Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 46319 

10 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3A separate filing will address the pricing for the 

Intellicator Analytic Tool, which will also be 

implemented on October 27, 2017, if approved by 

the Commission. 

4The Exchange initially filed the proposed 

changes on August 2, 2017 (SR–Phlx 2017–62). On 

August 11, 2017, the Exchange withdrew that filing. 

5The Exchange may introduce new factors that 

are found to have value in assessing market 

sentiment, but will submit a new filing for approval 

if other factors are added. 

6The ratios for calls are multiplied by 1, while 

ratios for puts are multiplied by ¥1. 

7A higher weighting is given to contracts near 

expiration. 

8Factor calculations for specific segments of the 

market will not be sold by the Exchange separately 

from the Analytic Bundles. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21276 Filed 10–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81754; File No. SR–Phlx– 

2017–74] 

Self-Regulatory Organizations; 

NASDAQ PHLX LLC; Notice of Filing of 

Proposed Rule Change To Introduce 

the Intellicator Analytic Tool 

September 28, 2017. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 20, 2017, NASDAQ PHLX 

LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I, II, and III, below, which Items 

have been prepared by the Exchange. 

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 introduce 

the Intellicator Analytic Tool. 

The text of the proposed rule change 

is available on the Exchange’s Web 

site at http://nasdaqphlx.cchwall

street.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 

Exchange 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 these 

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 aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of the proposed rule 

change is to introduce the Intellicator 

Analytic Tool, a new, optional market 

data product available for a 

corresponding fee 3 that is designed to 

analyze options market transactions and 

synthesize that analysis to assist 

investors in assessing the equities 

underlying those transactions.4

Options market transactions can be 

complex; the purpose of the Intellicator 

Analytic Tool is to distill options data 

into a form that will help investors 

understand options market movements 

and provide them with actionable 

insight in changing market conditions. 

The Intellicator Analytic Tool will offer 

three increasingly sophisticated levels 

of analysis. The first level, the SingleFactor Analytic Bundle, calculates 

fundamental measures, or ‘‘factors,’’ of 

options market activity—Put/Call Ratio, 

Moneyness Ratio, Volume-Weighted 

Average Delta, and Weighted Average 

Strike Price—and applies those factors 

to certain segments of activity on the 

Exchange. The second level, the SingleFactor Intellicator, uses machine 

learning—an analytical technique that 

employs algorithms that iteratively 

‘‘learn’’ from data to find hidden 

insights without explicit 

programming—to summarize in a single 

numeral the information contained 

within a Single-Factor Analytic Bundle. 

The third level, the Multi-Factor 

Intellicator, uses machine learning to 

summarize in a single numeral all of the 

information contained within all of the 

five [sic] Single-Factor Analytic Bundles 

offered with this product. 

The Exchange will propose, in a 

forthcoming fee filing, separate fees for 

the Single-Factor Analytic Bundle, the 

Single-Factor Intellicator, and the MultiFactor Intellicator, as well as special 

rates for the purchase of any 

combination of these, to allow investors 

to choose the tool that best fits their 

needs. The Single-Factor Analytic 

Bundles are designed to be used by 

sophisticated investors to supplement, 

test and inform their own analytic 

models. The Single- and Multi-Factor 

Intellicators are designed for the use of 

investors who seek to understand 

market sentiment without undertaking 

complex calculations. Although tailored 

for different audiences, the Analytic 

Bundles and Single- and Multi-Factor 

Intellicators are all designed to increase 

visibility into options transactions and 

democratize information to provide the 

benefits of sophisticated analytical 

techniques to firms without the 

technology, staff or wherewithal to 

conduct a comparable analysis on their 

own. 

The Analytic Bundles and Single- and 

Multi-Factor Intellicators are described 

in further detail below. 

Single-Factor Analytic Bundle 

A Single-Factor Analytic Bundle is a 

set of calculations of ‘‘factors,’’ or 

standard measures of options market 

activity, often used as indicia of market 

sentiment. The Intellicator Analytic 

Tool will calculate four factors—Put/ 

Call Ratio, Moneyness Ratio, VolumeWeighted Average Delta, and Weighted 

Average Stock Price—defined as 

follows: 5

(i) Put/Call Ratio: The total number of 

put contracts traded divided by the total 

number of put and call contracts traded 

within the prior 60 seconds for each 

underlying symbol. 

