81 FR 3490 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE BBO and NYSE Trades

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 13 (January 21, 2016)

Page Range		3490-3496
FR Document		2016-01062
Federal Register, Volume 81 Issue 13 (Thursday, January 21, 2016)
[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3490-3496]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-01062]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76912; File No. SR-NYSE-2016-03]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending the Fees for NYSE BBO and NYSE Trades

January 14, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 4, 2016, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the fees for NYSE BBO and NYSE 
Trades to: (1) Establish a multiple data feed fee; (2) discontinue fees 
relating to managed non-display; (3) modify the application of the 
access fee; and (4) reduce the Enterprise Fee. The proposed rule change 
is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to amend the fees for NYSE BBO and NYSE 
Trades market data products,\4\ as set forth on the NYSE Proprietary 
Market Data Fee Schedule (``Fee Schedule''). The Exchange proposes to 
make the following fee changes effective January 4, 2016:
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    \4\ See Securities Exchange Act Release Nos. 61914 (Apr. 14, 
2010), 74 FR 21077 (Apr. 22, 2010) (SR-NYSE-2010-30) (notice--NYSE 
BBO); 62181 (May 26, 2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-
2010-30) (approval order--NYSE BBO); 59309 (Jan. 28, 2009), 74 FR 
6073 (Feb. 4, 2009) (SR-NYSE-2009-04) (notice--NYSE Trades); and 
59309 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (approval order--
NYSE Trades) (SR-NYSE-2009-04) and 62038 (May 5, 2010), 75 FR 26825 
(May 12, 2010) (SR-NYSE-2010-22).
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     Establish a multiple data feed fee;
     Discontinue fees relating to managed non-display;
     Modify the application of the access fee; and
     Reduce the Enterprise Fee.
Multiple Data Feed Fee \5\
    The Exchange proposes to establish a new monthly fee, the 
``Multiple Data Feed Fee,'' that would apply to data recipients that 
take a data feed for a market data product in more than two locations. 
Data recipients taking NYSE BBO or NYSE Trades in more than two 
locations would be charged $200 per additional location per product per 
month. No new reporting would be required.\6\
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    \5\ The text of footnote 6 in Exhibit 5 of this proposed rule 
change was previously filed under a separate filing. See SR-NYSE-
2016-02 (Proposed Rule Change to Amend the Fees for NYSE OpenBook).
    \6\ Data vendors currently report a unique Vendor Account Number 
for each location at which they provide a data feed to a data 
recipient. The Exchange considers each Vendor Account Number a 
location. For example, if a data recipient has five Vendor Account 
Numbers, representing five locations, for the receipt of the NYSE 
BBO product, that data recipient will pay the Multiple Data Feed fee 
with respect to three of the five locations.
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Managed Non-Display Fees
    Non-Display Use of NYSE market data means accessing, processing, or 
consuming NYSE market data delivered via direct and/or Redistributor 
\7\ data feeds for a purpose other than in support of a data 
recipient's display usage or further internal or external

[[Page 3491]]

