83 FR 4100 - Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Section VIII of the Exchange's Pricing Schedule

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 19 (January 29, 2018)

Page Range		4100-4104
FR Document		2018-01536

Federal Register, Volume 83 Issue 19 (Monday, January 29, 2018)

[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4100-4104]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2018-01536]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82569; File No. SR-Phlx-2018-10]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Amend Section
VIII of the Exchange's Pricing Schedule

January 23, 2018.
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 January 16, 2018, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``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 Substance
of the Proposed Rule Change

The Exchange proposes to amend Section VIII of the Exchange's
Pricing Schedule, Nasdaq PSX Fees, to modify the fee schedule for PSX
TotalView to reflect substantial enhancements to the product since the
current fees were set in 2010. Specifically, the Exchange proposes to:
(i) Introduce a monthly non-display usage fee of $50 per Professional
Subscriber for PSX TotalView based upon Direct Access; and (ii)
increase the monthly enterprise license fee for non-display usage of
PSX TotalView from $16,000 to $17,000 based upon Direct Access. The
proposal is described in further detail below.
The text of the proposed rule change is available on the Exchange's
website at http://nasdaqphlx.cchwallstreet.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 Exchange proposes to adjust the fee schedule for PSX TotalView
to reflect substantial enhancements to the product since the current
fees were set in 2010.\3\ Specifically, the Exchange proposes to: (i)
Introduce a monthly non-display usage \4\ fee of $50 per Professional
Subscriber \5\ for PSX TotalView based upon Direct Access; and (ii)
increase the monthly enterprise license fee for non-display usage of
PSX TotalView based upon Direct Access from $16,000 to $17,000.\6\
---------------------------------------------------------------------------

\3\ See Securities Exchange Act Release No. 62876 (September 9,
2010), 75 FR 56624 (September 16, 2010) (SR-Phlx-2010-120).
\4\ ``Non-display usage'' refers to the usage of Exchange data
by a computer for calculations and routing decisions that does not
provide a means to display data on a screen. See Securities Exchange
Act Release No. 62876 (September 9, 2010), 75 FR 56624 (September
16, 2010) (SR\Phlx-2010-120).
\5\ A ``Subscriber'' is a method of accessing data, defined as
``any access that a distributor of the data entitlement package(s)
provides to: (1) Access the information in the data entitlement
package(s); or (2) communicate with the distributor so as to cause
the distributor to access the information in the data entitlement
package(s).'' See Phlx Pricing Schedule, Section VIII, PSX TotalView
(d).
\6\ The Exchange filed the proposed pricing changes on January
3, 2018 (SR-Phlx-2018-04). On January 16, 2018, the Exchange
withdrew that filing and submitted this filing.
---------------------------------------------------------------------------

PSX TotalView
PSX TotalView, like Nasdaq and BX TotalView, is a real-time market
data feed that provides access to every displayed quote and order at
every price level in Nasdaq-, NYSE-, NYSE American-, NYSE Arca-, CBOE-
and IEX-listed securities.\7\ PSX TotalView also provides anonymous
interest and administrative messages relating to trading halts and
symbol directory messages.\8\ The PSX TotalView entitlement today is
available for a

[[Page 4101]]

monthly charge of $40 per Subscriber.\9\ A ``Subscriber'' is ``any
access that a distributor of the data entitlement package(s) provides
to: (1) Access the information in the data entitlement package(s); or
(2) communicate with the distributor so as to cause the distributor to
access the information in the data entitlement package(s).'' \10\ The
current monthly charge is based on the number of Subscribers, without
regard to whether a Subscriber is used for non-display or display
usage.
---------------------------------------------------------------------------

\7\ In contrast with Nasdaq and BX TotalView, all displayed
orders for PSX TotalView are displayed without attribution to the
entering market participant.
\8\ Symbol directory messages include basic security data such
as the market tier and financial status indicator.
\9\ The PSX fee of $40 applies to all securities; the BX
Exchange charges separate fees of $20 for Nasdaq-listed securities
and $20 for securities listed on NYSE and regional exchanges.
\10\ See Note 5.
---------------------------------------------------------------------------

For firms that utilize PSX TotalView internally for non-display
purposes, the product may also be purchased through an enterprise
license fee of $16,000 per month for unlimited internal use of non-
display data. This enterprise license, which provides an alternative to
monthly per Subscriber fees, is designed to relieve firms with a large
number of internal Subscribers from the administrative burden of
identifying, tracking and reporting such Subscribers.
Proposed Changes
PSX TotalView is one of a number of market information services
offered by the Exchange. Such services are inextricably connected to
trade execution: Market information services require trade orders to
provide useful information, and investors use market information to
make trading decisions. Over the seven years that have elapsed since
the current fee schedule for non-display usage and enterprise licenses
for PSX TotalView were introduced,\11\ the Exchange has invested in an
array of upgrades to both its trade execution and market information
services, which have increased the value of these services overall, and
PSX TotalView in particular.\12\
---------------------------------------------------------------------------

