80 FR 64042 - Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 204 (October 22, 2015)

Page Range		64042-64046
FR Document		2015-26811
Federal Register, Volume 80 Issue 204 (Thursday, October 22, 2015)
[Federal Register Volume 80, Number 204 (Thursday, October 22, 2015)]
[Notices]
[Pages 64042-64046]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-26811]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76181; File No. SR-ISE-2015-33]


Self-Regulatory Organizations; International Securities Exchange, 
LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule 
Change To Amend the Schedule of Fees

October 16, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 1, 2015, the International Securities Exchange, LLC 
(the ``Exchange'' or ``ISE'') filed with the Securities and Exchange 
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\ 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

    ISE proposes to amend the Schedule of Fees as described in more 
detail below. The text of the proposed rule change is available on the 
Exchange's Internet Web site at 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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The self-regulatory organization has prepared summaries, 
set forth in Sections A, B and C below, of the most significant aspects 
of such statements.

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

1. Purpose
    The Exchange proposes to amend its Schedule of Fees to increase the 
fees charged to subscribers of the ISE Order Feed and to standardize 
the managed data fees charged for the ISE Order Feed, ISE Top Quote 
Feed, and ISE Spread Feed \3\ with a modest increase to the fees 
charged.
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    \3\ With the exception that the ISE Spread Feed will continue to 
be subject to a higher controlled device fee than the ISE Order Feed 
and ISE Top Quote Feed. Additionally, nothing in this rule filing 
affects subscription fee discounts offered to members who subscribe 
to two data feeds (10%) or three data feeds (20%).
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Order Feed
    The Order Feed provides real-time updates to subscribers every time 
a new limit order that is not immediately executable at the BBO is 
placed on the ISE order book. The Order Feed also announces the 
commencement of

[[Page 64043]]

