81 FR 551 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Fees for Managed Data Solutions
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 3 (January 6, 2016)
Federal Register Volume 81, Issue 3 (January 6, 2016)
| Page Range | 551-554 | |
| FR Document | 2015-33206 |
[Federal Register Volume 81, Number 3 (Wednesday, January 6, 2016)] [Notices] [Pages 551-554] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2015-33206] [[Page 551]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-76799; File No. SR-Phlx-2015-112] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Modify the Fees for Managed Data Solutions December 30, 2105. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on December 18, 2015, The NASDAQ OMX PHLX LLC (``Phlx'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Phlx. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change Phlx proposes to modify the charges to be paid for Managed Data Solutions (``MDS''). While the changes proposed herein are effective upon filing, the Exchange has designated that the amendments be operative on January 1, 2016. The text of the proposed rule change is below. Proposed new language is italicized; proposed deletions are bracketed. NASDAQ OMX PHLX Rules NASDAQ OMX PHLX LLC Pricing Schedule VIII. NASDAQ OMX PSX Fees * * * * * PSX Managed Data Solutions Fees. (a) Distributors and Subscribers of Managed Data Solutions products containing PSX TotalView data (non-display use only) shall pay the following fees: ------------------------------------------------------------------------ Fee schedule for managed data Solutions Price ------------------------------------------------------------------------ Managed Data Solutions Administration $[750]1,500/mo Per Distributor. Fee (for the right to offer Managed Data Solutions to client organizations). PSX Depth Data Professional Managed $1[0]50/mo Per Subscriber. Data Solutions Subscriber Fee. (Internal Use Only and includes PSX TotalView). PSX Depth Data Managed Data Solutions $20/mo Per Subscriber. Non-Professional Subscriber Fee. (Internal Use Only and includes PSX TotalView). Fees are per month for all or any portion of the month in which the MDS products are accessed. ------------------------------------------------------------------------ (b) No change. * * * * * II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Phlx included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Phlx has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to increase the charges to be paid by distributors and subscribers of Managed Data Solutions products containing PSX TotalView data (non-display use only). Specifically, the Exchange proposes to increase the fee charged to distributors for the right to offer Managed Data Solutions to client organizations to $1,500 per month per distributor (``MDS Administration Fee''), and the fee charged to professional subscribers to $150 per month per subscriber (``MDS Subscriber Fee''). This proposed rule change will not affect the pricing for non-professional subscribers. MDS is a data delivery option available to distributors of PSX TotalView. Under the MDS fee structure, distributors may provide data feeds, Application Programming Interfaces (APIs) or similar automated delivery solutions to client organizations with only limited entitlement controls. Through this program, Phlx offers a much simpler administration process for MDS distributors and subscribers, reducing the burden and cost of administration. Subscribers of MDS may use the information for internal purposes only and may not distribute the information outside of their organization. MDS presents opportunities for small and mid-size firms to achieve significant cost savings over the cost of data feeds. Both the MDS Administration Fee and MDS Subscriber Fee have not changed since their introduction in 2013. Nevertheless, both distributors and subscribers reap the benefits of Phlx's constant focus on the performance and enhancements to these offerings. As such, Phlx recently completed a technology refresh to ensure that its data feeds continue to achieve a high level of performance and resiliency. The Exchange has also upgraded and refreshed its disaster recovery capabilities, adding to the increased focus on redundancy and resiliency. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,\3\ in general, and with Sections 6(b)(4) and 6(b)(5) of the Act,\4\ in particular, in that it provides an equitable allocation of reasonable fees among Subscribers and recipients of Phlx data and is not designed to permit unfair discrimination between them. Phlx's proposal to increase the MDS Administration Fee and MDS Subscriber Fee is also consistent with the Act in that it reflects an equitable allocation of reasonable fees. The Commission has long recognized the fair and equitable and not unreasonably discriminatory nature of assessing different fees for distributors and professional and non-professional users of the same data. Phlx also believes it is equitable to assess a higher fee per professional user than to an ordinary non-professional user due to the enhanced flexibility, lower [[Page 552]] overall costs and value that it offers distributors. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78f. \4\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- In adopting Regulation NMS, the Commission granted self-regulatory organizations and broker-dealers increased authority and flexibility to offer new and unique market data to the public. The Commission concluded that Regulation NMS--by deregulating the market in proprietary data--would itself further the Act's goals of facilitating efficiency and competition: [E]fficiency is promoted when broker-dealers who do not need the data beyond the prices, sizes, market center identifications of the NBBO and consolidated last sale information are not required to receive (and pay for) such data. The Commission also believes that efficiency is promoted when broker-dealers may choose to receive (and pay for) additional market data based on their own internal analysis of the need for such data.