[Federal Register Volume 70, Number 63 (Monday, April 4, 2005)]
[Notices]
[Pages 17137-17139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1475]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51438; File No. SR-NYSE-2004-32]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
Relating to NYSE Liquidity QuoteSM

March 28, 2005.

I. Introduction

    On June 24, 2004, 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 to include additional display 
requirements to the existing terms and conditions pursuant to which 
vendors may distribute to their customers NYSE Liquidity 
QuoteSM information. On July 16, 2004, the NYSE filed 
Amendment No. 1 to the proposed rule change.\3\ The proposed rule 
change, as amended, was published for public comment in the Federal 
Register on July 27, 2004.\4\ The Commission has received one comment 
letter on the proposed rule change \5\ and two responses from the 
NYSE.\6\ This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division of Market Regulation 
(``Division''), SEC, dated July 16, 2004 (``Amendment No. 1''). In 
Amendment No. 1, the NYSE clarified that the entire proposed Exhibit 
C represented new text.
    \4\ Securities Exchange Act Release No. 50040 (July 20, 2004), 
69 FR 44701.
    \5\ See letters from Thomas F. Secunda, Bloomberg, L.P. 
(``Bloomberg'') to Annette L. Nazareth, Director, Division, SEC, 
(``Bloomberg Letter) dated July 7, 2004; and Jonathan G. Katz, 
Secretary, SEC, dated August 13, 2004. The letter dated August 13, 
2004 merely resubmitted the July 7, 2004 Bloomberg Letter for 
Commission consideration.
    \6\ See letter from Mary Yeager, Assistant Secretary, NYSE, to 
Jonathan G. Katz, Secretary, SEC (``NYSE Response Letter'') dated 
November 11, 2004, and letter from Ronald Jordan, Senior Vice 
President, Market Data, NYSE, to Kelly Riley, SEC, dated January 26, 
2005 (``NYSE 2nd Response Letter'').
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II. Background

    The NYSE Liquidity Quote represents aggregated Exchange trading 
interest at a specific price interval below the NYSE best bid (in the 
case of a liquidity bid) or at a specific price interval above the NYSE 
best offer (in the case of a liquidity offer). The specific price 
interval above or below the NYSE best bid and offer (``BBO''), as well 
as the minimum size of the liquidity bid or offer, is established by 
the specialist in the subject security. Liquidity bids and offers 
include orders on the limit order book, trading interest of brokers in 
the trading crowd, and the specialist's dealer interest, at prices 
ranging from the best bid (offer) to the liquidity bid (liquidity 
offer).
    NYSE distributes Liquidity Quote data as part of its OpenBook data 
feed service \7\ and requires recipients to execute existing NYSE 
vendor agreements and subscriber agreements. Specifically, in order for 
a vendor to receive NYSE Liquidity Quote data from the Exchange for 
redistribution to its customers or subscribers, the Exchange requires 
the vendor to enter into its standard form of ``Agreement for Receipt 
and Use of Market Data'' (i.e., ``Consolidated Vendor Form''). 
According to the Exchange, the Consolidated Vendor Form is the same 
form that vendors must execute to receive market data under the 
Consolidated Tape Association (``CTA'') Plan and the Consolidated 
Quotation (``CQ'') Plan. The Exchange describes the Consolidated Vendor 
Form as a generic, one-size-fits-all agreement that consists of a 
standard set of basic provisions that apply to all data recipients and 
accommodates a number of different types of market data, a number of 
different means of receiving access to market data, and a number of 
different uses of market data. Because the Consolidated Vendor Form is 
not specific to types and uses of certain market data, paragraph 19(a) 
of the Consolidated Vendor Form provides that ``Exhibit C, if any, 
contains additional provisions applicable to any non-standard aspects 
of Customer's Receipt and Use of Market Data.'' Accordingly, NYSE has 
drafted a proposed Liquidity Quote Exhibit C to provide certain display 
requirements for Liquidity Quote data.
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    \7\ See Securities Exchange Act Release No. 45138 (December 7, 
2001) 66 FR 66491 (December 14, 2001).
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    In the original approval order, the Commission conditionally 
approved NYSE Liquidity Quote \8\ because the Commission had 
substantial concerns about the display restrictions NYSE had drafted in 
its Exhibit C to the Consolidated Vendor Form for Liquidity Quote.\9\ 
Specifically, as originally