auctions including Flash, Facilitation, Solicitation, Block Order and 
Price Improvement Mechanisms, as well as Directed Orders, but does not 
include Immediate or Cancel (``IOC'') or Fill or Kill (``FOK'') orders, 
quotes, or any non-displayed interest. The information included on the 
Order Feed includes auction type, order side (i.e., buy/sell), order 
price, order size, and a market participant (e.g., priority customer) 
indicator, as well as details for each instrument series, including the 
symbols (series and underlying security), put or call indicator, the 
expiration date, and the strike price of the series. The Order Feed 
provides each individual limit order, not including quote traffic, 
resulting in lower bandwidth usage and less data for subscribers to 
process.
    Currently, the Exchange charges distributors $2,000 per month for 
subscriptions to the Order Feed and will not charge distributors a 
monthly fee per controlled device as long the feed is for internal use 
only.\4\ For subscribers that redistribute the Order Feed externally, 
or redistribute the Order Feed internally and externally, the Exchange 
charges each distributor an additional fee of $10 per month per 
controlled device with a combined maximum fee capped at $2,500 per 
month.
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    \4\ A distributor is any firm that receives one of the market 
data feeds directly from ISE or indirectly through a redistributor 
and then distributes it either internally or externally. A 
redistributor includes market data vendors and connectivity 
providers such as extranets and private network providers.
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    We now propose to increase the fee charged to distributors to 
$3,000 per month. The Exchange will not charge distributors a monthly 
fee per controlled device as long the feed is for internal use only. 
For subscribers that redistribute the Order Feed externally, or 
redistribute the Order Feed internally and externally, the Exchange 
proposes to charge each distributor an additional fee of $20 per month 
per controlled device with a combined maximum fee capped at $5,000 per 
month. For example, a firm that subscribes to the Order Feed and then 
redistributes it via a controlled device to 50 clients pays $4,000 per 
month ($3,000 for the feed and $1,000 for the controlled devices ($20 x 
50)). If that same firm redistributes the data via a controlled device 
to 150 clients, the fee for that firm is capped at $5,000 per month, 
resulting in a savings of $1,000.
Managed Data Fees
    On June 6, 2013 ISE implemented a temporary Managed Data Access 
Service program that established a new pricing and distribution model 
for the sale of a number of real-time market data products.\5\ The 
Exchange recently extended this program until August 31, 2016, so that 
the Exchange could continue to provide this alternative delivery option 
for ISE data feeds.\6\
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    \5\ See Exchange Act Release No. 69806 (June 20, 2013), 78 FR 
38424 (June 26, 2013), SR-ISE-2013-39.
    \6\ See Exchange Act Release No. 34-75874 (September 10, 2015), 
80 FR 55669 (September 16, 2015), SR-ISE-2015-25.
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    Managed Data Access Service is a pricing and administrative option 
whereby the ISE assesses fees to Managed Data Access Distributors,\7\ 
who redistribute market data to Managed Data Access Recipients.\8\ 
Managed Data Access Distributors are required to monitor the delivery 
of the data retransmitted to their clients, and must agree to reformat, 
redisplay and/or alter the data feeds prior to retransmission without 
affecting the integrity of the data feeds and without rendering any of 
the feeds inaccurate, unfair, uninformative, fictitious, misleading, or 
discriminatory.