redistribution.\8\ Managed Non-Display Services fees apply when a data 
recipient's non-display applications are hosted by a Redistributor that 
has been approved for Managed Non-Display Services.\9\ A Redistributor 
approved for Managed Non-Display Services manages and controls the 
access to NYSE BBO and NYSE Trades and does not allow for further 
internal distribution or external redistribution of NYSE BBO and NYSE 
Trades by the data recipients. A Redistributor approved for Managed 
Non-Display Services is required to report to NYSE on a monthly basis 
the data recipients that are receiving NYSE market data through the 
Redistributor's managed non-display service and the real-time NYSE 
market data products that such data recipients are receiving through 
such service. Recipients of data through Managed Non-Display Service 
have no additional reporting requirements. Data recipients that receive 
NYSE BBO from an approved Redistributor of Managed Non-Display Services 
are charged a Managed Non-Display Services Fee of $300 per month, and 
data recipients that receive NYSE Trades from an approved Redistributor 
of Managed Non-Display Services are charged a Managed Non-Display 
Services Fee of $1,000 per month. Data recipients that receive NYSE BBO 
and NYSE Trades from an approved Redistributor of Managed Non-Display 
Services are also charged an Access Fee of $750 per month.\10\
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    \7\ ``Redistributor'' means a vendor or any other person that 
provides an NYSE data product to a data recipient or to any system 
that a data recipient uses, irrespective of the means of 
transmission or access.
    \8\ See e.g. Securities Exchange Act Release No. 72923 (Aug. 26, 
2014), 79 FR 52079 (Sept. 2, 2014) (SR-NYSE-2014-43) (``2014 Non-
Display Filing'').
    \9\ To be approved for Managed Non-Display Services, a 
Redistributor must manage and control the access to NYSE BBO and 
NYSE Trades for data recipients' non-display applications and not 
allow for further internal distribution or external redistribution 
of the information by data recipients. In addition, the 
Redistributor is required to (a) host the data recipients' non-
display applications in equipment located in the Redistributor's 
data center and/or hosted space/cage and (b) offer NYSE BBO and NYSE 
Trades in the Redistributor's own messaging formats (rather than 
using raw NYSE message formats) by reformatting and/or altering NYSE 
BBO and NYSE Trades prior to retransmission without affecting the 
integrity of NYSE BBO and NYSE Trades and without rendering NYSE BBO 
and NYSE Trades inaccurate, unfair, uninformative, fictitious, 
misleading or discriminatory.
    \10\ A single Managed Non-Display Access Fee applies for clients 
receiving both NYSE BBO and NYSE Trades. The Exchange is also 
proposing in this filing to modify this application of the access 
fees. See ``Modification of the application of the access fee,'' 
below.
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    The Exchange proposes to discontinue the fees related to Managed 
Non-Display Services because of the limited number of Redistributors 
that have qualified for Managed Non-Display Services and the 
administrative burdens associated with the program in light of the 
limited number of Redistributors that have qualified for Managed Non-
Display Services. As proposed, all data recipients currently using NYSE 
BBO and NYSE Trades on a managed non-display basis would be subject to 
the same access fee of $1,500 per month, and the same non-display 
services fees,\11\ as other non-display data recipients.\12\
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    \11\ See Fee Schedule.
    \12\ In order to harmonize its approach to fees for its market 
data products, the Exchange is simultaneously proposing to remove 
fees related to Managed Non-Display Services for NYSE OpenBook and 
NYSE Order Imbalances. See SR-NYSE-2016-02 and SR-NYSE-2016-04. The 
fees applicable to the NYSE Integrated market data product effective 
as of January 4, 2016 do not include Managed Non-Display Services 
fees.
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Modification of the Application of the Access Fee
    The Exchange proposes to modify the application of the access fees 
for NYSE BBO and NYSE Trades.