[[Page 17138]]

drafted, the Liquidity Quote Exhibit C would have prohibited data feed 
recipients from enhancing, integrating, or consolidating NYSE Liquidity 
Quote data with data from other market centers for retransmission. In 
addition, pursuant to the terms of the original Liquidity Quote Exhibit 
C, NYSE would have imposed a ``window requirement,'' which would have 
required Liquidity Quote data to be displayed as a separate window or 
with a line drawn between Liquidity Quote data and other markets' data.
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    \8\ See Securities Exchange Act Release No. 47614 (April 2, 
2003), 68 FR 17140 (April 8, 2003) (SR-NYSE-2002-55) (``April 
Order'').
    \9\ The NYSE did not file the original Exhibit C to the 
Consolidated Vendor Form for Liquidity Quote with the Commission. 
However, as described above, the Commission did consider the terms 
of the original Liquidity Quote Exhibit C and the issues raised by 
commenters to its terms in the April Order.
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    In the April Order, the Commission stated that it believed that the 
terms and conditions set forth in the original Liquidity Quote Exhibit 
C that prohibited data feed recipients from enhancing, integrating, or 
consolidating NYSE Liquidity Quote data with data from other market 
centers for retransmission to be inconsistent with sections 6(b)(5) 
\10\ and 6(b)(8) \11\ of the Act. Accordingly, the Commission approved 
the Liquidity Quote data product on the condition that the proposal 
would not be effective until NYSE removed from its contracts the 
prohibitions on the ability of data feed recipients, including vendors, 
to integrate Liquidity Quote data with the display of other markets' 
data. The Commission did, however, state that it ``believe[d] that it 
would be reasonable and consistent with the statute for the NYSE to 
require that data feed recipients who choose to provide a value-added 
[L]iquidity [Q]uote data package to: (i) Give NYSE attribution next to 
any integrated quote that includes NYSE data; and (ii) make available 
to customers NYSE [L]iquidity [Q]uote product as a separate branded 
package.'' \12\
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    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(8).
    \12\ See April Order footnote 53. The Commission later stated in 
the April Order that ``NYSE may require that vendors provide the 
NYSE attribution in any display that includes Liquidity Quote.''
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    Thereafter, on April 9, 2003, NYSE informed the Commission that it 
agreed to the conditions set forth in the April Order to remove the 
prohibitions on integration in the Liquidity Quote Exhibit C to the 
Consolidated Vendor Form. In their place, NYSE drafted a new Liquidity 
Quote Exhibit C that permitted integration but imposed new display 
requirements. These display requirements were challenged by Bloomberg 
LP as constituting a denial of access to services under Sections 19(d) 
\13\ and 19(f) \14\ of the Act.
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    \13\ 15 U.S.C. 78s(d).
    \14\ 15 U.S.C. 78s(f).
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    In January 2004, the Commission held that the Exchange's actions of 
imposing the new display requirements on vendors' use of the Liquidity 
Quote data and its rejection of certain proposed displays of such data 
based on the display requirements were a denial of access. Therefore, 
the Commission set aside the Exchange's actions.\15\ Specifically, the 
Commission held that the contractual display requirements were Exchange 
rules that were required to be filed and approved pursuant to section 
19(b) of the Act \16\ and because they were not so filed and approved, 
could not provide a basis for the Exchange's denial of access to 
Liquidity Quote data.
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    \15\ See In the Matter of the Application of Bloomberg L.P., For 
Review of Action taken by the New York Stock Exchange, Inc., Admin. 
Proc. File No 3-11129, Securities Exchange Act Release No. 49076 
(January 14, 2004).
    \16\ 15 U.S.C. 78s(b).
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    The Exchange filed this proposed rule change, pursuant to section 
19(b) of the Act,\17\ to adopt display requirements for Liquidity Quote 
data that will be set forth in the Liquidity Quote Exhibit C to the 
Consolidated Vendor Form.
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    \17\ 15 U.S.C. 78s(b).
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III. Description of the NYSE's Proposal

