[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Notices]
[Pages 20018-20021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8689]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61885; File No. SR-BATS-2010-002]


Self-Regulatory Organizations; BATS Exchange, Inc.; Order 
Approving a Proposed Rule Change, As Amended, To Offer Certain BATS 
Exchange Data Products

April 9, 2010.

I. Introduction

    On February 2, 2010, BATS Exchange, Inc. (``BATS'' or the 
``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 \2\ 
thereunder, a proposed rule change to offer certain new Exchange data 
products to Exchange Members \3\ and other market data recipients. On 
February 22, 2010, BATS filed Amendment No. 1 to the proposed rule 
change. The proposed rule change, as modified by Amendment No. 1, was 
published for comment in the Federal Register on March 5, 2010.\4\ The 
Commission received one comment letter in response to the proposed rule 
change.\5\ On April 8 , 2010, BATS filed Amendment No. 2 to the 
proposed rule change.\6\ This order approves the proposed rule change, 
as modified by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
    \4\ See Securities Exchange Act Release No. 61592 (March 5, 
2010), 75 FR 10332 (``Notice'').
    \5\ See letter to Elizabeth M. Murphy, Secretary, SEC, from Joan 
C. Conley, Senior Vice President and Corporate Secretary, The NASDAQ 
OMX Group, Inc., dated March 26, 2009 (``NASDAQ OMX Letter'').
    \6\ See Amendment No. 2 dated April 8, 2010 (``Amendment No. 
2''). The text of Amendment No. 2 is available on the Exchange's Web 
site at http://www.batstrading.com, at the principal office of BATS, 
and on the Commission's Web site (http://www.sec.gov/rules/sro.shtml). Amendment No. 2 is a non-substantive, clarifying 
amendment.
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II. Description of the Proposal

    The Exchange proposes to offer several new market data products: 
BATS Last Sale Feed; BATS Historical Data Products; and BATS Market 
Insight (``New Market Data Products''). In connection with making 
available the New Market Data Products, the Exchange proposes to amend 
its fee schedule applicable to Members and non-members of the Exchange 
pursuant to BATS Rules 15.1(a) and (c).\7\
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    \7\ The Exchange currently offers other data products to Members 
and other data recipients free of charge. The Exchange states that 
such data products include, but are not limited to, TCP PITCH, 
Multicast PITCH, and TCP FAST PITCH, which are depth of book data 
feeds containing real-time quotation and transaction data from the 
Exchange; TCP DROP, which contains order execution and other 
information (e.g., modifications and cancellations) specific to the 
Exchange activity of one or more Users; and TCP TOP, which contains 
real-time top of book quotation and transaction information from the 
Exchange. The Exchange represents that BATS will file a proposed 
rule change pursuant to Section 19(b)(1) of the Act and Rule 19b-4 
thereunder to describe its existing free data feeds. See Amendment 
No. 2, supra note 6.

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[[Page 20019]]

