[Federal Register Volume 74, Number 21 (Tuesday, February 3, 2009)]
[Notices]
[Pages 5955-5958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-2225]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59308; File No. SR-NYSEArca-2009-05]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change to Establish Fees for NYSE Arca Trades

January 28, 2009.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 5956]]

(``Act'')\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 21, 2009, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange) 
filed with the Securities and Exchange Commission (``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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE Arca proposes to introduce its NYSE Arca Trades service and to 
establish fees for that service. NYSE Arca Trades is a new NYSE Arca-
only market data service that allows a vendor to redistribute on a 
real-time basis the same last sale information that NYSE Arca reports 
to the Consolidated Tape Association (``CTA'') for inclusion in CTA's 
consolidated data stream and certain other related data elements 
(``NYSE Arca Last Sale Information'').

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 self-regulatory organization 
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 self-regulatory organization 
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
    a. The Service. The Exchange proposes to introduce NYSE Arca 
Trades, a new service pursuant to which it will allow vendors, broker-
dealers and others (``NYSE Arca-Only Vendors'') to make available NYSE 
Arca Last Sale Information on a real-time basis.\3\ NYSE Arca Last Sale 
Information would include last sale information for all securities that 
are traded on the Exchange.
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    \3\ The Exchange notes that it will make NYSE Arca Trades 
available to vendors no earlier than it makes its last sale 
information available to the processor under the CTA Plan.
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    The Exchange will make NYSE Arca Last Sale Information available 
through its new NYSE Arca Trades service at the same time as it 
provides last sale information to the processor under the CTA Plan. In 
addition to the information that the Exchange provides to CTA, NYSE 
Arca Last Sale Information will also include a unique sequence number 
that the Exchange assigns to each trade and that allows an investor to 
track the context of the trade through such other Exchange market data 
products as ArcaBook[supreg].
    Contemporaneously with this proposed rule change, the Exchange 
submitted a proposed rule change that seeks to establish a pilot 
program for the receipt and redistribution of the NYSE Arca Trades 
datafeed(s) without charge to either the datafeed recipient or the end-
user. The Exchange proposes to provide that free offering on a pilot 
program basis until the later of Commission approval of this proposed 
rule change and the end of the pilot period.
    b. The Fees.
    i. Access Fee. For the receipt of access to the datafeeds of NYSE 
Arca Last Sale Information that the Exchange will make available, the 
Exchange proposes to charge $750 per month. For that fee, the datafeed 
recipient will receive access to each of the NYSE Arca Last Sale 
Information datafeeds that NYSE Arca makes available. The Exchange does 
not propose to impose any program classification charges for the use of 
NYSE Arca Trades.
    ii. Device Fee. The Exchange proposes to charge each subscriber to 
an NYSE Arca-Only Vendor's NYSE Arca Trades service:
    i. $5 per month per display device for the receipt and use of NYSE 
Arca Last Sale Information relating to Network A and Network B Eligible 
Securities (as the CTA Plan uses those terms); and
    ii. $5 per month per display device for the receipt and use of NYSE 
Arca Last Sale Information relating to securities listed on Nasdaq.
    (The Exchange does not currently perceive a demand for a 
nonprofessional subscriber fee for NYSE Arca Trades, but will monitor 
customer response.)
    c. The Fees are Non-Discriminatory. No investors or broker-dealers 
are required to subscribe to the product, as they can find the same 
NYSE Arca last sale prices in the Exchange's NYSE Arca Realtime 
Reference Prices service.\4\ Or, they can find them integrated with the 
prices that other markets make available under the CTA Plan. Indeed, 
even though NYSE Arca Trades' Last Sale Information provides a less 
expensive alternative to the consolidated price information that 
investors and broker-dealers receive from CTA, the Exchange believes 
that the information that NYSE Arca contributes to the CTA consolidated 
datafeed and the low latency of the CTA datafeed will continue to 
satisfy the needs of the vast majority of individual and professional 
investors. Most investors and broker-dealers are not likely to 
substitute the NYSE Arca Trades datafeed for the CTA datafeed for 
display purposes.
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    \4\ See Securities Exchange Act Release No. 34-58444 (August 29, 
2008), 73 FR 51872 (September 5, 2008) (SR-NYSEArca-2008-96).
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    Rather, the Exchange developed NYSE Arca Trades primarily at the 
request of traders who are very latency sensitive. The latency 
difference between accessing last sales through the NYSE Arca datafeed 
or through the CTA datafeed can be measured in tens of milliseconds. 
The Exchange anticipates that demand for the product will derive 
primarily from investors and broker-dealers who desire to use NYSE Arca 
Trades to power certain trading algorithms or smart order routers.
    Regardless of an investor's reasons for subscribing to the NYSE 
Arca Trades service, the access fee applies equally to all NYSE Arca-
Only Vendors that receive the NYSE Arca Trades datafeed and the device 
fee applies equally to all subscribers that receive an NYSE Arca-Only 
Vendor's NYSE Arca Trades service. Section 603(a)(2) of Regulation NMS 
requires markets to distribute market data ``on terms that are not 
unreasonably discriminatory.'' The Exchange believes that both the 
access fee and the device fees comply with this standard.
    d. The Fees are Fair and Reasonable. The Exchange believes that the 
levels at which it proposes to set the access and device fees comport 
with the standard that the Commission established for determining 
whether market data fees relating to non-core market data products are 
fair and reasonable. (``Non-core products'' refers to products other 
than the consolidated products that markets offer collectively under 
the joint industry plans.) In its recent ``Order Setting Aside Action 
by Delegated Authority and Approving Proposed Rule Change Relating to 
NYSE Arca Data'' (the ``NYSE ArcaBook Approval Order''),\5\ the 
Commission reiterated its position from its release approving 
Regulation NMS that it should ``allow market forces, rather than