(ii) Moneyness Ratio: The natural log 

of the ratio of the price of the 

underlying equity to the strike price of 

the options contract traded within the 

prior 60 seconds.6

(iii) Volume-Weighted Average Delta: 

A calculation of the projected change to 

an option price given a $1 change in the 

equity price, weighted by the number of 

contracts traded within the prior 60 

seconds. 

(iv) Weighted Average Strike Price: A 

calculation of the strike price of the 

options contracts traded within the 

prior 60 seconds, weighted by the 

number of days to expiration.7

Each of these Single-Factor Analytic 

Bundles will provide separate 

calculations of a specific factor for 

between five and fifty different 

segments, or subsets, of the options 

market.8 Segments may be simple or 

complex. A simple segment may be all 

transactions with a certain range of 

expiration dates. Examples of complex 


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46320 Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 

9The term ‘‘Customer’’ applies to any transaction 

that is identified by a member or member 

organization for clearing in the Customer range at 

The Options Clearing Corporation (‘‘OCC’’) which 

is not for the account of a broker or dealer or for 

the account of a ‘‘Professional’’ (as that term is 

defined in Rule 1000(b)(14)). 

10A ‘‘Non-Customer’’ is any market participant 

other than a Customer or a Market Maker, such as 

Professional Customer, Firm, Broker-Dealer, or Joint 

Back Office (see notes 11–15 [sic]). 

11 ‘‘Market Makers’’ includes Specialists (see 

Exchange Rule 1020(a)), Registered Option Traders 

(see Exchange Rule 1014(b)), Streaming Quote 

Traders (see Exchange Rule 1014(b)(ii)(A)), and 

Remote Streaming Quote Traders (see Exchange 

Rule in 1014(b)(ii)(B)). 

12The Exchange may introduce new fields at a 

later date, but will submit a new filing for approval 

if additional fields are added. 

13The term ‘‘Professional Customer’’ applies to 

transactions for the accounts of Professionals, as 

defined in Exchange Rule 1000(b)(14). 

14The term ‘‘Firm’’ applies to any transaction that 

is identified by a member or member organization 

for clearing in the Firm range at the OCC. 15The term ‘‘Broker-Dealer’’ applies to any 

transaction which is not subject to any of the other 

transaction fees applicable within a particular 

category. 16The term ‘‘Joint Back Office’’ or ‘‘JBO’’ applies 

to any transaction that is identified by a member or 

member organization for clearing in the Firm range 

at OCC and is identified with an origin code as a 

JBO. A JBO participant is a member, member 

organization or non-member organization that 

maintains a JBO arrangement with a clearing 

broker-dealer (‘‘JBO Broker’’) subject to the 

requirements of Regulation T, Section 220.7 of the 

Federal Reserve System as discussed at Exchange 

Rule 703. 

17An options contract is in-the-money when the 

strike price is below 2.5% of the price of the 

underlying security for a call contract, or above 

2.5% of the underlying security for a put contract. 

18An options contract is out-the-money when the 

strike price is above 2.5% of the price of the 

underlying security for a call contract, or below 

2.5% of the underlying security for a put contract. 

19An options contract is at-the-money when the 

strike price is within 2.5% of the price of the 

underlying security, either above or below, for 

either a call or a put contract. 

20A single-leg option order. 

21A multi-legged option order. 

22A two-sided order that is entered into a price 

improvement auction. 

23A stock-tied option order consisting of a 

minimum of 1,000 options contracts bundled 

together for the purpose of crossing the order. 

24An order type used to accumulate a position 

quickly by simultaneously sending the order to 

multiple exchanges. 

25Similar reverse-engineering would be 

impossible for customers who purchase Intellicators 

alone, because such segment-specific information 

will not be provided to customers who only 

purchase Intellicators. 