\11\ See Securities Exchange Act Release No. 62876 (September 9,
2010), 75 FR 56624 (September 16, 2010) (SR-Phlx-2010-120).
\12\ Many of these upgrades are common to several Nasdaq-
affiliated exchanges, as improvements to the products and services
of one exchange are reproduced in other exchanges.
---------------------------------------------------------------------------

The Exchange proposes to adjust its fee schedule for PSX TotalView
to reflect the value of the many investments improving the product,
which include:
Glimpse Snapshot Facility. In 2013, the Exchange
substantially updated the Glimpse snapshot facility, which allows firms
to obtain a snapshot of the Exchange's order book at any point during
the trading day. The service may be used to validate order book
displays or to recover from data gaps during the trading day.\13\
---------------------------------------------------------------------------

\13\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------

Enhanced Data Feed. In 2014, the Exchange enhanced the PSX
TotalView data feed by: (i) Converting to binary codes to make more
efficient use of bandwidth and to provide greater timestamp
granularity; (ii) adding a symbol directory message to identify a
security and its key characteristics; and (iii) adding the Market Wide
Circuit Breaker (``MWCB'') Decline Level message to inform recipients
of the setting for MWCB breach points for the trading day, and an MWCB
Status Level Message to inform data recipients when an MWCB has
breached an established level.\14\
---------------------------------------------------------------------------

\14\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-45 and http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2013-33.
---------------------------------------------------------------------------

Geographic Diversity. In 2015, all of the Nasdaq Exchanges
moved their Disaster Recovery (``DR'') center from Ashburn, Virginia,
to Chicago, Illinois. As a result, customers can both receive market
data and send orders through the Chicago facility, potentially reducing
overall networking costs. Adding such geographic diversity helps
protect the market in the event of a catastrophic event impacting the
entire East Coast.\15\
---------------------------------------------------------------------------

\15\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2015-17.
---------------------------------------------------------------------------

Chicago ``B'' Feeds. In 2017, all of the Nasdaq exchanges
added a multicast IP address for proprietary equity and options data
feeds in Chicago, allowing firms the choice of having additional
redundancy to ensure data continuity.\16\
---------------------------------------------------------------------------

\16\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2017-02.
---------------------------------------------------------------------------

Extended Transmission Hours. In 2014, the Exchange began
to transmit data between 3:00 and 4:00 a.m. Eastern, approximately
three hours earlier than previously,\17\ to provide customers with an
opportunity to test connectivity before pre-market sessions open at
8:00 a.m. Eastern.\18\
---------------------------------------------------------------------------

\17\ The extended schedule for data transmission did not extend
pre-market trading hours.
\18\ See http://www.nasdaqtrader.com/TraderNews.aspx?id=dtn2014-08.
---------------------------------------------------------------------------

While these many changes were in the process of implementation,
fees for PSX TotalView were falling in real terms as a result of price
inflation. Indeed, the proposed increase in the enterprise license fee
from $16,000 to $17,000 remains below the rate of inflation of that
period.\19\ Moreover, the proposed non-display fee increase from $40 to
$50 is largely offset by inflation, and only represents an
approximately 3.24 percent annual increase over the course of seven
years.
---------------------------------------------------------------------------

\19\ The Consumer Price Index indicates price increases of
approximately 13 percent between September 2010 and November 2017.
See https://www.bls.gov/data/inflation_calculator.htm.
---------------------------------------------------------------------------

As a result of these substantial upgrades and the impact of overall
price inflation, the Exchange proposes two substantive changes to the
PSX TotalView fee schedule: (i) Introduce a monthly non-display usage
fee of $50 per Subscriber based upon Direct Access; and (ii) increase
the monthly enterprise license fee for non-display usage based upon
Direct Access from $16,000 to $17,000.\20\
---------------------------------------------------------------------------

