Document ID: SEC-2018-0181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Nasdaq PHLX, LLC
Posted Date: 2018-01-29T05:00Z

[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4100-4104]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01536]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82569; File No. SR-Phlx-2018-10]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend Section 
VIII of the Exchange's Pricing Schedule

January 23, 2018.
    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 January 16, 2018, 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.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to amend Section VIII of the Exchange's 
Pricing Schedule, Nasdaq PSX Fees, to modify the fee schedule for PSX 
TotalView to reflect substantial enhancements to the product since the 
current fees were set in 2010. Specifically, the Exchange proposes to: 
(i) Introduce a monthly non-display usage fee of $50 per Professional 
Subscriber for PSX TotalView based upon Direct Access; and (ii) 
increase the monthly enterprise license fee for non-display usage of 
PSX TotalView from $16,000 to $17,000 based upon Direct Access. The 
proposal is described in further detail below.
    The text of the proposed rule change is available on the Exchange's 
website at http://nasdaqphlx.cchwallstreet.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 Exchange proposes to adjust the fee schedule for PSX TotalView 
to reflect substantial enhancements to the product since the current 
fees were set in 2010.\3\ Specifically, the Exchange proposes to: (i) 
Introduce a monthly non-display usage \4\ fee of $50 per Professional 
Subscriber \5\ for PSX TotalView based upon Direct Access; and (ii) 
increase the monthly enterprise license fee for non-display usage of 
PSX TotalView based upon Direct Access from $16,000 to $17,000.\6\
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release No. 62876 (September 9, 
2010), 75 FR 56624 (September 16, 2010) (SR-Phlx-2010-120).
    \4\ ``Non-display usage'' refers to the usage of Exchange data 
by a computer for calculations and routing decisions that does not 
provide a means to display data on a screen. See Securities Exchange 
Act Release No. 62876 (September 9, 2010), 75 FR 56624 (September 
16, 2010) (SR\Phlx-2010-120).
    \5\ A ``Subscriber'' is a method of accessing data, defined as 
``any access that a distributor of the data entitlement package(s) 
provides to: (1) Access the information in the data entitlement 
package(s); or (2) communicate with the distributor so as to cause 
the distributor to access the information in the data entitlement 
package(s).'' See Phlx Pricing Schedule, Section VIII, PSX TotalView 
(d).
    \6\ The Exchange filed the proposed pricing changes on January 
3, 2018 (SR-Phlx-2018-04). On January 16, 2018, the Exchange 
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

PSX TotalView
    PSX TotalView, like Nasdaq and BX TotalView, is a real-time market 
data feed that provides access to every displayed quote and order at 
every price level in Nasdaq-, NYSE-, NYSE American-, NYSE Arca-, CBOE- 
and IEX-listed securities.\7\ PSX TotalView also provides anonymous 
interest and administrative messages relating to trading halts and 
symbol directory messages.\8\ The PSX TotalView entitlement today is 
available for a

[[Page 4101]]

monthly charge of $40 per Subscriber.\9\ A ``Subscriber'' is ``any 
access that a distributor of the data entitlement package(s) provides 
to: (1) Access the information in the data entitlement package(s); or 
(2) communicate with the distributor so as to cause the distributor to 
access the information in the data entitlement package(s).'' \10\ The 
current monthly charge is based on the number of Subscribers, without 
regard to whether a Subscriber is used for non-display or display 
usage.
---------------------------------------------------------------------------

    \7\ In contrast with Nasdaq and BX TotalView, all displayed 
orders for PSX TotalView are displayed without attribution to the 
entering market participant.
    \8\ Symbol directory messages include basic security data such 
as the market tier and financial status indicator.
    \9\ The PSX fee of $40 applies to all securities; the BX 
Exchange charges separate fees of $20 for Nasdaq-listed securities 
and $20 for securities listed on NYSE and regional exchanges.
    \10\ See Note 5.
---------------------------------------------------------------------------

    For firms that utilize PSX TotalView internally for non-display 
purposes, the product may also be purchased through an enterprise 
license fee of $16,000 per month for unlimited internal use of non-
display data. This enterprise license, which provides an alternative to 
monthly per Subscriber fees, is designed to relieve firms with a large 
number of internal Subscribers from the administrative burden of 
identifying, tracking and reporting such Subscribers.
Proposed Changes
    PSX TotalView is one of a number of market information services 
offered by the Exchange. Such services are inextricably connected to 
trade execution: Market information services require trade orders to 
provide useful information, and investors use market information to 
make trading decisions. Over the seven years that have elapsed since 
the current fee schedule for non-display usage and enterprise licenses 
for PSX TotalView were introduced,\11\ the Exchange has invested in an 
array of upgrades to both its trade execution and market information 
services, which have increased the value of these services overall, and 
PSX TotalView in particular.\12\
---------------------------------------------------------------------------

