81 FR 3500 - Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the Fees for NYSE MKT BBO and NYSE MKT Trades

SECURITIES AND EXCHANGE COMMISSION

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

Page Range		3500-3506
FR Document		2016-01056
Federal Register, Volume 81 Issue 13 (Thursday, January 21, 2016)
[Federal Register Volume 81, Number 13 (Thursday, January 21, 2016)]
[Notices]
[Pages 3500-3506]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-01056]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76906; File No. SR-NYSEMKT-2016-04]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending the Fees for 
NYSE MKT BBO and NYSE MKT 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, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') 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 MKT BBO and NYSE 
MKT Trades to: (1) Establish a multiple data feed fee; (2) discontinue 
fees relating to managed non-display; (3)

[[Page 3501]]

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 MKT BBO and NYSE 
MKT Trades market data products,\4\ as set forth on the NYSE MKT 
Equities Proprietary Market Data Fee Schedule (``Fee Schedule''). The 
Exchange proposes to make the following fee changes effective January 
1, 2016:
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    \4\ See Securities Exchange Act Release Nos. 61936 (Apr. 16, 
2010), 74 FR 21088 (Apr. 22, 2010) (SR-NYSEAmex-2010-35) (notice--
NYSE MKT BBO and NYSE MKT Trades) and 62187 (May 27, 2010), 75 FR 
31500 (June 3, 2010) (SR-NYSEAmex-2010-35) (approval order--NYSE MKT 
BBO and NYSE MKT Trades).
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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 MKT BBO or NYSE MKT 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 5 in Exhibit 5 of this proposed rule 
change was previously filed under a separate filing. See SR-NYSEMKT-
2016-03 (Proposed Rule Change to Amend the Fees for NYSE MKT 
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 
MKT 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 MKT market data means accessing, 
processing, or consuming NYSE MKT 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 
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 MKT BBO and NYSE MKT Trades and does not allow for 
further internal distribution or external redistribution of NYSE MKT 
BBO and NYSE MKT Trades by the data recipients. A Redistributor 
approved for Managed Non-Display Services is required to report to NYSE 
MKT on a monthly basis the data recipients that are receiving NYSE MKT 
market data through the Redistributor's managed non-display service and 
the real-time NYSE MKT 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 MKT BBO from an approved Redistributor of 
Managed Non-Display Services are charged a Managed Non-Display Services 
Fee of $150 per month, and data recipients that receive NYSE MKT Trades 
from an approved Redistributor of Managed Non-Display Services are 
charged a Managed Non-Display Services Fee of $600 per month. Data 
recipients that receive NYSE MKT BBO and NYSE MKT Trades from an 
approved Redistributor of Managed Non-Display Services are also charged 
an Access Fee of $375 per month.\10\
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    \7\ ``Redistributor'' means a vendor or any other person that 
provides an NYSE MKT 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. 72020 (Sept. 9, 
2014), 79 FR 55040 (Sept. 15, 2014)(SR-NYSEMKT-2014-72) (``2014 Non-
Display Filing''); see also Securities Exchange Act Release No. 
69285 (April 3, 2013), 78 FR 21172 (April 9, 2013) (SR-NYSEMKT-2013-
32) (``2013 Non-Display Filing'').
    \9\ To be approved for Managed Non-Display Services, a 
Redistributor must manage and control the access to NYSE MKT BBO and 
NYSE MKT 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 MKT BBO and 
NYSE MKT Trades in the Redistributor's own messaging formats (rather 
than using raw NYSE message formats) by reformatting and/or altering 
NYSE MKT BBO and NYSE MKT Trades prior to retransmission without 
affecting the integrity of NYSE MKT BBO and NYSE MKT Trades and 
without rendering NYSE MKT BBO and NYSE MKT Trades inaccurate, 
unfair, uninformative, fictitious, misleading or discriminatory.
    \10\ A single Non-Display Access Fee applies for clients 
receiving both NYSE MKT BBO and NYSE MKT 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 
MKT BBO and NYSE MKT Trades on a managed non-display basis would be 
subject to the same access fee of $750 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 MKT OpenBook 
and NYSE MKT Order Imbalances. See SR-NYSEMKT-2016-03 and SR-
NYSEMKT-2016-05. The fees applicable to the NYSE MKT 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 MKT BBO and NYSE MKT Trades.
    Each NYSE MKT BBO data feed recipient currently pays a monthly $750 
access fee for NYSE MKT BBO, and each NYSE MKT Trades data feed 
recipient currently pays a monthly $750 access fee for NYSE MKT Trades. 
A single access fee applies for data recipients receiving both NYSE MKT 
BBO and NYSE MKT Trades.\13\ The Exchange proposes to amend the access 
fees so that recipients of NYSE MKT BBO and NYSE MKT Trades would be 
required to pay a separate access fees for

