Document ID: SEC-2013-1147-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: International Securities Exchange, LLC
Posted Date: 2013-06-26T04:00Z

[Federal Register Volume 78, Number 123 (Wednesday, June 26, 2013)]
[Notices]
[Pages 38424-38429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15226]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69806; File No. SR-ISE-2013-39]

Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule 
Change To Establish a Managed Data Access Service, on a Pilot Basis, 
for the Sale of a Number of Market Data Products Currently Offered by 
the Exchange

June 20, 2013.
    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 June 6, 2013, the International Securities Exchange, LLC (the 
``Exchange'' or the ``ISE'') filed with the Securities and Exchange 
Commission (``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 ISE proposes to amend its Schedule of Fees to establish a 
pricing structure, on a pilot basis, called Managed Data Access Service 
for the sale of a number of real-time market data products currently 
offered by the Exchange. The text of the proposed rule change is 
available on the Exchange's Web site (http://www.ise.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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

[[Page 38425]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    ISE proposes to amend its Schedule of Fees to establish a pricing 
structure for a new data distribution model called Managed Data Access 
Service for the sale of a number of real-time market data products 
currently offered by the Exchange. With this proposed rule change, the 
Exchange proposes to establish Managed Data Access Service for the 
following real-time market data feeds, each of which is currently 
offered by the Exchange on a subscription basis: The ISE Real-time 
Depth of Market Raw Data Feed,\3\ the ISE Order Feed,\4\ the ISE Top 
Quote Feed and the ISE Spread Feed \5\ (the ``ISE Data Feeds'').
---------------------------------------------------------------------------

    \3\ See Securities Exchange Act Release Nos. 59949 (May 20, 
2009), 74 FR 25593 (May 28, 2009) (SR-ISE-2007-97); and 63324 
(November 17, 2010), 75 FR 71475 (November 23, 2010) (SR-ISE-2010-
103).
    \4\ See Securities Exchange Act Release No. 62399 (June 28, 
2010), 75 FR 38587 (July 2, 2010) (SR-ISE-2010-34).
    \5\ See Securities Exchange Act Release No. 65002 (August 1, 
2011), 76 FR 47630 (August 5, 2011) (SR-ISE-2011-50).
---------------------------------------------------------------------------

    With this proposed rule change, the Exchange seeks to further the 
distribution of the ISE Data Feeds.\6\ The proposed new pricing and 
administrative option is in response to industry demand, as well as due 
to improvements in the contractual administration and the technology 
used to distribute market data. The Exchange already offers the ISE 
Data Feeds on a subscription basis and has determined to implement 
Managed Data Access Service for the ISE Data Feeds on a pilot basis, 
until November 30, 2013, to gauge the level of interest in this new 
pricing and distribution model. The Exchange will submit a proposed 
rule change at the end of the pilot period to either continue this new 
offering or to terminate it.
---------------------------------------------------------------------------

    \6\ The Exchange notes that a managed data solution is not a 
novel distribution model. ISE currently offers Managed Data Access 
Service for the ISE Implied Volatility and Greeks Feed, a real-time 
market data offering. See Securities Exchange Act Release No. 65678 
(November 3, 2011), 76 FR 70178 (November 10, 2011) (SR-ISE-2011-
67). A number of other exchanges have adopted Managed Data Access 
Service to distribute their proprietary market data. See e.g. 
Securities Exchange Act Release Nos. 63276 (November 8, 2010), 75 FR 
69717 (November 15, 2010) (SR-NASDAQ-2010-138); and 69182 (March 19, 
2013), 78 FR 18378 (March 26, 2013) (SR-PHLX-2013-28).
---------------------------------------------------------------------------

    Managed Data Access Service provides an alternative delivery option 
for the ISE Data Feeds. Managed Data Access Service is any 
retransmission of the ISE Data Feeds by a Managed Data Access 
Distributor \7\ where the Managed Data Access Distributor manages and 
monitors, but does not necessarily control, the information. Managed 
Data Access Service is a pricing and administrative option that will 
assess fees to Managed Data Access Distributors. Under this 
distribution model, Managed Data Access Distributors are required to 
monitor the delivery of the data in the Managed Data Access Service to 
their clients, the Managed Data Access Recipients.\8\ The Managed Data 
Access Distributor must also agree to reformat, redisplay and/or alter 
the ISE Data Feeds prior to retransmission without affecting the 
integrity of the ISE Data Feeds and without rendering any of the feeds 
inaccurate, unfair, uninformative, fictitious, misleading, or 
discriminatory.
---------------------------------------------------------------------------