    \11\ See Securities Exchange Act Release No. 62876 (September 9, 
2010), 75 FR 56624 (September 16, 2010) (SR-Phlx-2010-120).
    \12\ Many of these upgrades are common to several Nasdaq-
affiliated exchanges, as improvements to the products and services 
of one exchange are reproduced in other exchanges.
---------------------------------------------------------------------------

    The Exchange proposes to adjust its fee schedule for PSX TotalView 
to reflect the value of the many investments improving the product, 
which include:
     Glimpse Snapshot Facility. In 2013, the Exchange 
substantially updated the Glimpse snapshot facility, which allows firms 
to obtain a snapshot of the Exchange's order book at any point during 
the trading day. The service may be used to validate order book 
displays or to recover from data gaps during the trading day.\13\
---------------------------------------------------------------------------

    \13\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------

     Enhanced Data Feed. In 2014, the Exchange enhanced the PSX 
TotalView data feed by: (i) Converting to binary codes to make more 
efficient use of bandwidth and to provide greater timestamp 
granularity; (ii) adding a symbol directory message to identify a 
security and its key characteristics; and (iii) adding the Market Wide 
Circuit Breaker (``MWCB'') Decline Level message to inform recipients 
of the setting for MWCB breach points for the trading day, and an MWCB 
Status Level Message to inform data recipients when an MWCB has 
breached an established level.\14\
---------------------------------------------------------------------------

    \14\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-45 and http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------

     Geographic Diversity. In 2015, all of the Nasdaq Exchanges 
moved their Disaster Recovery (``DR'') center from Ashburn, Virginia, 
to Chicago, Illinois. As a result, customers can both receive market 
data and send orders through the Chicago facility, potentially reducing 
overall networking costs. Adding such geographic diversity helps 
protect the market in the event of a catastrophic event impacting the 
entire East Coast.\15\
---------------------------------------------------------------------------

    \15\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-17.
---------------------------------------------------------------------------

     Chicago ``B'' Feeds. In 2017, all of the Nasdaq exchanges 
added a multicast IP address for proprietary equity and options data 
feeds in Chicago, allowing firms the choice of having additional 
redundancy to ensure data continuity.\16\
---------------------------------------------------------------------------

    \16\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-02.
---------------------------------------------------------------------------

     Extended Transmission Hours. In 2014, the Exchange began 
to transmit data between 3:00 and 4:00 a.m. Eastern, approximately 
three hours earlier than previously,\17\ to provide customers with an 
opportunity to test connectivity before pre-market sessions open at 
8:00 a.m. Eastern.\18\
---------------------------------------------------------------------------

    \17\ The extended schedule for data transmission did not extend 
pre-market trading hours.
    \18\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-08.
---------------------------------------------------------------------------

    While these many changes were in the process of implementation, 
fees for PSX TotalView were falling in real terms as a result of price 
inflation. Indeed, the proposed increase in the enterprise license fee 
from $16,000 to $17,000 remains below the rate of inflation of that 
period.\19\ Moreover, the proposed non-display fee increase from $40 to 
$50 is largely offset by inflation, and only represents an 
approximately 3.24 percent annual increase over the course of seven 
years.
---------------------------------------------------------------------------

    \19\ The Consumer Price Index indicates price increases of 
approximately 13 percent between September 2010 and November 2017. 
See https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

    As a result of these substantial upgrades and the impact of overall 
price inflation, the Exchange proposes two substantive changes to the 
PSX TotalView fee schedule: (i) Introduce a monthly non-display usage 
fee of $50 per Subscriber based upon Direct Access; and (ii) increase 
the monthly enterprise license fee for non-display usage based upon 
Direct Access from $16,000 to $17,000.\20\
---------------------------------------------------------------------------