26There may be other examples in which SingleFeed Analytic Bundles may be used to adduce 

transaction-specific information not provided in 

data feeds. For instance, it may also be possible to 

determine whether a thinly-traded stock were 

traded through an electronic or manual trade. 

segments include: ‘‘Customers 9 who 

buy to open a new position,’’ ‘‘NonCustomers 10 who sell to close an 

existing position,’’ or ‘‘Market Makers 11

engaging in complex orders.’’ Segments 

will be segregated using the following 

nine fields of information, either alone 

or in combination: (i) Put vs. call; (ii) 

expiration date; (iii) customer type; (iv) 

‘‘moneyness’’; (v) open vs. close; (vi) 

buy vs. sell; (vii) order type; (viii) add 

vs. remove liquidity; and (ix) electronic 

vs. manual transaction.12 These fields 

are defined as follows: 

(i) Put vs. Call: whether the 

instrument is a put (an option to sell 

assets at an agreed upon price on or 

before a particular date) or a call (an 

option to buy assets at an agreed-upon 

price on or before a particular date). 

(ii) Expiration date: the number of 

days to contract expiration. 

Transactions are assigned to one of five 

ranges: One week (less than or equal to 

7 days prior to expiration); one month 

(greater than 7 days but less than or 

equal to 30 days); three months (greater 

than 30 days but less than or equal to 

90 days to expiration); six months 

(greater than 90 days but less than or 

equal to 180 days to expiration date; and 

over six months (greater than 180 days 

to expiration date). 

(iii) Customer type: Customer, 

Professional Customer,13 Firm,14

Broker-Dealer,15 Market Maker, Joint 

Back Office (‘‘JBO’’),16 off-floor brokerdealer), or Non-Customer. 

(iv) ‘‘Moneyness’’: In-the-money,17

out-the-money 18 or at-the-money.19

(v) Open vs. Close: Whether the 

transaction is opening a new position or 

closing an existing position. 

(vi) Buy vs. Sell. 

(vii) Execution type: Simple order,20

complex order,21 price improvement 

(‘‘PIXL’’) Order,22 qualified contingent 

cross (‘‘QCC’’),23 Sweep,24 responder to 

an auction, or quote from a Market 

Maker). 

(viii) Add vs. remove liquidity: 

Whether the transaction adds or 

removes liquidity, or has no effect on 

liquidity. 

(ix) Electronic vs. manual: Whether 

the transaction takes place on the floor 

of the Exchange or through the 

electronic order system. 

Seven of these nine data fields—put 

vs. call; expiration date; customer type; 

‘‘moneyness’’; open vs. close; buy vs. 

sell; and order type—are currently 

available in real time for purchasers of 

the PHLX Orders data feed, although 

that feed does not include order 

information on Immediate or Cancel 

Orders (‘‘IOCs’’) or orders that are fully 

executable upon receipt. IOCs and 

orders that are fully executable upon 

receipt will, however, be used to 

segregate data for factor calculations in 

Single-Factor Analytic Bundles. The last 

two data fields listed above—add vs. 

remove liquidity and electronic vs. 

manual transactions—are not available 

on any of the Exchange’s data feeds, but, 

like data from IOCs and fully executable 

orders upon receipt, will be used to 

segregate data into segments for SingleFactor Analytic Bundles. 

A purchaser of Single-Factor Analytic 

Bundles may, under certain 

circumstances, be able to reverseengineer factor calculations to obtain 

transaction-specific information not 

otherwise available on the Exchange’s 

data feeds.25 For example, an investor 

observing a thinly-traded stock may be 

able to use the Single-Factor Analytic 

Bundle calculations to determine the 

type of customer (Customer, 

Professional Customer, Firm, BrokerDealer, etc.) adding or removing 

liquidity—information not otherwise 

available on the Exchange’s data feeds, 

as noted above.26 Such information may 

be useful in identifying the investment 

strategies of particular customer 

categories. 

While this type of reverse-engineering 

is not the primary purpose of the 

Intellicator Analytic Tool—and of 

limited usefulness given that 

implementation would only be practical 

for thinly-traded stocks—it is consistent 

with the purpose of the Intellicator 

Analytic Tool to make data about 

market sentiment available to investors. 

Identifying the investment strategies of 

particular customer categories can 

provide an investor with useful insight 

into market activity, which this Tool 

may render more broadly available to 

investors. Such dissemination of market 

information promotes transparency and 

increases market efficiency, and, as 

stated in the Statutory Basis discussion 

below, protects protect investors and the 

public interest. 

The data fields identified above will 

be used to segregate the market into 

segments by calculating factors only for 

transactions that meet specific criteria. 

