[Federal Register Volume 80, Number 6 (Friday, January 9, 2015)]
[Notices]
[Pages 1456-1461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00129]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73985; File No. SR-NYSE-2014-75]


 Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending the Fees for NYSE BBO and NYSE 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, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 BBO and NYSE 
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 non-display 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.

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 BBO and NYSE 
Trades data feeds, as set forth on the NYSE Proprietary Market Data Fee 
Schedule (``Fee Schedule''), as follows:
    <bullet> To change the way the user fees are calculated and applied 
by eliminating the unit-of-count policy, operative on January 1, 2015; 
and
    <bullet> To establish eligibility requirements for redistribution 
of market data on a Managed Non-Display basis and establish an access 
fee for Managed Non-Display data recipients, operative on January 1, 
2015.
Changes to the Method of Calculating and Applying User Fees
    For display use of the NYSE BBO and NYSE Trades data feeds, the Fee 
Schedule sets forth a Professional User Fee of $60 per month or a Non-
Professional User Fee of $15 per month. These user fees generally apply 
to each display device that has access to NYSE BBO or NYSE Trades.
    Vendors and subscribers that are eligible for the Unit-of-Count 
Policy may avail themselves of an alternative method for counting how 
many user fees should be charged for display use of the NYSE BBO and 
NYSE Trades data feeds. The Unit-of-Count Policy was first introduced 
by the Exchange as a pilot in 2009 for its NYSE OpenBook data feed \4\ 
and is available for NYSE BBO and NYSE Trades.\5\ Since April 2013, the 
Unit-of-Count Policy has applied only to user fees associated with 
display usage.\6\
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    \4\ See Securities Exchange Act Release Nos. 59544 (Mar. 9, 
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131) and 62038 (May 
5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22).
    \5\ See Securities Exchange Act Release Nos. 61914 (Apr. 14, 
2010), 74 FR 21077 (Apr. 22, 2010) (SR-NYSE-2010-30) (notice--NYSE 
BBO); 62181 (May 26, 2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-
2010-30) (approval order--NYSE BBO); 59309 (Jan. 28, 2009), 74 FR 
6073 (Feb. 4, 2009) (SR-NYSE-2009-04) (notice--NYSE Trades); and 
590606 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (approval 
order--NYSE Trades) (SR-NYSE-2009-04) (``Unit-of-Count Policy 
filings'').
    \6\ See Securities Exchange Act Release No. 69278 (Apr. 2, 
2013), 78 FR 20973 (Apr. 8, 2013) (SR-NYSE-2013-25) (``2013 Non-
Display Filing'') and 72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 2, 
2014) (SR-NYSE-2014-43). Existing customers approved for the Unit-
of-Count Policy for display usage have continued to follow the 
Policy in anticipation of new display fees being implemented.
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    The effect of the Unit-of-Count Policy for these subscribers is 
that a single user fee applies to individual users that receive 
multiple display device services, i.e., multiple devices displaying 
NYSE BBO or NYSE Trades, referred to as ``netting.'' The Exchange 
proposes to retire the Unit-of-Count Policy effective January 1, 2015. 
As a result, as of January 1, 2015, subscribers that are currently 
eligible for ``netting'' under the Unit-of-Count Policy would pay the 
user fee for each display device that has access to NYSE BBO or NYSE 
Trades, even if a single user is receiving NYSE BBO or NYSE Trades over 
multiple devices, as well as all other applicable fees set forth on the 
Fee Schedule.
Proposed Changes to Managed Non-Display Services and Fees
    Non-Display Use of NYSE market data means accessing, processing, or 
consuming NYSE market data delivered via direct and/or Redistributor 
\7\ 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 BBO or NYSE Trades and does not allow for 
further internal distribution or external redistribution of NYSE BBO or 
NYSE Trades 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.
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    \7\ ``Redistributor'' means a vendor or any other person that 
provides an NYSE data product to a data recipient or to any system 
that a data recipient uses, irrespective of the means of 
transmission or access.
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    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 BBO or NYSE Trades through the 
Redistributor's Managed Non-Display Service. A data recipient receiving 
NYSE BBO or NYSE Trades through a Redistributor's Managed Non-Display 
Service does not have any reporting requirements.
    Currently, to be approved for Managed Non-Display Services, a 
Redistributor of the Managed Non-Display Services must be approved 
under the Unit-of-Count policy.\8\ In connection with the retirement of 
the Unit-of-Count Policy,\9\ eligibility for