\5\ \5\ See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). --------------------------------------------------------------------------- By removing ``unnecessary regulatory restrictions'' on the ability of exchanges to sell their own data, Regulation NMS advanced the goals of the Act and the principles reflected in its legislative history. If the free market should determine whether proprietary data is sold to broker-dealers at all, it follows that the price at which such data is sold should be set by the market as well. PSX TotalView is precisely the sort of market data product that the Commission envisioned when it adopted Regulation NMS. 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) (``NetCoalition I''), upheld the Commission's reliance upon competitive markets to set reasonable and equitably allocated fees for market data. ``In fact, the legislative history indicates that the Congress intended that the market system `evolve through the interplay of competitive forces as unnecessary regulatory restrictions are removed' and that the SEC wield its regulatory power `in those situations where competition may not be sufficient,' such as in the creation of a `consolidated transactional reporting system.' NetCoalition I, at 535 (quoting H.R. Rep. No. 94-229, at 92 (1975), as reprinted in 1975 U.S.C.C.A.N. 321, 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.' '' \6\ --------------------------------------------------------------------------- \6\ NetCoalition I, at 535. --------------------------------------------------------------------------- The Court in NetCoalition I, while upholding the Commission's conclusion that competitive forces may be relied upon to establish the fairness of prices, nevertheless concluded that the record in that case did not adequately support the Commission's conclusions as to the competitive nature of the market for NYSE Arca's data product at issue in that case. As explained below in Phlx's Statement on Burden on Competition, however, Phlx believes that there is substantial evidence of competition in the marketplace for data that was not in the record in the NetCoalition I case, and that the Commission is entitled to rely upon such evidence in concluding fees are the product of competition, and therefore in accordance with the relevant statutory standards.\7\ Accordingly, any findings of the court with respect to that product may not be relevant to the product at issue in this filing. --------------------------------------------------------------------------- \7\ It should also be noted that Section 916 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act'') has amended paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), to make it clear that all exchange fees, including fees for market data, may be filed by exchanges on an immediately effective basis. See also NetCoalition v. SEC, 715 F.3d 342 (D.C. Cir. 2013) (``NetCoalition II'') (finding no jurisdiction to review Commission's non-suspension of immediately effective fee changes). --------------------------------------------------------------------------- Phlx believes that the allocation of the proposed fee is fair and equitable in accordance with Section 6(b)(4) of the Act, and not unreasonably discriminatory in accordance with Section 6(b)(5) of the Act. As described above, the proposed fee is based on pricing conventions and distinctions that exist in Phlx's current fee schedule. These distinctions are each based on principles of fairness and equity that have helped for many years to maintain fair, equitable, and not unreasonably discriminatory fees, and that apply with equal or greater force to the current proposal. As described in greater detail below, if Phlx has calculated improperly and the market deems the proposed fees to be unfair, inequitable, or unreasonably discriminatory, firms can discontinue the use of their data because the proposed product is entirely optional to all parties. Firms are not required to purchase data and Phlx is not required to make data available or to offer specific pricing alternatives for potential purchases. Phlx can discontinue offering a pricing alternative (as it has in the past) and firms can discontinue their use at any time and for any reason (as they often do), including due to their assessment of the reasonableness of fees charged. Phlx continues to establish and revise pricing policies aimed at increasing fairness and equitable allocation of fees among Subscribers. Phlx believes that periodically it must adjust the Subscriber fees to reflect market forces. Phlx believes it is an appropriate time to adjust this fee to more accurately reflect the investments made to enhance this product through capacity upgrades. This also reflects that the market for this information is highly competitive and continually evolves as products develop and change. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. Notwithstanding its determination that the Commission may rely upon competition to establish fair and equitably allocated fees for market data, the NetCoalition court found that the Commission had not, in that case, compiled a record that adequately supported its conclusion that the market for the data at issue in the case was competitive. Phlx believes that a record may readily be established to demonstrate the competitive nature of the market in question. There is intense competition between trading platforms that provide transaction execution and routing services and proprietary data products. Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. Data products are valuable to many end Subscribers only insofar as they provide information that end Subscribers expect will assist them or their customers in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange's transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, an exchange's customers view the costs of transaction executions and of data as a unified cost of doing business with the exchange. A broker-dealer (``BD'') will direct orders to a particular exchange only if the expected revenues from executing trades on the exchange exceed net transaction execution costs and the [[Page 553]] cost of data that the BD chooses to buy to support its trading decisions (or those of its customers). The choice of data products is, in turn, a product of the value of the products in making profitable trading decisions. If the cost of the product exceeds its expected value, the BD will choose not to buy it. Moreover, as a BD chooses to direct fewer orders to a particular exchange, the value of the product to that BD decreases, for two reasons. First, the product will contain less information, because executions of the BD's orders will not be reflected in it. Second, and perhaps more important, the product will be less valuable to that BD because it does not provide information about the venue to which it is directing its orders. Data from the competing venue to which the BD is directing orders will become correspondingly more valuable. Thus, an increase in the fees charged for either transactions or data has the potential to impair revenues from both products. ``No one disputes that competition for order flow is `fierce'.'' NetCoalition at 24. However, the existence of fierce competition for order flow implies a high degree of price sensitivity on the part of BDs with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A BD that shifted its order flow from one platform to another in response to order execution price differentials would both reduce the value of that platform's market data and reduce its own need to consume data from the disfavored platform. Similarly, if a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected BDs will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. Analyzing the cost of market data distribution in isolation from the cost of all of the inputs supporting the creation of market data will inevitably underestimate the cost of the data. Thus, because it is impossible to create data without a fast, technologically robust, and well-regulated execution system, system costs and regulatory costs affect the price of market data. It would be equally misleading, however, to attribute all of the exchange's costs to the market data portion of an exchange's joint product. Rather, all of the exchange's costs are incurred for the unified purposes of attracting order flow, executing and/or routing orders, and generating and selling data about market activity. The total return that an exchange earns reflects the revenues it receives from the joint products and the total costs of the joint products. Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products, but different platforms may choose from a range of possible, and equally reasonable, pricing strategies as the means of recovering total costs. Phlx pays rebates to attract orders, charges relatively low prices for market information and charges relatively high prices for accessing posted liquidity. Other platforms may choose a strategy of paying lower liquidity rebates to attract orders, setting relatively low prices for accessing posted liquidity, and setting relatively high prices for market information. Still others may provide most data free of charge and rely exclusively on transaction fees to recover their costs. Finally, some platforms may incentivize use by providing opportunities for equity ownership, which may allow them to charge lower direct fees for executions and data. 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. Such regulation is unnecessary because an ``excessive'' price for one of the joint products will ultimately have to be reflected in lower prices for other products sold by the firm, or otherwise the firm will experience a loss in the volume of its sales that will be adverse to its overall profitability. In other words, an increase in the price of data will ultimately have to be accompanied by a decrease in the cost of executions, or the volume of both data and executions will fall. The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including eleven SRO markets, as well as internalizing BDs and various forms of alternative trading systems (``ATSs''), including dark pools and electronic communication networks (``ECNs''). Each SRO market competes to produce transaction reports via trade executions, and two FINRA-regulated TRFs compete to attract internalized transaction reports. It is common for BDs to further and exploit this competition by sending their order flow and transaction reports to multiple markets, rather than providing them all to a single market. Competitive markets for order flow, executions, and transaction reports provide pricing discipline for the inputs of proprietary data products. The large number of SROs, TRFs, BDs, and ATSs that currently produce proprietary data or are currently capable of producing it provides further