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    \7\ A Managed Data Access Distributor redistributes ISE data 
feeds and permits access to the information in those 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. Market Data 
Access Recipients may be Professional or Non-Professional users.
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    Currently, the Exchange charges a fee to each Managed Data Access 
Distributor of $1,500 for each of the Top Quote Feed and the Spread 
Feed, and $1,000 per month for the Order Feed. The Exchange also 
charges a fee for each IP address at Managed Data Access Recipients 
that receive market data redistributed by a Managed Data Access 
Distributor, which is $500 per month for each of the Top Quote Feed and 
the Spread Feed, and $350 per month for the Order Feed.\9\ In addition, 
the Exchange charges a controlled device fee for each controlled device 
permitted to access market data redistributed by a Managed Data Access 
Distributor to a Market Data Access Recipient that is a Professional 
user,\10\ which is $20 per month for the Top Quote Feed, $25 per month 
for the Spread Feed, and $10 per month for the Order Feed.\11\ For each 
of the above ISE data feeds, Market Data Access Distributors are 
subject to a minimum fee, which is $3,000 per month for each of the Top 
Quote Feed and the Spread Feed, and $2,000 per month for the Order 
Feed.
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    \9\ This fee is charged per IP address, which covers both 
primary and back-up IP addresses at a Managed Data Access Recipient.
    \10\ A ``Professional user'' is an authorized end-user of the 
ISE data feeds that has not qualified as a Non-Professional user.
    \11\ A controlled device is any device that a distributor of an 
ISE data feed permits to access the information in that data feed.
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    The Exchange now proposes to charge each Managed Data Access 
Distributor a monthly fee of $2,000 for the Order Feed, Top Quote Feed, 
and Spread Feed. The Exchange also proposes to charge each IP address 
at Managed Data Access Recipients that received market data 
redistributed by a Managed Data Access Distributor a monthly fee of 
$500 for the Order Feed.\12\ In addition, for each controlled device 
permitted to access market data redistributed by a Managed Data Access 
Distributor to a Market Data Access Recipient that is a Professional 
user the Exchange proposes a fee of $20 per month for the Order 
Feed.\13\ Finally, for the Order Feed, Top Quote Feed, and Spread Feed, 
Market Data Access Distributors are subject to a minimum fee, which the 
Exchange now proposes to change to $4,000 per month.
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    \12\ The fee for the Top Quote Feed and the Spread Feed are not 
being changed.
    \13\ The fee for the Top Quote Feed and the Spread Feed are not 
being changed.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\15\ in particular, in that it provides for an 
equitable allocation of reasonable fees and other charges among 
Exchange Members and other persons using its facilities.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4).
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    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act,\16\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed fees are the same 
for all similarly-situated market participants, and therefore do not 
unreasonably discriminate among market participants. Moreover, the 
Exchange notes that the proposed fees are similar to the fees charged 
by other exchanges. For example, similar to the ISE Order Feed, NASDAQ 
OMX PHLX (``PHLX'') charges a monthly fee of $3,000 for internal 
distributors and $3,500 for external distributors plus a monthly fee of 
$1 for non-professional subscribers and $40 for professional

