82 FR 32728 - Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Phlx Pricing Schedule, Section IX
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 135 (July 17, 2017)
Federal Register Volume 82, Issue 135 (July 17, 2017)
| Page Range | 32728-32731 | |
| FR Document | 2017-14887 |
[Federal Register Volume 82, Number 135 (Monday, July 17, 2017)] [Notices] [Pages 32728-32731] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-14887] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81117; File No. SR-Phlx-2017-53] Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Nasdaq Phlx Pricing Schedule, Section IX July 11, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on June 29, 2017, NASDAQ PHLX LLC (``Phlx'' or the ``Exchange'') filed with the Securities and Exchange Commission (the ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend Nasdaq PHLX Rules, Section IX (``Proprietary Data Feed Fees'') to make a sample of PHLX Options Trade Outline (``PHOTO'') Historical Data for the period January 1 through June 30, 2014, available free of charge; current charges will continue to be assessed for PHOTO Historical Data for any other period. The text of the proposed rule change is available on the Exchange's Web site at http://nasdaqphlx.cchwallstreet. [[Page 32729]] com/, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange 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 allow the Exchange to make a sample of PHOTO Historical Data for the period January 1 through June 30, 2014, available free of charge; current charges will continue to be assessed for PHOTO Historical Data for any other period. The proposed change will allow potential customers an opportunity to inspect the product, and the Exchange expects that the resulting greater familiarity with the product will lead to greater sales and wider dissemination of the data. PHOTO Historical Data PHOTO Historical Data provides information about the past activity of all option series traded on the Exchange for each trading session conducted during a particular prior calendar month, as selected by the subscriber.\3\ The data is intended to enhance a purchaser's ability to analyze option trade and volume data, evaluate historical trends in the trading activity of a particular option series, and create and test trading models and analytical strategies. The product provides the following data: --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release 63351 (November 19, 2010) 75 FR 73140 (November 29, 2010) (SR-Phlx-2010-154). ---------------------------------------------------------------------------Aggregate number of buy and sell transactions in the affected series for each trading session conducted during the specified calendar month(s); Aggregate volume traded electronically on the Exchange in the affected series for each trading session conducted during the specified calendar month(s); Aggregate number of trades effected on the Exchange to open a position \4\ for each trading session conducted during the specified calendar month(s); --------------------------------------------------------------------------- \4\ PHOTO Historical Data provides subscribers with the aggregate number of ``opening purchase transactions'' in the affected series for each trading session conducted during the calendar month(s) selected. An opening purchase transaction is an Exchange options transaction in which the purchaser's intention is to create or increase a long position in the series of options involved in such transaction. See Exchange Rule 1000(b)(24). PHOTO Historical Data will also provide subscribers with the aggregate number of ``opening writing transactions'' in the affected series for each trading session conducted during the calendar month(s) selected. An opening writing transaction is an Exchange options transaction in which the seller's (writer's) intention is to create or increase a short position in the series of options involved in such transaction. See Exchange Rule 1000(b)(25). --------------------------------------------------------------------------- Aggregate number of trades effected on the Exchange to close a position \5\ for each trading session conducted during the specified calendar month(s); --------------------------------------------------------------------------- \5\ PHOTO Historical Data provides subscribers with the aggregate number of ``closing purchase transactions'' in the affected series for each trading session conducted during the calendar month(s) selected. A closing purchase transaction is an Exchange options transaction in which the purchaser's intention is to reduce or eliminate a short position in the series of options involved in such transaction. See Exchange Rule 1000(b)(27). PHOTO Historical Data will also provide subscribers with the aggregate number of ``closing sale transactions'' in the affected series for each trading session conducted during the calendar month(s) selected. A closing sale transaction is an Exchange options transaction in which the seller's intention is to reduce or eliminate a long position in the series of options involved in such transaction. See Exchange Rule 1000(b)(26). --------------------------------------------------------------------------- Origin of the orders involved in trades on the Exchange in the affected series for each trading session conducted during the specified calendar month(s), specifically aggregated in the following categories of participants: customers, broker-dealers, market makers (including specialists, Registered Options Traders (``ROTs''), Streaming Quote Traders (``SQTs'') \6\ and Remote Streaming Quote Traders (``RSQTs'') \7\, and professionals.