    Each NYSE BBO data feed recipient currently pays a monthly $1,500 
access fee for NYSE BBO, and each NYSE Trades data feed recipient 
currently pays a monthly $1,500 access fee for NYSE Trades. A single 
access fee applies for data recipients receiving both NYSE BBO and NYSE 
Trades.\13\ The Exchange proposes to amend the access fees so that 
recipients of NYSE BBO and NYSE Trades would be required to pay a 
separate access fees for NYSE BBO ($1,500 per month) and NYSE Trades 
($1,500 per month). This change would have no impact on customers who 
receive only NYSE BBO or only NYSE Trades.
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    \13\ See Securities Exchange Act Release No. 61914 (April 15, 
2010), 75 FR 21077 (April 22, 2010) (SR-NYSE-2010-30) at 21078.
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    In addition, the Exchange notes that recipients of NYSE OpenBook 
that also receive NYSE BBO and NYSE Order Imbalances do not currently 
pay an access fee for NYSE BBO and NYSE Order Imbalances.\14\ The 
Exchange has proposed by separate rule filing to amend the NYSE 
OpenBook access fee so that recipients of NYSE OpenBook who also 
receive NYSE BBO or NYSE Order Imbalances would be required to pay 
separate access fees for NYSE BBO ($1,500 per month) and/or NYSE Order 
Imbalances ($500 per month) in addition to the access fee for NYSE 
OpenBook.\15\ This change would have no impact on customers who do not 
receive NYSE OpenBook but who do receive NYSE BBO or NYSE Order 
Imbalances.
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    \14\ See Securities Exchange Act Release No. 59544 (Mar. 9, 
2009), 74 FR 11162 (March 16, 2009) (SR-NYSE-2008-131), at 11163.
    \15\ See SR-NYSE-2016-02.
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Reduction to Enterprise Fee
    The Exchange currently charges an enterprise fee of $190,000 per 
month for an unlimited number of professional and non-professional 
users for each of NYSE BBO and NYSE Trades. A single Enterprise Fee 
applies for clients receiving both NYSE BBO and NYSE Trades.\16\ The 
Exchange proposes to lower the enterprise fee to $185,000 per month.
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    \16\ See Securities Exchange Act Release No. 70211 (Aug. 15, 
2013), 78 FR 51781 (Aug. 21, 2013) (SR-NYSE-2013-58).
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    As an example, under the current fee structure for per user fees, 
if a firm had 40,000 professional users who each received NYSE Trades 
at $4 per month and NYSE BBO at $4 per month, then the firm would pay 
$320,000 per month in professional user fees. Under the current pricing 
structure, the charge would be capped at $190,000 and effective January 
it would be capped at $185,000.
    Under the proposed enterprise fee, the firm would pay a flat fee of 
$185,000 for an unlimited number of professional and non-professional 
users for both products. As is the case currently, a data recipient 
that pays the enterprise fee would not have to report the number of 
such users on a monthly basis.\17\ However, every six months, a data 
recipient must provide the Exchange with a count of the total number of 
natural person users of each product, including both professional and 
non-professional users.
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    \17\ Professional users currently are subject to a per display 
device count. See Securities Act Release No. 73985 (Jan. 5. 2015), 
80 FR 1456 (Jan. 9, 2015) (SR-NYSE-2014-75).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\18\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\19\ in particular, in that it 
provides an equitable allocation of reasonable fees among users and 
recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
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    \18\ 15 U.S.C. 78f(b).
    \19\ 15 U.S.C. 78f(b)(4), (5).
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    The fees are also equitable and not unfairly discriminatory because 
they will apply to all data recipients that choose to subscribe to NYSE 
BBO and NYSE Trades.
Multiple Data Feed Fee
    The Exchange believes that it is reasonable to require data 
recipients to pay a modest additional fee taking a data feed for a 
market data product in