pricing discipline for proprietary data products. Each SRO, TRF, ATS, and BD is currently permitted to produce proprietary data products, and many currently do or have announced plans to do so, including Phlx, NYSE, NYSE MKT, NYSE Arca, and BATS/Direct Edge. Any ATS or BD can combine with any other ATS, BD, or multiple ATSs or BDs to produce joint proprietary data products. Additionally, order routers and market data vendors can facilitate single or multiple BDs' production of proprietary data products. The potential sources of proprietary products are virtually limitless. Notably, the potential sources of data include the BDs that submit trade reports to TRFs and that have the ability to consolidate and distribute their data without the involvement of FINRA or an exchange-operated TRF. The fact that proprietary data from ATSs, BDs, and vendors can by- pass SROs is significant in two respects. First, non-SROs can compete directly with SROs for the production and sale of proprietary data products, as BATS and NYSE Arca did before registering as exchanges by publishing proprietary book data on the internet. Second, because a single order or transaction report can appear in a core data product, an SRO proprietary product, and/or a non-SRO proprietary product, the data available in proprietary products is exponentially greater than the actual number of orders and transaction reports that exist in the marketplace. In addition to the competition and price discipline described above, the market for proprietary data products is also highly contestable because market entry is rapid, inexpensive, and profitable. The history of electronic trading is replete with examples of entrants that swiftly grew into some of the largest electronic trading platforms and proprietary data producers: Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN, BATS Trading and BATS/Direct Edge. A proliferation of dark pools and other ATSs operate profitably with fragmentary shares of consolidated market volume. Regulation NMS, by deregulating the market for proprietary data, has increased the contestability of that market. While BDs have previously published their proprietary data individually, Regulation NMS encourages market data vendors and BDs to produce proprietary products [[Page 554]] cooperatively in a manner never before possible. Multiple market data vendors already have the capability to aggregate data and disseminate it on a profitable scale, including Bloomberg and Thomson Reuters. In Europe, Cinnober aggregates and disseminates data from over 40 brokers and multilateral trading facilities.\8\ --------------------------------------------------------------------------- \8\ See http://www.cinnober.com/boat-trade-reporting. --------------------------------------------------------------------------- In this environment, a super-competitive increase in the fees charged for either transactions or data has the potential to impair revenues from both products. ``No one disputes that competition for order flow is `fierce'.'' NetCoalition I at 539. The existence of fierce competition for order flow implies a high degree of price sensitivity on the part of BDs with order flow, since they may readily reduce costs by directing orders toward the lowest-cost trading venues. A BD that shifted its order flow from one platform to another in response to order execution price differentials would both reduce the value of that platform's market data and reduce its own need to consume data from the disfavored platform. If a platform increases its market data fees, the change will affect the overall cost of doing business with the platform, and affected BDs will assess whether they can lower their trading costs by directing orders elsewhere and thereby lessening the need for the more expensive data. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.\9\ At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78s(b)(3)(a)(ii). --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse 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-Phlx-2015-112 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2015-112. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal offices of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2015-112, and should be submitted on or before January 27, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\10\ --------------------------------------------------------------------------- \10\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jill M. Peterson, Assistant Secretary. [FR Doc. 2015-33206 Filed 1-5-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 3 / Wednesday, January 6, 2016 / Notices 551
SECURITIES AND EXCHANGE and Exchange Commission amendments be operative on January 1,
COMMISSION (‘‘Commission’’) the proposed rule 2016.
[Release No. 34–76799; File No. SR–Phlx–
change as described in Items I, II, and The text of the proposed rule change
2015–112] III below, which Items have been is below. Proposed new language is
prepared by Phlx. The Commission is italicized; proposed deletions are
Self-Regulatory Organizations; publishing this notice to solicit bracketed.
NASDAQ OMX PHLX LLC; Notice of comments on the proposed rule change
Filing and Immediate Effectiveness of from interested persons. NASDAQ OMX PHLX Rules
Proposed Rule Change To Modify the NASDAQ OMX PHLX LLC Pricing Schedule
Fees for Managed Data Solutions I. Self-Regulatory Organization’s
Statement of the Terms of the Substance VIII. NASDAQ OMX PSX Fees
December 30, 2105. of the Proposed Rule Change * * * * *
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 Phlx proposes to modify the charges PSX Managed Data Solutions Fees.