\8\ --------------------------------------------------------------------------- \6\ An SQT is an ROT that has received permission from the Exchange to generate and submit option quotations electronically in options to which such SQT is assigned. See Exchange Rule 1014(b)(ii)(A). \7\ An RSQT is an ROT that is a member or member organization with no physical trading floor presence that has received permission from the Exchange to generate and submit option quotations electronically in options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. See Exchange Rule 1014(b)(ii)(B). \8\ The term ``professional'' means any person or entity that (i) is not a broker or dealer in securities, and (ii) places more than 390 orders in listed options per day on average during a calendar month for its own beneficial account(s). A professional will be treated in the same manner as an off-floor broker-dealer for purposes of Rules 1014(g) (except with respect to all-or-none orders, which will be treated like customer orders except that orders submitted pursuant to Rule 1080(n) for the beneficial account(s) of professionals with an all-or-none designation will be treated in the same manner as off-floor broker-dealer orders), 1033(e), 1064.02 (except professional orders will be considered customer orders subject to facilitation), 1080(n) and 1080.07 as well as Options Floor Procedure Advices B-6 and F-5. Member organizations must indicate whether orders are for professionals. See Exchange Rule 1000(b)(14). --------------------------------------------------------------------------- PHOTO Historical Data is composed of an End of Day Product and an Intra-Day Product. The End of Day product provides the aggregate data described above for the entire trading session. The Intra-Day product includes periodic, cumulative data for a particular trading session, updated every ten minutes during the trading day. The fee for the PHOTO Historical Data End of Day product is $400.00 per calendar month selected; the fee for the PHOTO Historical Data Intra-Day product is $750.00 per calendar month selected. Data is available starting in January 2009. The PHOTO Historical Data product is available to any person or entity that wishes to subscribe to it, whether or not the person or entity is a member of the Exchange. Data is available for internal use only. Proposed Change The Exchange proposes to make a sample of PHOTO Historical Data available for the period January 1 through June 30, 2014, on the Nasdaq Trader Web site (www.nasdaqtrader.com) or a successor Web site free of charge as an FTP (File Transfer Protocol) file. The purpose of the proposed change is to allow potential customers an opportunity to inspect and test the value of the product in analyzing option trade and volume data, evaluating historical trends in the trading activity of a particular option series, and creating and testing trading models and analytical strategies. The Exchange expects that providing potential customers an opportunity to become acquainted with the benefits of the product will lead to greater sales and wider dissemination of PHOTO Historical Data. Any person or entity, including both subscribers and non- subscribers, will be able to download the FTP file of PHOTO Historical Data for the period January 1 through June 30, 2014, free of charge. Fees for other periods of PHOTO Historical Data will remain $400.00 for the End of Day product and $750.00 for the Intra-Day product. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\9\ in general, and furthers the [[Page 32730]] objectives of Sections 6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility, and is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers. --------------------------------------------------------------------------- \9\ 15 U.S.C. 78f(b). \10\ 15 U.S.C. 78f(b)(4) and (5). --------------------------------------------------------------------------- The proposal provides for the equitable allocation of reasonable dues, fees and other charges among members and issuers and other persons using any facility because all persons and entities will have equal access to the sample data, and none will be charged for the sample product. In adopting Regulation NMS,\11\ the Commission granted SROs and broker-dealers increased authority and flexibility to offer new and unique market data to the public. It was believed that this authority would expand the amount of data available to consumers, and also spur innovation and competition for the provision of market data. The PHOTO Historical Data product--which provides historical information about option series traded on the Exchange--is the type of market data product that the Commission envisioned when it adopted regulation NMS. The Commission concluded that Regulation NMS--deregulating the market in proprietary data--would further the Act's goals of facilitating efficiency and competition: --------------------------------------------------------------------------- \11\ See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005) (``Regulation NMS Adopting Release''). [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.\12\ --------------------------------------------------------------------------- \12\ Id. 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. In NetCoalition v. Securities and Exchange Commission \13\ (``NetCoalition''), the D.C. Circuit upheld the Commission's use of a market-based approach in evaluating the fairness of market data fees against a challenge claiming that Congress mandated a cost-based approach.