[Federal Register Volume 66, Number 241 (Friday, December 14, 2001)]
[Notices]
[Pages 64895-64896]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-30879]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44138; File No. SR-NYSE-2001-42]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the New York Stock Exchange, Inc., Establishing the Fees for 
NYSE OpenBook\TM\

December 7, 2001.
    On October 15, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change establishing the fees for its 
NYSE OpenBook service. The proposed rule change was published for 
comment in the Federal Register on October 29, 2001.\3\ The Commission 
received one comment letter on the proposed rule change.\4\ This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 44962 (October 19, 
2001), 66 FR 54562.
    \4\ See Letter from W. Hardy Callcott, Senior Vice President and 
General Counsel, Charles Schwab & Co., Inc. to Jonathan G. Katz, 
Secretary, Commission, dated November 20, 2001 (``Schwab Letter'').
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I. Description of the Proposed Rule Change

A. Proposed Fees for NYSE OpenBook Service

    The Exchange proposes to establish certain fees for its NYSE 
OpenBook service. 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. 
According to the Exchange, 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 has proposed 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 \5\ per month for each terminal 
through which the end user is able to display the NYSE OpenBook.
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    \5\ The Exchange noted that although no other exchange 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 for professional interrogation devices, 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.
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B. NYSE OpenBook Service Agreements

    The Exchange 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 ``subscriber'' agreement.
    The Exchange intends to supplement the vendor agreements with 
additional terms that are unique to NYSE OpenBook. First, the vendor 
agreements prohibit a data feed recipient that redisseminates the NYSE 
OpenBook outside of its organization from enhancing, integrating, or 
consolidating the redisseminated NYSE OpenBook data with limit order 
data of other markets or trading systems (i.e., the data feed recipient 
may only redisseminate the display of the NYSE's OpenBook in a separate 
``window'' \6\ marked ``NYSE OpenBook\TM\''). A vendor, however, may 
place other markets' limit order displays on the same page as the NYSE 
OpenBook window. This restriction only applies to vendors that 
redisseminate the NYSE OpenBook outside of their organization. It does 
not apply to those entities that receive the data feed for their own 
internal use. In other words, data feed recipients will be permitted to 
enhance, integrate, or consolidate the NYSE OpenBook data with other 
markets' or trading systems' limit order data for their own internal 
use.
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    \6\ The ``window'' requirement does not literally require a 
separate window, only separate displays. In other words, a vendor 
could format multiple displays in a single window.
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    Second, the vendor agreement precludes a data feed recipient from 
retransmitting the NYSE OpenBook data feed. Thus, any entity that 
wishes to receive the data feed so that it may enhance, integrate, or 
consolidate the data with other markets' data for its own internal use 
must obtain the data feed from the NYSE. The Exchange, however,

[[Page 64896]]

has represented that once it and the marketplace gains experience with 
the product, the Exchange will permit retransmission of the NYSE 
OpenBook data feed by vendors.

II. Summary of Comments

    The Commission received one comment letter on the proposal.\7\ 
Generally, the commenter supports the Exchange's efforts in making its 
depth-of-book information available to investors as soon as possible. 
However, the commenter believes that the fee structure and the 
restrictions on how the NYSE OpenBook data can be used are unreasonable 
and unfairly discriminate against individual retail investors.
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    \7\ See Schwab Letter, note 4, supra.
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    The commenter believes that the proposed fee structure deprives 
retail investors of equal and fair access to the same type of 
information as institutions and professionals because the proposed end-
user fee is prohibitively expensive. Therefore, the commenter believes 
that retail firms, and in particular, firms with a large online retail 
client base, are placed at an unfair competitive disadvantage to firms 
that cater to institutional investors or serve their clients solely 
through telephone and in-person service. The commenter also states that 
the NYSE did not justify or attempt to explain the reasonableness of 
the $50 per device or end-user fee. Therefore, without a cost-effective 
alternative for retail investors, the commenter believes that the 
proposal does not meet investor protection standards.
    In addition, the commenter states that the proposal unduly 
restricts the availability of critically important market data on a 
fair and equal basis. The commenter believes that the restrictions on 
the form and content of OpenBook would result in retail investors 
getting an inferior information product than would be available to 
institutions and professionals because retail investors would only 
receive a one-size-fits-all information product (i.e., the NYSE 
OpenBook display), as opposed to enhanced or consolidated market 
information.\8\
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    \8\ The commenter questioned whether the restriction on 
redissemination applied only to the redissemination of the data feed 
itself for whether it was a complete ban on external redistribution 
of the OpenBook display. The NYSE clarified that the restriction on 
redissemination applied only to the redissemination of the data 
feed.
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    In response to the commenter, the Exchange stated that the 
commenter's concerns generally focused on the absence of a retail 
online fee. The Exchange argued that as a product innovator, it was 
simply exercising its perogative to roll out NYSE OpenBook in phases, 
as dictated by demand.

III. Discussion

    After careful review, the Commission finds that the Exchange's 
proposed rule change to establish fees for NYSE OpenBook service is 
consistent with the requirements of the Act, and the rules and 
regulations thereunder applicable to a national securities exchange.\9\ 
In particular, the Commission finds that the fee proposal is consistent 
with section 6(b)(4) of the Act,\10\ which requires that exchange rules 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members, issuers, and other persons using its 
facilities.
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    \9\ In approving this rule, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \10\ 15 U.S.C. 78f(b)(4).
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    Specifically, the Commission believes that the Exchange's proposed 
charges of $5,000 per month for receipt of the NYSE OpenBook data feed, 
and $50 per month for the end-user fee per terminal are reasonable when 
compared to similar types of service provided by other markets.\11\
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    \11\ See note 5, supra.
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    The Commission considered the commenter's concern that the 
Exchange's proposed fees unfairly discriminate against retail 
investors. The Exchange, however, has represented that as it gains 
experience with NYSE OpenBook, it may design a data product that is 
more suitable for use by registered representatives, and should ademand 
develop, it would consider designing a limit order data product for the 
retail, nonprofessional customer.
    The Commission notes that this order only approves the filing 
submitted by the NYSE, for the fees for the NYSE OpenBook service. 
Therefore, the Commission is not approving or disapproving the terms of 
the NYSE's vendor or subscriber agreements. The NYSE's proposed 
restrictions on vendor redissemination of OpenBook data, including the 
prohibition on providing the full data feed and providing enhanced, 
integrated, or consolidated data found in these agreements are on their 
face discriminatory, and may raise fair access under the Act. \12\
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    \12\ For a complete discussion of the relevant provisions of the 
Act, see Securities Exchange Act Release No. 44962 (October 19, 
2001), 66 FR 54562 (October 29, 2001).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act, 
\13\ that the proposed rule change (SR-NYSE-2001-42) be, and it hereby 
is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-30879 Filed 12-13-01; 8:45 am]
BILLING CODE 8010-01-M