[[Page 3502]]

NYSE MKT BBO ($750 per month) and NYSE MKT Trades ($750 per month). 
This change would have no impact on customers who receive only NYSE MKT 
BBO or only NYSE MKT Trades.
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    \13\ See note 4, supra.
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Reduction to Enterprise Fee
    The Exchange currently charges an enterprise fee of $20,000 per 
month for an unlimited number of professional and non-professional 
users for each of NYSE MKT BBO and NYSE MKT Trades. A single Enterprise 
Fee applies for clients receiving both NYSE MKT BBO and NYSE MKT 
Trades.\14\ The Exchange proposes to lower the enterprise fee to 
$15,000 per month.
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    \14\ See Securities Exchange Act Release No. 70212 (Aug. 15, 
2013), 78 FR 51775 (Aug. 21, 2013) (SR-NYSEMKT-2013-69).
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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 MKT 
Trades at $1 per month and NYSE MKT BBO at $1 per month, then the firm 
would pay $80,000 per month in professional user fees. Under the 
current pricing structure, the charge would be capped at $20,000 and 
effective January it would be capped at $15,000.
    Under the proposed enterprise fee, the firm would pay a flat fee of 
$15,000 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.\15\ 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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    \15\ Professional users currently are subject to a per display 
device count. See Securities Act Release No. 73986 (Jan. 5. 2015), 
80 FR 1444 (Jan. 9, 2015) (SR-NYSEMKT-2014-113).
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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,\16\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\17\ 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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    \16\ 15 U.S.C. 78f(b).
    \17\ 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 
MKT BBO and NYSE MKT 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 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'').\18\ 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.\19\
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    \18\ See Securities Exchange Act Release No. 70010 (July 19, 
2013), 78 FR 44984 (July 25, 2013) (SR-CTA/CQ-2013-04).
    \19\ 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. As the Exchange noted in the 2013 Non-Display Filing, 
the Exchange determined at that time 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. 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.\20\ 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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    \20\ 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 MKT BBO and NYSE 
MKT 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 MKT BBO 
and/or NYSE MKT 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 MKT BBO and NYSE MKT 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 MKT BBO and/or NYSE MKT 
Trades, then it may continue to use the per user fee

[[Page 3503]]

structure. By reducing prices for data recipient [sic] with a large 
number of professional and non-professional users, the Exchange 
believes that more data recipients may choose to offer NYSE MKT BBO and 
NYSE MKT 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 MKT 
BBO and NYSE MKT 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 MKT BBO and NYSE MKT Trades are 
entirely optional. The Exchange is not required to make NYSE MKT BBO 
and NYSE MKT Trades available or to offer any specific pricing 
alternatives to any customers, nor is any firm required to purchase 
NYSE MKT BBO and NYSE MKT Trades. Firms that do purchase NYSE MKT BBO 
and NYSE MKT 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 MKT BBO and NYSE MKT 
Trades or any other similar products are attractively priced or 
not.\21\
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    \21\ 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 MKT BBO and NYSE MKT Trades 
at the new prices have a variety of alternative market data products 
from which to choose,\22\ or if NYSE MKT BBO and NYSE MKT 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 MKT BBO 
and NYSE MKT 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.\23\
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    \22\ See NASDAQ Rule 7047 (Nasdaq Basic) and BATS Rule 11.22 
(BATS TOP and Last Sale).
    \23\ 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 `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.' '' \24\
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    \24\ 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.\25\
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    \25\ 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.'' \26\
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    \26\ 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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[[Page 3504]]

    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.'' \27\ 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.\28\
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    \27\ 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.
    \28\ 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 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 MKT BBO or NYSE 
MKT Trades unless their customers request it, and customers will not 
elect to pay the proposed fees unless NYSE MKT BBO and NYSE MKT 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 MKT and NYSE MKT's affiliates New 
York Stock Exchange LLC (``NYSE'') and NYSE Arca, Inc. (``NYSE Arca'') 
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.\29\ 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.\30\
---------------------------------------------------------------------------