\14\ As the court emphasized, the Commission ``intended in Regulation NMS that `market forces, rather than regulatory requirements' play a role in determining the market data . . . to be made available to investors and at what cost.'' \15\ ``No one disputes that competition for order flow is `fierce.' . . . As the SEC explained, `[i]n the U.S. national market system, buyers and sellers of securities, and the broker-dealers that act as their order-routing agents, have a wide range of choices of where to route orders for execution'; [and] `no exchange can afford to take its market share percentages for granted' because `no exchange possesses a monopoly, regulatory or otherwise, in the execution of order flow from broker dealers'. . . .'' \16\ --------------------------------------------------------------------------- \13\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010). \14\ See NetCoalition, at 534--535. \15\ Id. at 537. \16\ Id. at 539 (quoting Securities Exchange Act Release No. 59039 (December 2, 2008), 73 FR 74770, 74782-83 (December 9, 2008) (SR-NYSEArca-2006-21)). --------------------------------------------------------------------------- Data products such as PHOTO Historical Data are a means by which exchanges compete to attract order flow. To the extent that exchanges are successful in such competition, they earn trading revenues and also enhance the value of their data products by increasing the amount of data they provide. The need to compete for order flow places substantial pressure upon exchanges to keep their fees for both executions and data reasonable.\17\ The very existence of a proposal to provide PHOTO Historical Data free of charge to generate potential customer interest is itself evidence of a competitive market. --------------------------------------------------------------------------- \17\ See Sec. Indus. Fin. Mkts. Ass'n (SIFMA), Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 (ALJ June 1, 2016) (finding the existence of vigorous competition with respect to non-core market data). --------------------------------------------------------------------------- The proposed changes are consistent with Section 6(b)(5) of the Act because the free sample of historical data will encourage additional customers to purchase the product, thereby increasing the availability of market information to the investing public. The proposed changes would not permit unfair discrimination because all persons and entities will have access to the data for free. There will be no charge for the sample PHOTO Historical Data; persons and firms will be free to choose whether or not to download the data. Fees for PHOTO Historical Data not included in the free sample are optional in that they apply only to firms that elect to purchase the product, which, like all proprietary data products, they may cancel at any time. 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 not necessary or appropriate in furtherance of the purposes of the Act. Indeed, the Exchange believes that offering certain PHOTO Historical Data free of charge will enhance competition by encouraging sales, which will make analytical data more readily available to investors. The market for data products is extremely competitive and firms may freely choose alternative venues and data vendors based on the aggregate fees assessed, the data offered, and the value provided. Numerous exchanges compete with each other for listings, trades, and market data itself, providing virtually limitless opportunities for entrepreneurs who wish to produce and distribute their own market data. Transaction execution and proprietary data products are complementary in that market data is both an input and a byproduct of the execution service. In fact, market data and trade execution are a paradigmatic example of joint products with joint costs. The decision whether and on which platform to post an order will depend on the attributes of the platform where the order can be posted, including the execution fees, data quality and price, and distribution of its data products. Without trade executions, exchange data products cannot exist. Moreover, data products are valuable to many end users only insofar as they provide information that end users expect will assist them or their customers in making trading decisions. The costs of producing market data include not only the costs of the data distribution infrastructure, but also the costs of designing, maintaining, and operating the exchange's transaction execution platform and the cost of regulating the exchange to ensure its fair operation and maintain investor confidence. The total return that a trading platform earns reflects the revenues it receives from both products and the joint costs it incurs. Moreover, the operation of the exchange is characterized by high fixed costs and low marginal costs. This cost structure is common in content distribution industries such as software, where developing new software typically requires a large initial investment (and continuing large investments to upgrade the software), but once the software is developed, the incremental cost of providing that software to an additional user is typically small, or even zero [[Page 32731]] (e.g., if the software can be downloaded over the internet after being purchased).