[[Page 3492]]

more than two locations, because such data recipients can derive 
substantial value from being able to consume the product in as many 
locations as they want. In addition, there are administrative burdens 
associated with tracking each location at which a data recipient 
receives the product. The Multiple Data Feed Fee is designed to 
encourage data recipients to better manage their requests for 
additional data feeds and to monitor their usage of data feeds. The 
proposed fee is designed to apply to data feeds received in more than 
two locations so that each data recipient can have one primary and one 
backup data location before having to pay a multiple data feed fee. The 
Exchange notes that this pricing is consistent with similar pricing 
adopted in 2013 by the Consolidated Tape Association (``CTA'').\20\ The 
Exchange also notes that the OPRA Plan imposes a similar charge of $100 
per connection for circuit connections in addition to the primary and 
backup connections.\21\
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    \20\ See Securities Exchange Act Release No. 70010 (July 19, 
2013), 78 FR 44984 (July 25, 2013) (SR-CTA/CQ-2013-04).
    \21\ See ``Direct Access Fee,'' Options Price Reporting 
Authority Fee Schedule Fee Schedule[sic] PRA [sic] Plan at http://www.opradata.com/pdf/fee_schedule.pdf.
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Managed Non-Display Fees
    The Exchange believes that it is reasonable to discontinue Managed 
Non-Display Fees. In 2013, the Exchange determined that its fee 
structure, which was then based primarily on counting both display and 
non-display devices, was no longer appropriate in light of market and 
technology developments.\22\ Since then, the Exchange also modified its 
approach to display and non-display fees with changes to the fees as 
reflected in the 2014 Non-Display Filing.\23\ Discontinuing the fees 
applicable to Managed Non-Display as proposed reflects the Exchange's 
continuing review and consideration of the application of non-display 
fees, and would harmonize and simplify the application of Non-Display 
Use fees by applying them consistently to all users. In particular, 
after further experience with the application of non-display use fees, 
the Exchange believes that it is more equitable and less discriminatory 
to discontinue the distinction for Managed Non-Display services because 
all data recipients using data on a non-display basis are using it in a 
comparable way and should be subject to similar fees regardless of 
whether or not they receive the data directly from the Exchange. The 
Exchange believes that applying the same non-display fees to all data 
recipients on the same basis better reflects the significant value of 
non-display data to data recipients and eliminates what is effectively 
a discount for certain data recipients, and as such is not unfairly 
discriminatory. The Exchange believes that the non-display fees 
directly and appropriately reflect the significant value of using non-
display data in a wide range of computer-automated functions relating 
to both trading and non-trading activities and that the number and 
range of these functions continue to grow through innovation and 
technology developments.
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    \22\ See Securities Exchange Act Release No. 69278 (April 2, 
2013), 78 FR 20973 (April 8, 2013) (SR-NYSE-2013-25).
    \23\ See note 8, supra.
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Modifications to Access Fee
    The Exchange believes that it is reasonable to make the changes 
proposed to the application of access fees for NYSE BBO and NYSE 
Trades. The Exchange believes the proposed changes will make the 
application of the access fees to each of products so that an access 
fee entitles a customer to receive, for the applicable product, a data 
feed or feeds. Specifically, data recipients that take the NYSE BBO 