Each segment will be defined by 

between one and five fields; data from 

other fields will not be used. By way of 

illustration, the three complex segments 

set forth above—‘‘Customers who buy to 

open a new position,’’ ‘‘Non-Customers 

who sell to close an existing position,’’ 

and ‘‘Market Makers engaging in 

complex orders’’—will be constructed 

using only three segments, as shown in 

the following chart: 


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Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 46321 

27As noted above, the first seven fields listed in 

this chart (from ‘‘Put vs. Call’’ through ‘‘Execution 

type’’) are available in real time for purchasers of 

the PHLX Orders data feed, but that data feed does 

not include data from IOCs or orders that are fully 

executable upon receipt. 

28As noted above, the ‘‘add vs. remove liquidity’’ 

and ‘‘electronic vs. manual’’ fields are not available 

on any of the Exchange’s proprietary data feeds. 

29 15 U.S.C. 78f(b). 

30 15 U.S.C. 78f(b)(5). 

Customers who buy to open 

a position 

Non-customers who sell to close 

an existing position 

Market makers engaging 

in complex orders 

Put vs. Call 27 ................................ N/A ................................................ N/A ................................................ N/A 

Expiration Date ............................. N/A ................................................ N/A ................................................ N/A 

Customer type ............................... Customer ...................................... Non-Customer ............................... Market Maker 

Moneyness .................................... N/A ................................................ N/A ................................................ N/A 

Open vs. Close ............................. Open ............................................. Close ............................................. N/A 

Buy vs. Sell ................................... Buy ................................................ Sell ................................................ N/A 

Execution type .............................. N/A ................................................ N/A ................................................ Complex order 

Add vs. remove liquidity 28 ............ N/A ................................................ N/A ................................................ N/A 

Electronic vs. manual .................... N/A ................................................ N/A ................................................ N/A 

Purchasersof this product will be 

provided the results of factor 

calculations for segments of the market 

to be identified by the Exchange as 

indicative of market sentiment. All of 

the output of the Intellicator Analytic 

Tool consists solely of calculations, not 

raw data. The Tool is intended to 

provide insight into market sentiment 

through aggregated calculations, not to 

provide real-time transaction- and 

order-related information similar to a 

data feed. 

The Exchange expects that segments 

will change over time. The first iteration 

of the Intellicator Analytic Tool will 

utilize a set of segments determined to 

be indicative of market sentiment based 

on experience and economic theory, but 

then will use machine learning— 

algorithms that test theory against 

market experience—to improve 

calculations by identifying additional 

segments with a strong relationship 

with the underlying equity and adding 

them to the Analytic Bundles to create 

the most robust set of calculations 

possible. Identifying relevant segments 

is a feature of this product, and the 

intellectual property of the Exchange. 

Segments will be selected for their 

ability to provide a robust view of 

market sentiment. While any single 

segment may be of limited usefulness on 

its own, making the same calculations 

repeatedly for an array of different 

segments will provide a more reliable 

and consistent indicia of market 

sentiment. Providing customers with 

calculations of the same factor for 

multiple segments allows them to 

evaluate market sentiment by comparing 

calculations across segments. For 

example, market sentiment related to 

simple orders may be compared to that 

of complex orders; calculations for 

options contracts with less than 7 days 

to expiration may be compared to those 

with less than 30 days to expiration; or 

calculations for options contracts that 

are in-the-money may be compared to 

those that are out-the-money or at-themoney. The goal of all of these 

comparisons is to glean information 

from differences in market activity that 

may provide useful information about 

market sentiment regarding the 

associated underlying equity. 

Calculations will be based on ‘‘rolling 

aggregates’’ of trading data, updated 

every 60 seconds over the course of the 

day. 

Single-Factor Intellicators 

A Single-Factor Intellicator uses 

machine learning to summarize in a 

single numeral the information 

contained within a Single-Factor 

Analytic Bundle. The number will be 

within a set range—possibly between 

one and one hundred, although the 

precise range may change over time— 

and will be designed to value market 

sentiment: Specifically, the upward or 

downward pressure on the price of an 

equity instrument as reflected in options 

trading activity. The numeral will be a 

sort of ‘‘barometer’’ of trading activity 

that, in conjunction with other market 

information, will help investors make 

informed decisions. 