    \7\ A Managed Data Access Distributor redistributes the ISE Data 
Feeds that permits [sic] access to the information in the ISE Data 
Feeds through a controlled device. A Managed Data Access Distributor 
can also redistribute a data feed solution to specific IP addresses, 
including an Application Programming Interface (API) or similar 
automated delivery solutions, with only limited entitlement controls 
(e.g., usernames and/or passwords) to a recipient of the 
information.
    \8\ A Managed Data Access Recipient is a subscriber to the 
Managed Data Access Distributor who receives a reformatted data feed 
in a controlled device or at a specific IP address.
---------------------------------------------------------------------------

    In the past, retransmissions were considered to be an uncontrolled 
data product if the Managed Data Access Distributor did not control 
both the entitlements and the display of the information. Over the last 
several years, Managed Data Access Distributors have improved the 
technical delivery and monitoring capabilities of data therefore 
Managed Data Access Service is a response to an industry need to 
administer new types of technical deliveries and pricing options.
    ISE notes that some Managed Data Access Distributors believe that 
Managed Data Access Service is a better controlled data feed product 
and as such should not be subject to the same rates as a data feed. 
However, Managed Data Access Distributors may only have contractual 
control over the data and may not be able to verify how Managed Data 
Access Recipients are actually using the data, at least without 
involvement of the Managed Data Access Recipient. The Exchange's 
proposal to offer Managed Data Access Service to Managed Data Access 
Distributors would assist in the management of the uncontrolled data 
product on behalf of their Managed Data Recipients by contractually 
restricting the data flow and monitoring the delivery. The Exchange 
will maintain contracts with Managed Data Access Recipients, who may be 
liable for any unauthorized use under the Managed Data Access Service. 
The proposed Managed Data Access Service for the ISE Data Feeds would 
allow Managed Data Access Distributors to deliver Managed Data Access 
Service to their clients and would allow Professional and Non-
Professional \9\ users to use the ISE Data Feeds for their own use.
---------------------------------------------------------------------------

    \9\ In differentiating between Professional and Non-Professional 
subscribers, the Exchange proposes to apply the same criteria for 
qualification as a Non-Professional subscriber as the Consolidated 
Tape Association (``CTA'') Plan and Consolidated Quotation System 
Plan Participants use. Accordingly, a ``Non-Professional 
Subscriber'' is an authorized end-user of the ISE Data Feeds who is 
a natural person and who is neither: (a) Registered or qualified 
with the Securities and Exchange Commission, the Commodities Futures 
Trading Commission, any state securities agency, any securities 
exchange or association, or any commodities or futures contract 
market or association; (b) engaged as an ``investment advisor'' as 
that term is defined Section 202(a)(11) of the Investment Advisers 
Act of 1940 (whether or not registered or qualified under that act); 
nor (c) employed by a bank or other organization exempt from 
registration under Federal and/or state securities laws to perform 
functions that would require him/her to be so registered or 
qualified if he/she were to perform such functions for an 
organization not so exempt. A ``Professional Subscriber'' is an 
authorized end-user of the ISE Data Feeds that has not qualified as 
a Non- Professional Subscriber.
---------------------------------------------------------------------------

    The Exchange proposes to charge for Managed Data Access Service for 
the ISE Data Feeds, as follows:
     For the ISE Real-time Depth of Market Raw Data Feed:
    [cir] $2,500 per month per Managed Data Access Distributor.
    [cir] $750 per month per IP address for redistribution by a Managed 
Data Access Distributor to a Managed Data Access Recipient, who may be 
a Professional or Non-Professional user. This fee is charged per IP 
address, which covers both primary and back-up IP addresses, at a 
Managed Data Access Recipient.
    [cir] $50 per month per controlled device for redistribution by a 
Managed Data Access Distributor to a Managed Data Access Recipient who 
is a Professional user.
    [cir] $5 per month per controlled device for redistribution by a 
Managed Data Access Distributor to a Managed Data Access Recipient who 
is a Non-Professional use [sic].
    A Managed Data Access Distributor for the ISE Real-time Depth of 
Market Raw Data Feed is subject to a minimum fee of $5,000 per month.
     For the ISE Top Quote Feed:
    [cir] $1,500 per month per Managed Data Access Distributor.
    [cir] $500 per month per IP address for redistribution by a Managed 
Data Access Distributor to a Managed Data

[[Page 38426]]