\20\ In addition to these two substantive changes, the Exchange
proposes five sets of technical changes. First, the Exchange
proposes to add the phrase ``for display usage'' to Paragraph (a)(1)
to distinguish between display usage fees, which shall remain
unchanged, and non-display usage fees, which will increase. Second,
the Exchange proposes to change the reference to per Subscriber fees
in new paragraph (a)(3) from (a)(1) to (a)(2) because non-display
fees for Professionals that take the feed through Direct Access have
been moved from paragraph (a)(1) to (a)(2). Third, the Exchange
proposes to renumber former paragraph (a)(2) to (a)(3) to reflect
the introduction of new paragraph (a)(2). Fourth, the Exchange
proposes to delete the unnecessary word ``in'' from the phrase ``as
provided [in ]elsewhere in this rule . . . .'' from paragraph (a)(1)
as a grammatical correction. Fifth, the Exchange proposes to revise
paragraph (c) (``Free-Trial Offers) to reflect the new fees set
forth in paragraphs (a)(2) and (a)(3).
---------------------------------------------------------------------------

The current fee structure allows firms to purchase PSX TotalView
for display or non-display usage by professionals for a monthly charge
of $40 per Subscriber. The Exchange proposes to separate this fee into
two distinct fees: One for display usage and non-display usage not
based upon Direct Access by professionals, and another for non-display
usage based upon Direct Access.\21\ The fee for display usage for
professionals will remain unchanged at $40 per month, as will the fee
for non-display usage without Direct Access, while the new non-display
usage fee based upon Direct Access will be set at $50 per month.\22\
With this change, the pricing structure for PSX TotalView will conform
to the pricing structure for Nasdaq TotalView (which has differential
fees for display and non-display usage),\23\ and the proposed pricing
structure for BX TotalView (proposed in a separate filing for the BX
Exchange), albeit at a lower rate than the

[[Page 4102]]

two other exchanges. The PSX TotalView pricing structure will also be
similar to the non-display fee structure for NYSE and other exchanges,
as differential pricing for display and non-display usage has become
the industry norm.\24\
---------------------------------------------------------------------------

\21\ Any Subscriber within a firm that obtains Exchange data
through a Subscriber with Direct Access from that same firm has
obtained such data ``based upon Direct Access.''
\22\ ``Direct Access'' refers to the method for receiving
Exchange data. A firm may have Direct Access to receive Exchange
data through: (i) A telecommunications interface with the Exchange
for receiving Exchange data, (ii) an Exchange data feed within the
Exchange co-location facility, or (iii) via an extranet access
provider. See Phlx Pricing Schedule, Section VIII, Market Data
Distributor Fees (c).
\23\ See Nasdaq Rule 7023(b)(2).
\24\ See, e.g., NYSE PDP Market Data Pricing (November 3, 2017),
found at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
---------------------------------------------------------------------------

The second proposed substantive change will increase the monthly
enterprise license fee for internal non-display usage of PSX TotalView
based upon Direct Access from $16,000 to $17,000.
PSX TotalView is optional in that the Exchange is not required to
offer it and broker-dealers are not required to purchase it. Firms can
discontinue use at any time and for any reason, including an assessment
of the fees charged.
The proposed change does not change the cost of any other Exchange
product.
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\25\ in general, and furthers the objectives of
Sections 6(b)(4) and 6(b)(5) of the Act,\26\ 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.
---------------------------------------------------------------------------

\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

The Commission and the courts have repeatedly expressed their
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. In Regulation
NMS, while adopting a series of steps to improve the current market
model, the Commission highlighted the importance of market forces in
determining prices and self-regulatory organization (``SRO'') revenues
and, also, recognized that current regulation of the market system
``has been remarkably successful in promoting market competition in its
broader forms that are most important to investors and listed
companies.'' \27\
---------------------------------------------------------------------------

\27\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37499 (June 29, 2005) (``Regulation NMS Adopting
Release'').
---------------------------------------------------------------------------

Likewise, in NetCoalition v. Securities and Exchange Commission
\28\ (``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.\29\ 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.'' \30\
---------------------------------------------------------------------------

\28\ NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 2010).
\29\ See NetCoalition, at 534-535.
\30\ Id. at 537.
---------------------------------------------------------------------------

Further, ``[n]o 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'' \31\
---------------------------------------------------------------------------

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

The Exchange believes that the proposed fee changes are equitable
allocations of reasonable dues, fees and other charges in accordance
with Section 6(b)(4) of the Act, and not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers in
accordance with Section 6(b)(5) of the Act. Both the monthly non-
display per Subscriber usage fee and the monthly enterprise license fee
for non-display usage are equitable allocations because, as has been
widely recognized, display and non-display functions provide different
value to the consumer because of differences in speed and efficiency
between the two modes of distribution, and it has become standard
industry practice to charge differing fees for these two different
modes of data consumption. Non-Display Usage provides greater value to
the customer because the computer systems utilizing Non-Display data
are able to analyze trading information thousands of times faster than
their human counterparts, hundreds of different securities can be
analyzed simultaneously, trading strategies can be executed much more
quickly, error rates are lower, and each hour of the trading day can be
used more efficiently. In addition, discounts based on high levels of
usage such as the enterprise license for non-display usage have
routinely been adopted by exchanges and approved as equitable
allocations of reasonable dues, fees and other charges.\32\ As such,
the proposed fees vary solely based on reasonable and well-established
industry norms regarding types of data usage, as discussed above.
---------------------------------------------------------------------------