and/or NYSE Trades products receive value from each product they choose 
to take. A data recipient that chooses to take multiple products (no 
recipient is required to take any of these products, or any specific 
combination of them) uses each product in a different way and therefore 
obtains different value from each. The Exchange believes that each 
product has a separate and distinct value that is appropriate to 
reflect in a separate access fee. Finally, the requirement to pay 
separate access fees for each market data product is equitable and not 
unfairly discriminatory because it would apply to all data recipients 
and appropriately reflects the value of each product to those who 
choose to use them.
Reduction to Enterprise Fee
    The proposed enterprise fees for NYSE BBO and NYSE Trades are 
reasonable because they could result in a fee reduction for data 
recipients with a large number of professional and nonprofessional 
users, as described in the example above. If a data recipient has a 
smaller number of professional users of NYSE BBO and/or NYSE Trades, 
then it may continue to use the per user fee structure. By reducing 
prices for data recipient [sic] with a large number of professional and 
non-professional users, the Exchange believes that more data recipient 
[sic] may choose to offer NYSE BBO and NYSE Trades, thereby expanding 
the distribution of this market data for the benefit of investors. The 
Exchange also believes that offering an enterprise fee expands the 
range of options for offering NYSE BBO and NYSE Trades and allows data 
recipients greater choice in selecting the most appropriate level of 
data and fees for the professional and non-professional users they are 
servicing.
    The Exchange notes that NYSE BBO and NYSE Trades are entirely 
optional. The Exchange is not required to make NYSE BBO and NYSE Trades 
available or to offer any specific pricing alternatives to any 
customers, nor is any firm required to purchase NYSE BBO and NYSE 
Trades. Firms that do purchase NYSE BBO and NYSE Trades do so for the 
primary goals of using them to increase revenues, reduce expenses, and 
in some instances compete directly with the Exchange (including for 
order flow); those firms are able to determine for themselves whether 
NYSE BBO and NYSE Trades or any other similar products are attractively 
priced or not.\24\
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    \24\ See, e.g., Proposing Release on Regulation of NMS Stock 
Alternative Trading Systems, Securities Exchange Act Release No. 
76474 (Nov. 18, 2015) (File No. S7-23-15). See also, ``Brokers 
Warned Not to Steer Clients' Stock Trades Into Slow Lane,'' 
Bloomberg Business, December 14, 2015 (Sigma X dark pool to use 
direct exchange feeds as the primary source of price data).
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    Firms that do not wish to purchase NYSE BBO and NYSE Trades at the 
new prices have a variety of alternative market data products from 
which to choose,\25\ or if NYSE BBO and NYSE Trades do not provide 
sufficient value to firms as offered based on the uses those firms have 
or planned to make of it, such firms may simply choose to conduct their 
business operations in ways that do not use NYSE BBO and NYSE Trades or 
use them at different levels or in different configurations. The 
Exchange notes that broker-dealers are not required to purchase 
proprietary market data to comply with their best execution 
obligations.\26\
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    \25\ See NASDAQ Rule 7047 (Nasdaq Basic) and BATS Rule 11.22 
(BATS TOP and Last Sale).
    \26\ See FINRA Regulatory Notice 15-46, ``Best Execution,'' 
November 2015.
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld reliance by the Securities and Exchange Commission 
(``Commission'') upon the existence of competitive market mechanisms to 
set reasonable and equitably allocated fees for proprietary market 
data:

    In fact, the legislative history indicates that the Congress 
intended that the market system

[[Page 3493]]

`evolve through the interplay of competitive forces as unnecessary 
regulatory restrictions are removed' and that the SEC wield its 
regulatory power `in those situations where competition may not be 
sufficient,' such as in the creation of a `consolidated 
transactional reporting system.'

    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted 
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's 
conclusion that ``Congress intended that `competitive forces should 
dictate the services and practices that constitute the U.S. national 
market system for trading equity securities.' '' \27\
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    \27\ NetCoalition, 615 F.3d at 535.
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    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for proprietary market data and that 
the Commission can rely upon such evidence in concluding that the fees 
established in this filing are the product of competition and therefore 
satisfy the relevant statutory standards. In addition, the existence of 
alternatives to these data products, such as consolidated data and 
proprietary data from other sources, as described below, further 
ensures that the Exchange cannot set unreasonable fees, or fees that 
are unreasonably discriminatory, when vendors and subscribers can 
select such alternatives.
    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach. The Exchange 
believes that, even if it were possible as a matter of economic theory, 
cost-based pricing for proprietary market data would be so complicated 
that it could not be done practically or offer any significant 
benefits.\28\
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    \28\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties and the Commission to cost-regulate a large number 
of participants and standardize and analyze extraordinary amounts of 
information, accounts, and reports. In addition, and as described 
below, it is impossible to regulate market data prices in isolation 
from prices charged by markets for other services that are joint 
products. Cost-based rate regulation would also lead to litigation 
and may distort incentives, including those to minimize costs and to 
innovate, leading to further waste. Under cost-based pricing, the 
Commission would be burdened with determining a fair rate of return, 
and the industry could experience frequent rate increases based on 
escalating expense levels. Even in industries historically subject 
to utility regulation, cost-based ratemaking has been discredited. 
As such, the Exchange believes that cost-based ratemaking would be 
inappropriate for proprietary market data and inconsistent with 
Congress's direction that the Commission use its authority to foster 
the development of the national market system, and that market 
forces will continue to provide appropriate pricing discipline. See 
Appendix C to NYSE's comments to the Commission's 2000 Concept 
Release on the Regulation of Market Information Fees and Revenues, 
which can be found on the Commission's Web site at http://www.sec.gov/rules/concept/s72899/buck1.htm.
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    For these reasons, the Exchange believes that the proposed fees are 
reasonable, equitable, and not unfairly discriminatory.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. An exchange's ability to 
price its proprietary market data feed products is constrained by 
actual competition for the sale of proprietary market data products, 
the joint product nature of exchange platforms, and the existence of 
alternatives to the Exchange's proprietary data.
The Existence of Actual Competition
    The market for proprietary data products is currently competitive 
and inherently contestable because there is fierce competition for the 
inputs necessary for the creation of proprietary data and strict 
pricing discipline for the proprietary products themselves. Numerous 
exchanges compete with one another for listings and order flow and 
sales of market data itself, providing ample opportunities for 
entrepreneurs who wish to compete in any or all of those areas, 
including producing and distributing their own market data. Proprietary 
data products are produced and distributed by each individual exchange, 
as well as other entities, in a vigorously competitive market. Indeed, 
the U.S. Department of Justice (``DOJ'') (the primary antitrust 
regulator) has expressly acknowledged the aggressive actual competition 
among exchanges, including for the sale of proprietary market data. In 
2011, the DOJ stated that exchanges ``compete head to head to offer 
real-time equity data products. These data products include the best 
bid and offer of every exchange and information on each equity trade, 
including the last sale.'' \29\
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    \29\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html; see 
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case 
No. 11-cv-2280 (D.C. Dist.) ] 24 (``NYSE and Direct Edge compete 
head-to-head . . . in the provision of real-time proprietary equity 
data products.'').
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    Moreover, competitive markets for listings, order flow, executions, 
and transaction reports provide pricing discipline for the inputs of 
proprietary data products and therefore constrain markets from 
overpricing proprietary market data. Broker-dealers send their order 
flow and transaction reports to multiple venues, rather than providing 
them all to a single venue, which in turn reinforces this competitive 
constraint. As a 2010 Commission Concept Release noted, the ``current 
market structure can be described as dispersed and complex'' with 
``trading volume . . . dispersed among many highly automated trading 
centers that compete for order flow in the same stocks'' and ``trading 
centers offer[ing] a wide range of services that are designed to 
attract different types of market participants with varying trading 
needs.'' \30\ More recently, SEC Chair Mary Jo White has noted that 
competition for order flow in exchange-listed equities is ``intense'' 
and divided among many trading venues, including exchanges, more than 
40 alternative trading systems, and more than 250 broker-dealers.\31\
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    \30\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 
2010) (File No. S7-02-10). This Concept Release included data from 
the third quarter of 2009 showing that no market center traded more 
than 20% of the volume of listed stocks, further evidencing the 
dispersal of and competition for trading activity. Id. at 3598. Data 
available on ArcaVision show that from June 30, 2013 to June 30, 
2014, no exchange traded more than 12% of the volume of listed 
stocks by either trade or dollar volume, further evidencing the 
continued dispersal of and fierce competition for trading activity. 
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
    \31\ Mary Jo White, Enhancing Our Equity Market Structure, 
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage 
Conference (June 5, 2014) (available on the Commission Web site), 
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS 
OTC Trading in National Market System Stocks,'' at 7-8.
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    If an exchange succeeds in competing for quotations, order flow, 
and trade executions, then it earns trading revenues and increases the 
value of its proprietary market data products because they will contain 
greater quote and trade information. Conversely, if an exchange is less 
successful in attracting quotes, order flow, and trade executions, then 
its market data products may be less desirable to customers in light of 
the diminished content and data products offered by competing venues 
may become more attractive. Thus, competition for quotations, order 
flow, and trade executions puts significant pressure on an exchange to 
maintain both execution and data fees at reasonable levels.
    In addition, in the case of products that are also redistributed 
through market data vendors, such as Bloomberg and Thompson Reuters, 
the vendors

[[Page 3494]]

