Document ID: SEC-2017-1920-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2017-11-22T05:00Z

[Federal Register Volume 82, Number 224 (Wednesday, November 22, 2017)]
[Notices]
[Pages 55660-55666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-25231]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82100; File No. SR-NYSEARCA-2017-130]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Changes to the NYSE Arca 
Equities Proprietary Market Data Fees

November 16, 2017.
    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 November 3, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 changes to the NYSE Arca Equities Proprietary 
Market Data Fees (``Fee Schedule'') to: (1) Modify the Redistribution 
Fee for NYSE ArcaBook and NYSE Arca Integrated Feed; (2) modify the 
Non-Display Fee for NYSE ArcaBook and NYSE Arca Integrated Feed; and 
(3) modify Professional User Fees for NYSE ArcaBook and NYSE Arca 
Integrated Feeds and establish tiered Professional User Fees and a 
Professional User Fee Cap for Broker-Dealers subscribers of NYSE 
ArcaBook. 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 changes to the Fee Schedule to: (1) Modify 
the Redistribution Fee for NYSE ArcaBook \4\ and NYSE Arca Integrated 
Feed; \5\ (2)

[[Page 55661]]

modify the Non-Display Fee for NYSE ArcaBook and NYSE Arca Integrated 
Feed; and (3) modify Professional User Fees for NYSE ArcaBook and NYSE 
Arca Integrated Feeds and establish tiered Professional User Fees and a 
Professional User Fee Cap for Broker-Dealer subscribers of NYSE 
ArcaBook. The Exchange proposes to make these fee changes operative on 
January 1, 2018.
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    \4\ See Securities Exchange Act Release Nos. 53592 (June 7, 
2006), 71 FR 33496 (June 9, 2006) (SR-NYSEArca-2006-21) (``2006 
ArcaBook Notice''); 59039 (December 2, 2008), 73 FR 74770 (December 
9, 2008) (SR-NYSEArca-2006-21); 69315 (April 5, 2013), 78 FR 21668 
(April 11, 2013) (SR-NYSEArca-2013-37) (``2013 Non-Display 
Filing''); 72560 (July 8, 2014), 79 FR 40801 (July 14, 2014) (SR-
NYSEArca-2014-72)(``2014 ArcaBook Filing''); 73011 (September 5, 
2014), 79 FR 54315 (September 11, 2014) (SR-NYSEARCA-2014-93) 
(``2014 Non-Display Filing''); 74011 (January 7, 2015), 80 FR 1681 
(January 13, 2015) (SR-NYSEArca-2014-149) (``2015 ArcaBook 
Filing''); and 76903 (January 14, 2016), 81 FR 3547 (January 21, 
2016) (SR-NYSEArca-2016-01).
    \5\ See Securities Exchange Act Release Nos. 66128 (Jan. 10, 
2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96); 69315 
(April 5, 2013), 78 FR 21668 (April 11, 2013) (SR-NYSEArca-2013-37) 
(``2013 Non-Display Filing''); 73011 (Sept. 5, 2014), 79 FR 54315 
(Sept. 11, 2014) (SR-NYSEArca-2014-93) (``2014 Non-Display 
Filing''); 73993 (Jan. 6, 2015), 80 FR 1527 (Jan. 12, 2015) (SR-
NYSEArca-2014-147); and 76914 (January 14, 2016), 81 FR 3484 
(January 21, 2016) (SR-NYSEArca-2016-03).
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Redistribution Fee
    A Redistributor is any person approved by the Exchange that 
provides an NYSE Arca data product to an external data recipient or to 
any external system that a data recipient uses, irrespective of the 
means of transmission or access. The Exchange currently charges a 
redistribution fee of $1,500 per month for NYSE ArcaBook and $3,000 per 
month for NYSE Arca Integrated Feed. The Exchange proposes to increase 
the redistribution fee to $2,000 per month for NYSE ArcaBook and to 
$3,750 per month for NYSE Arca Integrated Feed.
Non-Display Fee
    Non-Display Use of NYSE Arca market data means accessing, 
processing, or consuming NYSE Arca market data delivered via direct 
and/or Redistributor data distribution for a purpose other than in 
support of a data recipient's display usage or further internal or 
external redistribution.\6\
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    \6\ See e.g. 2015 ArcaBook Filing, supra note 4.
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    There are currently three categories of, and fees applicable to, 
data recipients for non-display use that are listed on the Fee 
Schedule:
     Category 1 Fees apply when a data recipient's non-display 
use of real-time market data is on its own behalf as opposed to use on 
behalf of its clients;
     Category 2 Fees apply when a data recipient's non-display 
use of real-time market data is on behalf of its clients as opposed to 
use on its own behalf; and
     Category 3 Fees apply when a data recipient's non-display 