Access Recipient, who may be a Professional or Non-Professional user. 
This fee is charged per IP address, which covers both primary and back-
up IP addresses, at a Managed Data Access Recipient.
    [cir] $20 per month per controlled device for redistribution by a 
Managed Data Access Distributor to a Managed Data Access Recipient who 
is a Professional user. There is no controlled device fee for Non-
Professional users.
    A Managed Data Access Distributor for the ISE Top Quote Feed is 
subject to a minimum fee of $3,000 per month.
     For the ISE Spread Feed:
    [cir] $1,500 per month per Managed Data Access Distributor.
    [cir] $500 per month per IP address for redistribution by a Managed 
Data Access Distributor to a Managed Data Access Recipient, who may be 
a Professional or Non-Professional user. This fee is charged per IP 
address, which covers both primary and back-up IP addresses, at a 
Managed Data Access Recipient.
    [cir] $25 per month per controlled device for redistribution by a 
Managed Data Access Distributor to a Managed Data Access Recipient who 
is a Professional user. There is no controlled device fee for Non-
Professional users.
    A Managed Data Access Distributor for the ISE Spread Feed is 
subject to a minimum fee of $3,000 per month.
     For the ISE Order Feed:
    [cir] $1,000 per month per Managed Data Access Distributor.
    [cir] $350 per month per IP address for redistribution by a Managed 
Data Access Distributor to a Managed Data Access Recipient, who may be 
a Professional or Non-Professional user. This fee is charged per IP 
address, which covers both primary and back-up IP addresses, at a 
Managed Data Access Recipient.
    [cir] $10 per month per controlled device for redistribution by a 
Managed Data Access Distributor to a Managed Data Access Recipient who 
is a Professional user. There is no controlled device fee for Non-
Professional users.
    A Managed Data Access Distributor for the ISE Order Feed is subject 
to a minimum fee of $2,000 per month.
    The Exchange also proposes to adopt a multi-product discount for 
subscriptions to more than one data feed, much like what the Exchange 
currently offers to subscribers of the ISE Data Feeds. Specifically, 
subscription fees will be discounted by 10% for customers who subscribe 
to two data feeds and by 20% for customers who subscribe to three data 
feeds. Customers who subscribe to the ISE Real-time Depth of Market Raw 
Data Feed and ISE Top Quote Feed only pay for the ISE Real-time Depth 
of Market Raw Data Feed (because the ISE Top Quote Feed is embedded in 
the ISE Real-time Depth of Market Raw Data Feed) and such subscription 
thus counts as one feed for the purpose of the discount.
    The Exchange notes that while the proposed Managed Data Access 
Service will produce inherent latency for customers, this proposed rule 
change will also lower the fee for current and potential future 
recipients of the ISE Data Feeds. Accordingly, the Exchange believes 
that the proposed rule change establishes a program that allows all 
Exchange members and Managed Data Access Distributors a practicable 
methodology to assess and receive Managed Data Access Service for the 
ISE Data Feeds, similar to services offered by other exchanges.
    The Exchange has designated this proposed rule change to be 
operative on June 6, 2013.\10\
---------------------------------------------------------------------------

    \10\ The same fees were operative on June 1, 2013 under SR-ISE-
2013-35 which the Exchange withdrew and replaced with SR-ISE-2013-39 
on June 6, 2013.
---------------------------------------------------------------------------

2. Statutory Basis
    The basis under the Securities Exchange Act of 1934 (the ``Act'') 
for this proposed rule change is the requirement under Section 6(b)(4) 
that an exchange have an equitable allocation of reasonable dues, fees 
and other charges among its members and other persons using its 
facilities. The Exchange believes that the proposed rule change is 
consistent with the provisions of Section 6 of the Act,\11\ in general, 
and with Sections 6(b)(4) of the Act,\12\ 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 or system which ISE operates or controls.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act \13\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The fees charged would be the 
same for all similarly-situated market participants, and therefore do 
not unreasonably discriminate among market participants.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility of 
offer new and unique market data to the public. It was believed that 
this authority would expand the amount of data available to consumers, 
and also spur innovation and competition for the provision of market 
data.
    The Commission concluded that Regulation NMS--by deregulating the 
market in proprietary data--would itself further the Act's goals of 
facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\14\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history. If 
the free market should determine whether proprietary data is sold to 
broker-dealers at all, it follows that the price at which such data is 
sold should be set by the market as well.
    On July 21, 2010, President Barak Obama signed into law H.R. 4173, 
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(``Dodd-Frank Act''), which amended Section 19 of the Act. Among other 
things, Section 916 of the Dodd-Frank Act amended paragraph (A) of 
Section 19(b)(3) of the Act by inserting the phrase ``on any person, 
whether or not the person is a member of the self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals 
establishing or changing dues, fees, or other charges are immediately 
effective upon filing regardless of whether such dues, fees, or other 
charges are imposed on members of the SRO, non-members, or both. 
Section 916 further amended paragraph (C) of Section 19(b)(3) of the 
Act to read, in pertinent part, ``At any time within the 60-day period 
beginning on the date of filing of such a proposed rule change in 
accordance with the provisions of paragraph (1) [of Section 19(b)], the 
Commission summarily may temporarily suspend the change in the rules of 
the self-regulatory organization made thereby, 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 this title. If the Commission