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Managed Non-Display Services of NYSE BBO or NYSE Trades 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 BBO or NYSE Trades from an approved 
Redistributor of Managed Non-Display Services.
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    \8\ See Unit-of-Count Policy filings, supra note 5.
    \9\ The Exchange has separately proposed to retire the Unit-of-
Count Policy and modify the eligibility requirements for Managed 
Non-Display Services for all of its proprietary market data 
products, including NYSE OpenBook and NYSE Order Imbalances, and 
thereby harmonize the eligibility requirements for all NYSE data 
products that have Managed Non-Display fees. See SR-NYSE-2014-76 
(filing for NYSE OpenBook) and SR-NYSE-2014-77 (filing for NYSE 
Order Imbalances) (collectively, ``NYSE 2014 Filings'').
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    The proposed eligibility requirements for the provision of Managed 
Non-Display Services would be similar to the eligibility requirements 
for the Unit-of-Count Policy in that they would require the 
Redistributor to manage and control the access to NYSE BBO or NYSE 
Trades 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 BBO or NYSE Trades in the Redistributor's own messaging 
formats (rather than using raw message formats) by reformatting and/or 
altering NYSE BBO or NYSE Trades prior to retransmission without 
affecting the integrity of NYSE BBO or NYSE Trades and without 
rendering NYSE BBO or NYSE Trades 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.\10\
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    \10\ See 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).
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    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 BBO or NYSE 
Trades through the Redistributor's Managed Non-Display Service. A data 
recipient receiving NYSE BBO or NYSE Trades 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 $750/
month applicable only to data recipients that receive NYSE BBO and/or 
NYSE Trades from an approved Redistributor of Managed Non-Display 
Services, operative January 1, 2015. Currently, data recipients are 
required to pay an Access Fee of $1,500/month to receive NYSE BBO and/
or NYSE Trades, which has not been charged to data recipients of 
Managed Non-Display Services of NYSE BBO or NYSE Trades. The Exchange 
charges a single Access Fee for clients receiving both NYSE BBO and 
NYSE Trades. 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.\11\ 
In recognition that data recipients of Managed Non-Display Services 
receive NYSE BBO and NYSE Trades 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. As with the existing Access Fee, 
the Exchange would charge a single Access Fee for Managed Non-Display 
Services for clients of both NYSE BBO and NYSE Trades. In connection 
with this change, the Exchange also proposes to amend the Fee Schedule 
to specify that the current Access Fee of $1,500/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 $2,400/
month [sic] for NYSE BBO and $1,000/month [sic] for NYSE Trades by each 
data recipient.
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    \11\ In order to harmonize its approach to fees for its market 
data products, the Exchange is proposing to establish access fees 
for Managed Non-Display Services for NYSE OpenBook and NYSE Order 
Imbalances that are also half of the existing access fee for each 
respective data feed. See NYSE 2014 Filings, supra note 9.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\12\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\13\ 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.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that it is reasonable to retire the Unit-of-
Count Policy. First, as evidenced by the low number of eligible 
subscribers, the Unit-of-Count Policy is not currently considered 
useful to market data recipients as a method for counting users. In 
addition, as the Exchange noted in the 2013 Non-Display Filing,\14\ the 
Exchange determined at that time that its fee structure, which was 
based primarily on counting devices, both display and non-display, and 
included the Unit-of-Count Policy, was no longer appropriate in light 
of market and technology developments. In addition to implementing the 
non-display pricing to address the difficulties of counting non-display 
devices, and to reflect the value of non-display data to customers, the 
Exchange noted that it anticipated implementing a new display use fee 
structure later. Retiring the Unit-of-Count Policy, which now applies 
only to display use, would allow the Exchange to apply a consistent 
method for counting users among all customers using NYSE BBO or NYSE 
Trades, whether on a display or non-display basis.
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    \14\ See 2013 Non-Display Filing, supra, note 6.
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    The Exchange believes that revising the eligibility requirements 
for Managed Non-Display Services so that the requirements are more 
closely aligned 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.\15\
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    \15\ See supra note 10.
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    The Exchange believes that the proposed Access Fee for Managed Non-
Display 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 fees directly and appropriately reflect 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

[[Page 1458]]