use of real-time market data is for the purpose of internally matching 
buy and sell orders within an organization, including matching customer 
orders on a data recipient's own behalf and/or on behalf of its 
clients.
    The Exchange proposes to amend non-display use fees for NYSE 
ArcaBook and NYSE Arca Integrated Feed.
    The current non-display fee for NYSE ArcaBook is $5,000 per month 
for each of Category 1, Category 2 and Category 3. Category 3 fees are 
currently capped at $15,000 per month. The Exchange proposes to 
increase the non-display fee for NYSE ArcaBook to $6,000 per month for 
each of Category 1, Category 2 and Category 3. The Exchange proposes a 
corresponding increase in the cap for Category 3 fees for NYSE ArcaBook 
to $18,000 per month.
    The current non-display fee for NYSE Arca Integrated Feed is $7,000 
per month for each of Category 1, Category 2 and Category 3. Category 3 
fees are currently capped at $21,000. The Exchange proposes to increase 
the non-display fee for NYSE Arca Integrated Feed to $10,500 per month 
for each of Category 1, Category 2 and Category 3. The Exchange 
proposes a corresponding increase in the cap for Category 3 fees for 
NYSE Arca Integrated Feed to $31,500 per month.
Professional User Fee
    The Exchange currently charges a flat monthly Professional User Fee 
of $40 per user for NYSE ArcaBook. The Exchange proposes to increase 
Professional User Fees for NYSE ArcaBook to $60 per month. The Exchange 
also proposes to establish tiered Professional User Fees for broker-
dealers that are subscribers of NYSE ArcaBook, as follows:
     $60 per month for each of 500 or fewer professional users 
reported for a broker-dealer subscriber, and
     The current rate of $40 per month for each professional 
user over 500 reported for a broker-dealer subscriber.
    The Exchange notes that it has not increased NYSE ArcaBook 
subscriber fees for display use since 2014.\7\ With this proposed 
change, all subscribers would pay more for some of their professional 
users than they do today. However, some subscribers that qualify for 
the proposed tiered rate, i.e., subscribers with more than 500 
professional users, would pay less under the proposed fee change than 
they would absent the proposed tiered fees.
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    \7\ See Securities Exchange Act Release No. 71483 (February 5, 
2014), 79 FR 8217 (February 11, 2014) (SR-NYSEArca-2014-12)
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    In addition, the Exchange proposes to cap the Professional User Fee 
for broker-dealers that are subscribers of NYSE ArcaBook at $75,000 per 
month.
    To illustrate the application of the proposed Professional User Fee 
increase and the Professional Use Fee cap, a broker-dealer with 2,500 
professional users who receive NYSE ArcaBook would currently pay 
$100,000 per month in Professional User Fees (2,500 users at $40 per 
month). If all 2,500 users are internal users, under the proposed fee 
change, this broker-dealer's Professional User Fees would increase to 
$110,000 per month (500 users at $60 per month plus 2,000 users at $40 
per month). However, the operation of the proposed cap would cause this 
broker-dealer's fees to drop to $75,000 per month. Thus, for this 
broker-dealer the effect of the proposed changes would be a decrease of 
$25,000 per month in Professional User Fees.
    Further, the Exchange currently charges a flat monthly Professional 
User Fee of $40 per month per user for NYSE Arca Integrated Feed. The 
Exchange proposes to increase the monthly Professional User Fees for 
NYSE Arca Integrated Feed to $60 per month per user. The proposed fee 
change would apply to all professional users of NYSE Arca Integrated 
Feed.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\8\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed fee changes are fair and 
reasonable in light of market and technology developments. The Exchange 
further believes that the proposed fee changes are also equitable and 
not unfairly discriminatory because they would apply to all data 
recipients that choose to subscribe to NYSE ArcaBook and NYSE Arca 
Integrated Feed.
Redistribution Fee
    The Exchange believes the proposed changes to the redistribution 
fee for NYSE ArcaBook and NYSE Arca Integrated Feed are equitable and 
reasonable because they compare favorably to redistribution fees that 
are currently charged by other exchanges.\10\ The Exchange believes 
that it is reasonable to charge redistribution fees