\18\ In the case of any exchange, it is costly to build and maintain a trading platform, but the incremental cost of trading each additional share on an existing platform, or distributing an additional instance of data, is very low. Market information and executions are each produced jointly (in the sense that the activities of trading and placing orders are the source of the information that is distributed) and are each subject to significant scale economies. --------------------------------------------------------------------------- \18\ See William J. Baumol and Daniel G. Swanson, ``The New Economy and Ubiquitous Competitive Price Discrimination: Identifying Defensible Criteria of Market Power,'' Antitrust Law Journal, Vol. 70, No. 3 (2003). --------------------------------------------------------------------------- Competition among trading platforms can be expected to constrain the aggregate return each platform earns from the sale of its joint products. The level of competition and contestability in the market is evident in the numerous alternative venues that compete for order flow, including 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. 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 Nasdaq, NYSE, NYSE MKT, NYSE Arca, and the BATS exchanges. As noted above, the very fact that the Exchange is proposing to provide a sample of PHOTO Historical Data free of charge to generate potential customer interest is itself evidence of a competitive market. In this competitive environment, an ``excessive'' price for one product will have to be reflected in lower prices for other products sold by the Exchange, or otherwise the Exchange may experience a loss in sales that may adversely affect its profitability. In this case, the proposed rule change enhances competition by lowering the price of the product through distribution of free samples. As such, the Exchange believes that the proposed changes will enhance, and not impair, competition in the financial markets. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or 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.\19\ --------------------------------------------------------------------------- \19\ 15 U.S.C. 78s(b)(3)(A)(ii). --------------------------------------------------------------------------- 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: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to rule-comments@sec.gov. Please include File Number SR-Phlx-2017-53 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-2017-53. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2017-53, and should be submitted on or before August 7, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\20\ --------------------------------------------------------------------------- \20\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Jill M. Peterson, Assistant Secretary. [FR Doc. 2017-14887 Filed 7-14-17; 8:45 am] BILLING CODE 8011-01-P
![32728 Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices
SUPPLEMENTARY INFORMATION: The product.4 FINRA stated in the Notice disseminates in its Real-Time TRACE
United States Postal Service® hereby that some market participants had transaction data product and is a
gives notice that, pursuant to 39 U.S.C. indicated that a simpler alternative that reasonable accommodation to market
3642 and 3632(b)(3), on July 11, 2017, allows them to receive transaction participants who may wish to obtain the
it filed with the Postal Regulatory information once a day in an EOD file same data in an EOD file.
Commission a Request of the United would be useful. IV. Conclusion
States Postal Service to Add Priority The proposed EOD TRACE
Mail Contract 333 to Competitive Transaction File would include the It is therefore ordered pursuant to
Product List. Documents are available at same data elements that are currently Section 19(b)(2) of the Act 7 that the
www.prc.gov, Docket Nos. MC2017–157, disseminated in the Real-Time TRACE proposed rule change (SR–FINRA–
CP2017–221. transaction data product. The proposed 2017–015) be, and hereby is, approved.
EOD TRACE Transaction File would For the Commission, by the Division of
Stanley F. Mires,
also be separately available for each data Trading and Markets, pursuant to delegated
Attorney, Federal Compliance. set for which Real-Time TRACE authority.8
[FR Doc. 2017–14879 Filed 7–14–17; 8:45 am] transaction data is available (i.e., the Jill M. Peterson,
BILLING CODE 7710–12–P Corporate Bond Data Set, Agency Data Assistant Secretary.
Set, Securitized Product Data Set, and [FR Doc. 2017–14884 Filed 7–14–17; 8:45 am]
Rule 144A Data Set). Subscribers to the BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE EOD TRACE Transaction File would
COMMISSION access the product daily after the
TRACE system closes. SECURITIES AND EXCHANGE
[Release No. 34–81114; File No. SR–FINRA– FINRA stated that it will announce COMMISSION
2017–015]
the effective date of the proposed rule [Release No. 34–81117; File No. SR–Phlx–
Self-Regulatory Organizations; change in a Regulatory Notice. The 2017–53]
Financial Industry Regulatory effective date will be no later than 365
Authority, Inc.; Order Granting days following the Commission’s Self-Regulatory Organizations;
Approval of Proposed Rule Change To approval. FINRA stated in the Notice NASDAQ PHLX LLC; Notice of Filing
Make Available a New End-of-Day that it intends to establish a fee for the and Immediate Effectiveness of
TRACE Transaction File EOD product before the effective date of Proposed Rule Change To Amend
this proposed rule change. The fee will Nasdaq Phlx Pricing Schedule, Section
July 11, 2017. be established pursuant to a separate IX
rule filing.