(‘‘Act’’),1 and Rule 19b–4 thereunder,2 to be paid for Managed Data Solutions (a) Distributors and Subscribers of
notice is hereby given that on December (‘‘MDS’’). While the changes proposed Managed Data Solutions products containing
18, 2015, The NASDAQ OMX PHLX herein are effective upon filing, the PSX TotalView data (non-display use only)
LLC (‘‘Phlx’’) filed with the Securities Exchange has designated that the shall pay the following fees:
Fee schedule for managed data Solutions Price
Managed Data Solutions Administration Fee (for the right to offer Man- $[750]1,500/mo Per Distributor.
aged Data Solutions to client organizations).
PSX Depth Data Professional Managed Data Solutions Subscriber Fee $1[0]50/mo Per Subscriber.
(Internal Use Only and includes PSX TotalView) ....................................
PSX Depth Data Managed Data Solutions Non-Professional Subscriber $20/mo Per Subscriber.
Fee.
(Internal Use Only and includes PSX TotalView) ....................................
Fees are per month for all or any portion of the month in which the
MDS products are accessed.
(b) No change. distributor (‘‘MDS Administration technology refresh to ensure that its data
* * * * * Fee’’), and the fee charged to feeds continue to achieve a high level of
professional subscribers to $150 per performance and resiliency. The
II. Self-Regulatory Organization’s month per subscriber (‘‘MDS Subscriber Exchange has also upgraded and
Statement of the Purpose of, and Fee’’). This proposed rule change will
Statutory Basis for, the Proposed Rule refreshed its disaster recovery
not affect the pricing for non- capabilities, adding to the increased
Change professional subscribers. focus on redundancy and resiliency.
In its filing with the Commission, MDS is a data delivery option
Phlx included statements concerning available to distributors of PSX 2. Statutory Basis
the purpose of and basis for the TotalView. Under the MDS fee
structure, distributors may provide data The Exchange believes that the
proposed rule change and discussed any
feeds, Application Programming proposed rule change is consistent with
comments it received on the proposed
Interfaces (APIs) or similar automated the provisions of Section 6 of the Act,3
rule change. The text of these statements
may be examined at the places specified delivery solutions to client in general, and with Sections 6(b)(4) and
in Item IV below. Phlx has prepared organizations with only limited 6(b)(5) of the Act,4 in particular, in that
summaries, set forth in Sections A, B, entitlement controls. Through this it provides an equitable allocation of
and C below, of the most significant program, Phlx offers a much simpler reasonable fees among Subscribers and
aspects of such statements. administration process for MDS recipients of Phlx data and is not
distributors and subscribers, reducing designed to permit unfair
A. Self-Regulatory Organization’s the burden and cost of administration. discrimination between them. Phlx’s
Statement of the Purpose of, and Subscribers of MDS may use the proposal to increase the MDS
Statutory Basis for, the Proposed Rule information for internal purposes only Administration Fee and MDS Subscriber
Change and may not distribute the information Fee is also consistent with the Act in
outside of their organization. MDS that it reflects an equitable allocation of
1. Purpose
presents opportunities for small and
The purpose of the proposed rule reasonable fees. The Commission has
mid-size firms to achieve significant
change is to increase the charges to be long recognized the fair and equitable
cost savings over the cost of data feeds.
paid by distributors and subscribers of Both the MDS Administration Fee and and not unreasonably discriminatory
Managed Data Solutions products MDS Subscriber Fee have not changed nature of assessing different fees for
containing PSX TotalView data (non- since their introduction in 2013. distributors and professional and non-
mstockstill on DSK4VPTVN1PROD with NOTICES
display use only). Specifically, the Nevertheless, both distributors and professional users of the same data. Phlx
Exchange proposes to increase the fee subscribers reap the benefits of Phlx’s also believes it is equitable to assess a
charged to distributors for the right to constant focus on the performance and higher fee per professional user than to
offer Managed Data Solutions to client enhancements to these offerings. As an ordinary non-professional user due
organizations to $1,500 per month per such, Phlx recently completed a to the enhanced flexibility, lower
1 15 U.S.C. 78s(b)(1). 3 15 U.S.C. 78f.