[[Page 55662]]

because vendors receive value from redistributing the data in their 
business products for their customers. The Exchange believes the 
proposed change to the redistribution fees also are not unfairly 
discriminatory because they would continue to be charged on an equal 
basis to any vendor that chooses to redistribute the data.
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    \10\ Cboe BZX U.S. Equities Exchange (``BZX Equities'') charges 
$5,000 per month for external distribution of the BZX Depth market 
data product. See https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/. In addition, the Nasdaq Stock Market (``Nasdaq'') 
charges $3,750 per month for external distribution of the NASDAQ 
TotalView market data product. See https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv.
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Non-Display Fee
    The Exchange believes that the proposed fee increases for each of 
Categories 1, 2, and 3 for NYSE ArcaBook and NYSE Arca Integrated Feed 
are equitable and reasonable. In establishing the non-display fees in 
April 2013, the Exchange set its fees at levels that were below or 
comparable to similar fees charged by certain of its competitors.\11\ 
The Exchange then modestly increased such fees in 2014 after gaining 
further experience with its non-display fee structure. The Exchange 
believes the proposed fees better reflect the significant value of the 
non-display data to data recipients, which purchase data on an entirely 
voluntary basis. Non-display data continues to be used by data 
recipients for a wide variety of profit-generating purposes, including 
proprietary and agency trading and smart order routing, as well as by 
data recipients that operate order matching and execution platforms 
that compete directly with the Exchange for order flow. Non-display 
data also continues to be used for a variety of non-trading purposes 
that indirectly support trading, such as risk management and 
compliance. While some of these non-trading uses do not directly 
generate profits, they can nonetheless substantially reduce the 
recipient's costs by automating such functions so that they can be 
carried out in a more efficient and accurate manner and reduce errors 
and labor costs, thereby benefitting end users. 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 number and range of these functions continue to 
grow through innovation and technology developments.\12\
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    \11\ See Securities Exchange Act Release No. 69315 (April 5, 
2013), 78 FR 21668 (April 11, 2013) (SR-NYSEArca-2013-37).
    \12\ See also Exchange Act Release No. 69157, March 18, 2013, 78 
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata feeds 
have become more valuable, as recipients now use them to perform a 
far larger array of non-display functions. Some firms even base 
their business models on the incorporation of data feeds into black 
boxes and application programming interfaces that apply trading 
algorithms to the data, but that do not require widespread data 
access by the firm's employees. As a result, these firms pay little 
for data usage beyond access fees, yet their data access and usage 
is critical to their businesses.'').
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    The Exchange believes the proposed fee increases are also 
reasonable in that they support the Exchange's efforts to regularly 
upgrade systems to support more modern data distribution formats and 
protocols as technology evolves. For example, the Exchange's extensive 
improvements to its trading platform and feed technology has 
significantly lowered the latency of its proprietary data products 
available over the XDP protocol, which transmits data faster and more 
efficiently than the Exchange's previous data distribution channel. For 
example, the average latency of NYSE ArcaBook and NYSE Arca Integrated 
Feed is approximately one-third of what it was in 2014.
    The Exchange believes the proposed fees are competitive with 
offerings by other exchanges, which structure and set their fees 
comparably. For example, Nasdaq charges professional subscribers 
monthly fees for non-display usage based upon direct access to NASDAQ 
level 2, NASDAQ TotalView, or NASDAQ OpenView, which range from $375 