[[Page 5957]]

regulatory requirements, to determine what, if any, additional 
quotations outside the NBBO are displayed to investors.''\6\
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    \5\ See Release No. 34-59039 (December 2, 2008); File No. SR-
NYSE Arca-2006-21.
    \6\ See Regulation NMS Release, 70 FR at 37566-37567 (addressing 
differences in distribution standards between core data and non-core 
data).
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    The Commission went on to state that:

    The Exchange Act and its legislative history strongly support 
the Commission's reliance on competition, whenever possible, in 
meeting its regulatory responsibilities for overseeing the SROs and 
the national market system. Indeed, competition among multiple 
markets and market participants trading the same products is the 
hallmark of the national market system.\7\
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    \7\ NYSE ArcaBook Approval Order at pp 46-47.

    The Commission then articulated the standard that it will apply in 
assessing the fairness and reasonableness of market data fees for non-
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core products, as follows:

    With respect to non-core data, * * * the Commission has 
maintained a market-based approach that leaves a much fuller 
opportunity for competitive forces to work. This market-based 
approach to non-core data has two parts. The first is to ask whether 
the exchange was subject to significant competitive forces in 
setting the terms of its proposal for non-core data, including the 
level of any fees. If an exchange was subject to significant 
competitive forces in setting the terms of a proposal, the 
Commission will approve the proposal unless it determines that there 
is a substantial countervailing basis to find that the terms 
nevertheless fail to meet an applicable requirement of the Exchange 
Act or the rules thereunder.\8\
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    \8\ Id at pp. 48-49.

    The Exchange believes that by this standard or any other standard, 
the proposed access and device fees are fair and reasonable. NYSE Arca 
and its market data products are subject to significant competitive 
forces and the proposed access and device fees represent responses to 
that competition. To start, the Exchange competes intensely for order 
flow. It competes with the other 10 national securities exchanges that 
currently trade equities, with electronic communication networks, with 
quotes posted in FINRA's Alternative Display Facility and Trade 
Reporting Facilities, with alternative trading systems, and with 
securities firms that primarily trade as principal with their customer 
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order flow ``and the competition is fierce.''\9\