    BATS Last Sale Feed. The BATS Last Sale Feed will be a direct data 
feed product that provides real-time, intraday trade information, 
including price, volume, and time of executions.\8\ The BATS Last Sale 
Feed will include last sale information regarding all NYSE-listed 
securities (``Tape A Securities''), NASDAQ-listed securities (``Tape C 
Securities''), and securities listed on exchanges other than NYSE or 
NASDAQ (``Tape B Securities'') with respect to activity occurring 
solely on the Exchange.\9\
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    \8\ The BATS Last Sale feed will not include quotation 
information.
    \9\ Currently, under the joint-industry plans that provide for 
the dissemination of last sale information for equity securities, 
the Exchange and other self-regulatory organizations (``SROs'') 
provide real-time last sale information to a Security Information 
Processor (``SIP''), which then consolidates the information into a 
single stream for dissemination to the public, including market data 
vendors.
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    No market participant will be required to subscribe to the BATS 
Last Sale Feed and the same last sale prices will continue to be 
available in the Exchange's other data feeds.\10\ The Exchange 
represents that it will not distribute the BATS Last Sale Feed sooner 
than it makes available the data that is provided to the SIPs for 
consolidation and dissemination.\11\ BATS proposes to charge $5,000 per 
month for the BATS Last Sale Feed for any data recipient that chooses 
to receive the data feed for internal use only (``Internal 
Distributor''). The Exchange will not require data recipients that wish 
to redistribute the BATS Last Sale Feed to count, classify (e.g., 
professional or non-professional), or report to the Exchange 
information regarding the customers to which they provide the data. 
Instead, the Exchange proposes a flat fee of $25,000 per month for any 
data recipient that wishes to redistribute the BATS Last Sale Feed 
externally (``External Distributor''). End users will not have to pay 
the Exchange for the BATS Last Sale Feed or enter into contracts with 
the Exchange.
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    \10\ See supra note 7.
    \11\ See Notice, supra note 4, at 10333.
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    BATS Historical Data Products. The Exchange proposes to offer data 
recipients upon request the following three products: (1) Historical 
top of book data from the Exchange's TOP data feed (``Historical TOP 
Data''); (2) historical quotation and transaction data from the 
Exchange's PITCH data feed (``Historical PITCH Data''); and (3) 
historical transaction data from the Exchange's Last Sale Feed 
(``Historical Last Sale Data'').\12\ BATS Historical TOP Data, BATS 
Historical PITCH Data and BATS Historical Last Sale Data will be 
provided to data recipients for internal use only, and thus, no 
redistribution will be permitted.\13\
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    \12\ The Exchange proposes to provide data recipients with the 
requested historical data on an external hard drive provided by the 
Exchange. As an alternative means to obtain historical data, the 
Exchange proposes to provide market participants with access to a 
database from which they can download data that is up to three 
months old.
    \13\ The Exchange currently provides historical data upon 
request on an ad hoc basis, but proposes to begin charging a fee due 
to the infrastructure costs of storing and providing such data.
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    The proposed cost of user-accessible BATS Historical TOP Data, BATS 
Historical PITCH Data or BATS Historical Last Sale Data is $500 per 
month of data accessed by any individual user. For data that the 
Exchange provides on an external hard drive to a market participant the 
proposed cost is $2,500 per 1 terabyte (TB) drive generated by the 
Exchange.\14\
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    \14\ For a more detailed description of how the proposed fees 
operate, see Notice, supra note 4, at 10334.
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    BATS Market Insight. The Exchange proposes to begin offering BATS 
Market Insight that can be used to analyze the depth of liquidity of 
the Exchange's book, including reserve and hidden interest, on a 
historical basis. BATS Market Insight will provide a market participant 
with information regarding the depth of the market at the Exchange in 
minute increments. Data will become available for access by market 
participants 10 days following each trade date (T + 10) and will be 
available for 30 days.\15\ BATS Market Insight will be provided to data 
recipients for internal use only, and thus, no redistribution will be 
permitted. The proposed cost for access to BATS Market Insight is 
$1,000 per user per month.
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    \15\ Specifically, a participant using BATS Market Insight will 
be able to obtain data regarding total order interest, displayed 
order interest and hidden order interest at each price point in 
specific Tape A, B, and C securities traded on the Exchange.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\16\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(4) of the Act,\17\ 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,\18\ which requires, among other things, that the 
rules of an exchange not be designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers. The Commission also 
finds that the proposed rule change is consistent with Section 6(b)(8) 
of the Act\19\ in that it does not impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
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    \16\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(4).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 15 U.S.C. 78f(b)(8).
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    The Commission has reviewed the proposal using the approach set 
forth by the Commission for non-core market data fees.\20\ In the NYSE 
Arca 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.'' 
\21\ 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.'' \22\ 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.'' \23\
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    \20\ See Securities Exchange Act Release No. 59039 (December 2, 
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE 
Arca Order'').
    \21\ Id. at 74771.
    \22\ Id. at 74782.
    \23\ Id. at 74781.
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    As noted in the NYSE Arca Order, the standards in Section 6 of the 
Act do not differentiate between types of data and therefore apply to 
exchange proposals to distribute both core data and non-core data.\24\ 
All U.S. exchanges trading NMS