[[Page 64044]]

subscribers.\17\ Additionally, similar to ISE's Managed Data Order 
Feed, PHLX charges $2,000 per month per distributor and $500 per month 
per subscriber.\18\ Further, the market data fees will be easier to 
understand because the proposed rule standardizes them.
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    \16\ 15 U.S.C. 78f(b)(8).
    \17\ See IX. Proprietary Data Feed Fees, PHLX Orders, available 
at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
    \18\ See IX. Proprietary Data Feed Fees, Fee Schedule for 
Managed Data Solutions for Non-Display Usage, available at http://www.nasdaqtrader.com/Micro.aspx?id=phlxpricing.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
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.\19\
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    \19\ 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 [sic] 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 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.' '' \20\
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    \20\ 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).
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    The court's conclusions about Congressional intent are therefore 
reinforced by the Dodd-Frank Act amendments, which create a presumption 
that exchange fees, including market data fees, may take effect 
immediately, without prior Commission approval, and that the Commission 
should take action to suspend a fee change and institute a proceeding 
to determine whether the fee change should be approved or disapproved 
only where the Commission has concerns that the change may not be 
consistent with the Act.
    The Exchange believes that the proposed fees for the ISE market 
data offering is consistent with the requirements of the Act because 
competition provides an effective constraint on the market data fees 
that the Exchange has the ability and the incentive to charge. ISE has 
a compelling need to attract order flow from market participants in 
order to maintain its share of trading volume. This compelling need to 
attract order flow imposes significant pressure on the Exchange to act 
reasonably in setting the fees for its market data offerings, 
particularly given that the market participants that will pay such fees 
often will be the same market participants from whom the Exchange must 
attract order flow. These market participants include broker-dealers 
that control the handling of a large volume of customer and proprietary 
order flow. Given the portability of order flow from one exchange to 
another, any exchange that sought to charge unreasonably high market 
data fees would risk alienating many of the same customers on whose 
orders it depends for competitive survival. ISE currently competes with 
11 [sic] other options exchanges for order flow.
    The Exchange is constrained in pricing its market data offerings by 
the availability to market participants of alternatives to purchasing 
these products. The Exchange must consider the extent to which market 
participants would choose one or more alternatives instead of 
purchasing the Exchange's data.
    For the reasons cited above, the Exchange believes that the 
proposed fees for the ISE data feeds are equitable, fair, reasonable 
and not unreasonably discriminatory. The Exchange further believes that 
the continued availability of each of the ISE data feeds enhances 
transparency, fosters competition among orders and markets, and enables 
buyers and sellers to obtain better prices. In addition, the Exchange 
believes that no substantial countervailing basis exists to support a 
finding that the proposed terms and fees for these products fail to 
meet the requirements of the Act.

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

    In accordance with Section 6(b)(8) of the Act,\21\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Notwithstanding 
its determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data,

[[Page 64045]]

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. The 
Exchange believes that a record may readily be established to 
demonstrate the competitive nature of the market in question.
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    \21\ 15 U.S.C. 78f(b)(8).
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    For the reasons discussed above, the Exchange believes that the 
Dodd-Frank Act amendments to Section 19 materially alter the scope of 
the Commission's review of future market data filings, by creating a 
presumption that all fees may take effect immediately, without prior 
analysis by the Commission of the competitive environment. Even in the 
absence of this important statutory change, however, the Exchange 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    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 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 trade executions, 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, 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'.'' \22\ 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 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.
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    \22\ NetCoalition, at 24.
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    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.

[[Page 64046]]

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.
    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. The Exchange 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.