themselves provide additional price discipline for proprietary data 
products because they control the primary means of access to certain 
end users. These vendors impose price discipline based upon their 
business models. For example, vendors that assess a surcharge on data 
they sell are able to refuse to offer proprietary products that their 
end users do not or will not purchase in sufficient numbers. Vendors 
will not elect to make available NYSE BBO or NYSE Trades unless their 
customers request it, and customers will not elect to pay the proposed 
fees unless NYSE BBO and NYSE Trades can provide value by sufficiently 
increasing revenues or reducing costs in the customer's business in a 
manner that will offset the fees. All of these factors operate as 
constraints on pricing proprietary data products.
Joint Product Nature of Exchange Platform
    Transaction execution and proprietary data products are 
complementary in that market data is both an input and a byproduct of 
the execution service. In fact, proprietary market data and trade 
executions are a paradigmatic example of joint products with joint 
costs. The decision of whether and on which platform to post an order 
will depend on the attributes of the platforms where the order can be 
posted, including the execution fees, data availability and quality, 
and price and distribution of data products. Without a platform to post 
quotations, receive orders, and execute trades, exchange data products 
would not exist.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's platform for posting quotes, 
accepting orders, and executing transactions and the cost of regulating 
the exchange to ensure its fair operation and maintain investor 
confidence. The total return that a trading platform earns reflects the 
revenues it receives from both products and the joint costs it incurs.
    Moreover, an exchange's broker-dealer customers generally view the 
costs of transaction executions and market data as a unified cost of 
doing business with the exchange. A broker-dealer will only choose to 
direct orders to an exchange if the revenue from the transaction 
exceeds its cost, including the cost of any market data that the 
broker-dealer chooses to buy in support of its order routing and 
trading decisions. If the costs of the transaction are not offset by 
its value, then the broker-dealer may choose instead not to purchase 
the product and trade away from that exchange. There is substantial 
evidence of the strong correlation between order flow and market data 
purchases. For example, in September 2015, more than 80% of the 
transaction volume on each of NYSE and NYSE's affiliates NYSE Arca, 
Inc. (``NYSE Arca'') and NYSE MKT LLC (``MKT'') was executed by market 
participants that purchased one or more proprietary market data 
products (the 20 firms were not the same for each market). A supra-
competitive increase in the fees for either executions or market data 
would create a risk of reducing an exchange's revenues from both 
products.
    Other market participants have noted that proprietary market data 
and trade executions are joint products of a joint platform and have 
common costs.\32\ The Exchange agrees with and adopts those discussions 
and the arguments therein. The Exchange also notes that the economics 
literature confirms that there is no way to allocate common costs 
between joint products that would shed any light on competitive or 
efficient pricing.\33\
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    \32\ See Securities Exchange Act Release No. 72153 (May 12, 
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045) 
(``[A]ll of the exchange's costs are incurred for the unified 
purposes of attracting order flow, executing and/or routing orders, 
and generating and selling data about market activity. The total 
return that an exchange earns reflects the revenues it receives from 
the joint products and the total costs of the joint products.''). 
See also Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 
75 FR 57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110), and 
Securities Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 
57321, 57324 (Sept. 20, 2010) (SR-NASDAQ-2010-111).
    \33\ See generally Mark Hirschey, Fundamentals of Managerial 
Economics, at 600 (2009) (``It is important to note, however, that 
although it is possible to determine the separate marginal costs of 
goods produced in variable proportions, it is impossible to 
determine their individual average costs. This is because common 
costs are expenses necessary for manufacture of a joint product. 
Common costs of production--raw material and equipment costs, 
management expenses, and other overhead--cannot be allocated to each 
individual by-product on any economically sound basis . . . . Any 
allocation of common costs is wrong and arbitrary.''). This is not 
new economic theory. See, e.g., F.W. Taussig, ``A Contribution to 
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4) 
438, 465 (July 1891) (``Yet, surely, the division is purely 
arbitrary. These items of cost, in fact, are jointly incurred for 
both sorts of traffic; and I cannot share the hope entertained by 
the statistician of the Commission, Professor Henry C. Adams, that 
we shall ever reach a mode of apportionment that will lead to 
trustworthy results.'').
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    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products because it is 
impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, and system and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.
    As noted above, the level of competition and contestability in the 
market is evident in the numerous alternative venues that compete for 
order flow, including 11 equities self-regulatory organization 
(``SRO'') markets, as well as various forms of alternative trading 
systems (``ATSs''), including dark pools and electronic communication 
networks (``ECNs''), and internalizing broker-dealers. SRO markets 
compete to attract order flow and produce transaction reports via trade 
executions, and two FINRA-regulated Trade Reporting Facilities compete 
to attract transaction reports from the non-SRO venues.
    Competition among trading platforms can be expected to constrain 
the aggregate return that each platform earns from the sale of its 
joint products, but different trading platforms may choose from a range 
of possible, and equally reasonable, pricing strategies as the means of 
recovering total costs. For example, some platforms may choose to pay 
rebates to attract orders, charge relatively low prices for market data 
products (or provide market data products free of charge), and charge 
relatively high prices for accessing posted liquidity. Other platforms 
may choose a strategy of paying lower rebates (or no rebates) to 
attract orders, setting relatively high prices for market data 
products, and setting relatively low prices for accessing posted 
liquidity. For example, BATS Global Markets (``BATS'') and Direct Edge, 
which previously operated as ATSs and obtained exchange status in 2008 
and 2010, respectively, provided certain market data at no charge on 
their Web sites in order to attract more order flow, and used revenue 
rebates from resulting additional executions to maintain low execution 
charges for their users.\34\ In