    \9\ Id at p 52.
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    In addition, NYSE Arca Trades would compete with a number of 
alternative products. NYSE Arca Trades does not provide a complete 
picture of all trading activity in a security. Rather, the 12 SROs, the 
several Trade Reporting Facilities of FINRA, and ECNs that produce 
proprietary data all produce trades and trade reports. Each is 
currently permitted to produce last sale information products, and many 
currently do, including Nasdaq and NYSE. In addition, investors can 
receive NYSE Arca trade reports through the consolidated CTA data 
stream or they can receive NYSE Arca trade reports for free by means of 
access to the Exchange's NYSE Arca Realtime Reference Prices service.
    In setting the level of the proposed NYSE Arca Trades access and 
device fees, the Exchange took into consideration several factors, 
including:
    (1) Consultation with some of the entities that the Exchange 
anticipates will be the most likely to take advantage of NYSE Arca 
Trades;
    (2) the contribution of market data revenues that the Exchange's 
Board of Directors believes is appropriate for vendors and other 
entities that provide market data to the investing public;
    (3) the contribution that revenues accruing from the proposed fees 
will make to meeting the overall costs of the Exchange's operations;
    (4) projected losses to the revenues accruing from the Exchange's 
other market data fees, which losses are likely to result from the 
ability of NYSE Arca-Only Vendors to distribute NYSE Arca Trades to 
vendors, broker-dealers and investors in competition with the 
consolidated last sale information services that Participants provide 
under the CTA Plan; and
    (5) investors' and broker-dealers' access to NYSE Arca last sale 
prices through NYSE Arca Realtime Reference Prices.
    (6) the fact that the proposed fees provide an alternative to 
existing Network A and Network B fees under the CTA Plan and to the 
fees imposed under the Nasdaq/UTP Plan, alternatives that vendors will 
purchase only if they determine that the perceived benefits outweigh 
the cost.
    In the aftermath of the NYSE ArcaBook Approval Order, the Exchange 
believes that the competition among exchanges for order flow and the 
competition among exchanges for market data products subject the 
proposed NYSE Arca Trades access and device fees to significant 
competitive forces.
    In addition, the Exchange believes that no substantial 
countervailing basis exists to support a finding that the fees fail to 
meet the requirement of the Act.
    In sum, the availability of a variety of alternative sources of 
information impose significant competitive pressures on NYSE Arca 
Trades and NYSE Arca's compelling need to attract order flow impose 
significant competitive pressure on NYSE Arca to act equitably, fairly, 
and reasonably in setting NYSE Arca Trades fees. The proposed NYSE Arca 
Trades access and device fees are, in part, responses to that pressure. 
The Exchange believes that the proposed NYSE Arca Trades service fees 
would reflect an equitable allocation of its overall costs to users of 
its facilities.
    e. Administrative Requirements. The Exchange will require NYSE 
Arca-Only Vendors to enter into the form of ``vendor'' agreement into 
which the CTA Plan requires recipients of the Network A last sale 
prices information datafeeds to enter (the ``Network A Vendor Form''). 
The Network A Vendor Form will authorize the NYSE Arca-Only Vendor to 
provide the NYSE Arca Trades service to its subscribers and customers.
    The Network A Participants drafted the Network A Vendor Form as a 
one-size-fits-all form to capture most categories of market data 
dissemination. It is sufficiently generic to accommodate NYSE Arca 
Trades. The Network A Vendor Form has been in use in substantially the 
same form since 1990.\10\
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    \10\ See Release Nos. 34-28407 (September 10, 1990), and 34-
49185 (February 4, 2004).
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    Similarly, the Exchange will require professional and non-
professional subscribers to NYSE Arca Trades to undertake to comply 
with the same contract, reporting, payment, and other administrative 
requirements as to which the Network A Participants subject them in 
respect of Network A last sale information under the CTA Plan.
2. Statutory Basis
    The bases under the Act for the proposed rule change are the 
requirement under Section 6(b)(4) 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) 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.
    The proposed rule change would benefit investors by providing a 
less expensive alternative to the last sale price information than the 
consolidated last sale price information that they receive under the 
CTA Plan. In addition, for that single lower fee, vendors receive 
Exchange prices for all Exchange-traded securities, something that 
differentiates

[[Page 5958]]

the Exchange's product from pricing under the CTA Plan.

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

    In proposing and adopting Regulation NMS, the Commission rescinded 
the prior prohibition on SROs from disseminating their trade reports 
independently,\11\ subjecting that distribution to the ``fair and 
reasonable'' and ``not unreasonably discriminatory'' standards that 
have historically governed the distribution of consolidated data.\12\ 
The Commission stated, ``Given that * * * SROs will continue to 
transmit trades to the Networks pursuant to the Plans * * *, the 
Commission believe [SIC] that SROs and their members also should be 
free to distribute their trades independently.'' \13\
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    \11\ See Rule 601 of Regulation NMS.
    \12\ See Rule 603(a) of regulation NMS.
    \13\ See Footnote 638 to Regulation NMS (Release No. 34-51808; 
File No. S7-10-04) (June 9, 2005).
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    The Commission rescinded the prohibition in recognition of the fact 
that competition in the realm of SRO trade-report distribution would 
produce market forces and innovation that would benefit the investing 
public. The NYSE ArcaBook Approval Order enforces this finding. By 
means of NYSE Arca Trades, the Exchange would provide vendors and 
broker-dealers with an alternative market data product and fee 
structure that does not exist today, without altering or rescinding any 
existing market data fees or products. If they believe that the 
proposed product and fee structure are useful and cost-effective to 
their business model, they will embrace them.
    Given the existence of alternative products containing NYSE Arca 
last sale products, the Exchange does not believe that the proposed 
rule change will result in any burden on competition that is not 
necessary or appropriate in 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 discussed this proposed rules change with those 
entities that the Exchange believes would be the most likely to take 
advantage of the proposed NYSE Arca Last Sale Information service by 
becoming NYSE Arca-Only Vendors. While those entities have not 
submitted formal, written comments on the proposal, the Exchange has 
incorporated some of their ideas into the proposal and this proposed 
rule change reflects their input. The Exchange has not received any 
unsolicited written comments from members or other interested parties.

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

    Within 35 days of the date of 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 self-regulatory organization 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

    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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-NYSEArca-2009-05 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2009-05. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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, on official 
business days between the hours of 10 a.m. and 3 p.m. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2009-05 and should be submitted on or before 
February 24, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-2225 Filed 2-2-09; 8:45 am]
BILLING CODE 8011-01-P