    \20\ In addition to these two substantive changes, the Exchange 
proposes five sets of technical changes. First, the Exchange 
proposes to add the phrase ``for display usage'' to Paragraph (a)(1) 
to distinguish between display usage fees, which shall remain 
unchanged, and non-display usage fees, which will increase. Second, 
the Exchange proposes to change the reference to per Subscriber fees 
in new paragraph (a)(3) from (a)(1) to (a)(2) because non-display 
fees for Professionals that take the feed through Direct Access have 
been moved from paragraph (a)(1) to (a)(2). Third, the Exchange 
proposes to renumber former paragraph (a)(2) to (a)(3) to reflect 
the introduction of new paragraph (a)(2). Fourth, the Exchange 
proposes to delete the unnecessary word ``in'' from the phrase ``as 
provided [in ]elsewhere in this rule . . . .'' from paragraph (a)(1) 
as a grammatical correction. Fifth, the Exchange proposes to revise 
paragraph (c) (``Free-Trial Offers) to reflect the new fees set 
forth in paragraphs (a)(2) and (a)(3).
---------------------------------------------------------------------------

    The current fee structure allows firms to purchase PSX TotalView 
for display or non-display usage by professionals for a monthly charge 
of $40 per Subscriber. The Exchange proposes to separate this fee into 
two distinct fees: One for display usage and non-display usage not 
based upon Direct Access by professionals, and another for non-display 
usage based upon Direct Access.\21\ The fee for display usage for 
professionals will remain unchanged at $40 per month, as will the fee 
for non-display usage without Direct Access, while the new non-display 
usage fee based upon Direct Access will be set at $50 per month.\22\ 
With this change, the pricing structure for PSX TotalView will conform 
to the pricing structure for Nasdaq TotalView (which has differential 
fees for display and non-display usage),\23\ and the proposed pricing 
structure for BX TotalView (proposed in a separate filing for the BX 
Exchange), albeit at a lower rate than the

[[Page 4102]]

two other exchanges. The PSX TotalView pricing structure will also be 
similar to the non-display fee structure for NYSE and other exchanges, 
as differential pricing for display and non-display usage has become 
the industry norm.\24\
---------------------------------------------------------------------------

    \21\ Any Subscriber within a firm that obtains Exchange data 
through a Subscriber with Direct Access from that same firm has 
obtained such data ``based upon Direct Access.''
    \22\ ``Direct Access'' refers to the method for receiving 
Exchange data. A firm may have Direct Access to receive Exchange 
data through: (i) A telecommunications interface with the Exchange 
for receiving Exchange data, (ii) an Exchange data feed within the 
Exchange co-location facility, or (iii) via an extranet access 
provider. See Phlx Pricing Schedule, Section VIII, Market Data 
Distributor Fees (c).
    \23\ See Nasdaq Rule 7023(b)(2).
    \24\ See, e.g., NYSE PDP Market Data Pricing (November 3, 2017), 
found at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
---------------------------------------------------------------------------

    The second proposed substantive change will increase the monthly 
enterprise license fee for internal non-display usage of PSX TotalView 
based upon Direct Access from $16,000 to $17,000.
    PSX TotalView is optional in that the Exchange is not required to 
offer it and broker-dealers are not required to purchase it. Firms can 
discontinue use at any time and for any reason, including an assessment 
of the fees charged.
    The proposed change does not change the cost of any other Exchange 
product.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\25\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b).
    \26\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    The Commission and the courts have repeatedly expressed their 
preference for competition over regulatory intervention in determining 
prices, products, and services in the securities markets. In Regulation 
NMS, while adopting a series of steps to improve the current market 
model, the Commission highlighted the importance of market forces in 
determining prices and self-regulatory organization (``SRO'') revenues 
and, also, recognized that current regulation of the market system 
``has been remarkably successful in promoting market competition in its 
broader forms that are most important to investors and listed 
companies.'' \27\
---------------------------------------------------------------------------

    \27\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting 
Release'').
---------------------------------------------------------------------------

    Likewise, in NetCoalition v. Securities and Exchange Commission 
\28\ (``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 cost-based 
approach.\29\ 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.'' \30\
---------------------------------------------------------------------------

    \28\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
    \29\ See NetCoalition, at 534-535.
    \30\ Id. at 537.
---------------------------------------------------------------------------

    Further, ``[n]o 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 order-routing 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'' \31\
---------------------------------------------------------------------------

    \31\ 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)).
---------------------------------------------------------------------------