per month for customers with one to 39 subscribers to $75,000 per month 
for customers with 250 or more subscribers.\13\ In addition, Nasdaq 
PHLX (``PHLX'') offers an alternative $10,000 per month ``Non-Display 
Enterprise License'' fee that permits distribution to an unlimited 
number of internal non-display subscribers without incurring additional 
fees for each internal subscriber.\14\ The Non-Display Enterprise 
License covers non-display subscriber fees for all PHLX proprietary 
direct data feed products and is in addition to any other associated 
distributor fees for PHLX proprietary direct data fee products.
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    \13\ See Nasdaq Rule 7023(b)(4).
    \14\ See Section IX of the PHLX Pricing Schedule.
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Professional User Fee
    The Exchange believes that the proposed subscriber fees are 
reasonable, equitable and not unfairly discriminatory because the fee 
structure of differentiated professional and non-professional fees has 
long been used by the Exchange for other products, by other exchanges 
for their products, and by the CTA and CQ Plans in order to make data 
more broadly available.
    The Exchange believes that the tiered structure with decreasing 
fees as the number of professional subscribers increase is equitable 
and not unfairly discriminatory because it is similar to the tiered 
structure used for professional subscribers by the CTA and CQ for 
Network A data \15\ Broker-dealers that purchase NYSE ArcaBook 
typically have more than 500 professional users and would therefore be 
impacted by the change in fees for up to the first 500 such users. The 
fees for such broker-dealers for users above that level will remain at 
the current level. Additionally, as proposed, professional user fees 
will be based on a tiered fee structure that depends on the number of 
users, with a reduced per user rate for those professional users that 
exceed 500. Subscribers would pay $60 per user per month for 500 and 
fewer users, and would pay the current rate of $40 per user per month 
for those users that exceed 500. This tiered structure is an equitable 
allocation of reasonable dues, fees and other charges because the 
proposed fees are commensurate with the value of the data feed.
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    \15\ Those monthly fees are $50 for 1-2 devices, $30 for 3-999 
devices, $25 for 1,000-9,999 devices, and $20 for 10,000 or more 
devices. See CTA Network A Rate Schedule, available at http://www.nyxdata.com/nysedata/default.aspx?tabid=518.
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    The Exchange further believes the proposed monthly Professional 
User Fee of $60 for NYSE ArcaBook and NYSE Arca Integrated Feed is 
reasonable because the proposed fee is comparable to the $60 per month 
fee currently charged by the New York Stock Exchange LLC (``NYSE'') to 
professional users of the NYSE OpenBook market data product,\16\ and is 
lower than the $76 per month fee currently charged by Nasdaq to 
professional users of the Nasdaq TotalView market data product.\17\ And 
as noted above, the Exchange has not raised the subscriber fees for 
display use of NYSE ArcaBook since 2014 and for NYSE Arca Integrated 
Feed since 2013 when fees for NYSE Arca Integrated Feed were first 
adopted. Since then, the Exchange has continually enhanced its market 
data products through technology upgrades to meet industry and customer 
demands. The Exchange believes that the proposed fees are fair and 
reasonable in light of the Exchange's ongoing effort to improve the 
delivery technology for market data.
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    \16\ See NYSE Proprietary Market Data Fees at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf.
    \17\ See Nasdaq Price List--U.S. Equities at https://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv.
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    The Exchange believes that it is reasonable to establish the 
Professional Fee Cap. The purpose of the Professional User Fee is to 
charge for each use of NYSE ArcaBook data feed. The Exchange believes 
it is appropriate to charge user fees for employees that work on 
different trading desks or who

