traded more 

than 12% of the volume of listed stocks by either 

trade or dollar volume, further evidencing the 

continued dispersal of and fierce competition for 

trading activity. See https://www.arcavision.com/

Arcavision/arcalogin.jsp. 

20Mary Jo White, Enhancing Our Equity Market 

Structure, Sandler O’Neill & Partners, L.P. Global 

Exchange and Brokerage Conference (June 5, 2014) 

(available on the Commission Web site), citing 

Tuttle, Laura, 2014, ‘‘OTC Trading: Description of 

Non-ATS OTC Trading in National Market System 

Stocks,’’ at 7–8. 

the sale of proprietary market 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 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 for the 

proprietary products themselves. 

Numerous exchanges compete with one 

another for listings and order flow and 

sales of 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 market data. 

Proprietary 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. 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.’’ 18

Moreover, competitive markets for 

listings, order flow, executions, and 

transaction reports provide pricing 

discipline for the inputs of proprietary 

data products and therefore constrain 

markets from overpricing proprietary 

market data. Broker-dealers send their 

order flow and transaction reports to 

multiple venues, rather than providing 

them all to a single venue, which in turn 

reinforces this competitive constraint. 

As a 2010 Commission Concept Release 

noted, the ‘‘current market structure can 

be described as dispersed and complex’’ 

with ‘‘trading volume . . . dispersed 

among many highly automated trading 

centers that compete for order flow in 

the same stocks’’ and ‘‘trading centers 

offer[ing] a wide range of services that 

are designed to attract different types of 

market participants with varying trading 

needs.’’ 19 More recently, SEC Chair 

Mary Jo White has noted that 

competition for order flow in exchangelisted equities is ‘‘intense’’ and divided 

among many trading venues, including 

exchanges, more than 40 alternative 

trading systems, and more than 250 

broker-dealers.20

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 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 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 also redistributed 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 NYSE 

MKT OpenBook unless their customers 

request it, and customers will not elect 

to pay the proposed fees unless NYSE 

MKT OpenBook 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 of 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 

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 November 

2014 more than 80% of the transaction 

volume on each of NYSE MKT and 

NYSE MKT’s affiliates New York Stock 

Exchange LLC (‘‘NYSE’’) and NYSE 

Arca, Inc. (‘‘NYSE Arca’’) was executed 

by market participants that purchased 

one or more proprietary market data 

products (the 20 firms were not the 

same for each market). A supracompetitive increase in the fees for 

either executions or market data would 


rljohnson on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 1443 

21See 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 (Sept. 14, 2010), 75 FR 57314, 

57317 (Sept. 20, 2010) (SR–NASDAQ–2010–110), 

and Securities Exchange Act Release No. 62908 

(Sept. 14, 2010), 75 FR 57321, 57324 (Sept. 20, 

2010) (SR–NASDAQ–2010–111). 

22See 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.’’). 

23FINRA’s Alternative Display Facility also 

receives over-the-counter trade reports that it sends 

to CTA. 

24This 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. 

25See ‘‘LavaFlow—ADF Migration,’’ available at 

https://www.lavatrading.com/news/pdf/LavaFlow_

ADF_Migration.pdf. 

26See supra note 13. 

27See supra note 25. 

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.21 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.22

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 equities selfregulatory organization (‘‘SRO’’) 

markets, as well as various forms of 

ATSs, including dark pools and 

electronic communication networks 

(‘‘ECNs’’), and internalizing brokerdealers. SRO markets compete to attract 

order flow and produce transaction 

reports via trade executions, and two 

FINRA-regulated Trade Reporting 

Facilities compete to attract transaction 

reports from the non-SRO venues.23

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 and Direct Edge, which 

previously operated as ATSs and 

obtained exchange status in 2008 and 

2010, respectively, have provided 

certain market data at no charge on their 

Web sites in order to attract more order 

flow, and use revenue rebates from 

resulting additional executions to 

maintain low execution charges for their 

users.24 Similarly, LavaFlow ECN 

provides market data to its subscribers 

at no charge.25 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, ATSs, and 

internalizing broker-dealers that 

currently produce proprietary data or 

are currently capable of producing it 

provides further pricing discipline for 

proprietary data products. Each SRO, 

ATS, and broker-dealer 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, NYSE Arca, NASDAQ 

OMX, BATS, and Direct Edge. 

The fact that proprietary data from 

ATSs, internalizing broker-dealers, and 

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. 

With respect to NYSE MKT OpenBook, 

competitors offer closer substitute 

products.26 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 another source of market 

data information for its own. 

Those competitive pressures imposed 

by available alternatives are evident in 

the Exchange’s proposed pricing. 

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, BATS Trading and Direct 

Edge. As noted above, BATS launched 

as an ATS in 2006 and became an 

exchange in 2008, while Direct Edge 

began operations in 2007 and obtained 

exchange status in 2010. As noted 

above, LavaFlow ECN provides market 

data to its subscribers at no charge.27


rljohnson on DSK3VPTVN1PROD with NOTICES
1444 Federal Register / Vol. 80, No. 6 / Friday, January 9, 2015 / Notices 

28 15 U.S.C. 78s(b)(3)(A). 

29 17 CFR 240.19b–4(f)(2). 

30 15 U.S.C. 78s(b)(2)(B). 31 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

In setting the proposed fees, the 

Exchange considered the 

competitiveness of the market for 

proprietary 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. 

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) 28 of the Act and 

subparagraph (f)(2) of Rule 19b–4 29

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) 30 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–2014–115 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–2014–115. 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–2014–115 and should be 

submitted on or before January 30, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.31

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–00133 Filed 1–8–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73986; File No. SR– 

NYSEMKT–2014–113] 

Self-Regulatory Organizations; NYSE 

MKT LLC; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Amending the Fees for 

NYSE MKT BBO and NYSE MKT 

Trades 

January 5, 2015. 

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 December 

23, 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 amend the 

fees for NYSE MKT BBO and NYSE 

MKT Trades to: (1) Change the way the 

user fee is calculated and applied, 

operative on January 1, 2015; and (2) 

establish eligibility requirements for 

redistribution on a managed nondisplay basis and an access fee for 

managed non-display data recipients, 

operative on January 1, 2015. 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. 


rljohnson on DSK3VPTVN1PROD with NOTICES