    The Exchange believes that the proposed fee changes are equitable 
allocations of reasonable dues, fees and other charges in accordance 
with Section 6(b)(4) of the Act, and not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers in 
accordance with Section 6(b)(5) of the Act. Both the monthly non-
display per Subscriber usage fee and the monthly enterprise license fee 
for non-display usage are equitable allocations because, as has been 
widely recognized, display and non-display functions provide different 
value to the consumer because of differences in speed and efficiency 
between the two modes of distribution, and it has become standard 
industry practice to charge differing fees for these two different 
modes of data consumption. Non-Display Usage provides greater value to 
the customer because the computer systems utilizing Non-Display data 
are able to analyze trading information thousands of times faster than 
their human counterparts, hundreds of different securities can be 
analyzed simultaneously, trading strategies can be executed much more 
quickly, error rates are lower, and each hour of the trading day can be 
used more efficiently. In addition, discounts based on high levels of 
usage such as the enterprise license for non-display usage have 
routinely been adopted by exchanges and approved as equitable 
allocations of reasonable dues, fees and other charges.\32\ As such, 
the proposed fees vary solely based on reasonable and well-established 
industry norms regarding types of data usage, as discussed above.
---------------------------------------------------------------------------

    \32\ For example, the Commission has approved pricing discounts 
for market data under Nasdaq Rule 7023.
---------------------------------------------------------------------------

    The Exchange also distinguishes between usage based on Direct 
Access and other methods of connection: Non-display usage that is based 
upon Direct Access will be charged $50 per month, while other non-
display usage will be charged $40 per month. This distinction is an 
equitable allocation of reasonable dues, fees and other charges because 
Direct Access provides the customer with source information in the 
original raw format, which provides customers with the certainty that 
they are receiving data without conflation or manipulation. This 
distinction does not permit unfair discrimination between customers, 
issuers, brokers, or dealers because the price differential is based on 
the difference in value to the customer.
    In addition, the Exchange proposes to introduce clarifying language 
stating that the enterprise license for non-display data will be 
available only to firms with Direct Access. This is an equitable 
allocation of reasonable dues, fees and other charges because firms 
with sufficient activity to purchase an enterprise license have a 
Direct Access connection. As such, the proposed language simply 
clarifies how the enterprise license will be used with respect to 
Direct Access, in a similar manner to the way that Direct Access is 
addressed in paragraphs (a)(1) and (a)(2), without affecting the 
service of any specific customer. This proposed change does not permit 
unfair discrimination between customers, issuers, brokers, or dealers 
for the same reason: The proposed language is simply a clarification 
that will not lead to any actual difference in usage.
    The proposed changes do not permit unfair discrimination between 
customers, issuers, brokers, or dealers because the Exchange makes all 
services and products subject to these fees available on a non-
discriminatory basis to similarly-situated recipients. The proposed 
fees are structured in a manner comparable to the corresponding fees of 
Nasdaq already in effect, and compare favorably to fees charged by 
Nasdaq and BX for the same product. The fees are uniform except with 
respect to reasonable and well-established distinctions between display 
and non-display data discussed above.

[[Page 4103]]

    The Act does not prohibit all distinctions among customers, but 
rather discrimination that is unfair. As the Commission has recognized, 
``[i]f competitive forces are operative, the self-interest of the 
exchanges themselves will work powerfully to constrain unreasonable or 
unfair behavior.'' \33\ Accordingly, ``the existence of significant 
competition provides a substantial basis for finding that the terms of 
an exchange's fee proposal are equitable, fair, reasonable, and not 
unreasonably or unfairly discriminatory.'' \34\ The proposed fees, like 
all market data fees, are constrained by the Exchange's need to compete 
for order flow, and are subject to competition from other exchanges and 
among broker-dealers for customers. If the Exchange is incorrect in its 
assessment of price, it may lose market share as a result.
---------------------------------------------------------------------------

    \33\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
    \34\ Id.
---------------------------------------------------------------------------

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. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may readily adjust their order routing practices, 
the Exchange believes that the degree to which fee changes in this 
market may impose any burden on competition is extremely limited.
    PSX TotalView is a type of depth-of-book product, which consists of 
``outstanding limit orders to buy stock at prices lower than, or to 
sell stocks at prices higher than, the best prices on each exchange.'' 
\35\ The question of whether the prices of depth-of-book products are 
constrained by competitive forces was examined in 2016 by an 
Administrative Law Judge in an application for review by the Securities 
Industry and Financial Markets Association of actions taken by Self-
Regulatory Organizations.\36\ After a four-day hearing and presentation 
of substantial evidence, the administrative law judge stated that 
``competition plays a significant role in restraining exchange pricing 
of depth-of-book products'' \37\ because ``depth-of-book products from 
different exchanges function as substitutes for each other,'' \38\ and, 
as such, ``the threat of substitution from depth-of-book customers 
constrains their depth-of-book prices.'' \39\ As a result, ``[s]hifts 
in order flow and threats of shifting order flow provide a significant 
competitive force in the pricing of . . . depth-of-book data.'' \40\ 
The judge concluded that ``[u]nder the standards articulated by the 
Commission and D.C. Circuit, the Exchanges have shown that they are 
subject to significant competitive forces in setting fees for depth-of-
book data: The availability of alternatives to the Exchanges' depth-of-
book products, and the Exchanges' need to attract order flow from 
market participants constrains prices.'' \41\
---------------------------------------------------------------------------