\32\ For example, the Commission has approved pricing discounts
for market data under Nasdaq Rule 7023.
---------------------------------------------------------------------------

The Exchange also distinguishes between usage based on Direct
Access and other methods of connection: Non-display usage that is based
upon Direct Access will be charged $50 per month, while other non-
display usage will be charged $40 per month. This distinction is an
equitable allocation of reasonable dues, fees and other charges because
Direct Access provides the customer with source information in the
original raw format, which provides customers with the certainty that
they are receiving data without conflation or manipulation. This
distinction does not permit unfair discrimination between customers,
issuers, brokers, or dealers because the price differential is based on
the difference in value to the customer.
In addition, the Exchange proposes to introduce clarifying language
stating that the enterprise license for non-display data will be
available only to firms with Direct Access. This is an equitable
allocation of reasonable dues, fees and other charges because firms
with sufficient activity to purchase an enterprise license have a
Direct Access connection. As such, the proposed language simply
clarifies how the enterprise license will be used with respect to
Direct Access, in a similar manner to the way that Direct Access is
addressed in paragraphs (a)(1) and (a)(2), without affecting the
service of any specific customer. This proposed change does not permit
unfair discrimination between customers, issuers, brokers, or dealers
for the same reason: The proposed language is simply a clarification
that will not lead to any actual difference in usage.
The proposed changes do not permit unfair discrimination between
customers, issuers, brokers, or dealers because the Exchange makes all
services and products subject to these fees available on a non-
discriminatory basis to similarly-situated recipients. The proposed
fees are structured in a manner comparable to the corresponding fees of
Nasdaq already in effect, and compare favorably to fees charged by
Nasdaq and BX for the same product. The fees are uniform except with
respect to reasonable and well-established distinctions between display
and non-display data discussed above.

[[Page 4103]]

The Act does not prohibit all distinctions among customers, but
rather discrimination that is unfair. As the Commission has recognized,
``[i]f competitive forces are operative, the self-interest of the
exchanges themselves will work powerfully to constrain unreasonable or
unfair behavior.'' \33\ Accordingly, ``the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably or unfairly discriminatory.'' \34\ The proposed fees, like
all market data fees, are constrained by the Exchange's need to compete
for order flow, and are subject to competition from other exchanges and
among broker-dealers for customers. If the Exchange is incorrect in its
assessment of price, it may lose market share as a result.
---------------------------------------------------------------------------

\33\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21).
\34\ Id.
---------------------------------------------------------------------------

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. In terms of inter-market
competition, the Exchange notes that it operates in a highly
competitive market in which market participants can readily favor
competing venues if they deem fee levels at a particular venue to be
excessive, or rebate opportunities available at other venues to be more
favorable. In such an environment, the Exchange must continually adjust
its fees to remain competitive with other exchanges and with
alternative trading systems that have been exempted from compliance
with the statutory standards applicable to exchanges. Because
competitors are free to modify their own fees in response, and because
market participants may readily adjust their order routing practices,
the Exchange believes that the degree to which fee changes in this
market may impose any burden on competition is extremely limited.
PSX TotalView is a type of depth-of-book product, which consists of
``outstanding limit orders to buy stock at prices lower than, or to
sell stocks at prices higher than, the best prices on each exchange.''
\35\ The question of whether the prices of depth-of-book products are
constrained by competitive forces was examined in 2016 by an
Administrative Law Judge in an application for review by the Securities
Industry and Financial Markets Association of actions taken by Self-
Regulatory Organizations.\36\ After a four-day hearing and presentation
of substantial evidence, the administrative law judge stated that
``competition plays a significant role in restraining exchange pricing
of depth-of-book products'' \37\ because ``depth-of-book products from
different exchanges function as substitutes for each other,'' \38\ and,
as such, ``the threat of substitution from depth-of-book customers
constrains their depth-of-book prices.'' \39\ As a result, ``[s]hifts
in order flow and threats of shifting order flow provide a significant
competitive force in the pricing of . . . depth-of-book data.'' \40\
The judge concluded that ``[u]nder the standards articulated by the
Commission and D.C. Circuit, the Exchanges have shown that they are
subject to significant competitive forces in setting fees for depth-of-
book data: The availability of alternatives to the Exchanges' depth-of-
book products, and the Exchanges' need to attract order flow from
market participants constrains prices.'' \41\
---------------------------------------------------------------------------