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.\16\ The fees are also equitable and not unfairly 
discriminatory because they would apply to all data recipients that 
choose to subscribe to Managed Non-Display Services for NYSE BBO or 
NYSE Trades.
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    \16\ See supra note 9 [sic]. 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 
non-professionals 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).
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    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 BBO and NYSE Trades are entirely 
optional. The Exchange is not required to make NYSE BBO and NYSE Trades 
available or to offer any specific pricing alternatives to any 
customers, nor is any firm required to purchase NYSE BBO or NYSE 
Trades. Firms that do purchase NYSE BBO or NYSE Trades do so for the 
primary goals of using the products 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 BBO or NYSE Trades or any other similar 
products are attractively priced or not.
    Firms that do not wish to purchase NYSE BBO or NYSE Trades at the 
new prices have a variety of alternative market data products from 
which to choose,\17\ or if NYSE BBO or NYSE Trades do not provide 
sufficient value to firms as offered based on the uses those firms have 
or planned to make of the products, such firms may simply choose to 
conduct their business operations in ways that do not use NYSE BBO or 
NYSE Trades. The Exchange notes that broker-dealers are not required to 
purchase proprietary market data to comply with their best execution 
obligations.\18\ 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 alternative trading systems 
(``ATSs'') have chosen not to do so.\19\
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    \17\ See NASDAQ Rule 7047 (Nasdaq Basic) and BATS Rule 11.22 
(BATS TOP and Last Sale).
    \18\ See In the Matter of the Application of Securities Industry 
And Financial Markets Association For Review of Actions Taken by 
Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-15350; 
AP-3-15351 (May 16, 2014).
    \19\ For 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-order-handling-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/.
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    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.' '' \20\
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    \20\ NetCoalition, 615 F.3d at 535.
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    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.\21\
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    \21\ The 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.
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    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 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

[[Page 1459]]

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.'' \22\
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    \22\ 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; see 
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case 
No. 11-cv-2280 (D.C. Dist.) 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data 
products.'').
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    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.'' \23\ More recently, SEC Chair Mary Jo White has noted that 
competition for order flow in exchange-listed equities is ``intense'' 
and divided among many trading venues, including exchanges, more than 
40 alternative trading systems, and more than 250 broker-dealers.\24\
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    \23\ Concept 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.
    \24\ Mary 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.
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    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 BBO or NYSE 
Trades unless their customers request it, and customers will not elect 
to pay the proposed fees unless NYSE BBO or NYSE Trades 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 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 November 2014, more than 80% of the 
transaction volume on each of NYSE and the Exchange's affiliates NYSE 
Arca and NYSE MKT, LLC 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 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.\25\ 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

[[Page 1460]]

between joint products that would shed any light on competitive or 
efficient pricing.\26\
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    \25\ 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 (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).
    \26\ 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.'').
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    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.
    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 self-regulatory organization 
(``SRO'') markets, as well as various forms of ATSs, including dark 
pools and electronic communication networks (``ECNs''), and 
internalizing broker-dealers. 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.\27\
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    \27\ FINRA's Alternative Display Facility also receives over-
the-counter trade reports that it sends to CTA.
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    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.\28\ Similarly, LavaFlow ECN provides market data to its 
subscribers at no charge.\29\ 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.
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    \28\ 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.
    \29\ See ``LavaFlow--ADF Migration,'' available at https://www.lavatrading.com/news/pdf/LavaFlow_ADF_Migration.pdf.
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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 MKT, 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 BBO and NYSE Trades, 
competitors offer close substitute products.\30\ 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.
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    \30\ See supra note 16.
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    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.\31\
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    \31\ See supra note 28 [sic].
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    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.

[[Page 1461]]

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)\32\ of the Act and subparagraph (f)(2) of Rule 19b-
4\33\ thereunder, because it establishes a due, fee, or other charge 
imposed by the Exchange.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(2).
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    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)\34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \34\ 15 U.S.C. 78s(b)(2)(B).
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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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an email to <a href="/cdn-cgi/l/email-protection#95e7e0f9f0b8f6faf8f8f0fbe1e6d5e6f0f6bbf2fae3"><span class="__cf_email__" data-cfemail="641611080149070b0909010a1017241701074a030b12">[email protected]</span></a>. Please include 
File Number SR-NYSE-2014-75 on the subject line.

Paper Comments

    <bullet> 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-NYSE-2014-75. 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 Web site viewing and printing 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-NYSE-2014-75 and should be submitted on 
or before January 30, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Brent J. Fields,
Secretary.
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    \35\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2015-00129 Filed 1-8-15; 8:45 am]
BILLING CODE 8011-01-P


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