The Single-Factor Intellicator will 

serve a different purpose than the 

Analytic Bundles. Whereas the Analytic 

Bundles are designed to provide raw 

calculations, the Intellicators are 

designed to provide an analytical 

overlay to those calculations to help 

investors interpret market sentiment. As 

was the case with the Analytic Bundles, 

nothing in the Single-Factor Intellicator 

can be used to glean transaction-specific 

information. 

The calculation for the Single-Factor 

Intellicator will change over time, as 

machine learning algorithms use data to 

learn about the relationship between 

options and equities, and modify the 

calculation accordingly. Specifically, 

the Exchange will use calculated values 

from the Analytic Bundle to improve 

mathematical models of the relationship 

between certain options trades and the 

equities underlying those trades. Over 

time, the algorithm will optimize these 

equations for both the types of data used 

to analyze equities and the weight of 

such data. The result will be a better 

mathematical model. 

Calculations for Single-Factor 

Intellicators, like calculations for each 

factor, will be updated every 60 seconds 

over the course of the day. 

Multi-Factor Intellicator 

The Multi-Factor Intellicator uses 

machine learning to summarize in a 

single numeral all of the calculations 

contained in all of the five [sic] SingleFactor Analytic Bundles. As was the 

case with Single-Factor Intellicators, the 

Multi-Factor Intellicator is designed to 

act as a ‘‘barometer’’ of options trading 

activity, which the customer will be 

able to incorporate into its market 

analysis. The Multi-Factor Intellicator 

will improve over time through machine 

learning. 

The Multi-Factor Intellicator will also 

be updated every 60 seconds over the 

course of the day. 

Proposed Pricing Structure 

As previously noted, the fee schedule 

for the Intellicator Analytic Tool will be 

included in a future filing. Because the 

Single-Factor Analytic Bundles, SingleFactor Intellicators, and Multi-Factor 

Intellicators may prove useful for 

different audiences, these components 

of the Intellicator Analytic Tool will be 

priced separately. 

2. Statutory Basis 

The Exchange believes that its 

proposal is consistent with Section 6(b) 

of the Act,29 in general, and furthers the 

objectives of Section 6(b)(5) 30 of the Act 

in particular. The proposal is designed 

to promote just and equitable principles 

of trade, to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system, and in general to protect 

investors and the public interest by 


sradovich on DSK3GMQ082PROD with NOTICES
46322 Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 

31See Securities Exchange Act Release No. 51808 

(June 9, 2005), 70 FR 37496 (June 29, 2005) 

(‘‘Regulation NMS Adopting Release’’). 

32 Id. 

33See NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 

2010). 

34 Id. at 534–535. 

35 Id. at 537. 

36 Id. at 539 (quoting Securities Exchange Act 

Release No. 59039 (December 2, 2008), 73 FR 

74770, 74782–83 (December 9, 2008) (SR– 

NYSEArca–2006–21)). 

37See Sec. Indus. Fin. Mkts. Ass’n (SIFMA), 

Initial Decision Release No. 1015, 2016 SEC LEXIS 

2278 (ALJ June 1, 2016) (finding the existence of 

vigorous competition with respect to non-core 

market data). 

prompting transparency and increasing 

visibility into options transactions and 

democratizing information to provide 

the benefits of sophisticated analytical 

techniques to firms without the 

technology, staff or wherewithal to 

conduct a comparable analysis on their 

own. Specifically, the Single- and MultiFactor Intellicators will provide all 

investors with insight into market 

sentiment otherwise available only to 

those investors with the technology, 

staff and wherewithal to conduct such 

an analysis. To the extent that the 

Intellicator Analytic Tool uses 

information not otherwise available on 

the Exchange’s market data feeds, the 

effect of using such information as an 

input for the Tool is to make 

information more widely available to 

investors. To the degree that investors 

use Single-Factor Analytic Bundles to 

reverse-engineer certain factor 

calculations to obtain transactionspecific information not otherwise 

provided on the Exchange’s data feeds, 

the availability of such information 

promotes transparency and increases 

market efficiency, thereby protecting 

investors and the public interest. The 

net effect is to make information on 

market sentiment more readily available 

to more investors, thereby removing 

impediments to a free and open market 

and promoting just and equitable 

principles of trade. 