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,\23\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\24\ because it establishes a due, fee, or other charge 
imposed by ISE.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \24\ 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 to 
determine whether the proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2015-33 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-ISE-2015-33. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. 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-2015-33, and should be 
submitted on or before November 12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-26811 Filed 10-21-15; 8:45 am]
BILLING CODE 8011-01-P
Federal Register / Vol. 80, No. 204 / Thursday, October 22, 2015 / Notices 64045

the NetCoaltion [sic] court found that trades on the exchange exceed net joint product. Rather, all of the
the Commission had not, in that case, transaction execution costs and the cost exchange’s costs are incurred for the
compiled a record that adequately of data that the broker-dealer chooses to unified purposes of attracting order
supported its conclusion that the market buy to support its trading decisions (or flow, executing and/or routing orders,
for the data at issue in the case was those of its customers). The choice of and generating and selling data about
competitive. The Exchange believes that data products is, in turn, a product of market activity. The total return that an
a record may readily be established to the value of the products in making exchange earns reflects the revenues it
demonstrate the competitive nature of profitable trading decisions. If the cost receives from the joint products and the
the market in question. of the product exceeds its expected total costs of the joint products.
For the reasons discussed above, the value, the broker-dealer will choose not Competition among trading platforms
Exchange believes that the Dodd-Frank to buy it. can be expected to constrain the
Act amendments to Section 19 Moreover, as a broker-dealer chooses aggregate return each platform earns
materially alter the scope of the to direct fewer orders to a particular from the sale of its joint products, but
Commission’s review of future market exchange, the value of the product to different platforms may choose from a
data filings, by creating a presumption that broker-dealer decrease, for two range of possible, and equally
that all fees may take effect reasons. First, the product will contain reasonable, pricing strategies as the
immediately, without prior analysis by less information, because executions of means of recovering total costs. For
the Commission of the competitive the broker-dealer’s orders will not be example, some platform may choose to
environment. Even in the absence of reflected in it. Second, and perhaps pay rebates to attract orders, charge
this important statutory change, more important, the product will be less relatively low prices for market
however, the Exchange believes that a valuable to that broker-dealer because it information (or provide information free
record may readily be established to does not provide information about the of charge) and charge relatively high
demonstrate the competitive nature of venue to which it is directing its orders. prices for accessing posted liquidity.
the market in question. Data from the competing venue to Other platforms may choose a strategy
There is intense competition between which the broker-dealer is directing of paying lower rebates (or no rebates)
trading platforms that provide orders will become correspondingly to attract orders, setting relatively high
transaction execution and routing more valuable. Thus, a super- prices for market information, and
services and proprietary data products. competitive increase in the fees charged setting relatively low prices for
Transaction execution and proprietary for either transactions or data has the accessing posted liquidity. In this
data products are complementary in that potential to impair revenues from both environment, there is no economic basis
market data is both an input and a products. ‘‘No one disputes that for regulating maximum prices for one
byproduct of the execution service. In competition for order flow is ‘fierce’.’’ 22 of the joint products in an industry in
fact, market data and trade execution are However, the existence of fierce which suppliers face competitive
a paradigmatic example of joint competition for order flow implies a constraints with regard to the joint
products with joint costs. The decision high degree of price sensitivity on the offering.
whether and on which platform to post part of broker-dealers with order flow, The market for market data products
an order will depend on the attributes since they may readily reduce costs by is competitive and inherently
of the platform where the order can be directing orders toward the lowest-cost contestable because there is fierce
posted, including the execution fees, trading venues. A broker-dealer that competition for the inputs necessary to
data quality and price and distribution shifted its order flow from one platform the creation of proprietary data and
of its data products. Without the to another in response to order strict pricing discipline for the
prospect of a taking order seeing and execution price differentials would both proprietary products themselves.
reacting to a posted order on a particular reduce the value of that platform’s Numerous exchanges compete with
platform, the posting of the order would market data and reduce its own need to each other for listings, trades, and
accomplish little. Without trade consume data from the disfavored market data itself, providing virtually
executions, exchange data products platform. Similarly, if a platform limitless opportunities for entrepreneurs
cannot exist. Data products are valuable increases its market data fees, the who wish to produce and distribute
to many end users only insofar as they change will affect the overall cost of their own market data. This proprietary
provide information that end users doing business with the platform, and data is produced by each individual
expect will assist them or their affected broker-dealers will assess exchange, as well as other entities, in a
customers in making trading decisions. whether they can lower their trading vigorously competitive market.
The costs of producing market data costs by directing orders elsewhere and Broker-dealers currently have
include not only the costs of the data thereby lessening the need for the more numerous alternative venues for their
distribution infrastructure, but also the expensive data. order flow, including numerous self-
costs of designing, maintaining, and Analyzing the cost of market data regulatory organization (‘‘SRO’’)
operating the exchange’s transaction distribution in isolation from the cost of markets, as well as internalizing broker-
execution platform and the cost of all of the inputs supporting the creation dealers (‘‘BDs’’) and various forms of
regulating the exchange to ensure its fair of market data will inevitably alternative trading systems (‘‘ATSs’’),
operation and maintain investor underestimate the cost of the data. Thus, including dark pools and electronic
confidence. The total return that a because it is impossible to create data communication networks (‘‘ECNs’’).
trading platform earns reflects the without a fast, technologically robust, Each SRO market competes to produce
revenues it receives from both products and well-regulated execution system, transaction reports via trade executions,
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and the joint costs it incurs. Moreover, system costs and regulatory costs affect and two FINRA-regulated Trade
an exchange’s customers view the costs the price of market data. It would be Reporting Facilities (‘‘TRFs’’) compete
of transaction executions and of data as equally misleading, however, to to attract internalized transaction
a unified cost of doing business with the attribute all of the exchange’s costs to reports. Competitive markets for order
exchange. A broker-dealer will direct the market data portion of an exchange’s flow, executions, and transaction
orders to a particular exchange only if reports provide pricing discipline for
the expected revenues from executing 22 NetCoalition, at 24. the inputs of proprietary data products.