I. Introduction July 11, 2017.
On May 18, 2017, the Financial III. Discussion Pursuant to Section 19(b)(1) of the
Industry Regulatory Authority, Inc. After careful consideration, the Securities Exchange Act of 1934 (the
(‘‘FINRA’’) filed with the Securities and Commission finds that the proposed ‘‘Act’’),1 and Rule 19b–4 thereunder,2
Exchange Commission (‘‘Commission’’), rule change is consistent with the notice is hereby given that on June 29,
pursuant to Section 19(b)(1) of the requirements of the Act and the rules 2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
Securities Exchange Act of 1934 and regulations thereunder applicable to the ‘‘Exchange’’) filed with the
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a a national securities association.5 In Securities and Exchange Commission
proposed rule change to amend FINRA particular, the Commission finds that (the ‘‘Commission’’) the proposed rule
Rule 7730 (Trade Reporting and the proposed rule change is consistent change as described in Items I, II, and
Compliance Engine (‘‘TRACE’’)) to make with Section 15A(b)(6) of the Act,6 III below, which Items have been
available a new End-of-Day (‘‘EOD’’) which requires, among other things, that prepared by the Exchange. The
TRACE Transaction File. The proposed FINRA rules be designed to prevent Commission is publishing this notice to
rule change was published for comment fraudulent and manipulative acts and solicit comments on the proposed rule
in the Federal Register on May 30, practices, to promote just and equitable change from interested persons.
2017.3 The Commission did not receive principles of trade, to remove I. Self-Regulatory Organization’s
any comments on the proposal. As impediments to and perfect the Statement of the Terms of the Substance
discussed below, the Commission is mechanism of a free and open market of the Proposed Rule Change
approving the proposed rule change. and a national market system, and, in
general, to protect investors and the The Exchange proposes to amend
II. Description of the Proposal Nasdaq PHLX Rules, Section IX
public interest. The Commission notes
FINRA Rule 7730, among other that the new EOD product does not (‘‘Proprietary Data Feed Fees’’) to make
things, sets forth the TRACE data require member firms to provide FINRA a sample of PHLX Options Trade
products offered by FINRA. FINRA has with any additional data, and Outline (‘‘PHOTO’’) Historical Data for
proposed to amend Rule 7730 to make subscription to the product is optional. the period January 1 through June 30,
available a new EOD TRACE The new product will include the same 2014, available free of charge; current
Transaction File to provide interested data elements that FINRA already charges will continue to be assessed for
parties with an alternative means of PHOTO Historical Data for any other
asabaliauskas on DSKBBXCHB2PROD with NOTICES
receiving the transaction information 4 FINRA currently makes available a Real-Time period.
disseminated each trading day as part of TRACE transaction data product, which provides The text of the proposed rule change
subscribers with access to all disseminated is available on the Exchange’s Web site
Real-Time TRACE transaction data transactions as they are reported throughout the
trading day.
at http://nasdaqphlx.cchwallstreet.
1 15 U.S.C. 78s(b)(1). 5 In approving this proposed rule change, the
2 17 7 15 U.S.C. 78s(b)(2).
CFR 240.19b–4. Commission has considered the proposed rule
8 17 CFR 200.30–3(a)(12).
3 See Securities Exchange Act Release No. 80805 change’s impact on efficiency, competition, and
(May 18, 2017), 82 FR 25862 (May 30, 2017) capital formation. See 15 U.S.C. 78c(f). 1 15 U.S.C. 78s(b)(1).
(‘‘Notice’’). 6 15 U.S.C. 78o–3(b)(6). 2 17 CFR 240.19b–4.