    The NYSE filed a proposed Liquidity Quote Exhibit C to the 
Consolidated Vendor Form to set forth additional display requirements 
pursuant to which vendors may distribute to their customers or 
subscribers NYSE Liquidity Quote data. Specifically, if a vendor wishes 
to provide Liquidity Quote data to its customers or subscribers, the 
vendor must execute and comply with the terms of the proposed Liquidity 
Quote Exhibit C to the Consolidated Vendor Form. The proposed Exhibit C 
defines what is considered ``Liquidity Quote information'' \18\ and 
what is considered ``Other Bids and Offers.'' \19\ The proposed Exhibit 
C provides that the vendor may only use and display Liquidity Quote 
information to the extent provided in the agreement and only for as 
long as the agreement is in effect.\20\ Vendors also are required, 
pursuant to the terms of proposed Exhibit C, to provide its customers 
or subscribers with a notice or agreement specified by NYSE and to have 
its customers or subscribers either acknowledge receipt of such notice 
or assent to such agreement as directed by NYSE.\21\
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    \18\ ``Liquidity Quote information'' is proposed to be defined 
as ``any depth information and other information that NYSE makes 
available pursuant to the NYSE Liquidity Quote Service, including 
Liquidity Quote bids and offers, and any modified version of that 
information and any information derived from that information.'' See 
proposed Exhibit C 21(a)(i).
    \19\ ``Other Bids and Offers'' is proposed to be defined as 
``bids and offers other than Liquidity Quote bids and offers. For 
example, Other Bids and Offers include the NYSE best bid or offer, 
another market center's best bid or offer and a national best bid or 
offer.'' See proposed Exhibit C 21(a)(ii).
    \20\ See proposed Exhibit C 21(b).
    \21\ See proposed Exhibit C 21(c).
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    The proposed Liquidity Quote Exhibit C contains display 
requirements for Liquidity Quote information. Specifically, proposed 
Exhibit C sets forth requirements regarding ``Aggregated Displays,'' 
``Montages,'' ``Attribution,'' ``Liquidity Quote-Only Displays,'' and 
``Screen Shots.'' For ``Aggregated Displays,'' NYSE proposes that if a 
vendor aggregates Liquidity Quote bids and offers with Other Bids and 
Offers in its displays (i.e., an ``Aggregated Display''), then the 
vendor is required to indicate the number of shares attributable to the 
Liquidity Quote bids and offers.\22\ For ``Montages,'' NYSE proposes 
that if a vendor includes a Liquidity Quote bid or offer in a montage 
that includes an NYSE BBO, then the vendor must exclude the size of the 
NYSE BBO from any calculation of cumulative size within the 
montage.\23\ NYSE also proposes that vendors identify each element or 
line of Liquidity Quote information that it includes in an Aggregated 
Display, Montage, or other integrated display with either ``NYSE 
Liquidity Quote `` or ``NYLQ.'' \24\
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    \22\ See proposed Exhibit C 21(d)(i).
    \23\ See proposed Exhibit C 21(d)(ii).
    \24\ See proposed Exhibit C 21(d)(iii).
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    Proposed Exhibit C also requires vendors to offer its customers or 
subscribers a non-integrated Liquidity Quote product, which would be a 
product separate and apart from information products that include other 
market centers' information.\25\ Further, NYSE proposes that vendors 
provide it with sample screen shots of displays that include Liquidity 
Quote information at the time the vendor commences to provide the 
display to customers or subscribers.\26\ Finally, proposed Exhibit C 
provides that the display requirements do not apply to vendors' 
internal Liquidity Quote displays.\27\
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    \25\ See proposed Exhibit C 21(d)(iv).
    \26\ See proposed Exhibit C 21(d)(v).
    \27\ See proposed Exhibit C 21(e).
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IV. Summary of Comments

    The Commission received one comment letter on the proposal.\28\ In 
its letter, Bloomberg argued that the Aggregated Display requirement, 
which requires vendors to indicate the number of shares attributable to 
NYSE Liquidity

[[Page 17139]]

Quote, is not necessary to prevent investor confusion or to 
differentiate between NYSE Liquidity Quote data and other data it may 
wish to present in a quotation montage. Furthermore, Bloomberg noted 
that the Aggregated Display requirement would prevent Bloomberg from 
presenting a summary screen it currently provides to its customers. 
Bloomberg believes that its summary screen, which allows viewers to 
toggle to a detail screen that identifies Liquidity Quote data, has not 
caused any investor confusion.
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    \28\ See supra note 5.
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    Bloomberg also raised concerns regarding the NYSE's proposed 
Attribution requirement. Bloomberg stated that the NYSE's proposed 
Attribution requirement, if adopted, would require vendors to place the 
NYSE's identifier on analytics, including charts, graphs, and other 
derived presentations, regardless of whether the identifier would be 
necessary to prevent investor confusion. Bloomberg argued that the 
Attribution requirement would be unduly burdensome and anticompetitive 
and would provide NYSE with more attribution than what is given to 
other exchanges or market centers, therefore disadvantaging other 
market centers, and blocking entry of would-be competitors by denying 
them necessary screen space.
    In its response, the Exhange argued that it believes that the 
proposed display requirements are minimal and comply with the 
Commission's orders on the display of Liquidity Quote.\29\ NYSE 
believes that the display requirements assure that vendor displays 
identify the amount and source of liquidity so investors can make 
informed trading and order routing decisions.\30\ The Exchange further 
argued that the display requirements afford market quality 
transparency, and enables markets to differentiate themselves on the 
basis of market quality and data products, which NYSE believes will 
invigorate inter-market competition.\31\
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    \29\ See NYSE Response Letter, supra note 6.
    \30\ Id.
    \31\ Id.
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    In response to Bloomberg's comment regarding attribution of 
analytics, NYSE confirmed that the proposed Exhibit C would require 
vendors to associate the identifier ``NYLQ'' or ``NYSE Liquidity 
Quote'' with information that a vendor may include in analytics, 
charts, graphs, and other derived data.\32\ NYSE described the required 
attribution by way of example as follows: ``For example, if a user 
displays a line graph of information on the bid prices for all markets 
(including NYLQ), the page that displays the graph must delineate and 
identify the relevant contribution of NYSE to the graph.'' \33\
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    \32\ See NYSE 2nd Response Letter, supra note 6.
    \33\ Id.
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V. Discussion

