[Federal Register Volume 64, Number 197 (Wednesday, October 13, 1999)]
[Notices]
[Pages 55503-55505]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-26620]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41977; File No. SR-CTA/CQ-99-01]


Consolidated Tape Association; Order Granting Approval of Fourth 
Charges Amendment to the Second Restatement of the Consolidated Tape 
Association Plan and the Third Charges Amendment to the Restated 
Consolidated Quotation Plan

October 5, 1999.

I. Introduction

    On June 14, 1999, the Consolidated Tape Association (``CTA'') and 
the Consolidated Quotation (``CQ'') Plan Participants 
(``Participants'') \1\ filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') amendments to the Restated CTA 
Plan and CQ Plan pursuant to Section 11A(a)(3) of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 11Aa3-2 thereunder.\3\ 
Notice of the proposed plan amendments appeared in the Federal Register 
on June 28, 1994.\4\ The Commission received two comment letters in 
response to the proposal.\5\ This order approves the proposed plan 
amendments.
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    \1\ The amendments were executed by each Participant in each of 
the Plans. The Participants include American Stock Exchange LLC, 
Boston Stock Exchange, Inc., Chicago Board Options Exchange, Inc., 
Chicago Stock Exchange, Inc., Cincinnati Stock Exchange, Inc., 
National Association of Securities Dealers, Inc., New York Stock 
Exchange, Inc. (``NYSE''), Pacific Exchange, Inc., and Philadelphia 
Stock Exchange, Inc.
    \2\ 15 U.S.C. 78k-1(a)(3).
    \3\ 17 CFR 240.11Aa3-2.
    \4\ Securities Exchange Act Rel. No. 41572 (June 28, 1999), 64 
FR 36412 (July 6, 1999). A typographical error was corrected on July 
27, 1999. Securities Exchange Act Rel. No. 41572 (correction), 64 FR 
40651.
    \5\ See letters from Kenneth S. Spirer, First Vice President & 
Assistant General Counsel, Merrill Lynch, Pierce, Fenner & Smith 
Incorporated, dated July 27, 1999 (``Merrill Letter'') and Sam Scott 
Miller, Orrick, Herrington & Sutcliffe LLP, to Jonathan G. Katz, 
Secretary, Commission, dated July 26, 1999 (``Schwab Letter'').
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II. Description of the Proposal

A. Nonprofessional Subscriber Service Rates

    The participants under the Plans that make available Network A 
(NYSE-listed) last sale information and Network A quotation information 
impose on vendors a monthly fee of $5.25 for each nonprofessional 
subscriber to whom the vendor provides a Network A market data display 
service. The proposed amendments will reduce that monthly fee from 
$5.25 for each nonprofessional subscriber to (i) $1.00 for each of the 
first 250,000 nonprofessional subscribers to whom a vendor provides a 
Network A display service during the month and (ii) $.50 for each 
additional nonprofessional subscriber.
    For the nonprofessional subscriber rates to apply to any of its 
subscribers (rather than the much higher professional subscriber 
rates), a vendor must make certain that the subscriber qualifies as a 
nonprofessional subscriber,\6\ subject to the same criteria that have 
applied since 1983, when the Participants first established a reduced 
rate for nonprofessional subscribers. Only those nonprofessional 
subscribers

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that actually access at least one real-time Network A quote or price 
during the month will be charged the proposed fees by the Participants.
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    \6\ A nonprofessional subscriber must receive the information 
solely for his or her personal, non-business use and must not 
furnish the information to any other person. See NYSE and ASE 
Application and Agreement for the Privilege of Receiving Last Sale 
Information & Bond Last Sale Information as a Nonprofessional 
Subscriber, for the qualifications necessary to be classified as a 
nonprofessional subscriber.
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B. Pay-for-Use Rates

    Since November 1997, the Participants have conducted a pilot 
program \7\ whose terms require vendors to provide services that 
account for the use of market data on the basis of one cent per quote 
packet.\8\ Vendors that have contracted to provide a usage-based 
service are required to pay one cent for every quote packet that they 
provide to their professional or nonprofessional subscribers. The fee 
is an alternative to the monthly subscriber fee that the Participants 
have historically charged professional and nonprofessional subscribers.
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    \7\ See Securities Exchange Act Rel. No. 39370 (November 26, 
1997), 62 FR 64414 (December 5, 1997).
    \8\ A ``quote packet'' refers to any data element, or all data 
elements, relating to a single issue. Last sale price, opening 
price, high price, low price, volume, net change, bid, offer, size, 
best bid, and best offer all exemplify data elements. ``IBM'' 
exemplifies a single issue. An index value constitutes a single 
issue data element.
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    Based their experience with the one-cent-per-quote fee and after 
consultation with vendors and professional subscribers, the 
Participants have determined to modify the one-cent fee and make the 
modified fee part of the Network A rate schedule.
    Under the modified rates, each vendor would pay:
    i. Three-quarters of one cent ($0.0075) for the first 20 million 
quote packets that it distributes during a month;
    ii. One-half of one cent ($0.005) for the next 20 million quote 
packets that is distributes during that month (i.e., quote packets 
20,000,001 through 40,000,000); and
    iii. One-quarter of one cent ($0.0025) for every quote packet in 
excess of 40 million that it distributes during that month.

