Document ID: SEC-2010-0705-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange, LLC
Posted Date: 2010-05-12T04:00Z

[Federal Register: May 12, 2010 (Volume 75, Number 91)]
[Notices]               
[Page 26825-26827]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12my10-125]                         

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62038; File No. SR-NYSE-2010-22]

 
Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Order Approving Proposed Rule Change To Make Permanent a Unit-of-Count 
Metric Alternative for NYSE OpenBook Products

May 5, 2010.

I. Introduction

    On March 11, 2010, the New York Stock Exchange, LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities

[[Page 26826]]

and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to make the unit-of-count metric 
a permanent alternative to the traditional device fee. The proposed 
rule change was published for comment in the Federal Register on April 
1, 2010.\3\ The Commission received one comment letter on the 
proposal.\4\ This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 61779 (March 25, 
2010), 75 FR 16537 (``Notice'').
    \4\ Letter to Elizabeth M. Murphy, Secretary, Commission, from 
Melissa MacGregor, Managing Director and Associate General Counsel, 
SIFMA, dated May 5, 2010.
---------------------------------------------------------------------------

II. Description of the Proposal

A. Unit-of-Count

    The Exchange proposes to permanently implement the ``Subscriber 
Entitlement'' unit-of-count methodology in accordance with the terms 
set forth in the Pilot Program.\5\ Under the Pilot Program, instead of 
defining the Vendor-subscriber relationship based on how the Data Feed 
Recipient or subscriber receives data (i.e., through controlled 
displays or through data feeds), the Exchange proposed to adopt a more 
objective billing criteria. The following basic principles underlie 
this proposal.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 59544 (March 9, 
2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131) (approving 
the one-year pilot program that revises the unit-of-count 
methodology to determine the device fees payable by data recipients 
(``Pilot Program'')). The Commission subsequently approved an 
extension of the Pilot Program. See Securities Exchange Act Release 
No. 61780 (March 25, 2010), 75 FR 16535 (April 1, 2010) (SR-NYSE-
2010-21).
---------------------------------------------------------------------------

    i. Vendors.
     ``Vendors'' are market data vendors, broker-dealers, 
private network providers and other entities that control Subscribers' 
access to data through Subscriber Entitlement Controls.
    ii. Subscribers.
     ``Subscribers'' are unique individual persons or devices 
to which a Vendor provides data. Any individual or device that receives 
data from a Vendor is a Subscriber, whether the individual or device 
works for or belongs to the Vendor, or works for or belongs to an 
entity other than the Vendor.
     Only a Vendor may control Subscriber access to data.
     Subscribers may not redistribute data in any manner.
    iii. Subscriber Entitlements.
     A Subscriber Entitlement is a Vendor's permitting a 
Subscriber to receive access to data through an Exchange-approved 
Subscriber Entitlement Control.
     A Vendor may not provide data access to a Subscriber 
except through a unique Subscriber Entitlement.
     The Exchange will require each Vendor to provide a unique 
Subscriber Entitlement to each unique Subscriber.
     At prescribed intervals (normally monthly), the Exchange 
will require each Vendor to report each unique Subscriber Entitlement.
    iv. Subscriber Entitlement Controls.
     A Subscriber Entitlement Control is the Vendor's process 
of permitting Subscribers' access to data.
     Prior to using any Subscriber Entitlement Control or 
changing a previously approved Subscriber Entitlement Control, a Vendor 
must provide the Exchange with a demonstration and a detailed written 
description of the control or change and the Exchange must have 
approved it in writing.
     The Exchange will approve a Subscriber Entitlement Control 
if it allows only authorized, unique end-users or devices to access 
data or monitors access to data by each unique end-user or device.
     Vendors must design Subscriber Entitlement Controls to 
produce an audit report and make each audit report available to the 
Exchange upon request. The audit report must identify:
    A. each entitlement update to the Subscriber Entitlement Control;
    B. the status of the Subscriber Entitlement Control; and
    C. any other changes to the Subscriber Entitlement Control over a 
given period.
     Only the Vendor may have access to Subscriber Entitlement 
Controls.
    The proposal does not restrict how Vendors use NYSE OpenBook data 
in their display services. In fact, the Exchange believes that proposal 
could encourage Vendors to create and promote innovative uses of NYSE 
OpenBook information. For instance, a Vendor may use NYSE OpenBook data 
to create derived information displays, such as displays that aggregate 
NYSE OpenBook data with data from other markets.\6\ In addition, the 
proposal's unit-of-count concepts would apply equally to all data 
recipients and users.
---------------------------------------------------------------------------

    \6\ In the case of derived displays, the Vendor is required to: 
(1) Pay the Exchange's device fees (described below); (2) include 
derived displays in its reports of NYSE OpenBook usage; and (3) use 
reasonable efforts to assure that any person viewing a display of 
derived data understands what the display represents and the manner 
in which it was derived.
---------------------------------------------------------------------------