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![32730 Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices
objectives of Sections 6(b)(4) and 6(b)(5) mandated a cost-based approach.14 As B. Self-Regulatory Organization’s
of the Act,10 in particular, in that it the court emphasized, the Commission Statement on Burden on Competition
provides for the equitable allocation of ‘‘intended in Regulation NMS that The Exchange does not believe that
reasonable dues, fees and other charges ‘market forces, rather than regulatory the proposed rule change will impose
among members and issuers and other requirements’ play a role in determining any burden on competition not
persons using any facility, and is not the market data . . . to be made necessary or appropriate in furtherance
designed to permit unfair available to investors and at what of the purposes of the Act. Indeed, the
discrimination between customers, cost.’’ 15 ‘‘No one disputes that Exchange believes that offering certain
issuers, brokers, or dealers. competition for order flow is PHOTO Historical Data free of charge
The proposal provides for the ‘fierce.’ . . . As the SEC explained, will enhance competition by
equitable allocation of reasonable dues, ‘[i]n the U.S. national market system, encouraging sales, which will make
fees and other charges among members buyers and sellers of securities, and the analytical data more readily available to
and issuers and other persons using any broker-dealers that act as their order- investors.
facility because all persons and entities routing agents, have a wide range of The market for data products is
will have equal access to the sample choices of where to route orders for extremely competitive and firms may
data, and none will be charged for the execution’; [and] ‘no exchange can freely choose alternative venues and
sample product. afford to take its market share data vendors based on the aggregate fees
In adopting Regulation NMS,11 the percentages for granted’ because ‘no assessed, the data offered, and the value
Commission granted SROs and broker- exchange possesses a monopoly, provided. Numerous exchanges compete
dealers increased authority and regulatory or otherwise, in the execution with each other for listings, trades, and
flexibility to offer new and unique of order flow from broker
market data itself, providing virtually
market data to the public. It was dealers’. . . .’’ 16
limitless opportunities for entrepreneurs
believed that this authority would Data products such as PHOTO
Historical Data are a means by which who wish to produce and distribute
expand the amount of data available to their own market data. Transaction
consumers, and also spur innovation exchanges compete to attract order flow.
To the extent that exchanges are execution and proprietary data products
and competition for the provision of are complementary in that market data
market data. The PHOTO Historical successful in such competition, they
earn trading revenues and also enhance is both an input and a byproduct of the
Data product—which provides execution service. In fact, market data
historical information about option the value of their data products by
increasing the amount of data they and trade execution are a paradigmatic
series traded on the Exchange—is the example of joint products with joint
type of market data product that the provide. The need to compete for order
flow places substantial pressure upon costs. The decision whether and on
Commission envisioned when it which platform to post an order will
adopted regulation NMS. The exchanges to keep their fees for both
executions and data reasonable.17 The depend on the attributes of the platform
Commission concluded that Regulation where the order can be posted,
NMS—deregulating the market in very existence of a proposal to provide
PHOTO Historical Data free of charge to including the execution fees, data
proprietary data—would further the quality and price, and distribution of its
Act’s goals of facilitating efficiency and generate potential customer interest is
itself evidence of a competitive market. data products. Without trade
competition: executions, exchange data products
The proposed changes are consistent
[E]fficiency is promoted when broker- with Section 6(b)(5) of the Act because cannot exist. Moreover, data products
dealers who do not need the data beyond the are valuable to many end users only
prices, sizes, market center identifications of
the free sample of historical data will
encourage additional customers to insofar as they provide information that
the NBBO and consolidated last sale
information are not required to receive (and purchase the product, thereby end users expect will assist them or
pay for) such data. The Commission also increasing the availability of market their customers in making trading
believes that efficiency is promoted when information to the investing public. The decisions.
broker-dealers may choose to receive (and proposed changes would not permit The costs of producing market data
pay for) additional market data based on their unfair discrimination because all include not only the costs of the data
own internal analysis of the need for such persons and entities will have access to distribution infrastructure, but also the
data.12 costs of designing, maintaining, and
the data for free.