2 17 CFR 240.19b–4. 4 15 U.S.C. 78f(b)(4) and (5).
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![552 Federal Register / Vol. 81, No. 3 / Wednesday, January 6, 2016 / Notices
overall costs and value that it offers The Court in NetCoalition I, while increasing fairness and equitable
distributors. upholding the Commission’s conclusion allocation of fees among Subscribers.
In adopting Regulation NMS, the that competitive forces may be relied Phlx believes that periodically it must
Commission granted self-regulatory upon to establish the fairness of prices, adjust the Subscriber fees to reflect
organizations and broker-dealers nevertheless concluded that the record market forces. Phlx believes it is an
increased authority and flexibility to in that case did not adequately support appropriate time to adjust this fee to
offer new and unique market data to the the Commission’s conclusions as to the more accurately reflect the investments
public. competitive nature of the market for made to enhance this product through
The Commission concluded that NYSE Arca’s data product at issue in capacity upgrades. This also reflects that
Regulation NMS—by deregulating the that case. As explained below in Phlx’s the market for this information is highly
market in proprietary data—would itself Statement on Burden on Competition, competitive and continually evolves as
further the Act’s goals of facilitating however, Phlx believes that there is products develop and change.
efficiency and competition: substantial evidence of competition in B. Self-Regulatory Organization’s
[E]fficiency is promoted when broker- the marketplace for data that was not in Statement on Burden on Competition
dealers who do not need the data beyond the the record in the NetCoalition I case,
prices, sizes, market center identifications of and that the Commission is entitled to The Exchange does not believe that
the NBBO and consolidated last sale rely upon such evidence in concluding the proposed rule change will result in
information are not required to receive (and fees are the product of competition, and any burden on competition that is not
pay for) such data. The Commission also necessary or appropriate in furtherance
therefore in accordance with the
believes that efficiency is promoted when of the purposes of the Act, as amended.
broker-dealers may choose to receive (and relevant statutory standards.7
Accordingly, any findings of the court Notwithstanding its determination that
pay for) additional market data based on their
own internal analysis of the need for such with respect to that product may not be the Commission may rely upon
data.5 relevant to the product at issue in this competition to establish fair and
By removing ‘‘unnecessary regulatory filing. equitably allocated fees for market data,
restrictions’’ on the ability of exchanges Phlx believes that the allocation of the the NetCoalition court found that the
to sell their own data, Regulation NMS proposed fee is fair and equitable in Commission had not, in that case,
advanced the goals of the Act and the accordance with Section 6(b)(4) of the compiled a record that adequately
principles reflected in its legislative Act, and not unreasonably supported its conclusion that the market
history. If the free market should discriminatory in accordance with for the data at issue in the case was
determine whether proprietary data is Section 6(b)(5) of the Act. As described competitive. Phlx believes that a record
sold to broker-dealers at all, it follows above, the proposed fee is based on may readily be established to
that the price at which such data is sold pricing conventions and distinctions demonstrate the competitive nature of
should be set by the market as well. PSX that exist in Phlx’s current fee schedule. the market in question.
TotalView is precisely the sort of market These distinctions are each based on There is intense competition between
data product that the Commission principles of fairness and equity that trading platforms that provide
envisioned when it adopted Regulation have helped for many years to maintain transaction execution and routing
NMS. fair, equitable, and not unreasonably services and proprietary data products.
The decision of the United States discriminatory fees, and that apply with Transaction execution and proprietary
Court of Appeals for the District of equal or greater force to the current data products are complementary in that
Columbia Circuit in NetCoalition v. proposal. market data is both an input and a
SEC, 615 F.3d 525 (D.C. Cir. 2010) As described in greater detail below, byproduct of the execution service. In
(‘‘NetCoalition I’’), upheld the if Phlx has calculated improperly and fact, market data and trade execution are
Commission’s reliance upon the market deems the proposed fees to a paradigmatic example of joint
competitive markets to set reasonable be unfair, inequitable, or unreasonably products with joint costs. Data products
and equitably allocated fees for market discriminatory, firms can discontinue are valuable to many end Subscribers
data. ‘‘In fact, the legislative history the use of their data because the only insofar as they provide information
indicates that the Congress intended proposed product is entirely optional to that end Subscribers expect will assist
that the market system ‘evolve through all parties. Firms are not required to them or their customers in making
the interplay of competitive forces as purchase data and Phlx is not required trading decisions.