C. Interplay of Nonprofessional-Subscriber and Pay-for-Use Rates

    The Participants also have determined to reduce the cost exposure 
of vendors by permitting them to limit the amount due from each 
nonprofessional subscriber each month. The vendors would be eligible to 
pay the lower of either the aggregate pay-per-use fees that would apply 
to the subscriber's usage during the month or the monthly $1.00 first-
tier nonprofessional subscriber fee. The Participants will offer this 
flexibility to each subscriber that qualifies as a nonprofessional 
subscriber and that agrees to the terms and conditions that apply to 
the receipt of market information as a nonprofessional subscriber.
    For ease of administration, the Participants will allow each vendor 
to apply the $1.00 fee for any month in which each nonprofessional 
subscriber retrieves 134 or more quote packets during the month, 
without regard to the marginal per-quote rate that the vendor pays that 
month (i.e., three-quarters, one-half or one-quarter cent per quote 
packet). In addition, each vendor may reassess each month to determine 
which fee is more economical, the per-quote fee or the nonprofessional 
subscriber fee.

D. Enterprise Arrangement

    In response to input from the brokerage community, the Participants 
will introduce an enterprise arrangement and make it available to 
registered broker-dealers. The concept would apply to the devices that 
such broker-dealers use internally and to their distributions of market 
data to their securities-trading customers. It would not apply to 
broker-dealers that make market data available to non-brokerage 
customers.
    The enterprise arrangement would limit the aggregate amount that 
registered broker-dealers would be required to pay in any month to: (i) 
the receipt and use of market data by its officers, partners and 
employees and those of its affiliates; and (ii) the pay-for-use and 
monthly display-device interrogation services that it or its registered 
broker-dealer affiliates provide to their nonprofessional, brokerage-
account customers (i.e., customers that qualify as nonprofessional 
subscribers and that have opened a trading account pursuant to an 
applicable brokerage account agreement). Fees not eligible for 
inclusion in the enterprise arrangement's monthly payment limitation 
are: (i) pay-for-use and display device fees payable by (A) 
professional subscribers and (B) nonprofessional subscribers that do 
not have brokerage accounts with the broker-dealer or its registered 
broker-dealer affiliates; (ii) access fees; and (iii) program 
classification charges.
    The enterprise arrangement's maximum monthly payment through the 
end of calendar year 2000 shall be $500,000. Thereafter, the 
Participants propose to increase this maximum on an annual basis in an 
amount equal to the percentage increase in the annual composite share 
volume for the preceding calendar year, subject to a maximum annual 
increase of five percent.
    In addition, the Participants will make some minor, non-substantive 
changes to the form of Schedules A-1 and A-2 of Exhibit E to both the 
CTA Plan and the CQ Plan.

III. Summary of Comments

    The Commission received two comment letters concerning the proposed 
amendments to the CTA and CQ Plans.\9\ Although both letters supported 
a reduction in fees for market information, they urged the Commission 
to re-examine the process for establishing fees to ensure that they are 
set at fair, reasonable, and nondiscriminatory levels. The Merrill 
Letter supported the proposed enterprise arrangement because it 
``imposes a limit on the aggregate amount payable for market data.'' 
\10\ The Merrill Letter also suggested that enterprise arrangements 
should be implemented by the other national market system plans that 
disseminate market information and that these arrangements should be 
made uniform. The letter also supports the reduction in nonprofessional 
subscriber rates because it ``reflects the growing demand for real-time 
quotes.'' \11\
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    \9\ See note 5 above.
    \10\ Merrill Letter at 1.
    \11\ Id. at 2.
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    The Merrill Letter noted that the various national market system 
plans with their attendant terms and conditions have created 
unnecessary administrative burdens on, and caused unnecessary expenses 
for, broker-dealer users of market information. The letter suggested 
that the plans should try to standardize, where possible, the terms, 
conditions, policies, and procedures to lessen the administrative 
burdens associated with the current fee structures.
    The Schwab Letter supported approval of the proposed fee 
reductions, but also asserted that other aspects of the proposal were 
not consistent with the statutory standards applicable to market 
information fees and should be abrogated. Schwab stated that, although 
the fee reductions benefit retail investors, the CTA's overall fee 
structure is not fair and reasonable because the fees charged are 
unrelated to the actual costs of providing the market information. 
Moreover, Schwab notes that the reduced costs of collecting and 
disseminating market information have resulted from an increase in 
dissemination of market information through electronic means. According 
to Schwab, because the new fee structure does not reflect these reduced 
costs, the fee structure does not

