Document ID: SEC-2010-0896-0001
Agency: sec
Document Type: Notice
Title: Order Approving Fifteenth Substantive Amendment to Second Restatement, etc.: Consolidated Tape Association
Posted Date: 2010-06-18T04:00Z

[Federal Register: June 18, 2010 (Volume 75, Number 117)]
[Notices]               
[Page 34795-34796]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18jn10-104]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62289; File No. SR-CTA/CQ-2009-03]

 
Consolidated Tape Association; Order Approving the Fifteenth 
Substantive Amendment to the Second Restatement of the Consolidated 
Tape Association Plan and Eleventh Substantive Amendment to the 
Restated Consolidated Quotation Plan

June 14, 2010.

I. Introduction

    On November 2, 2009, the Consolidated Tape Association (``CTA'') 
Plan and Consolidated Quotation (``CQ'') Plan participants 
(``Participants'') \1\ filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') pursuant to Section 11A of the 
Securities Exchange Act of 1934 (``Act''),\2\ and Rule 608 
thereunder,\3\ a proposal \4\ to amend the Second Restatement of the 
CTA Plan and Restated CQ Plan (collectively, the ``Plans'').\5\ The 
proposal represents the fifteenth substantive amendment to the CTA Plan 
(``Fifteenth Amendment to the CTA Plan'') and the eleventh substantive 
amendment to the CQ Plan (``Eleventh Amendment to the CQ Plan''), and 
reflects changes unanimously adopted by the Participants. The Fifteenth 
Amendment to the CTA Plan and the Eleventh Amendment to the CQ Plan 
(``Amendments'') would amend the Plans to provide that the Participants 
pay the Network B Administrator a fixed annual fee in exchange for its 
performance of Network B administrator functions under the Plans. In 
addition, the Amendments seek to accommodate recent changes in names 
and addresses of certain Participants. The proposed Amendments were 
published for comment in the Federal Register on February 8, 2010.\6\ 
No comment letters were received in response to the Notice. This order 
approves the proposed amendments to the Plans.
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    \1\ Each participant executed the proposed amendment. The 
Participants are: BATS Exchange, Inc.; Chicago Board Options 
Exchange, Incorporated; Chicago Stock Exchange, Inc.; Financial 
Industry Regulatory Authority, Inc.; International Securities 
Exchange LLC; NASDAQ OMX BX, Inc.; NASDAQ OMX PHLX, Inc.; The NASDAQ 
Stock Market LLC; National Stock Exchange, Inc.; New York Stock 
Exchange LLC; NYSE Amex, Inc.; and NYSE Arca, Inc.
    \2\ 15 U.S.C. 78k-1.
    \3\ 17 CFR 242.608.
    \4\ On January 13, 2010, the CTA filed a revised transmittal 
letter indicating, among other technical changes, that the 
Participants also proposed to make changes in the names and 
addresses of certain Participants (``Transmittal Letter'').
    \5\ See Securities Exchange Act Release Nos. 10787 (May 10, 
1974), 39 FR 17799 (declaring the CTA Plan effective); 15009 (July 
28, 1978), 43 FR 34851 (August 7, 1978) (temporarily authorizing the 
CQ Plan); and 16518 (January 22, 1980), 45 FR 6521 (January 28, 
1980) (permanently authorizing the CQ Plan). The most recent 
restatement of both Plans was in 1995. The CTA Plan, pursuant to 
which markets collect and disseminate last sale price information 
for non-NASDAQ listed securities, is a ``transaction reporting 
plan'' under Rule 601 under the Act, 17 CFR 242.601, and a 
``national market system plan'' under Rule 608 under the Act, 17 CFR 
242.608. The CQ Plan, pursuant to which markets collect and 
disseminate bid/ask quotation information for listed securities, is 
a ``national market system plan'' under Rule 608 under the Act, 17 
CFR 242.608.
    \6\ See Securities Exchange Act Release No. 61457 (February 1, 
2010), 75 FR 6229 (``Notice'').
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II. Description of the Proposal