In adopting Regulation NMS,31 the 

Commission granted SROs and brokerdealers increased authority and 

flexibility to offer new and unique 

market data to the public. It was 

believed that this authority would 

expand the amount of data available to 

consumers, and also spur innovation 

and competition for the provision of 

market data. The Intellicator Analytic 

Tool—a new market data product 

designed to analyze options market 

transactions and synthesize that 

analysis to help investors assess the 

equities underlying those transactions— 

is the type of market data product that 

the Commission envisioned when it 

adopted regulation NMS. The 

Commission concluded that Regulation 

NMS—deregulating the market in 

proprietary data—would further the 

Act’s goals of facilitating efficiency and 

competition: 

[E]fficiency is promoted when brokerdealers who do not need the data beyond the 

prices, sizes, market center identifications of 

the NBBO and consolidated last sale 

information are not required to receive (and 

pay for) such data. The Commission also 

believes that efficiency is promoted when 

broker-dealers may choose to receive (and 

pay for) additional market data based on their 

own internal analysis of the need for such 

data.32

By removing unnecessary regulatory 

restrictions on the ability of exchanges 

to sell their own data, Regulation NMS 

advanced the goals of the Act and the 

principles reflected in its legislative 

history. 

In NetCoalition v. Securities and 

Exchange Commission 33

(‘‘NetCoalition’’) the D.C. Circuit upheld 

the Commission’s use of a market-based 

approach in evaluating the fairness of 

market data fees against a challenge 

claiming that Congress mandated a costbased approach.34 As the court 

emphasized, the Commission ‘‘intended 

in Regulation NMS that ‘market forces, 

rather than regulatory requirements’ 

play a role in determining the market 

data . . . to be made available to 

investors and at what cost.’’ 35 ‘‘No one 

disputes that competition for order flow 

is ‘fierce.’ . . . As the SEC explained, 

‘[i]n the U.S. national market system, 

buyers and sellers of securities, and the 

broker-dealers that act as their orderrouting agents, have a wide range of 

choices of where to route orders for 

execution’; [and] ‘no exchange can 

afford to take its market share 

percentages for granted’ because ‘no 

exchange possesses a monopoly, 

regulatory or otherwise, in the execution 

of order flow from broker dealers’. 

. . .’’ 36

Data products such as the Intellicator 

Analytic Tool are a means by which 

exchanges compete to attract order flow. 

To the extent that exchanges are 

successful in such competition, they 

earn trading revenues and also enhance 

the value of their data products by 

increasing the amount of data they 

provide. The need to compete for order 

flow places substantial pressure upon 

exchanges to keep their fees for both 

executions and data reasonable.37

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 not 

necessary or appropriate in furtherance 

of the purposes of the Act. Indeed, the 

Exchange believes that the Intellicator 

Analytic Tool enhances competition by 

increasing transparency into options 

transactions and democratizing 

information to provide the benefits of 

sophisticated analytical techniques to 

firms without the technology, staff or 

wherewithal to conduct a comparable 

analysis on their own. Many firms 

produce internal analytic models to 

assess market sentiment similar to the 

Intellicator Analytic Tool; the 

introduction of this Tool will increase 

competition by making such models 

available to more investors. 

The market for data products is 

extremely competitive and firms may 

freely choose alternative venues and 

data vendors based on the aggregate fees 

assessed, the data offered, and the value 

provided. Numerous exchanges compete 

with each other for listings, trades, and 

market data itself, providing virtually 

limitless opportunities for entrepreneurs 

who wish to produce and distribute 

their own market data. 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, market data 

and trade execution are a paradigmatic 

example of joint products with joint 

costs. The decision whether and on 

which platform to post an order will 

depend on the attributes of the platform 

where the order can be posted, 

including the execution fees, data 

quality and price. Without trade 

executions, exchange data products 

cannot exist. Moreover, data products, 

including the Intellicator Analytic Tool, 

are valuable to many end users only 

insofar as they provide information that 

end users expect will assist them or 

their customers in making trading 

decisions. 

