[Federal Register Volume 66, Number 209 (Monday, October 29, 2001)]
[Notices]
[Pages 54562-54564]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-27131]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44962; File No. SR-NYSE-2001-42]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., Establishing the Fees for 
NYSE OpenBook TM

    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 October 15, 2001, the New York Stock Exchange, Inc. (``NYSE'' 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 Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The Exchange proposes to establish a set of fees in its NYSE 
OpenBook service, a new service in which subscribers may view limit 
orders contained in the NYSE limit order book.

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
    NYSE OpenBook is a compilation of limit order data that the 
Exchange will provide to market data vendors, broker-dealers, private 
network providers, and other entities through a data feed. By enhancing 
the quality of the Exchange's market data, the Exchange believes that 
NYSE OpenBook would preserve and increase the benefits that the 
Exchange offers to its constituents. At the same time, the Exchange 
believes that the innovation of NYSE OpenBook serves two of the public 
policy goals of enhancing market transparency and fostering competition 
among orders and markets.
    The Exchange represents that for every limit price, NYSE OpenBook 
will include the aggregate order volume. The Exchange will make the 
NYSE OpenBook data feed available through the Exchange's Common Access 
Point (``CAP'') network. Initially, the Exchange will update NYSE 
OpenBook every ten seconds.
    The Exchange is proposing two fees. First, the Exchange proposes to 
collect a fee equal to $5,000 per month from each entity that elects to 
receive the NYSE OpenBook data feed. Second, the Exchange proposes to 
collect an end-user fee of $50.00 \3\ per month for each terminal 
through which the end user is able to display the NYSE OpenBook.
---------------------------------------------------------------------------

    \3\ The Exchange notes that although no other market participant 
currently offers a limit order data compilation, a few markets offer 
services that provide a point of reference. According to the 
Exchange, the NASDAQ Stock Market charges $50 per terminal for its 
Nasdaq Level II service, which provides the best bid and offer from 
all market makers and ECNs (although it does not otherwise provide 
depth-of-book or depth-of-market information). The Exchange also 
believes that the London Stock Exchange charges $144-$219 per 
terminal for the price and size of limit orders in stocks that are 
included in the FTSE 250 index. Further, the Exchange believes that 
the Toronto Stock Exchange charges $30 per terminal for its order 
books.
---------------------------------------------------------------------------

    The Exchange believes that NYSE OpenBook responds to the demand of 
trading desks of broker-dealers and institutional investors for depth-
of-market data, a demand that results from decimalization's six-fold 
increase in the number of price points. Thus, initially, the Exchange 
anticipates that these trading desks will be the primary users of NYSE 
OpenBook. As the Exchange gains experience with NYSE OpenBook, the 
Exchange notes that it may design a data product that is more suitable 
for use by registered representatives. Eventually, if a demand 
develops, the Exchange would consider designing a limit order data 
product suited for the retail, nonprofessional customer.
    The Exchange represents that it will require each NYSE OpenBook 
data feed recipient to enter into the existing form of ``vendor'' 
agreement. That agreement will authorize the data feed recipient to 
provide NYSE OpenBook display services to its customers or to 
distribute the data internally. In addition, the Exchange represents 
that it will require each end-user that receives NYSE OpenBook displays 
from a vendor or broker-dealer to execute the existing NYSE 
``subscriber'' agreement for that purpose.
    The Exchange, acting for the Consolidated Tape Association 
(``CTA'') and Consolidated Quotation (``CQ'') Plan Participants, 
currently uses the vendor and subscriber agreements to make available 
equity quotes and prices. In addition, the Exchange, acting on its own 
behalf, uses the vendor and subscriber agreements to make available 
bond quotes and prices. Since the agreements are generic, the Exchange 
believes that the agreements would accommodate NYSE OpenBook. When the 
CTA and CQ Plan Participants adopted the current vendor forms of 
agreement, the Commission published the forms for public comment and 
approved them.\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Rel Nos. 22851 (January 31, 
1986), 51 FR 5135 (February 11, 1986); 28407 (September 6, 1990), 55 
FR 37276 (September 10, 1990).
---------------------------------------------------------------------------

    The Exchange intends to supplement the vendor and subscriber 
agreements with additional terms that are unique to NYSE OpenBook. The 
first additional term to the vendor and subscriber agreements that the 
Exchange would provide requires a data-feed recipient that 
redisseminates NYSE OpenBook outside of its organization may not 
integrate the limit orders of other markets or trading systems into the 
NYSE limit orders (i.e., the data-feed recipient must display the 
NYSE's compilation in a separate ``window'' \5\ marked ``NYSE 
OpenBook\TM\''). The Exchange notes that the window requirement is 
designed to maintain the

