[Federal Register Volume 74, Number 49 (Monday, March 16, 2009)]
[Notices]
[Pages 11159-11162]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-5569]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59543; File No. SR-NYSE-2008-132]


Self-Regulatory Organizations; New York Stock Exchange, LLC; 
Order Approving Proposed Rule Change To Introduce a NYSE Order 
Imbalance Information Fee

March 9, 2009.

I. Introduction

    On December 19, 2008, the New York Stock Exchange, LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(``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 introduce a fee for access to its NYSE Order 
Imbalance Information datafeed. The proposed rule change was published 
for comment in the Federal Register on January 13, 2009.\3\ The 
Commission received no comment letters on the proposal. 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\ See Securities Exchange Act Release No. 59202 (January 6, 
2009), 74 FR 1744.
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II. Description of the Proposal

    The Exchange proposes to make the NYSE Order Imbalance Information 
datafeed available as a stand-alone market data product, separate and 
apart from NYSE OpenBook, and proposes to charge recipients of the NYSE 
Order Imbalance Information datafeed $500 per month.
    Currently, NYSE makes available to recipients of NYSE OpenBook an 
additional datafeed containing Order Imbalance Information. NYSE Order 
Imbalance Information is a datafeed of real-time order imbalances that 
accumulate prior to the opening of trading on the Exchange and prior to 
the close of trading on the Exchange. These orders are subject to 
execution at the market's opening or closing price, as the case may be, 
and represent issues that are likely to be of particular trading 
interest at the opening or closing. The Exchange distributes 
information about these imbalances in real-time at specified intervals 
prior to the opening and closing auctions. NYSE Order Imbalance 
Information also includes the imbalance information that the Exchange 
is required to disseminate under NYSE Rule 123C(5), as well as 
automated real-time streaming order imbalance information at specified 
intervals.

[[Page 11160]]

    The Exchange believes that by making NYSE Order Imbalance 
Information datafeed available as a stand-alone market data product it 
would enable all investors to gain access to information regarding 
opening and closing imbalances on the Exchange, especially because the 
Exchange is not imposing end-user fees, is not requiring end-users to 
sign contracts and is making vendor receipt and use of the information 
inexpensive and very few administrative burdens (e.g., no reporting 
requirements and no end-user contracts). Currently, many investors have 
not been able to access this data because they do not subscribe to the 
NYSE OpenBook services. The Exchange anticipates that this will provide 
important information to millions of investors.
    Initially, the Exchange proposes to make order imbalance 
information available at the following intervals.

For Opening Order Imbalances

     Every five minutes between 8:30 a.m. EST and 9 a.m. EST.
     Every one minute between 9 a.m. EST and 9:20 a.m. EST.
     Every 15 seconds between 9:20 a.m. EST and the opening (or 
9:35 a.m. EST if the opening is delayed).

For Closing Order Imbalances

     Every fifteen seconds between 3:40 p.m. EST and 3:50 p.m. 
EST.
     Every five seconds between 3:50 p.m. EST and 4 p.m. EST.
    If the Exchange were to change these intervals, it would notify 
NYSE Order Imbalance Information recipients in advance and/or post the 
changes on the Exchange's Web.site.

The Fee

    The proposed fee of $500 per month for recipients of the NYSE Order 
Imbalance Information datafeed applies whether the recipient receives 
the datafeed directly from the Exchange or indirectly from an 
intermediary. The fee entitles the datafeed recipient to make displays 
of that information available to an unlimited number of subscribers for 
no extra charge. The Exchange is not proposing to impose an end-user or 
display device fee on those subscribers.
    The fee would allow vendors to redistribute NYSE Order Imbalance 
Information: (i) Without having to differentiate between professional 
subscribers and nonprofessional subscribers; (ii) without having to 
account for the extent of access to the data; (iii) without having to 
procure contracts with its subscribers for the benefit of the Exchange; 
and (iv) without having to report the number of its subscribers.
    By establishing the access fee at what it terms as an inexpensive 
rate and declining to impose an end-user fee on the consumption of NYSE 
Order Imbalance Information, the Exchange states that it seeks to 
enable all investors to gain access to information regarding opening 
and closing imbalances on the Exchange. The Exchange believes that the 
fee enables the investment community that has an interest in the 
receipt of order imbalance information to contribute to the Exchange's 
operating costs in a manner that is appropriate for this market data 
product.