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 transaction 

execution platform 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, 

the operation of the exchange is 

characterized by high fixed costs and 

low marginal costs. This cost structure 

is common in content distribution 

industries such as software, where 

developing new software typically 

requires a large initial investment (and 

continuing large investments to upgrade 


sradovich on DSK3GMQ082PROD with NOTICES
Federal Register / Vol. 82, No. 191 / Wednesday, October 4, 2017 / Notices 46323 

38See William J. Baumol and Daniel G. Swanson, 

‘‘The New Economy and Ubiquitous Competitive 

Price Discrimination: Identifying Defensible Criteria 

of Market Power,’’ Antitrust Law Journal, Vol. 70, 

No. 3 (2003). 

39 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

the software), but once the software is 

developed, the incremental cost of 

providing that software to an additional 

user is typically small, or even zero 

(e.g., if the software can be downloaded 

over the internet after being 

purchased).38 It is costly to build and 

maintain a trading platform, but the 

incremental cost of trading each 

additional share on an existing platform, 

or of distributing an additional instance 

of data, is very low. Market information 

and executions are each produced 

jointly (in the sense that the activities of 

trading and placing orders are the 

source of the information that is 

distributed) and are each subject to 

significant scale economies. 

Competition among trading platforms 

can be expected to constrain the 

aggregate return each platform earns 

from the sale of its joint products. The 

level of competition and contestability 

in the market is evident in the 

numerous alternative venues that 

compete for order flow, including SRO 

markets, as well as internalizing BDs 

and various forms of alternative trading 

systems (‘‘ATSs’’), including dark pools 

and electronic communication networks 

(‘‘ECNs’’). Each SRO market competes to 

produce transaction reports via trade 

executions, and two FINRA-regulated 

TRFs compete to attract internalized 

transaction reports. It is common for 

BDs to further and exploit this 

competition by sending their order flow 

and transaction reports to multiple 

markets, rather than providing them all 

to a single market. Competitive markets 

for order flow, executions, and 

transaction reports provide pricing 

discipline for the inputs of proprietary 

data products. The large number of 

SROs, TRFs, BDs, and ATSs that 

currently produce proprietary data or 

are currently capable of producing it 

provides further pricing discipline for 

proprietary data products. Each SRO, 

TRF, ATS, and BD is currently 

permitted to produce proprietary data 

products, and many currently do or 

have announced plans to do so, 

including Nasdaq, NYSE, NYSE MKT, 

NYSE Arca, and the BATS exchanges. 

In this case, the proposed rule change 

enhances competition by introducing a 

new product that increases transparency 

into options transactions and 

democratizes information by providing 

the benefits of sophisticated analytical 

techniques to firms without the 

technology, staff or wherewithal to 

conduct a comparable analysis on their 

own. If the price were to become 

unattractive, those firms would opt not 

to purchase the product. The net effect 

of introducing this product into the 

market is to make market sentiment 

information more widely available to a 

broader array of investors, and lower the 

cost of accessing such information, 

thereby increasing market efficiency. 

For all of these reasons, the Exchange 

does not believe that the proposed 

changes will impair competition in the 

financial markets. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were either 

solicited or received. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date if it finds such 

longer period to be appropriate and 

publishes its reasons for so finding or 

(ii) as to which the Exchange consents, 

the Commission shall: (a) by order 

approve or disapprove such proposed 

rule change, or (b) institute proceedings 

to determine whether the proposed rule 

change should be 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– 

Phlx–2017–74 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–Phlx–2017–74. 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 also will be available for 

inspection and copying at the principal 

office of the Exchange. 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–Phlx– 

2017–74 and should be submitted on or 

before October 25, 2017. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.39

Eduardo A. Aleman, 

Assistant Secretary. 

[FR Doc. 2017–21279 Filed 10–3–17; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–81749; File No. SR– 

BatsBYX–2017–23] 

Self-Regulatory Organizations; Bats 

BYX Exchange, Inc.; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Rule Change to Rule 11.23, 

Opening Process, and Rule 11.26, 

Usage of Data Feeds, To Reflect the 

Name Change of NYSE MKT to NYSE 

American 

September 28, 2017. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on 

September 25, 2017, Bats BYX 

Exchange, Inc. (the ‘‘Exchange’’ or 

‘‘BYX’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by the Exchange. 


sradovich on DSK3GMQ082PROD with NOTICES