By removing unnecessary regulatory There will be no charge for the sample operating the exchange’s transaction
restrictions on the ability of exchanges PHOTO Historical Data; persons and execution platform and the cost of
to sell their own data, Regulation NMS firms will be free to choose whether or regulating the exchange to ensure its fair
advanced the goals of the Act and the not to download the data. Fees for operation and maintain investor
principles reflected in its legislative PHOTO Historical Data not included in confidence. The total return that a
history. the free sample are optional in that they trading platform earns reflects the
In NetCoalition v. Securities and apply only to firms that elect to revenues it receives from both products
Exchange Commission 13 purchase the product, which, like all and the joint costs it incurs. Moreover,
(‘‘NetCoalition’’), the D.C. Circuit proprietary data products, they may the operation of the exchange is
upheld the Commission’s use of a cancel at any time. characterized by high fixed costs and
market-based approach in evaluating the low marginal costs. This cost structure
fairness of market data fees against a
asabaliauskas on DSKBBXCHB2PROD with NOTICES
14 See
NetCoalition, at 534—535. is common in content distribution
15 Id.
at 537.
challenge claiming that Congress industries such as software, where
16 Id. at 539 (quoting Securities Exchange Act
Release No. 59039 (December 2, 2008), 73 FR
developing new software typically
10 15 U.S.C. 78f(b)(4) and (5). 74770, 74782–83 (December 9, 2008) (SR– requires a large initial investment (and
11 See Securities Exchange Act Release No. 51808 NYSEArca–2006–21)). continuing large investments to upgrade
(June 9, 2005), 70 FR 37496 (June 29, 2005)
(‘‘Regulation NMS Adopting Release’’).
17 See Sec. Indus. Fin. Mkts. Ass’n (SIFMA),
the software), but once the software is
Initial Decision Release No. 1015, 2016 SEC LEXIS developed, the incremental cost of
12 Id.
2278 (ALJ June 1, 2016) (finding the existence of
13 NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. vigorous competition with respect to non-core providing that software to an additional
2010). market data). user is typically small, or even zero
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![Federal Register / Vol. 82, No. 135 / Monday, July 17, 2017 / Notices 32731
(e.g., if the software can be downloaded product through distribution of free with respect to the proposed rule
over the internet after being samples. As such, the Exchange believes change that are filed with the
purchased).18 In the case of any that the proposed changes will enhance, Commission, and all written
exchange, it is costly to build and and not impair, competition in the communications relating to the
maintain a trading platform, but the financial markets. proposed rule change between the
incremental cost of trading each Commission and any person, other than
additional share on an existing platform, C. Self-Regulatory Organization’s
those that may be withheld from the
or distributing an additional instance of Statement on Comments on the
public in accordance with the
data, is very low. Market information Proposed Rule Change Received From
provisions of 5 U.S.C. 552, will be
and executions are each produced Members, Participants, or Others
available for Web site viewing and
jointly (in the sense that the activities of No written comments were either printing in the Commission’s Public
trading and placing orders are the solicited or received. Reference Room, 100 F Street NE.,
source of the information that is Washington, DC 20549 on official
III. Date of Effectiveness of the
distributed) and are each subject to business days between the hours of
Proposed Rule Change and Timing for
significant scale economies. 10:00 a.m. and 3:00 p.m. Copies of such
Competition among trading platforms Commission Action
filing also will be available for
can be expected to constrain the The foregoing rule change has become inspection and copying at the principal
aggregate return each platform earns effective pursuant to Section office of the Exchange. All comments
from the sale of its joint products. The 19(b)(3)(A)(ii) of the Act.19 received will be posted without change;
level of competition and contestability At any time within 60 days of the the Commission does not edit personal
in the market is evident in the filing of the proposed rule change, the identifying information from
numerous alternative venues that Commission summarily may submissions. You should submit only
compete for order flow, including SRO temporarily suspend such rule change if information that you wish to make
markets, as well as internalizing BDs it appears to the Commission that such available publicly. All submissions
and various forms of alternative trading action is: (i) Necessary or appropriate in should refer to File Number SR–Phlx–
systems (‘‘ATSs’’), including dark pools the public interest; (ii) for the protection 2017–53, and should be submitted on or
and electronic communication networks of investors; or (iii) otherwise in before August 7, 2017.