[[Page 55505]]

comply with the standards of Section 11A of the Act.
    The Schwab Letter further contended that CTA should demonstrate 
that the proposed fees do not unfairly discriminate among users of 
market information. Schwab supported a ``cost-based, non-
discriminatory'' enterprise fee and stated that the proposed enterprise 
fee of $500,000 was discriminatory because it was not connected to the 
actual costs of CTA.\12\ Schwab also asserted that the proposed annual 
increase to the enterprise fee ``further exemplifies the disregard for 
setting fees reasonably related to costs.'' \13\
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    \12\ Schwab Letter at 5.
    \13\ Id.
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    The Schwab Letter believed that the tiered fee structure improperly 
discriminated among broker-dealers and vendors based on the number of 
subscribers they have and their subscribers' use of market data. 
Finally, although it supported giving vendors the choice of paying the 
lower of the monthly nonprofessional fee or the per-quote fee, the 
Schwab Letter contended that to ``ensure the benefit of the election, 
the $0.50 per-subscriber fee should be used for those subscribers of a 
broker-dealer or vendor beyond the first 250,000.''\14\
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    \14\ Id. at 6.
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IV. Discussion

    The Commission finds that the proposed plan amendments are 
consistent with the Act and the rules and regulations thereunder.\15\ 
Specifically, the Commission finds that approval of the amendments is 
consistent with Rule 11Aa3-2(c)(2) \16\ of the Act.
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    \15\ The Commission has considered the proposed amendments' 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f). The Commission realizes that the modified fee structure, as 
applied, may create competitive disparities. The new fee structure 
will, however, reduce the cost of access to market information, 
which should result in a reduction of costs for investors. The 
competitive concerns and solutions suggested by the commenters will 
be addressed in the Commission's forthcoming concept release on 
market information fees and revenues.
    \16\ 17 CFR 240.11Aa3-2(c)(2).
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    The Commission currently is conducting a broad review of the fee 
structures for obtaining market information and of the role of market 
information revenues in funding the self-regulatory organizations. As 
part of its review, the Commission intends to issue a release 
describing existing market information fees and revenues and inviting 
public comment on the subject. The proposed rule change implicates many 
of the issues that the Commission is reviewing. These include 
identifying the appropriate standards for determining (1) whether the 
fees charged by an exclusive processor of market information are fair 
and reasonable, and (2) whether a fee structure is unreasonably 
discriminatory or an inappropriate burden on competition.
    The Commission has decided to approve the proposed plan amendments 
pending its review because they represent, in part, a very substantial 
reduction in the market information fees applicable to retail 
investors, In particular, the monthly fee for non-professional 
subscribers would be reduced from $5.25 per month to no greater than 
$1.00 per month. Under this monthly fee structure, there would be no 
limit on the amount of market information that retail investors would 
be entitled to receive. Such a fee structure may enable vendors to 
provide retail investors with more useful services than previously has 
been the case. In this regard, the proposed plan amendments are 
consistent with, and significantly further, one of the principal 
objectives for the national market system set forth in Section 
11A(a)(1)(C)(iii)increasing the availability of market information to 
broker-dealers and investors. The Commission wishes to emphasize, 
however, that its review of market information fees and revenues is 
ongoing and may require a reevaluation of the fee structures contained 
in the proposed plan amendments at some point in the future.
    The Commission recognizes that the commenters supported approval of 
the proposed fee reductions primarily because they represent an 
improvement over the CTA's current fee structure. Other issues raised 
by the commenters (e.g., discriminatory impact of the CTA fee structure 
on on-line investors, the appropriate standard to be applied in 
assessing the fairness and reasonableness of market information fees) 
have broader implications on the functioning and regulation of the 
national market system. As such these issues will be addressed in the 
Commission's forthcoming concept release on market information fees and 
revenues.
    The Commission also finds that the minor, non-substantive changes 
made to the form of Schedules A-1 and A-2 of Exhibit E to both the CTA 
and CQ Plans reflect the proposed amendments, thereby clarifying the 
fee schedules to make them more understandable.

V. Conclusion

    It is therefore ordered, pursuant to Section 11A of the Act,\17\ 
and the rules thereunder, that the proposed amendments to the Plans 
(SR-CTA/CQ-99-01) are approved.
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    \17\ 15 U.S.C. 78k-1.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(27).
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[FR Doc. 99-26620 Filed 10-12-99; 8:45 am]
BILLING CODE 8010-01-M