unnecessary regulatory restrictions are to make data available or to offer The costs of producing market data
removed’ and that the SEC wield its specific pricing alternatives for potential include not only the costs of the data
regulatory power ‘in those situations purchases. Phlx can discontinue distribution infrastructure, but also the
where competition may not be offering a pricing alternative (as it has costs of designing, maintaining, and
sufficient,’ such as in the creation of a in the past) and firms can discontinue operating the exchange’s transaction
‘consolidated transactional reporting their use at any time and for any reason execution platform and the cost of
system.’ NetCoalition I, at 535 (quoting (as they often do), including due to their regulating the exchange to ensure its fair
H.R. Rep. No. 94–229, at 92 (1975), as assessment of the reasonableness of fees operation and maintain investor
reprinted in 1975 U.S.C.C.A.N. 321, charged. Phlx continues to establish and confidence. The total return that a
323). The court agreed with the revise pricing policies aimed at trading platform earns reflects the
Commission’s conclusion that revenues it receives from both products
‘‘Congress intended that ‘competitive
7 It should also be noted that Section 916 of the and the joint costs it incurs. Moreover,
mstockstill on DSK4VPTVN1PROD with NOTICES
Dodd-Frank Wall Street Reform and Consumer an exchange’s customers view the costs
forces should dictate the services and Protection Act of 2010 (‘‘Dodd-Frank Act’’) has
practices that constitute the U.S. amended paragraph (A) of Section 19(b)(3) of the
of transaction executions and of data as
national market system for trading Act, 15 U.S.C. 78s(b)(3), to make it clear that all a unified cost of doing business with the
equity securities.’ ’’ 6 exchange fees, including fees for market data, may exchange. A broker-dealer (‘‘BD’’) will
be filed by exchanges on an immediately effective direct orders to a particular exchange
basis. See also NetCoalition v. SEC, 715 F.3d 342
5 See Securities Exchange Act Release No. 51808
(D.C. Cir. 2013) (‘‘NetCoalition II’’) (finding no
only if the expected revenues from
(June 9, 2005), 70 FR 37496 (June 29, 2005). jurisdiction to review Commission’s non- executing trades on the exchange exceed
6 NetCoalition I, at 535. suspension of immediately effective fee changes). net transaction execution costs and the
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![554 Federal Register / Vol. 81, No. 3 / Wednesday, January 6, 2016 / Notices
cooperatively in a manner never before IV. Solicitation of Comments For the Commission, by the Division of
possible. Multiple market data vendors Trading and Markets, pursuant to delegated
already have the capability to aggregate Interested persons are invited to authority.10
data and disseminate it on a profitable submit written data, views, and Jill M. Peterson,
scale, including Bloomberg and arguments concerning the foregoing, Assistant Secretary.
Thomson Reuters. In Europe, Cinnober including whether the proposed rule [FR Doc. 2015–33206 Filed 1–5–16; 8:45 am]
aggregates and disseminates data from change, as amended, is consistent with BILLING CODE 8011–01–P
over 40 brokers and multilateral trading the Act. Comments may be submitted by
facilities.8 any of the following methods:
SECURITIES AND EXCHANGE
In this environment, a super- Electronic Comments COMMISSION
competitive increase in the fees charged
for either transactions or data has the • Use the Commission’s Internet Submission for OMB Review;
potential to impair revenues from both comment form (http://www.sec.gov/ Comment Request
products. ‘‘No one disputes that rules/sro.shtml); or
Upon Written Request, Copies Available
competition for order flow is ‘fierce’.’’ • Send an email to rule-comments@ From: Securities and Exchange
NetCoalition I at 539. The existence of sec.gov. Please include File Number SR–
fierce competition for order flow Commission, Office of FOIA Services,
Phlx–2015–112 on the subject line. 100 F Street NE., Washington, DC
implies a high degree of price sensitivity
on the part of BDs with order flow, since Paper Comments 20549–2736.