Continued Distribution Through NYSE OpenBook

    The Exchange would continue to permit NYSE OpenBook datafeed 
recipients to receive the NYSE Order Imbalance Information datafeed as 
part of the NYSE OpenBook package without having to pay the $500 fee or 
any other additional charge. Those NYSE OpenBook datafeed recipients 
may then redistribute the NYSE Order Imbalance Information to any of 
their subscribers, whether or not the subscriber also receives NYSE 
OpenBook information. The Exchange imposes no end-user charge on those 
subscribers.

Contracts

    The Exchange proposes to provide the NYSE Order Imbalance 
Information datafeed available under the same contracting arrangement 
that the Commission has approved for the receipt and use of market 
datafeeds under the CTA and CQ Plans. That arrangement contemplates 
that each datafeed recipient enter into the Commission-approved 
standard form of ``Agreement for Receipt and Use of Market Data'' that 
Network A uses for data redistributors and other parties that use the 
data for purposes other than interrogation.\4\ Exhibit A to each of 
those agreements would need to be updated to reflect the receipt and 
use of NYSE Order Imbalance Information. The Exchange states that this 
arrangement would not require an end-user of the information (other 
than a data feed recipient) to enter into any agreement.
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    \4\ The Participants in the CTA and CQ Plans first submitted the 
Consolidated Vendor Form to the Commission for immediate 
effectiveness in 1990. See Release No. 34-28407 (September 6, 1990); 
55 FR 37276 (September 10, 1990) (File No. 4-281). The Commission 
approved a revised version of it in 1996 in conjunction with the 
participants' restatement of the CTA and CQ Plans. See Release No. 
34-37191 (May 9, 1996); 61 FR 24842 (May 16, 1996) (File No. SR-CTA/
CQ-96-1).
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III. Discussion

    The Commission has reviewed carefully the proposed rule change and 
finds that the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to a 
national securities exchange. In particular, it is consistent with 
Section 6(b)(4) of the Act,\5\ which requires that the rules of a 
national securities exchange provide for the equitable allocation of 
reasonable dues, fees, and other charges among its members and issuers 
and other parties using its facilities, and Section 6(b)(5) of the 
Act,\6\ which requires, among other things, that the rules of a 
national securities exchange be designed to 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 not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers.
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    \5\ 15 U.S.C. 78f(b)(4).
    \6\ 15 U.S.C. 78f(b)(5).
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    The Commission also finds that the proposed rule change is 
consistent with the provisions of Section 6(b)(8) of the Act,\7\ which 
requires that the rules of an exchange not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Act. Finally, the Commission finds that the proposed rule change 
is consistent with Rule 603(a) of Regulation NMS,\8\ adopted under 
Section 11A(c)(1) of the Act, which requires an exclusive processor 
that distributes information with respect to quotations for or 
transactions in an NMS stock to do so on terms that are fair and 
reasonable and that are not unreasonably discriminatory.\9\
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    \7\ 15 U.S.C. 78f(b)(8).
    \8\ 17 CFR 242.603(a).
    \9\ NYSE is an exclusive processor of NYSE data under Section 
3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which defines an 
exclusive processor as, among other things, an exchange that 
distributes information with respect to quotations or transactions 
on an exclusive basis on its own behalf.
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    The Commission has reviewed the proposal using the approach set 
forth in the NYSE Arca Order for non-core market data fees.\10\ In the 
NYSE Arca

[[Page 11161]]

