[Federal Register Volume 68, Number 62 (Tuesday, April 1, 2003)]
[Proposed Rules]
[Pages 15688-15690]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7730]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-47571; File No. S7-07-03]
RIN 3235-AI78


Request for Comment on the NYSE Petition Relating to Participant 
Fee Exemptions

AGENCY: Securities and Exchange Commission.

ACTION: Concept release; request for comments.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or 
``SEC'') seeks comment on a petition (``NYSE Petition'') submitted by 
the New York Stock Exchange, Inc. (``NYSE''), as a member of the 
Consolidated Tape Association (``CTA''). The NYSE Petition requests 
that the Commission amend the CTA Plan and the CQ Plan (collectively, 
the ``Plans'') to delete the provisions that exempt any participant in 
the Plans (``Participant'') from market data fees if the Participant 
receives the data for its internal use in regulating its market 
(``Participant Fee Exemptions''). The NYSE Petition would require all 
Participants to pay for CTA and CQS market data whether such data is 
received or used for regulation or other purposes. The Commission seeks 
comment on whether it should act on the NYSE Petition and the effects 
that eliminating the Participant Fee Exemptions would have on 
Participants in the National Market System.

DATES: Comments must be received on or before May 1, 2003.

ADDRESSES: To help us process and review your comments more 
efficiently,

[[Page 15689]]

comments should be sent by one method only.
    Persons wishing to submit written comments should send three copies 
to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609. Comments also may be 
submitted electronically at the following e-mail address: [email protected]. All comment letters should refer to File No. S7-07-
03. Comments submitted by e-mail should include this file number in the 
subject line. Comment letters received will be available for public 
inspection and copying in the Commission's Public Reference Room, 450 
Fifth Street, NW., Washington, DC 20549. Electronically submitted 
comment letters will be posted on the Commission's Internet Web site 
(http://www.sec.gov).\1\
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    \1\ Personal identifying information, such as names or e-mail 
addresses, will not be edited from electronic submission. Submit 
only information that you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Any of the following attorneys in the 
Division of Market Regulation, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-1001: Alden S. Adkins at (202) 
942-0180; Katherine A. England at (202) 942-0154; Sapna C. Patel at 
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(202) 942-0166; or Ian K. Patel at (202) 942-0089.

SUPPLEMENTARY INFORMATION:

I. Background

    Section XII(b)(iv) of the CTA \2\ Plan and section IX(b)(iv) of the 
CQ Plan provide, in relevant part, that no Participant may be charged 
for receiving or using any portion of the CTA and CQ Networks' last 
sale price and quotation information, provided that such information 
is: (1) Furnished to the Participant ``only at premises occupied solely 
by such Participant or on the trading floor or trading floors (as the 
term is generally understood) of such Participant''; (2) used by the 
Participant ``solely for regulatory and surveillance purposes, or for 
any other approved purposes''; and (3) not ``made available [by the 
Participant] to any person not located within or on, such premises or 
trading floor.'' \3\
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    \2\ CTA is an association consisting of representatives from the 
American Stock Exchange LLC (``AMEX''); The Chicago Stock Exchange, 
Inc.; the National Association of Securities Dealers, Inc.; the 
NYSE; the Pacific Exchange, Inc.; the Philadelphia Stock Exchange, 
Inc.; the Cincinnati Stock Exchange, Inc.; the Boston Stock 
Exchange, Inc.; and the Chicago Board Options Exchange, Inc. CTA's 
function is to oversee the dissemination, on a current and 
continuous basis, of last sale prices of transactions in securities 
listed on a national securities exchange.
    \3\ The CTA Plan, pursuant to which markets collect and 
disseminate last sale price information for securities listed on 
national securities exchanges, is a ``transaction reporting plan'' 
under Rule 11Aa3-1 of the Securities Exchange Act of 1934 (``Act''), 
17 CFR 240.11Aa3-1, and a ``national market system plan'' under Rule 
11Aa3-2 of the Act, 17 CFR 240.11Aa3-2. The CQ Plan, pursuant to 
which markets collect and disseminate bid/ask quotation information 
for securities listed on national securities exchanges, is also a 
``national market system plan'' under Rule 11Aa3-2 of the Act, 17 
CFR 240.11Aa3-2.
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    On February 16, 2001, the NYSE filed the NYSE Petition with the 
Commission requesting that the Commission, pursuant to Section 11A of 
the Act \4\ and Rule 11Aa3-2(b)(2) thereunder,\5\ amend the CTA and CQ 
Plans to remove the Participant Fee Exemptions.\6\ The NYSE Petition is 
described in more detail in Part II below. We note that this is not the 
first time the Commission has been asked to take action related to 
these paragraphs of the Plans.\7\
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    \4\ 15 U.S.C. 78k-1.
    \5\ 17 CFR 240.11Aa3-2(b)(2).
    \6\ See letter to Jonathan G. Katz, Secretary, Commission, from 
Robert G. Britz, Group Executive Vice President, NYSE, dated 
February 14, 2001.
    \7\ See In the Matter of the Application of the Chicago Board 
Options Exchange, Administrative Proceeding File No. 3-10561 (March 
13, 2002) and In the Matter of the Application of the Chicago Board 
Options Exchange, Administrative Proceeding File No. 3-10561 (March 
5, 2003). See also In the Matter of the Application of the 
Cincinnati Stock Exchange, Inc., Administrative Proceeding File No. 
3-9967.
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II. Summary of the NYSE Petition