they may readily reduce costs by Extension: Rule 3a–4
• Send paper comments in triplicate OMB Control No. 3235–0459, SEC File No.
directing orders toward the lowest-cost
trading venues. A BD that shifted its to Secretary, Securities and Exchange 270–401.
order flow from one platform to another Commission, 100 F Street NE., Notice is hereby given that, pursuant
in response to order execution price Washington, DC 20549–1090. to the Paperwork Reduction Act of 1995
differentials would both reduce the All submissions should refer to File (44 U.S.C. 3501–3520), the Securities
value of that platform’s market data and Number SR–Phlx–2015–112. This file and Exchange Commission (the
reduce its own need to consume data number should be included on the ‘‘Commission’’) has submitted to the
from the disfavored platform. If a subject line if email is used. To help the Office of Management and Budget a
platform increases its market data fees, Commission process and review your request for extension of the previously
the change will affect the overall cost of approved collection of information
comments more efficiently, please use
doing business with the platform, and discussed below.
only one method. The Commission will Rule 3a–4 (17 CFR 270.3a–4) under
affected BDs will assess whether they post all comments on the Commission’s
can lower their trading costs by the Investment Company Act of 1940
Internet Web site (http://www.sec.gov/ (15 U.S.C. 80a) (‘‘Investment Company
directing orders elsewhere and thereby rules/sro.shtml). Copies of the
lessening the need for the more Act’’ or ‘‘Act’’) provides a nonexclusive
submission, all subsequent safe harbor from the definition of
expensive data.
amendments, all written statements investment company under the Act for
C. Self-Regulatory Organization’s with respect to the proposed rule certain investment advisory programs.
Statement on Comments on the change that are filed with the These programs, which include ‘‘wrap
Proposed Rule Change Received From Commission, and all written fee’’ programs, generally are designed to
Members, Participants, or Others communications relating to the provide professional portfolio
proposed rule change between the management services on a discretionary
Written comments were neither Commission and any person, other than basis to clients who are investing less
solicited nor received. those that may be withheld from the than the minimum investments for
III. Date of Effectiveness of the public in accordance with the individual accounts usually required by
Proposed Rule Change and Timing for provisions of 5 U.S.C. 552, will be the investment adviser but more than
Commission Action available for Web site viewing and the minimum account size of most
printing in the Commission’s Public mutual funds. Under wrap fee and
The foregoing rule change has become Reference Room on official business similar programs, a client’s account is
effective pursuant to Section days between the hours of 10:00 a.m. typically managed on a discretionary
19(b)(3)(A)(ii) of the Act.9 At any time and 3:00 p.m. Copies of such filing also basis according to pre-selected
within 60 days of the filing of the will be available for inspection and investment objectives. Clients with
proposed rule change, the Commission copying at the principal offices of the similar investment objectives often
summarily may temporarily suspend receive the same investment advice and
Exchange. All comments received will
such rule change if it appears to the may hold the same or substantially
be posted without change; the
Commission that such action is similar securities in their accounts.
Commission does not edit personal Because of this similarity of
necessary or appropriate in the public
identifying information from management, some of these investment
interest, for the protection of investors,
or otherwise in furtherance of the submissions. You should submit only advisory programs may meet the
purposes of the Act. If the Commission information that you wish to make definition of investment company under
available publicly. All submissions
mstockstill on DSK4VPTVN1PROD with NOTICES
takes such action, the Commission shall the Act.
institute proceedings to determine should refer to File Number SR–Phlx– In 1997, the Commission adopted rule
whether the proposed rule should be 2015–112, and should be submitted on 3a–4, which clarifies that programs
approved or disapproved. or before January 27, 2016. organized and operated in accordance
with the rule are not required to register
8 See http://www.cinnober.com/boat-trade- under the Investment Company Act or
reporting.
9 15 U.S.C. 78s(b)(3)(a)(ii). 10 17 CFR 200.30–3(a)(12).
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Document Created: 2016-01-06 04:02:18
Document Modified: 2016-01-06 04:02:18
| 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 551 |
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