Order, the Commission stated that ``when possible, reliance on 
competitive forces is the most appropriate and effective means to 
assess whether the terms for the distribution of non-core data are 
equitable, fair and reasonable, and not unreasonably discriminatory.'' 
\11\ It noted that the ``existence of significant competition provides 
a substantial basis for finding that the terms of an exchange's fee 
proposal are equitable, fair, reasonable, and not unreasonably or 
unfairly discriminatory.'' \12\ If an exchange ``was subject to 
significant competitive forces in setting the terms of a proposal,'' 
the Commission will approve a 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.'' \13\
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    \10\ Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order''). In the NYSE Arca Order, the Commission describes a 
variety of competitive factors that apply to exchanges when 
distributing non-core market data products. The Commission hereby 
incorporates by reference the data and analysis from the NYSE Arca 
Order into this order.
    \11\ Id. at 74771.
    \12\ Id. at 74782.
    \13\ Id. at 74781.
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    As noted in the NYSE Arca Order, the standards in Section 6 of the 
Act and Rule 603 of Regulation NMS do not differentiate between types 
of data and therefore apply to exchange proposals to distribute both 
core data and non-core data.\14\ Core data is the best-priced 
quotations and comprehensive last-sale reports of all markets that the 
Commission, pursuant to Rule 603(b), requires a central processor to 
consolidate and distribute to the public pursuant to joint-SRO 
plans.\15\ In contrast, individual exchanges and other market 
participants distribute non-core data voluntarily.\16\ The mandatory 
nature of the core data disclosure regime leaves little room for 
competitive forces to determine products and fees.\17\ Non-core data 
products and their fees are, by contrast, much more sensitive to 
competitive forces.\18\ The Commission therefore is able to use 
competitive forces in its determination of whether an exchange's 
proposal to distribute non-core data meets the standards of Section 6 
and Rule 603. Because NYSE's instant proposal relates to the 
distribution of non-core data, the Commission will apply the market-
based approach set forth in the NYSE Arca Order.
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    \14\ Id. at 74779.
    \15\ Id. See 17 CFR 242.603(b). (``Every national securities 
exchange on which an NMS stock is traded and national securities 
association shall act jointly pursuant to one or more effective 
national market system plans to disseminate consolidated 
information, including a national best bid and national best offer, 
on quotations for and transactions in NMS stocks. Such plan or plans 
shall provide for the dissemination of all consolidated information 
for an individual NMS stock through a single plan processor.'').
    \16\ NYSE Arca Order, supra note 10, at 74779.
    \17\ Id.
    \18\ Id.
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    The proposed rule change should benefit investors by facilitating 
wider availability of NYSE Order Imbalance Information. The proposal 
would allow market participants that are currently not subscribers to 
the NYSE OpenBook market data product to receive NYSE Order Imbalance 
Information as a stand-alone product. Vendors would be allowed to 
redistribute the Order Imbalance Information to an unlimited number of 
subscribers for no extra charge. The Commission notes that under the 
proposal even though NYSE Order Imbalance Information would be sold as 
a stand-alone product, that NYSE OpenBook datafeed recipients would 
continue to receive the Order Imbalance datafeed without having to pay 
any additional charge. In addition, the Commission notes that those 
NYSE OpenBook datafeed recipients would then be able to redistribute 
without charge the NYSE Order Imbalance Information to any of their 
subscribers, whether or not the subscriber also receives NYSE OpenBook 
information.
    The NYSE Open Imbalance Information product that is before the 
Commission is a non-core data product and, as in the Commission's NYSE 
Arca Order analysis, at least two broad types of significant 
competitive forces applied to NYSE in setting the terms of this 
proposal: (i) NYSE's compelling need to attract order flow from market 
participants; \19\ and (ii) the availability to market participants of 
alternatives to purchasing NYSE's data.
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    \19\ Id. at 74782. (``Attracting order flow is the core 
competitive concern of any equity exchange--it is the ``without 
which, not'' of an exchange's competitive success. If an exchange 
cannot attract orders, it will not be able to execute transactions. 
If it cannot execute transactions, it will not generate transaction 
revenue. If an exchange cannot attract orders or execute 
transactions, it will not have market data to distribute, for a fee 
or otherwise, and will not earn market data revenue.'').
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    Attracting order flow is the core competitive concern of any equity 
exchange, including NYSE. Attracting order flow is an essential part of 
an NYSE's competitive success. If NYSE cannot attract order flow to its 
market, it will not be able to execute transactions. If NYSE cannot 
execute transactions on its market, it will not generate transaction 
revenue. If NYSE cannot attract orders or execute transactions on its 
market, it will not have market data to distribute, for a fee or 
otherwise, and will not earn market data revenue and thus not be 
competitive with other exchanges that have this ability.
    Table 1 below provides a useful recent snapshot of the state of 
competition in the U.S. equity markets in the month of January 2009: 
\20\
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    \20\ Source: ArcaVision (available at http://www.arcavision.com).