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\34\ In the April Order, the Commission conditioned approval 
of Liquidity Quote on the NYSE's agreement to remove from its contract 
those terms that strictly prohibited integration of Liquidity Quote 
data with other markets' data. The Commission found that the 
restrictions on integration were inconsistent with sections 6(b)(5) 
\35\ and 6(b)(8) \36\ of the Act. With this proposed rule change, NYSE 
has removed those terms that restricted integration. Accordingly, 
pursuant to the terms of the proposed Exhibit C, vendors will be 
permitted to enhance, integrate, or consolidate Liquidity Quote data 
with other markets' data. Therefore, the Commission finds that the 
removal of the terms that restricted integration of Liquidity Quote 
data with other markets' data to be consistent with the requirements of 
section 6(b)(5) of the Act,\37\ which requires that an exchange's rules 
be designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest and Section 6(b)(8) of the Act,\38\ which requires that an 
exchange's rules not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.
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    \34\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78f(b)(8).
    \37\ 15 U.S.C. 78f(b)(5).
    \38\ 15 U.S.C. 78f(b)(8).
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    The Commission also determined in the April Order that it would be 
reasonable and consistent with the Act for the NYSE to require those 
data feed recipients who choose to provide a value-added Liquidity 
Quote data package to: (i) Give the NYSE attribution next to any 
integrated quote that includes NYSE data; and (ii) make available to 
customers NYSE's Liquidity Quote product as a separate branded 
package.\39\ The Commission believes that the proposed Exhibit C 
implements what the Commission has determined to be acceptable 
identification of NYSE Liquidity Quote data. Liquidity Quote bids and 
offers are not comparable to regular bids and offers.\40\ Accordingly, 
the Commission determined that attribution next to an integrated quote 
would be permissible to alert investors that the quote they may be 
seeing reflects a quote that has been integrated with a Liquidity Quote 
and thus may include other price points. In proposed Exhibit C, NYSE 
requires vendors to provide it with attribution on each element or line 
that includes Liquidity Quote information and to indicate the number of 
shares attributable to Liquidity Quote in an Aggregated Display. The 
Commission believes that this attribution is consistent with the April 
Order.
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    \39\ See supra note 12 and accompanying text.
    \40\ NYSE has indicated that in some instances Liquidity Quotes 
and NYSE BBOs could be the same and that at such times both 
Liquidity Quotes and NYSE BBOs would be disseminated via the CTA/CQ 
Plan and via the NYSE Liquidity Quote data service.
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    The Commission notes that this order only approves the filing 
submitted by the Exchange for the proposed Exhibit C associated with 
the NYSE Liquidity Quote data. While Liquidity Quote data is 
distributed as part of the NYSE's OpenBook data service, the terms of 
the proposed Exhibit C for Liquidity Quote do not apply and have not 
been considered or approved by the Commission as acceptable for the 
distribution of NYSE OpenBook data.\41\
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    \41\ On December 7, 2001, the Commission approved a proposed 
rule change to establish fees for the NYSE OpenBook service. See 
Securities Exchange Act Release No. 44138 (December 7, 2004), 66 FR 
64895 (December 14, 2004) (SR-NYSE-2001-42). On August 11, 2004, the 
NYSE filed a proposed rule change to establish fees for the NYSE 
OpenBook service on a real-time basis. See Securities Exchange Act 
Release No. 50275 (August 26, 2004), 69 FR 53760 (September 2, 2004) 
(SR-NYSE-2004-43). The NYSE has not filed the proposed restrictions 
on vendor redissemination of OpenBook data.
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VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\42\ the proposed rule change (SR-NYSE-2004-32), as amended, is 
approved.
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    \42\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1475 Filed 4-1-05; 8:45 am]
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