    \35\ See Securities Industry and Financial Markets Association, 
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 at *4 (A.L.J. 
June 1, 2016) (quoting NetCoalition v. SEC, 615 F3d 525, 529-30 
(D.C. Cir. 2010)).
    \36\ Id.
    \37\ Id. at *92.
    \38\ Id.
    \39\ Id. at *93.
    \40\ Id. at *104.
    \41\ Id. at *86.
---------------------------------------------------------------------------

    The proposed changes will: (i) Introduce a monthly non-display 
usage fee of $50 per Professional Subscriber based upon Direct Access; 
and (ii) increase the monthly enterprise license fee for non-display 
usage based upon Direct Access from $16,000 to $17,000. These proposed 
price changes will not impose any burden on competition because market 
data fees are but one aspect of the overall competition among exchanges 
to solicit order flow; if the overall price of interacting with the 
Exchange rises above competitive levels because of market data fees, 
market forces would cause the Exchange to lose market share.
    Market forces constrain fees for PSX TotalView, as well as other 
market data fees, in the competition among exchanges and other entities 
to attract order flow and in the competition among Distributors for 
customers. Order flow is the ``life blood'' of the exchanges. Broker-
dealers currently have numerous alternative venues for their order 
flow, including SRO markets, as well as internalizing broker-dealers 
(``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 Trade Reporting Facilities 
(``TRFs'') compete to attract internalized transaction reports. The 
existence of fierce competition for order flow implies a high degree of 
price sensitivity on the part of BDs, which may readily reduce costs by 
directing orders toward the lowest-cost trading venues.
    The level of competition and contestability in the market for order 
flow is demonstrated by the numerous examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume. For a variety of 
reasons, competition from new entrants, especially for order execution, 
has increased dramatically over the last decade.
    Each SRO, TRF, ATS, and BD that competes for order flow is 
permitted to produce proprietary data products. Many currently do or 
have announced plans to do so, including NYSE, NYSE American, NYSE 
Arca, CBOE, and IEX. This is because Regulation NMS deregulated the 
market for proprietary data. While BDs had previously published their 
proprietary data individually, Regulation NMS encourages market data 
vendors and BDs to produce proprietary products cooperatively in a 
manner never before possible. Order routers and market data vendors can 
facilitate production of proprietary data products for single or 
multiple BDs. The potential sources of proprietary products are 
virtually limitless.
    The markets for order flow and proprietary data are inextricably 
linked: A trading platform cannot generate market information unless it 
receives trade orders. As a result, the competition for order flow 
constrains the prices that platforms can charge for proprietary data 
products. Firms make decisions on how much and what types of data to 
consume based on the total cost of interacting with PSX and other 
exchanges. Data fees are but one factor in a total platform analysis. 
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the 
fees charged for either

[[Page 4104]]

transactions or proprietary data has the potential to impair revenues 
from both products. In this manner, the competition for order flow will 
constrain prices for proprietary data products.
    Competition among Distributors provides another form of price 
discipline for proprietary data products. If the price of PSX TotalView 
were set above competitive levels, Distributors purchasing PSX 
TotalView would be at a disadvantage relative to their competitors, and 
would therefore either curtail their purchase or forego the product 
altogether.
    Market forces constrain the price of depth-of-book data such as PSX 
TotalView through the competition for order flow and in the competition 
among vendors for customers. If the changes proposed herein are 
unattractive to market participants, it is likely that the Exchange 
will lose market share as a result. Accordingly, the Exchange does not 
believe that the proposed changes will impair the ability of members or 
competing order execution venues to maintain their competitive standing 
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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\42\
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78s(b)(3)(A)(ii).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule 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 [email protected]. Please include 
File Number SR-Phlx-2018-10 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-2018-10. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-Phlx-2018-10 and should be submitted on 
or before February 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2018-01536 Filed 1-26-18; 8:45 am]
 BILLING CODE 8011-01-P