                                      Table 1--Reported Share Volume in U.S-Listed Equities during January 2009 (%)
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                       Trading venue                                   All stocks                    NYSE-listed                   NASDAQ-listed
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NASDAQ.....................................................                          27.1                           20.5                           39.9
All Non-Exchange...........................................                          26.7                           26.2                           31.0
NYSE Arca..................................................                          17.9                           15.7                           15.8
NYSE.......................................................                          14.8                           26.2                            0.0
BATS.......................................................                          10.7                            9.0                           10.8
International Stock Exchange...............................                           1.3                            1.4                            1.4
National Stock Exchange....................................                           0.6                            0.7                            0.7
Chicago Stock Exchange.....................................                           0.4                            0.4                            0.3
CBOE Stock Exchange........................................                           0.2                            0.0                            0.1
NYSE Alternext.............................................                           0.1                            0.0                            0.0
NASDAQ OMX BX..............................................                           0.0                            0.0                            0.0
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    The market share percentages in Table 1 strongly indicate that NYSE 
must compete vigorously for order flow to maintain its share of trading 
volume. This compelling need to attract order flow imposes significant 
pressure on

[[Page 11162]]

NYSE to act reasonably in setting its fees for NYSE market data, 
particularly given that the market participants that must pay such fees 
often will be the same market participants from whom NYSE must attract 
order flow. These market participants particularly include the large 
broker-dealer firms that control the handling of a large volume of 
customer and proprietary order flow. Given the portability of order 
flow from one trading venue to another, any exchange that sought to 
charge unreasonably high data fees would risk alienating many of the 
same customers on whose orders it depends for competitive survival. 
Specifically with respect to trading prior to the open and close, for 
example, the Commission notes that exchanges other than the NYSE 
currently offer, or could easily offer, trading services that compete 
with the NYSE open and close.
    In addition to the need to attract order flow, the availability of 
alternatives to NYSE's Order Imbalance Information significantly affect 
the terms on which NYSE can distribute this market data.\21\ In setting 
the fees for its NYSE OpenBook data, NYSE must consider the extent to 
which market participants would choose one or more alternatives instead 
of purchasing the exchange's data. The various self-regulatory 
organizations, the several Trade Reporting Facilities of FINRA, and 
ECNs that produce proprietary data are all sources of competition. 
Accordingly, a variety of alternative sources of information impose 
significant competitive pressures on the NYSE in setting the terms for 
distributing its market data. The Commission believes that the 
availability of those alternatives, as well as the NYSE's compelling 
need to attract order flow, imposed significant competitive pressure on 
the NYSE to act equitably, fairly, and reasonably in setting the terms 
of its proposal.
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    \21\ See Richard Posner, Economic Analysis of Law Sec.  9.1 (5th 
ed., 1998) (discussing the theory of monopolies and pricing). See 
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger 
Guidelines Sec.  1.11 (1992), as revised (1997) (explaining the 
importance of alternatives to the presence of competition and the 
definition of markets and market power). Courts frequently refer to 
the Department of Justice and Federal Trade Commission merger 
guidelines to define product markets and evaluate market power. See, 
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C. 
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In 
considering antitrust issues, courts have recognized the value of 
competition in producing lower prices. See, e.g., Leegin Creative 
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta 
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990); 
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific 
Railway Co. v. U.S., 356 U.S. 1 (1958).
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    Because the NYSE was subject to significant competitive forces in 
setting the terms of the proposal, the Commission will approve the 
proposal in the absence of a substantial countervailing basis to find 
that its terms nevertheless fail to meet an applicable requirement of 
the Act or the rules thereunder. An analysis of the proposal does not 
provide such a basis, nor were there any comments on this filing, so no 
one raised any issues under this portion of the test. For example, the 
proposal does not unreasonably discriminate among types of users. The 
proposed fee entitles the datafeed recipient to make displays of the 
information available to an unlimited number of subscribers at no extra 
charge.

V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\22\ that the proposed rule change (SR-NYSE-2008-132) be, and 
hereby is, approved.
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    \22\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E9-5569 Filed 3-13-09; 8:45 am]
BILLING CODE 8011-01-P