[[Page 55663]]

provide advisory services. These internal uses are intended to provide 
value to customers of the broker-dealer, whether in the execution of 
trades, or with designing an investment portfolio, and are therefore an 
integral part of a broker-dealer's business model. While the Exchange 
anticipates that only the largest broker-dealers would avail themselves 
to the proposed fee cap, in the Exchange's view, limiting the fee 
exposure of a subset of its customers, i.e., large broker-dealers, does 
not unreasonably discriminate against other customers under Section 
603(a)(2) of Regulation NMS. Additionally, the Exchange notes that fee 
caps have long been accepted as an economically efficient form of 
volume discount for the heaviest users of market data and would allow 
for a broad dissemination of the Exchange's market data product.\18\ 
The concept of adopting a fee cap applicable to broker-dealer 
subscribers is not novel. The Exchange currently has a Non-Professional 
Fee Cap applicable to Broker-Dealers only that subscribe to NYSE 
ArcaBook.\19\
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    \18\ See e.g., Nasdaq Rule 7023(c), Enterprise License Fees at 
http://nasdaq.cchwallstreet.com/NASDAQTools/PlatformViewer.asp?selectednode=chp_1_1_4_6&manual=%2Fnasdaq%2Fmain%2Fnasdaq-equityrules%2F.
    \19\ See NYSE Arca Equities Proprietary Market Data Fees at 
https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Equities_Fee_Schedule.pdf. See also Securities Exchange 
Act Release Nos. 59039 (December 2, 2008), 73 FR 74770 (December 9, 
2008) (SR-NYSEArca-2006-21); 72560 (July 8, 2014), 79 FR 40801 (July 
14, 2014) (SR-NYSEArca-2014-72); and 76903 (January 14, 2016), 81 FR 
3547 (January 21, 2016) (SR-NYSEArca-2016-01).
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    The Exchange proposes these higher fees in light of the fact that 
since 2014, the value of NYSE ArcaBook and NYSE Arca Integrated Feed 
data feeds has increased significantly while fees for these products 
have not increased. The Exchange notes that in that time, the Exchange 
has continually upgraded its technology to keep pace with changes in 
the industry and evolving customer needs. Further, the standardization 
of the market data specifications recently implemented by the Exchange 
may provide value to subscribers that utilize data feeds from more than 
one NYSE market. This standardization enables greatly increased 
efficiency for firms by allowing them to leverage their development 
work on one market across multiple markets and reduces the overall 
impact of the price increases.
    The Exchange notes that NYSE ArcaBook and NYSE Arca Integrated Feed 
are entirely optional. Firms are not required to purchase NYSE ArcaBook 
and NYSE Arca Integrated Feed. Firms that do purchase NYSE ArcaBook and 
NYSE Arca Integrated Feed do so for the primary goals of using the data 
feeds to increase profits, 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 ArcaBook and 
NYSE Arca Integrated Feed or any other similar products are 
attractively priced or not.
    Firms that do not wish to purchase NYSE ArcaBook and NYSE Arca 
Integrated Feed at the new prices have a variety of alternative market 
data products from which to choose,\20\ or if NYSE ArcaBook and NYSE 
Arca Integrated Feed does not provide sufficient value to firms as 
offered based on the uses those firms have or planned to make of it, 
such firms may simply choose to conduct their business operations in 
ways that do not use NYSE ArcaBook and NYSE Arca Integrated Feed or use 
them at different levels or in different configurations. The Exchange 
notes that broker-dealers are not required to purchase proprietary 
market data to comply with their best execution obligations.\21\
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    \20\ See Nasdaq Rule 7023 (Nasdaq TotalView) and BZX Equities 
Rule 11.22(a) and (c) (TCP Depth and Multicast Depth).
    \21\ See FINRA Regulatory Notice 15-46, ``Best Execution,'' 
November 2015.
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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.' '' \22\
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    \22\ 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 proprietary market data would be so complicated 
that it could not be done practically or offer any significant 
benefits.\23\
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    \23\ 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 the reasons stated above, the Exchange believes that the 
proposed fees are fair and equitable, and not unreasonably 
discriminatory. As described above, the proposed fees are based on 
pricing conventions and distinctions that exist in the Exchange's 
current fee schedule, and the fee schedules of other exchanges. These 
distinctions are each based on principles of fairness and equity that 
have helped for many years to maintain fair, equitable, and not 
unreasonably discriminatory fees, and that apply with equal or greater 
force to the current proposal. Thus, although the proposal results in a 
fee increase, these increases are based on careful analysis of 
empirical data and the application of

[[Page 55664]]