[[Page 38427]]

takes such action, the Commission shall institute proceedings under 
paragraph (2)(B) [of Section 19(b)] to determine whether the proposed 
rule should be approved or disapproved.''
    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), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for 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.' '' \15\
---------------------------------------------------------------------------

    \15\ NetCoalition, at 535 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
---------------------------------------------------------------------------

    ISE believes that the proposed fees are fair and equitable, and not 
unreasonably discriminatory. The proposed fees are based on pricing 
conventions and distinctions that currently exist at ISE. These 
distinctions (e.g. Professional versus Non-Professional, internal 
versus external distribution, controlled versus uncontrolled datafeed) 
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. ISE believes that the Managed Data Access Service 
promotes broader distribution of controlled data, although with some 
potential added latency while offering a fee reduction in the form of a 
pricing option which should result in lower fees for Subscribers. The 
Managed Data Access Service proposal is reasonable in that it offers a 
methodology to get Managed Data Access Service for the ISE Data Feeds 
for less. It is equitable in that it provides an opportunity for all 
distributors and subscribers, Professional and Non-Professional, to get 
Managed Data Access Service for the ISE Data Feeds without unfairly 
discriminating against any. ISE is constrained in pricing the Managed 
Data Access Service for the ISE Data Feeds by the availability to 
market participants of alternatives to purchasing ISE products. ISE 
must consider the extent to which market participants would choose one 
or more alternatives instead of purchasing the Exchange's data. Thus, 
if ISE has calculated improperly and the market deems the proposed fees 
to be unfair, inequitable, or unreasonably discriminatory, firms can 
diminish or discontinue the use of their data because the proposed fees 
are entirely optional to all parties. Firms are not required to choose 
to purchase Managed Data Access Service for the ISE Data Feeds or to 
utilize any specific pricing alternative. ISE is not required to make 
Managed Data Access Service for the ISE Data Feeds available or to 
offer specific pricing alternatives for potential purchases. ISE 
continues to establish and revise pricing policies aimed at increasing 
fairness and equitable allocation of fees among Subscribers. Finally, 
as noted above, the Exchange proposes to adopt this new offering on a 
pilot basis, until November 30, 2013, at which time the Exchange will 
determine whether or not to continue this offering.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ISE does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended. Notwithstanding its 
determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data, the 
NetCoaltion [sic] court found that the Commission had not, in that 
case, compiled a record that adequately supported its conclusion that 
the market for the data at issue in the case was competitive. ISE 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    The proposed rule change is, as described below, pro-competitive. 
The proposed rule change offers an overall fee reduction, which is, by 
its nature, pro-competitive. Moreover, there is intense competition 
between trading platforms that provide transaction execution and 
routing services and proprietary data products. Transaction execution 
and proprietary data products are complementary in that market data is 
both an input and a byproduct of the execution service. In fact, market 
data and trade execution are a paradigmatic example [sic] of joint 
products with joint costs. The decision whether and on which platform 
to post an order will depend on the attributes of the platform where 
the order can be posted, including the execution fees, data quality and 
price and distribution of its data products. Without the prospect of a 
taking order seeing and reacting to a posted order on a particular 
platform, the posting of the order would accomplish little. Without 
orders entered and trades executed, exchange data products cannot 
exist. Data products are valuable to many end users only insofar as 
they provide information that end users expect will assist them or 
their customers in making trading decisions.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A broker-dealer will 
direct orders to a particular exchange only if the expected revenues 
from executing trades on the exchange exceed net transaction execution 
costs and the cost of data that the broker-dealer chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the broker-dealer will choose not to buy it.
    Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to that broker-dealer 
decrease [sic], for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable. Thus, a super-competitive 
increase in the fees charged for either transactions or data has the 
potential to impair revenues from both products.
    ``No one disputes that competition for order flow is `fierce'.'' 
\16\ However, the existence of fierce competition for order flow 
implies a high degree of price sensitivity on the part of broker-
dealers with order flow, since they may readily reduce costs by 
directing orders toward the lowest-cost trading venues. A