    \29\ 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).
    \30\ 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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[[Page 3505]]

    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.\31\ 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.
---------------------------------------------------------------------------

    \31\ 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.
---------------------------------------------------------------------------

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, 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 MKT BBO and NYSE MKT 
Trades, competitors offer close substitute products.\32\ 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.
---------------------------------------------------------------------------

    \32\ See supra note 22.
---------------------------------------------------------------------------

    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 MKT 
BBO and NYSE MKT 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) \33\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \34\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78s(b)(3)(A).
    \34\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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

[[Page 3506]]

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) \35\ of the Act to 
determine whether the proposed rule change should be approved or 
disapproved.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-NYSEMKT-2016-04 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-NYSEMKT-2016-04. 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 20549-1090 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-NYSEMKT-2016-04 and should be submitted 
on or before February 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
---------------------------------------------------------------------------

    \36\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-01056 Filed 1-20-16; 8:45 am]
 BILLING CODE 8011-01-P
3504 Federal Register / Vol. 81, No. 13 / Thursday, January 21, 2016 / Notices

Moreover, competitive markets for attractive. Thus, competition for business with the exchange. A broker-
listings, order flow, executions, and quotations, order flow, and trade dealer will only choose to direct orders
transaction reports provide pricing executions puts significant pressure on to an exchange if the revenue from the
discipline for the inputs of proprietary an exchange to maintain both execution transaction exceeds its cost, including
data products and therefore constrain and data fees at reasonable levels. the cost of any market data that the
markets from overpricing proprietary In addition, in the case of products broker-dealer chooses to buy in support
market data. Broker-dealers send their that are also redistributed through of its order routing and trading
order flow and transaction reports to market data vendors, such as Bloomberg decisions. If the costs of the transaction
multiple venues, rather than providing and Thompson Reuters, the vendors are not offset by its value, then the
them all to a single venue, which in turn themselves provide additional price broker-dealer may choose instead not to
reinforces this competitive constraint. discipline for proprietary data products purchase the product and trade away
As a 2010 Commission Concept Release because they control the primary means from that exchange. There is substantial
noted, the ‘‘current market structure can of access to certain end users. These evidence of the strong correlation
be described as dispersed and complex’’ vendors impose price discipline based between order flow and market data
with ‘‘trading volume . . . dispersed upon their business models. For purchases. For example, in September
among many highly automated trading example, vendors that assess a 2015, more than 80% of the transaction
centers that compete for order flow in surcharge on data they sell are able to volume on each of NYSE MKT and
the same stocks’’ and ‘‘trading centers refuse to offer proprietary products that NYSE MKT’s affiliates New York Stock
offer[ing] a wide range of services that their end users do not or will not Exchange LLC (‘‘NYSE’’) and NYSE
are designed to attract different types of purchase in sufficient numbers. Vendors Arca, Inc. (‘‘NYSE Arca’’) was executed
market participants with varying trading will not elect to make available NYSE by market participants that purchased
needs.’’ 27 More recently, SEC Chair MKT BBO or NYSE MKT Trades unless one or more proprietary market data
Mary Jo White has noted that their customers request it, and products (the 20 firms were not the
competition for order flow in exchange- customers will not elect to pay the same for each market). A supra-
listed equities is ‘‘intense’’ and divided proposed fees unless NYSE MKT BBO competitive increase in the fees for
among many trading venues, including and NYSE MKT Trades can provide either executions or market data would
exchanges, more than 40 alternative value by sufficiently increasing create a risk of reducing an exchange’s
trading systems, and more than 250 revenues or reducing costs in the revenues from both products.
broker-dealers.28 customer’s business in a manner that Other market participants have noted
If an exchange succeeds in competing will offset the fees. All of these factors that proprietary market data and trade
for quotations, order flow, and trade operate as constraints on pricing executions are joint products of a joint
executions, then it earns trading proprietary data products. platform and have common costs.29 The
revenues and increases the value of its Exchange agrees with and adopts those
Joint Product Nature of Exchange
proprietary market data products discussions and the arguments therein.
Platform
because they will contain greater quote The Exchange also notes that the
and trade information. Conversely, if an Transaction execution and proprietary economics literature confirms that there
exchange is less successful in attracting data products are complementary in that is no way to allocate common costs
quotes, order flow, and trade market data is both an input and a between joint products that would shed
executions, then its market data byproduct of the execution service. In any light on competitive or efficient
products may be less desirable to fact, proprietary market data and trade pricing.30
customers in light of the diminished executions are a paradigmatic example
content and data products offered by of joint products with joint costs. The 29 See Securities Exchange Act Release No. 72153