[[Page 54563]]

integrity of the NYSE's data compilation so that it is uniquely 
identified to the NYSE. A vendor could place other markets' limit order 
displays on the same page as the NYSE OpenBook window.
---------------------------------------------------------------------------

    \5\ The Exchange notes that it is referring to a ``window'' for 
conceptual clarity. The requirement does not literally require a 
separate window, only separate displays. In other words, a vendor 
could format multiple displays in a single window.
---------------------------------------------------------------------------

    Further, the Exchange represents that the window requirement 
applies solely to vendors and not to trading desks that may display 
NYSE OpenBook for its own use. Because of the window requirement's 
limited reach, the Exchange notes that mere receipt of the data feed 
does not in itself convert a broker-dealer into a vendor. According to 
the Exchange, if a broker-dealer redistributes data to its customers, 
the broker-dealer would be subject to the window requirement like any 
other vendor. The Exchange believes that the dichotomy follows 
conventional licensing distinctions that treat vending and 
rebroadcasting differently from internal consumption. According to the 
Exchange, these distinctions are based in part on the practical 
difficulties inherent in policing internal consumption.
    In addition, the Exchange believes that the dichotomy tracks 
current practices among market data vendors. According to the Exchange, 
vendors typically control the formats of their display services, but do 
not control the formats of their data feed services. The Exchange 
believes that this vendor practice follows a common business 
stratification approach of providing branded products to one market 
segment, and licensing customized offerings to another market segment.
    The second additional term to the vendor and subscriber agreements 
that the Exchange would provide initially precludes data-feed customers 
from retransmitting the NYSE OpenBook data feed. The Exchange believes 
that this is a prudent safeguard in introducing the new product into 
the marketplace, particularly since NYSE OpenBook may be the subject of 
several releases in its first year. Furthermore, the Exchange notes 
that precluding retransmission of the NYSE OpenBook data feed reflects 
the Exchange's negative experience with retransmission of the CTA and 
CQ high speed lines. In recent years, some new entrants into the data-
feed business have failed to adopt the administrative controls 
necessary to assure that their data-feed customers are entitled to 
receive indirect access to the CTA and CQ high speed lines. The 
Exchange represents that once the NYSE and the marketplace gain 
experience with the product, the Exchange will permit retransmission of 
the NYSE OpenBook data feed.
2. Statutory Basis
    The Exchange believes that the basis under the act for the proposed 
rule change are the requirements under section 6(b)(4) of the Act,\6\ 
which provides that an exchange have rules that provide for the 
equitable allocation of reasonable dues, fees, and other charges among 
its members and other persons using its facilities; and the 
requirements under section 6(b)(5) of the Act,\7\ which provides, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade and not to permit unfair 
discrimination between customers, issuers, brokers or dealers.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(4).
    \7\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed fee change will not impose 
any burden on competition that is not necessary or appropriate in the 
furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

A. Description of Proposed Restrictions on NYSE OpenBook

    As described above, the NYSE proposes to provide a new service that 
will permit subscribers to view limit orders contained in the NYSE 
limit order book. The NYSE envisions two main categories of subscribers 
to this information: (1) broker-dealers and institutions; and (2) 
traditional market data vendors that disseminate information to market 
participants, including broker-dealers, institutions, and other 
customers. The NYSE's proposed restrictions on re-dissemination of 
OpenBook data would appear to affect these two types of subscribers 
differently. While a broker-dealer or institution would be prohibited 
from enhancing, integrating, or consolidating the OpenBook data with 
other markets' data for re-dissemination outside of the firm, it could 
enhance, integrate, or consolidate OpenBook data for its internal use, 
including distribution to specific trading desks and branch offices 
within the firm. In this way, a broker-dealer or institution would have 
the flexibility to fine-tune its OpenBook data feed in a manner that 
would maximize its usefulness for its trading operations. On the other 
hand, vendors would be unable to disseminate the data to their 
customers in a form other than the form prescribed by the NYSE (i.e., 
they must display the information in a separate window marked NYSE Open 
Book). Moreover, the Exchange represents that all recipients of the 
data-feed, including broker-dealers, vendors, institutions, and others, 
would initially be precluded from retransmitting the OpenBook data-feed 
in any form. The NYSE represents that ``this is a prudent safeguard in 
introducing the new product into the marketplace, particularly since 
NYSE OpenBook may be the subject of several releases in its first year. 
Furthermore, the Exchange notes that precluding retransmission of the 
NYSE OpenBook data feed reflects the Exchange's negative experience 
with retransmission of the CTA and CQ high speed lines.''
    The Commission recognizes that the NYSE's OpenBook proposal would 
provide market participants with potentially valuable information about 
the limit orders on specialists' books. This service may be 
particularly useful in the current decimal pricing environment by 
providing more information concerning buy or sell interest at various 
price levels outside of the current inside quotations posted by the 
Exchange. Nevertheless, the NYSE's proposed restrictions on OpenBook 
data may potentially raise issues concerning unfair discrimination 
against different types of subscribers. Moreover, the NYSE's proposed 
restrictions on consolidating OpenBook information with limit order 
information available from other market centers may raise questions 
concerning the fairness and usefulness of the form and content of such 
information.