\35\ See Securities Industry and Financial Markets Association,
Initial Decision Release No. 1015, 2016 SEC LEXIS 2278 at *4 (A.L.J.
June 1, 2016) (quoting NetCoalition v. SEC, 615 F3d 525, 529-30
(D.C. Cir. 2010)).
\36\ Id.
\37\ Id. at *92.
\38\ Id.
\39\ Id. at *93.
\40\ Id. at *104.
\41\ Id. at *86.
---------------------------------------------------------------------------

The proposed changes will: (i) Introduce a monthly non-display
usage fee of $50 per Professional Subscriber based upon Direct Access;
and (ii) increase the monthly enterprise license fee for non-display
usage based upon Direct Access from $16,000 to $17,000. These proposed
price changes will not impose any burden on competition because market
data fees are but one aspect of the overall competition among exchanges
to solicit order flow; if the overall price of interacting with the
Exchange rises above competitive levels because of market data fees,
market forces would cause the Exchange to lose market share.
Market forces constrain fees for PSX TotalView, as well as other
market data fees, in the competition among exchanges and other entities
to attract order flow and in the competition among Distributors for
customers. Order flow is the ``life blood'' of the exchanges. Broker-
dealers currently have numerous alternative venues for their order
flow, including SRO markets, as well as internalizing broker-dealers
(``BDs'') and various forms of alternative trading systems (``ATSs''),
including dark pools and electronic communication networks (``ECNs'').
Each SRO market competes to produce transaction reports via trade
executions, and two FINRA-regulated Trade Reporting Facilities
(``TRFs'') compete to attract internalized transaction reports. The
existence of fierce competition for order flow implies a high degree of
price sensitivity on the part of BDs, which may readily reduce costs by
directing orders toward the lowest-cost trading venues.
The level of competition and contestability in the market for order
flow is demonstrated by the numerous 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. For a variety of
reasons, competition from new entrants, especially for order execution,
has increased dramatically over the last decade.
Each SRO, TRF, ATS, and BD that competes for order flow is
permitted to produce proprietary data products. Many currently do or
have announced plans to do so, including NYSE, NYSE American, NYSE
Arca, CBOE, and IEX. This is because Regulation NMS deregulated the
market for proprietary data. While BDs had previously published their
proprietary data individually, Regulation NMS encourages market data
vendors and BDs to produce proprietary products cooperatively in a
manner never before possible. Order routers and market data vendors can
facilitate production of proprietary data products for single or
multiple BDs. The potential sources of proprietary products are
virtually limitless.
The markets for order flow and proprietary data are inextricably
linked: A trading platform cannot generate market information unless it
receives trade orders. As a result, the competition for order flow
constrains the prices that platforms can charge for proprietary data
products. Firms make decisions on how much and what types of data to
consume based on the total cost of interacting with PSX and other
exchanges. Data fees are but one factor in a total platform analysis.
If the cost of the product exceeds its expected value, the broker-
dealer will choose not to buy it. A supracompetitive increase in the
fees charged for either

[[Page 4104]]

transactions or proprietary data has the potential to impair revenues
from both products. In this manner, the competition for order flow will
constrain prices for proprietary data products.
Competition among Distributors provides another form of price
discipline for proprietary data products. If the price of PSX TotalView
were set above competitive levels, Distributors purchasing PSX
TotalView would be at a disadvantage relative to their competitors, and
would therefore either curtail their purchase or forego the product
altogether.
Market forces constrain the price of depth-of-book data such as PSX
TotalView through the competition for order flow and in the competition
among vendors for customers. If the changes proposed herein are
unattractive to market participants, it is likely that the Exchange
will lose market share as a result. Accordingly, the Exchange does not
believe that the proposed changes will impair the ability of members or
competing order execution venues to maintain their competitive standing
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.\42\
---------------------------------------------------------------------------

\42\ 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 [email protected]. Please include
File Number SR-Phlx-2018-10 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-2018-10. 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 website (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 website 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 the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Phlx-2018-10 and should be submitted on
or before February 20, 2018.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
Eduardo A. Aleman,
Assistant Secretary.
---------------------------------------------------------------------------

\43\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2018-01536 Filed 1-26-18; 8:45 am]
BILLING CODE 8011-01-P

Document Created: 2018-01-27 00:57:35
Document Modified: 2018-01-27 00:57:35

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		83 FR 4100