    The NYSE is requesting that the Commission, pursuant to Rule 11Aa3-
2(b)(2) of the Act, amend the CTA and CQ Plans to delete the 
Participant Fee Exemptions. The Participant Fee Exemptions are found in 
the section of each Plan that regulates Plan expenses and revenues, 
including the imposition of market data charges on data recipients. 
They specify that each of the Participants is exempt from market data 
charges (other than access fees) if it is in compliance with the 
requisite market data contract. According to the Participant Fee 
Exemptions, no Participant may be charged for receiving or using any 
portion of the CTA and CQ Networks' last sale price information, 
provided that such information is: (1) Furnished to the Participant 
``only at premises occupied solely by such Participant or on the 
trading floor or trading floors (as the term is generally understood) 
of such Participant'; (2) used by the Participant ``solely for 
regulatory and surveillance purposes, or for any other approved 
purposes'; and (3) not ``made available [by the Participant] to any 
person not located within or on, such premises or trading floor.''
    The NYSE states that the Participant Fee Exemptions, adopted in 
1979, applied to practices used by the NYSE and AMEX at that time. 
However, as the technological and structural environment of the markets 
have changed, the NYSE represents that many Participants believe that 
the Participant Fee Exemptions are no longer desirable. The NYSE 
believes that the Participant Fee Exemptions create perceived 
inequities and interpretative disputes over their plain meaning. To 
address this problem, the NYSE requests that the Commission amend the 
Plans to delete Section XII(b)(iv) of the CTA Plan, and Section 
IX(b)(iv) of the CQ Plan, which would effectively eliminate the 
Participant Fee Exemptions in their entirety.
    The NYSE believes that the elimination of the Participant Fee 
Exemptions will satisfy the standards of fairness mandated by the Act 
and the avoidance of unreasonable discrimination.\8\ The NYSE, however, 
asserts that an alternative to eliminating the Participant Fee 
Exemptions would be to expand them in an attempt to level the playing 
field among market makers. However, the NYSE believes that this would 
simply redraw the boundaries of fee exemptions for devices, which would 
only complicate the surveillance of market data, as new trading 
structures and technologies change the nature of such boundaries. 
Further, the NYSE asserts that such an alternative would simply result 
in future disputes over the boundaries of fee exemptions for devices. 
The NYSE also believes that expanding fee exemptions would only 
complicate market data administration and increase the policing burden.
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    \8\ The NYSE believes that repealing the Participant Fee 
Exemptions would place the Plans on equal footing with the national 
market system plan governing market data relating to over-the-
counter securities, which does not provide for similar fee 
exemptions for participants, and which requires the participating 
markets and their remotely located market makers to pay the plan's 
fees.
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    The NYSE believes that favorable action on the NYSE Petition by the 
Commission would be beneficial in several ways. First, the NYSE 
believes that the elimination of the Participant Fee Exemptions would 
eliminate future grievances relating to the application of the 
Participant Fee Exemptions by eliminating the perception of inequity 
that the Participant Fee Exemptions have caused, or may cause in the 
future. Second, the NYSE believes that the elimination of the 
Participant Fee Exemptions would eliminate the deviation of revenue 
sharing among the Participants away from the revenue sharing formulae. 
Finally, the NYSE believes that the elimination of the

[[Page 15690]]

Participant Fee Exemptions would allow each Participant to decide 
individually whether or not to pass the fees for market data through to 
the members that use such data.

III. General Request for Comments

    The Commission is seeking comment on the NYSE Petition in general. 
More specifically, the Commission is requesting comments on whether it 
should act on the NYSE Petition. The Commission is also seeking comment 
on the effects of the NYSE Petition on Participants and on the National 
Market System as a whole.

    Dated: March 26, 2003.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 03-7730 Filed 3-31-03; 8:45 am]
BILLING CODE 8010-01-P