time-tested pricing principles accepted and applied by the Commission 
for many years.
    As described in greater detail below, if the market deems the NYSE 
ArcaBook and NYSE Integrated Feeds not to provide fair value at the 
prices to be charged, firms can discontinue or change the ways they use 
these products because the products are optional to all parties. The 
Exchange continually reviews pricing policies aimed at increasing 
fairness and equitable allocation of fees among subscribers. NYSE Arca 
believes that periodically it must adjust the subscriber fees to 
reflect market forces and the Exchange believes it is an appropriate 
time to adjust the fees that are the subject of this proposed rule 
change to more accurately reflect the investments made to enhance these 
products through technology upgrades.
    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 competitive and 
inherently contestable because there is fierce competition for the 
inputs necessary for the creation of proprietary data and strict 
pricing discipline for the proprietary products themselves. Numerous 
exchanges compete with one another for listings and order flow and 
sales of market data itself, providing ample opportunities for 
entrepreneurs who wish to compete in any or all of those areas, 
including producing and distributing their own market data. Proprietary 
data products are produced and distributed by each individual exchange, 
as well as other entities, in a vigorously competitive market. Indeed, 
the U.S. Department of Justice (``DOJ'') (the primary antitrust 
regulator) has expressly acknowledged the aggressive actual competition 
among exchanges, including for the sale of proprietary market data. In 
2011, the DOJ stated that exchanges ``compete head to head to offer 
real-time equity data products. These data products include the best 
bid and offer of every exchange and information on each equity trade, 
including the last sale.'' \24\
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    \24\ 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 (DC 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 impose 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.'' \25\ More recently, former SEC Chair Mary Jo White reported 
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.\26\ And as the Commission's own Chief Administrative Law Judge 
found after considering extensive fact and expert testimony and 
documentary evidence on the subject, ``there is fierce competition for 
trading services (or `order flow')'' among exchanges, and ``the record 
evidence shows that competition plays a significant role in restraining 
exchange pricing of depth-of-book products.'' In the Matter of the 
Application of Securities Industry And Financial Markets Association 
For Review of Actions Taken By Self-Regulatory Organizations, Initial 
Decision Release No. 1015, Administrative Proceeding File No. 3-15350 
(June 1, 2016), at pp. 8 and 33.
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    \25\ 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.
    \26\ 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 competing 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 in light of 
the diminished content and data products offered by competing venues 
may become 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 NYSE ArcaBook and NYSE Arca 
Integrated Feed available unless their customers request it, and 
customers will not elect to pay the proposed fees unless NYSE ArcaBook 
and NYSE Arca Integrated Feed 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

[[Page 55665]]

of joint products with joint costs.\27\ 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.
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    \27\ See generally Pricing of Market Data Services, An Economic 
Analysis at vi (``Given the general structure of electronic order 
books and electronic order matching, it is not possible to provide 
transaction services without generating market data, and it is not 
possible to generate trade transaction--or market depth--data 
without also supplying a trade execution service. In economic terms, 
trade execution and market data are joint products.'') (Oxera 2014).
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    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 September 2015, more than 80% of the 
transaction volume on each of the Exchange and the Exchange's 
affiliates, NYSE and NYSE American LLC (``NYSE American''), 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 supra-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.\28\ The Exchange agrees with and adopts those discussions 
and the arguments therein. The Exchange also notes that the economics 
literature confirms that there is no way to allocate common costs 
between joint products that would shed any light on competitive or 
efficient pricing.\29\
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    \28\ 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).
    \29\ 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 alternative trading 
systems (``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.
    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, Cboe Global Markets f/k/a Bats Global Markets 
(``Bats'') and Direct Edge, which previously operated as ATSs and 
obtained exchange status in 2008 and 2010, respectively, provided 
certain market data at no charge on their Web sites in order to attract 
more order flow, and used revenue rebates from resulting additional 
executions to maintain low execution charges for their users.\30\ More 
recently, Investors Exchange (``IEX''), which began to operate as an 
ATS in 2013 and later obtained exchange status in 2016, currently 
provides market data at no charge in order to attract order flow and 
build market share. 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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    \30\ 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.

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[[Page 55666]]

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, 
including but not limited to the Exchange, NYSE, NYSE American, Nasdaq, 
and Bats.
    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 ArcaBook and NYSE Arca 
Integrated Feed, competitors offer close substitute products.\31\ 
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.
---------------------------------------------------------------------------

    \31\ See supra note 20.
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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 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. And 
more recently, IEX, which started operating as an ATS in 2013 has 
accumulated more than 2% market share since it obtained exchange status 
in 2016.
    In determining the proposed changes to the fees for NYSE ArcaBook 
and NYSE Arca Integrated Feed, the Exchange considered the 
competitiveness of the market for proprietary data and all of the 
implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish fair, reasonable, and not unreasonably 
discriminatory fees and an equitable allocation of fees among all 
users. The existence of numerous alternatives to the Exchange's 
products, including proprietary data from other sources, ensures that 
the Exchange cannot set unreasonable fees, or fees that are 
unreasonably discriminatory, when vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if the attendant fees are not justified by the returns 
that any particular vendor or data recipient would achieve through the 
purchase.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \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

     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-NYSEARCA-2017-130 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2017-130. 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. 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-NYSEARCA-2017-130 and should 
be submitted on or before December 13, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-25231 Filed 11-21-17; 8:45 am]
 BILLING CODE 8011-01-P