    Section XII (``Financial Matters'') of the CTA Plan and Section IX 
(``Financial Matters'') of the CQ Plan each provide that a network's 
Operating Expenses are to be deducted from the network's Gross Income 
to determine the amounts that the network's administrator distributes 
to the Participants. Section XII(c)(i) (``Determination of Operating 
Expenses'') of the CTA Plan currently provides that a CTA network's 
Operating Expenses include all costs and expenses ``associated with, 
relating to, or resulting from, the generation, consolidation or 
dissemination of the CTA's network's last sale price information.'' 
Likewise, Section IX(c)(i) (``Determination of Operating Expenses'') of 
the CQ Plan currently provides that a network's Operating Expenses 
include all costs and expenses that the network's administrator incurs 
in ``collecting, processing and making available that CQ network's 
quotation information.'' The Network B Administrator stated that 
accounting for operating costs is administratively burdensome, 
especially the allocation of organization overhead costs to the Network 
B Administrator function. As a result, the Network B Participants 
proposed to pay the Network B Administrator a fixed fee in exchange for 
the services the Network B administrator performs on behalf of the 
Plans. Therefore, the Participants proposed to replace their payment to 
the Network B Administrator of Operating Costs with their payment to 
the Network B Administrator of a fixed fee.\7\
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    \7\ The Participants noted that the Network A Administrator 
similarly receives a fixed fee for its performance of administrative 
functions under the CTA and CQ Plans and the Participants understand 
that Nasdaq receives a fixed fee for its performance of 
administrative functions under the ``Joint Self-Regulatory 
Organization Plan Governing the Collection, Consolidation and 
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading 
Privileges Basis'' (``Nasdaq UTP Plan'').
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    For calendar year 2009, the Network B Participants proposed to set 
the fixed fee at $3,000,000. The Participants concluded that this 
amount would compensate the Network B Administrator for its Network B 
Administrative services during 2009 under both the CTA Plan and the CQ 
Plan. For each subsequent calendar year, the Network B Participants 
proposed to increase (but not decrease) the amount of the payment by 
the percentage increase (if any) in the annual cost-of-living 
adjustment that the U.S. Social Security Administration applies to 
Supplemental Security Income for the preceding calendar year, subject 
to a maximum annual increase of five percent.\8\ The Participants' 
payment of the fixed fee will compensate the Network B Administrator 
for all ordinary and customary operating expenses that it incurs in 
performing the network administrator functions under the CTA and CQ 
Plans. However, it does not compensate the Network B Administrator for 
extraordinary expenses that the Network B Administrator may incur on 
behalf of the Network B Participants. Extraordinary expenses include 
such things as that portion of legal and audit expenses and marketing 
and consulting

[[Page 34796]]

fees that are outside of the ordinary functions that the Network B 
Administrator performs.\9\
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    \8\ See Notice, supra note 6 at 6230 for a more detailed 
description of how the fee will be assessed.
    \9\ The Commission notes that the Transmittal Letter 
accompanying the proposed Amendments included language not voted on 
by the Participants and thus of no legal consequence: ``Network B 
Administrator will not incur any extraordinary expense on behalf of 
the Network B Participants unless the Network B Participants 
determine by majority vote to approve the incurrence of that 
extraordinary expense.''
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    In addition, the Participants proposed to amend the Plans to 
reflect changes in the corporate names and street addresses of NASDAQ 
OMX BX, Inc. (formerly Boston Stock Exchange, Inc.), NASDAQ OMX PHLX, 
Inc. (formerly Philadelphia Stock Exchange, Inc.) and NYSE Amex, Inc. 
(formerly American Stock Exchange LLC). They also proposed to conform 
the language signifying the status of BATS Exchange, Inc. as a national 
securities exchange to the language used for the other Plan 
Participants.

III. Discussion

    After careful review, the Commission finds that the Amendments to 
the Plans are consistent with the requirements of the Act and the rules 
and regulations thereunder,\10\ and, in particular, Section 11A(a)(1) 
of the Act \11\ and Rule 608 thereunder \12\ in that they are necessary 
or appropriate in the public interest, for the protection of investors 
and the maintenance of fair and orderly markets, to remove impediments 
to, and perfect the mechanisms of, a national market system. The 
Commission believes that paying a flat fee to the Network B 
Administrator should eliminate the need for the Network B Administrator 
to account for operating costs and thus make the administration of the 
Plans more efficient.\13\ Additionally, the Commission notes that every 
two years the Network B Administrator is required to provide a report 
detailing any significant changes to the administrative expenses during 
the preceding two years to enable the Participants to review and 
determine by majority vote whether to continue the Annual Fixed Payment 
at its then current level.
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    \10\ The Commission has considered the proposed amendments' 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78k-1(a)(1).
    \12\ 17 CFR 240.608.
    \13\ The Commission notes that the Network A Administrator under 
the CTA Plan and CQ Plan and Nasdaq under the Nasdaq UTP Plan 
similarly receive a fixed fee for the performance of administrative 
functions.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act,\14\ 
and the rules thereunder, that the proposed amendments to the CTA and 
CQ Plans are approved.
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    \14\ 15 U.S.C. 78k-1.
    \15\ 17 CFR 200.30-3(a)(27).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-14740 Filed 6-17-10; 8:45 am]
BILLING CODE 8010-01-P