[[Page 3495]]

this environment, there is no economic basis for regulating maximum 
prices for one of the joint products in an industry in which suppliers 
face competitive constraints with regard to the joint offering.
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    \34\ This is simply a securities market-specific example of the 
well-established principle that in certain circumstances more sales 
at lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
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Existence of Alternatives
    The large number of SROs, ATSs, and internalizing broker-dealers 
that currently produce proprietary data or are currently capable of 
producing it provides further pricing discipline for proprietary data 
products. Each SRO, ATS, and broker-dealer is currently permitted to 
produce and sell proprietary data products, and many currently do, 
including but not limited to the Exchange, NYSE MKT, NYSE Arca, NASDAQ 
OMX, BATS, and Direct Edge.
    The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects. 
First, non-SROs can compete directly with SROs for the production and 
sale of proprietary data products. By way of example, BATS and NYSE 
Arca both published proprietary data on the Internet before registering 
as exchanges. Second, because a single order or transaction report can 
appear in an SRO proprietary product, a non-SRO proprietary product, or 
both, the amount of data available via proprietary products is greater 
in size than the actual number of orders and transaction reports that 
exist in the marketplace. With respect to NYSE BBO and NYSE Trades, 
competitors offer close substitute products.\35\ Because market data 
users can find suitable substitutes for most proprietary market data 
products, a market that overprices its market data products stands a 
high risk that users may substitute another source of market data 
information for its own.
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    \35\ See supra note 25.
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    Those competitive pressures imposed by available alternatives are 
evident in the Exchange's proposed pricing.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted 
above, BATS launched as an ATS in 2006 and became an exchange in 2008, 
while Direct Edge began operations in 2007 and obtained exchange status 
in 2010.
    In determining the proposed changes to the fees for the NYSE BBO 
and NYSE Trades, the Exchange considered the competitiveness of the 
market for proprietary data and all of the implications of that 
competition. The Exchange believes that it has considered all relevant 
factors and has not considered irrelevant factors in order to establish 
fair, reasonable, and not unreasonably discriminatory fees and an 
equitable allocation of fees among all users. The existence of numerous 
alternatives to the Exchange's products, including proprietary data 
from other sources, ensures that the Exchange cannot set unreasonable 
fees, or fees that are unreasonably discriminatory, when vendors and 
subscribers can elect these alternatives or choose not to purchase a 
specific proprietary data product if the attendant fees are not 
justified by the returns that any particular vendor or data recipient 
would achieve through the purchase.

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

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

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \36\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \37\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \36\ 15 U.S.C. 78s(b)(3)(A).
    \37\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \38\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \38\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2016-03 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.

All submissions should refer to File Number SR-NYSE-2016-03. 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 Section, 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 will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-NYSE-2016-03 and should be submitted on or before 
February 11, 2016.


[[Page 3496]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01062 Filed 1-20-16; 8:45 am]
BILLING CODE 8011-01-P
Document Created: 2018-02-02 12:33:32
Document Modified: 2018-02-02 12:33:32
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		81 FR 3490