[[Page 38428]]

broker-dealer that shifted its order flow from one platform to another 
in response to order execution price differentials would both reduce 
the value of that platform's market data and reduce its own need to 
consume data from the disfavored platform. Similarly, if a platform 
increases its market data fees, the change will affect the overall cost 
of doing business with the platform, and affected broker-dealers will 
assess whether they can lower their trading costs by directing orders 
elsewhere and thereby lessening the need for the more expensive data.
---------------------------------------------------------------------------

    \16\ NetCoalition, at 24 [sic].
---------------------------------------------------------------------------

    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, all 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.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platform may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information 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 information, and setting relatively 
low prices for accessing posted liquidity. 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.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including numerous self-regulatory organization (``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. Competitive markets for order 
flow, executions, and transaction reports provide pricing discipline 
for the inputs of proprietary data products. The large number of SROs, 
TRFs, BDs, and ATSs that currently produce proprietary data or are 
currently capable of producing it provides further pricing discipline 
for proprietary data products. Each SRO, TRF, ATS, and BD is currently 
permitted to produce proprietary data products, and many currently do 
or have announced plans to do so, including NASDAQ, NYSE, NYSE Amex 
(now NYSE MKT), NYSEArca, DirectEdge and BATS.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless. The fact that 
proprietary data from ATSs, BDs, and vendors can by-pass SROs is 
significant in two respects. First, non-SROs can compete directly with 
SROs for the production and sale of proprietary data products, as BATS 
and Arca did before registering as exchanges by publishing proprietary 
book data on the Internet. Second, because a single order or 
transaction report can appear in an SRO proprietary product, a non-SRO 
proprietary product, or both, the data available in proprietary 
products is exponentially greater than the actual number of orders and 
transaction reports that exist in the marketplace.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Vendors impose price restraints based upon their 
business models. For example, vendors such as Bloomberg and Reuters 
that assess a surcharge on data they sell may refuse to offer 
proprietary products that end users will not purchase in sufficient 
numbers. Internet portals, such as Google, impose a discipline by 
providing only data that will enable them to attract ``eyeballs'' that 
contribute to their advertising revenue. Retail broker-dealers, such as 
Schwab and Fidelity, offer their customers proprietary data only if it 
promotes trading and generates sufficient commission revenue. Although 
the business models may differ, these vendors' pricing discipline is 
the same: they can simply refuse to purchase any proprietary data 
product that fails to provide sufficient value. ISE and other producers 
of proprietary data products must understand and respond to these 
varying business models and pricing disciplines in order to market 
proprietary data products successfully.
    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, inexpensive, and profitable. 
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, TracECN, BATS Trading and Direct Edge. A 
proliferation of dark pools and other ATSs operate profitably with 
fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg, and Thomson Reuters.
    Competition among platforms has driven ISE continually to improve 
its market data offerings and to cater to customers' data needs. For 
example, ISE has developed and maintained multiple delivery mechanisms 
that enable customers to receive data in the form and manner they 
prefer and at the lowest cost to them. ISE offers front end 
applications such as its PrecISE Trade application which helps 
customers utilize data. ISE offers data via multiple

[[Page 38429]]

extranet providers, thereby helping to reduce network and total cost 
for its data products. Despite these enhancements and a dramatic 
increase in message traffic, ISE's fees for market data have, for the 
most part, remained flat. Moreover, platform competition has 
intensified as new entrants have emerged, constraining prices for both 
executions and for data.
    The vigor of competition for market data is significant and the 
Exchange believes that this proposal clearly evidences such 
competition. ISE is offering a new pricing model in order to keep pace 
with changes in the industry and evolving customer needs. This pricing 
option is entirely optional and is geared towards attracting new 
customers, as well as retaining existing customers.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the course of the past year. ISE 
continues to see firms challenge its pricing on the basis of the 
Exchange's explicit fees being higher than the zero-priced fees from 
other competitors such as BATS. In all cases, firms make decisions on 
how much and what types of data to consume on the basis of the total 
cost of interacting with ISE or other exchanges. Of course, the 
explicit data fees are but one factor in a total platform analysis. 
Some competitors have lower transactions fees and higher data fees, and 
others are vice versa. The market for the proposed data is highly 
competitive and continually evolves as products develop and change.

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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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 \17\ and Rule 19b-4(f)(2) thereunder,\18\ 
because it establishes a due, fee, or other charge imposed by ISE.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \18\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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 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 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 rule-comments@sec.gov. Please include 
File Number SR-ISE-2013-39 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ISE-2013-39. 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 ISE. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-ISE-2013-39 and should be 
submitted on or before July 17, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15226 Filed 6-25-13; 8:45 am]
BILLING CODE 8011-01-P