B. Statutory Standards

    Section 11A generally sets forth the standards under which an SRO 
may

[[Page 54564]]

distribute information with respect to quotations, including limit 
orders.\8\
---------------------------------------------------------------------------

    \8\ In 1975, Congress gave the Commission authority under 
section 11A to regulate information with respect to quotations, 
including limit orders. See S. Rep. 94-75 94th Cong., 1st Sess. 93 
at 8 (1975) (stating in relevant part, ``[t]here are two paramount 
objectives in the development of a national market system. * * * And 
second, the centralization of all buying and selling interest so 
that each investor will have the opportunity for the best possible 
execution of his order regardless of where in the system it 
originates.'') (Emphasis added); Id. at 9 (stating in relevant part, 
``[the] regulation of securities communication systems would be 
accomplished under S. 249 by adding a new section 11A to the 
Exchange Act. This section is intended to bring under the SEC's 
direct jurisdiction all organizations engaged in the business of 
collecting, processing, or publishing information relating to 
quotations for, indications of interest to purchase and sell, and 
transactions in securities.'') In 1996, the Commission adopted the 
customer limit order display rule to further the principles of a 
national market system. See Securities Exchange Act Release No. 
37619A (August 29, 1996), 61 FR 48290, 48297 (September 12, 1996) 
(noting that ``[t]he Commission has consistently recognized since 
1975 that, in order to satisfy this Congressional vision, multiple-
market display of limit orders was an important component for 
qualified securities.'')
---------------------------------------------------------------------------

1. Section 11A(c)(1) (D) and (C)
    Section 11A(c)(1)(D) of the Act \9\ requires, among other things, 
that exchange members, brokers, dealers, and securities information 
processors be able to obtain information with respect to quotations for 
and transactions in securities on terms that are not unreasonably 
discriminatory. The Commission requests comment on whether the NYSE's 
proposal is consistent with this provision. Commenters are requested to 
address whether the restrictions on vendor re-dissemination of the 
data, including the prohibition on providing the full data feed and 
providing enhanced, integrated, or consolidated data, are unfairly 
discriminatory. Commenters are also asked to identify any other aspect 
of the proposal that may be unfairly discriminatory.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78k-1(c)(D).
---------------------------------------------------------------------------

    The Commission also requests comment on whether the proposal is 
consistent with the requirements of section 11A(c)(1)(C) of the 
Act,\10\ which requires among other things, that all securities 
information processors be able to obtain information with respect to 
quotations and transactions for purposes of distribution and 
publication on fair and reasonable terms. Specifically, are the 
contract terms that restrict the use and redissemination of the 
OpenBook fair and reasonable?
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78k-1(c)(1)(C).
---------------------------------------------------------------------------

2. Section 11A(c)(1)(B)
    Section 11A(c)(1)(B) of the Act \11\ requires, among other things, 
that a SRO distribute information with respect to quotations in such a 
manner as to assure the prompt, accurate, reliable, and fair 
collection, processing, distribution, and publication of information 
with respect to quotations for and transactions in such securities, and 
the fairness and usefulness of he form and content of such information. 
In this regard, the Commission requests commenters' views on whether 
the form and content of the OpenBook data are useful and fair in light 
of the restrictions on the form of display (i.e., the Exchange 
requirement that a subscriber that redisseminates the data must display 
it in a separate window marked NYSE Open Book).
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78k-1(c)(1)(B).
---------------------------------------------------------------------------

3. Other Issues
    Finally, the Commission requests comment on the proposal's 
potential impact on competition. Specifically, the Commission requests 
comment on whether the proposal imposes any burden on competition that 
is not necessary or appropriate.\12\ In this regard, the Commission 
requests commenters' views on whether the prohibition on 
redisseminating OpenBook in an enhanced, integrated, or consolidated 
form prevents vendors from competing with the NYSE.
---------------------------------------------------------------------------

    \12\ See, e.g., sections 6(b)(8) and (5) of the Act. 15 U.S.C. 
78f(b)(8) and (5).
---------------------------------------------------------------------------

    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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 inspection and copying in the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-NYSE-2001-42 and 
should be submitted by November 19, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\13\
---------------------------------------------------------------------------

    \13\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-27131 Filed 10-26-01; 8:45 am]
BILLING CODE 8010-01-M