    Under the proposed rule change, the Exchange would require Vendors 
to count every Subscriber Entitlement, whether it be an individual 
person or a device. Thus, the Vendor's count would include every person 
and device that accesses the data regardless of the purpose for which 
the individual or device uses the data. The proposal is designed to 
subject the count to a more objective process and simplify the 
reporting obligation for Vendors by eliminating current exceptions to 
the device-reporting obligation. For instance, the Exchange noted that 
Vendors were not previously required to report certain programmers and 
other individuals who receive access to data for certain specific, non-
trading purposes but that these exceptions required the Exchange to 
monitor the manner end-users consume data, which adds cost for both the 
Exchange and customers.
    To simplify the process, the Exchange proposes that Vendors would 
be required to report all entitlements in accordance with the 
following:
    i. In connection with a Vendor's external distribution of NYSE 
OpenBook data, the Vendor should count as one Subscriber Entitlement 
each unique Subscriber that the Vendor has entitled to have access to 
the Exchange's market data. However, where a device is dedicated 
specifically to a single individual, the Vendor should count only the 
individual and need not count the device.
    ii. In connection with a Vendor's internal distribution of NYSE 
OpenBook data, the Vendor should count as one Subscriber Entitlement 
each unique individual (but not devices) that the Vendor has entitled 
to have access to the Exchange's market data.
    iii. The Vendor should identify and report each unique Subscriber. 
If a Subscriber uses the same unique Subscriber Entitlement to gain 
access to multiple market data services, the Vendor should count that 
as one Subscriber Entitlement. However, if a unique Subscriber uses 
multiple Subscriber Entitlements to gain access to one or more market 
data services (e.g., a single Subscriber has multiple passwords and 
user identifications), the Vendor should report all of those Subscriber 
Entitlements.
    iv. Vendors should report each unique individual person who 
receives access through multiple devices as one Subscriber Entitlement 
so long as each device is dedicated specifically to that individual.
    v. The Vendor should include in the count as one Subscriber 
Entitlement devices serving no entitled individuals. However, if the 
Vendor entitles one or more individuals to use the same

[[Page 26827]]

device, the Vendor should include only the entitled individuals, and 
not the device, in the count.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\7\ In particular, it is consistent with Section 6(b)(4) of 
the Act,\8\ which requires that the rules of a national securities 
exchange provide for the equitable allocation of reasonable dues, fees, 
and other charges among its members and issuers and other parties using 
its facilities, and Section 6(b)(5) of the Act,\9\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest, and not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \7\ In approving this proposed rule change, the Commission notes 
that it has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \8\ 15 U.S.C. 78f(b)(4).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also finds that the proposed rule change is 
consistent with the provisions of Section 6(b)(8) of the Act,\10\ which 
requires that the rules of an exchange not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. Finally, the Commission finds that the proposed rule change 
is consistent with Rule 603(a) of Regulation NMS,\11\ adopted under 
Section 11A(c)(1) of the Act, which requires an exclusive processor 
that distributes information with respect to quotations for or 
transactions in an NMS stock to do so on terms that are fair and 
reasonable and that are not unreasonably discriminatory.\12\
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b)(8).
    \11\ 17 CFR 242.603(a).
    \12\ NYSE is an exclusive processor of NYSE depth-of-book data 
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which 
defines an exclusive processor as, among other things, an exchange 
that distributes information with respect to quotations or 
transactions on an exclusive basis on its own behalf.
---------------------------------------------------------------------------

    The Exchange proposes to permanently implement the Subscriber 
Entitlement unit-of-count methodology in accordance with the terms set 
forth in the Pilot Program. According to the Exchange, the proposed 
rule change would simplify the way it charges for NYSE OpenBook by 
changing the methodology for the unit-of-count, and this change should 
reduce the fees and administrative costs related to the receipt and 
distribution of NYSE OpenBook packages. The Exchange has indicated that 
its experience with the Pilot Program has been successful. The 
Commission has reviewed the proposal using the approach set forth in 
the NYSE Arca Order for non-core market data fees.\13\ The Commission 
has previously found that NYSE was subject to significant competitive 
forces in setting fees for its depth-of-book order data in the proposed 
rule changes that established and extended the Pilot Program's revised 
unit-of-count methodology.\14\ There are a variety of alternative 
sources of information that impose significant competitive pressures on 
the NYSE in setting the terms for distributing its depth-of-book order 
data. The Commission believes that the availability of those 
alternatives, as well as the NYSE's compelling need to attract order 
flow, imposed significant competitive pressure on the NYSE to act 
equitably, fairly, and reasonably in setting the terms of its proposal.
---------------------------------------------------------------------------

    \13\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order''). In the NYSE Arca Order, the Commission describes in 
great detail the competitive factors that apply to non-core market 
data products. The Commission hereby incorporates by reference the 
data and analysis from the NYSE Arca Order into this order.
    \14\ See note 5, supra.
---------------------------------------------------------------------------

    Because the NYSE was subject to significant competitive forces in 
setting the terms of the proposal, the Commission will approve the 
proposal in the absence of a substantial countervailing basis to find 
that its terms nevertheless fail to meet an applicable requirement of 
the Act or the rules thereunder. An analysis of the proposal does not 
provide such a basis.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-NYSE-2010-22) be, and hereby 
is, approved.
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-11258 Filed 5-11-10; 8:45 am]
BILLING CODE 8010-01-P