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64046 Federal Register / Vol. 80, No. 204 / Thursday, October 22, 2015 / Notices

The large number of SROs, TRFs, BDs, C. Self-Regulatory Organization’s rules/sro.shtml). Copies of the
and ATSs that currently produce Statement on Comments on the submission, all subsequent
proprietary data or are currently capable Proposed Rule Change Received From amendments, all written statements
of producing it provides further pricing Members, Participants, or Others with respect to the proposed rule
discipline for proprietary data products. The Exchange has not solicited, and change that are filed with the
Each SRO, TRF, ATS, and BD is does not intend to solicit, comments on Commission, and all written
currently permitted to produce this proposed rule change. The communications relating to the
proprietary data products, and many Exchange has not received any proposed rule change between the
currently do. unsolicited written comments from Commission and any person, other than
members or other interested parties. those that may be withheld from the
Any ATS or BD can combine with any public in accordance with the
other ATS, BD, or multiple ATSs or BDs III. Date of Effectiveness of the provisions of 5 U.S.C. 552, will be
to produce joint proprietary data Proposed Rule Change and Timing for available for Web site viewing and
products. Additionally, order routers Commission Action printing in the Commission’s Public
and market data vendors can facilitate The foregoing rule change has become Reference Room, 100 F Street NE.,
single or multiple broker-dealers’ effective pursuant to Section Washington, DC 20549 on official
production of proprietary data products. 19(b)(3)(A)(ii) of the Act,23 and business days between the hours of
The potential sources of proprietary subparagraph (f)(2) of Rule 19b–4 10:00 a.m. and 3:00 p.m. Copies of such
products are virtually limitless. thereunder,24 because it establishes a filing also will be available for
due, fee, or other charge imposed by inspection and copying at the principal
The fact that proprietary data from
ISE. office of the Exchange. All comments
ATSs, BDs, and vendors can by-pass
At any time within 60 days of the received will be posted without change;
SROs is significant in two respects. the Commission does not edit personal
filing of such proposed rule change, the
First, non-SROs can compete directly identifying information from
Commission summarily may
with SROs for the production and sale submissions. You should submit only
temporarily suspend such rule change if
of proprietary data products, as BATS it appears to the Commission that such information that you wish to make
and Arca did before registering as action is necessary or appropriate in the available publicly. All submissions
exchanges by publishing proprietary public interest, for the protection of should refer to File Number SR–ISE–
book data on the Internet. Second, investors, or otherwise in furtherance of 2015–33, and should be submitted on or
because a single order or transaction the purposes of the Act. If the before November 12, 2015.
report can appear in an SRO proprietary Commission takes such action, the For the Commission, by the Division of
product, a non-SRO proprietary Commission shall institute proceedings Trading and Markets, pursuant to delegated
product, or both, the data available in to determine whether the proposed rule authority.25
proprietary products is exponentially should be approved or disapproved.
greater than the actual number of orders Brent J. Fields,
IV. Solicitation of Comments Secretary.
and transaction reports that exist in the
marketplace. Market data vendors Interested persons are invited to [FR Doc. 2015–26811 Filed 10–21–15; 8:45 am]
provide another form of price discipline submit written data, views, and BILLING CODE 8011–01–P
for proprietary data products because arguments concerning the foregoing,
they control the primary means of including whether the proposed rule
access to end users. Vendors impose change is consistent with the Act. SECURITIES AND EXCHANGE
price restraints based upon their Comments may be submitted by any of COMMISSION
the following methods:
business models. For example, vendors [Release No. 34–76180; File No. SR–
such as Bloomberg and Reuters that Electronic Comments ISEGemini–2015–19]
assess a surcharge on data they sell may • Use the Commission’s Internet
refuse to offer proprietary products that Self-Regulatory Organizations; ISE
comment form (http://www.sec.gov/ Gemini, LLC; Notice of Filing and
end users will not purchase in sufficient rules/sro.shtml); or Immediate Effectiveness of Proposed
numbers. Internet portals, such as • Send an email to rule-comments@ Rule Change To Amend the Schedule
Google, impose a discipline by sec.gov. Please include File Number SR– of Fees
providing only data that will enable ISE–2015–33 on the subject line.
them to attract ‘‘eyeballs’’ that Paper Comments
October 16, 2015.
contribute to their advertising revenue. Pursuant to Section 19(b)(1) of the
Retail broker-dealers, such as Schwab • Send paper comments in triplicate Securities Exchange Act of 1934 (the
and Fidelity, offer their customers to Brent J. Fields, Secretary, Securities ‘‘Act’’),1 and Rule 19b–4 thereunder,2
proprietary data only if it promotes and Exchange Commission, 100 F Street notice is hereby given that on October
NE., Washington, DC 20549–1090. 1, 2015, ISE Gemini, LLC (the
trading and generates sufficient
commission revenue. Although the All submissions should refer to File ‘‘Exchange’’ or ‘‘ISE Gemini’’) filed with
business models may differ, these Number SR–ISE–2015–33. This file the Securities and Exchange
number should be included on the Commission (‘‘Commission’’) the
vendors’ pricing discipline is the same:
subject line if email is used. To help the proposed rule change, as described in
They can simply refuse to purchase any
Commission process and review your Items I, II, and III below, which Items
proprietary data product that fails to
tkelley on DSK3SPTVN1PROD with NOTICES

comments more efficiently, please use have been prepared by the self-
provide sufficient value. The Exchange only one method. The Commission will regulatory organization. The
and other producers of proprietary data post all comments on the Commission’s Commission is publishing this notice to
products must understand and respond Internet Web site (http://www.sec.gov/
to these varying business models and 25 17CFR 200.30–3(a)(12).
pricing disciplines in order to market 23 15 U.S.C. 78s(b)(3)(A)(ii). 1 15 U.S.C. 78s(b)(1).
proprietary data products successfully. 24 17 CFR 240.19b–4(f)(2). 2 17 CFR 240.19b–4.

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Document Created: 2015-12-14 15:33:53
Document Modified: 2015-12-14 15:33:53
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		80 FR 64042