competing venues may become more decision of whether and on which (May 12, 2014), 79 FR 28575, 28578 n.15 (May 16,
platform to post an order will depend 2014) (SR–NASDAQ–2014–045) (‘‘[A]ll of the
on the attributes of the platforms where exchange’s costs are incurred for the unified
Inc. and IntercontinentalExchange Inc. Abandoning
purposes of attracting order flow, executing and/or
Their Bid for NYSE Euronext (May 16, 2011), the order can be posted, including the routing orders, and generating and selling data
available at http://www.justice.gov/iso/opa/atr/ execution fees, data availability and
speeches/2011/at-speech-110516.html; see also about market activity. The total return that an
Complaint in U.S. v. Deutsche Borse AG and NYSE quality, and price and distribution of exchange earns reflects the revenues it receives
Euronext, Case No. 11–cv–2280 (D.C. Dist.) ¶ 24 data products. Without a platform to from the joint products and the total costs of the
(‘‘NYSE and Direct Edge compete head-to-head . . . joint products.’’). See also Securities Exchange Act
post quotations, receive orders, and Release No. 62907 (Sept. 14, 2010), 75 FR 57314,
in the provision of real-time proprietary equity data
products.’’). execute trades, exchange data products 57317 (Sept. 20, 2010) (SR–NASDAQ–2010–110),
27 Concept Release on Equity Market Structure, would not exist. and Securities Exchange Act Release No. 62908
Securities Exchange Act Release No. 61358 (Jan. 14, The costs of producing market data (Sept. 14, 2010), 75 FR 57321, 57324 (Sept. 20,
2010), 75 FR 3594 (Jan. 21, 2010) (File No. S7–02– 2010) (SR–NASDAQ–2010–111).
include not only the costs of the data 30 See generally Mark Hirschey, Fundamentals of
10). This Concept Release included data from the
third quarter of 2009 showing that no market center
distribution infrastructure, but also the Managerial Economics, at 600 (2009) (‘‘It is
traded more than 20% of the volume of listed costs of designing, maintaining, and important to note, however, that although it is
stocks, further evidencing the dispersal of and operating the exchange’s platform for possible to determine the separate marginal costs of
competition for trading activity. Id. at 3598. Data posting quotes, accepting orders, and goods produced in variable proportions, it is
available on ArcaVision show that from June 30, impossible to determine their individual average
2013 to June 30, 2014, no exchange traded more executing transactions and the cost of costs. This is because common costs are expenses
than 12% of the volume of listed stocks by either regulating the exchange to ensure its fair necessary for manufacture of a joint product.
trade or dollar volume, further evidencing the operation and maintain investor Common costs of production—raw material and
asabaliauskas on DSK9F6TC42PROD with NOTICES

continued dispersal of and fierce competition for confidence. The total return that a equipment costs, management expenses, and other
trading activity. See https://www.arcavision.com/ overhead—cannot be allocated to each individual
Arcavision/arcalogin.jsp. trading platform earns reflects the by-product on any economically sound basis. . . .
28 Mary Jo White, Enhancing Our Equity Market revenues it receives from both products Any allocation of common costs is wrong and
Structure, Sandler O’Neill & Partners, L.P. Global and the joint costs it incurs. arbitrary.’’). This is not new economic theory. See,
Exchange and Brokerage Conference (June 5, 2014) Moreover, an exchange’s broker- e.g., F. W. Taussig, ‘‘A Contribution to the Theory
(available on the Commission Web site), citing of Railway Rates,’’ Quarterly Journal of Economics
Tuttle, Laura, 2014, ‘‘OTC Trading: Description of
dealer customers generally view the V(4) 438, 465 (July 1891) (‘‘Yet, surely, the division
Non-ATS OTC Trading in National Market System costs of transaction executions and is purely arbitrary. These items of cost, in fact, are
Stocks,’’ at 7–8. market data as a unified cost of doing jointly incurred for both sorts of traffic; and I cannot

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Document Created: 2018-02-02 12:33:52
Document Modified: 2018-02-02 12:33:52
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 3500