(‘‘ECNs’’). Each SRO market competes to furtherance of the purposes of the Act.
produce transaction reports via trade If the Commission takes such action, the For the Commission, by the Division of
executions. It is common for BDs to Commission shall institute proceedings Trading and Markets, pursuant to delegated
further and exploit this competition by to determine whether the proposed rule authority.20
sending their order flow and transaction should be approved or disapproved. Jill M. Peterson,
reports to multiple markets, rather than Assistant Secretary.
IV. Solicitation of Comments
providing them all to a single market. [FR Doc. 2017–14887 Filed 7–14–17; 8:45 am]
Competitive markets for order flow, Interested persons are invited to BILLING CODE 8011–01–P
executions, and transaction reports submit written data, views, and
provide pricing discipline for the inputs arguments concerning the foregoing,
of proprietary data products. The large including whether the proposed rule SECURITIES AND EXCHANGE
number of SROs, TRFs, BDs, and ATSs change is consistent with the Act. COMMISSION
that currently produce proprietary data Comments may be submitted by any of
or are currently capable of producing it the following methods:
[Release No. 34–81121; File No. SR–
provides further pricing discipline for Electronic Comments NASDAQ–2017–067]
proprietary data products. Each SRO,
TRF, ATS, and BD is currently • Use the Commission’s Internet
Self-Regulatory Organizations; The
permitted to produce proprietary data comment form (http://www.sec.gov/
NASDAQ Stock Market LLC; Notice of
products, and many currently do or rules/sro.shtml); or
• Send an email to rule-comments@ Filing and Immediate Effectiveness of
have announced plans to do so, Proposed Rule Change To Amend the
including Nasdaq, NYSE, NYSE MKT, sec.gov. Please include File Number SR–
Phlx–2017–53 on the subject line. Customer and Professional Penny
NYSE Arca, and the BATS exchanges. Pilot Options Tier 8 Rebate To Add
As noted above, the very fact that the Paper Comments Liquidity
Exchange is proposing to provide a
sample of PHOTO Historical Data free of • Send paper comments in triplicate July 11, 2017.
charge to generate potential customer to Secretary, Securities and Exchange
interest is itself evidence of a Commission, 100 F Street NE., Pursuant to Section 19(b)(1) of the
competitive market. Washington, DC 20549–1090. Securities Exchange Act of 1934
In this competitive environment, an All submissions should refer to File (‘‘Act’’),1 and Rule 19b–4 thereunder,2
‘‘excessive’’ price for one product will Number SR–Phlx–2017–53. This file notice is hereby given that on June 30,
have to be reflected in lower prices for number should be included on the 2017, The NASDAQ Stock Market LLC
other products sold by the Exchange, or subject line if email is used. To help the (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
otherwise the Exchange may experience Commission process and review your Securities and Exchange Commission
asabaliauskas on DSKBBXCHB2PROD with NOTICES
a loss in sales that may adversely affect comments more efficiently, please use (‘‘SEC’’ or ‘‘Commission’’) the proposed
its profitability. In this case, the only one method. The Commission will rule change as described in Items I, II,
proposed rule change enhances post all comments on the Commission’s and III, below, which Items have been
competition by lowering the price of the Internet Web site (http://www.sec.gov/ prepared by the Exchange. The
rules/sro.shtml). Copies of the Commission is publishing this notice to
18 See William J. Baumol and Daniel G. Swanson,
submission, all subsequent
‘‘The New Economy and Ubiquitous Competitive
Price Discrimination: Identifying Defensible Criteria
amendments, all written statements 20 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
of Market Power,’’ Antitrust Law Journal, Vol. 70,
No. 3 (2003). 19 15 U.S.C. 78s(b)(3)(A)(ii). 2 17 CFR 240.19b–4.
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Document Created: 2017-07-15 03:46:15
Document Modified: 2017-07-15 03:46:15
| 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 | 82 FR 32728 |
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