[[Page 20020]]

stocks are required pursuant to Rule 603(b) \25\ of the Act to provide 
``core data''--the best-priced quotations and comprehensive last sale 
reports--to a SIP to consolidate and disseminate to the public pursuant 
to joint-SRO plans.\26\ In contrast, individual exchanges and other 
market participants distribute non-core data voluntarily.\27\ The 
mandatory nature of the core data disclosure regime leaves little room 
for competitive forces to determine products and fees.\28\ Non-core 
data products and their fees are, by contrast, much more sensitive to 
competitive forces. The Commission therefore is able to rely on 
competitive forces in its determination of whether an exchange's 
proposal to distribute non-core data meets the standards of Section 
6.\29\
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    \24\ Id. at 74779.
    \25\ 17 CFR 242.603(b).
    \26\ See Consolidated Tape Association Plan (``CTA Plan'') and 
Consolidated Quotation Plan (``CQ Plan). The two plans, which have 
been approved by the Commission, are available at http://www.nysedata.com. See also the Joint-Self-Regulatory Organization 
Plan Governing the Collection, Consolidation and Dissemination of 
Quotation and Transaction Information for Nasdaq-Listed Securities 
Traded on Exchanges on an Unlisted Trading Privileges Basis 
(``Nasdaq UTP Plan''). The Nasdaq UTP Plan, which has been approved 
by the Commission, is available at http://www.utpdata.com.
    \27\ See NYSE Arca Order, supra note 20, at 74779.
    \28\ Id.
    \29\ Id.
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    Because the instant proposal to offer New Market Data Products 
relates to the distribution of non-core data, the Commission will apply 
the market-based approach set forth in the NYSE Arca Order. Pursuant to 
this approach, the first step is to determine whether BATS was subject 
to significant competitive forces in setting the terms of its non-core 
market data proposal, including the level of any fees. As in the NYSE 
Arca Order, in determining whether BATS was subject to significant 
competitive forces in setting the terms of New Market Data Products, 
the Commission has analyzed BATS' compelling need to attract order flow 
from market participants, and the availability to market participants 
of alternatives to purchasing BATS' non-core market data.
    Attracting order flow is the core competitive concern of any equity 
exchange. Given the competitive pressures that currently characterize 
the U.S. equity markets, no exchange can afford to take its market 
share percentages for granted--they can change significantly over time, 
either up or down.\30\ BATS competes with the other national securities 
exchanges that currently trade equities, with electronic communication 
networks, with quotes posted in FINRA's Alternative Display Facility, 
with alternative trading systems, and with securities firms that 
primarily trade as principal with their customer order flow.\31\
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    \30\ Id. at 74782.
    \31\ See Notice, supra note 4, at 10334.
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    In addition to the need to attract order flow, the availability of 
alternatives to New Market Data Products significantly affect the terms 
on which BATS can distribute this market data.\32\ In setting the fees 
for New Market Data Products, BATS must consider the extent to which 
market participants would choose one or more alternatives instead of 
purchasing its data.\33\ With respect to BATS Last Sale Feed, market 
participants can also gain access to BATS last sale prices through free 
data feeds provided by the Exchange or those integrated with the prices 
that other markets make available through the SIPs.\34\ Further, other 
national securities exchanges, the several Trade Reporting Facilities 
of FINRA, and ECNs can produce last sale information products, and thus 
are sources of potential competition for BATS.\35\ With respect to BATS 
Market Insight, BATS states that a market participant could gain access 
to the same information through a combination of: (1) Existing, free 
data feeds from the Exchange (for displayed trading interest); and (2) 
information gathered by the market participant through its trading 
activities on the Exchange and/or through the consolidated data 
published by the SIPs reporting executions that occurred on the 
Exchange (for non-displayed trading interest).\36\ With respect to BATS 
Historical Data Products, the Exchange notes that market participants 
can gain access to the same information that BATS proposes to make 
available through BATS Historical Data Products feed through existing, 
free data feeds from the Exchange. Further, the Commission notes that 
BATS last sale and quotation information also is available through the 
consolidated data feed disseminated by the SIPs. The Exchange also 
notes that a similar product is offered by Nasdaq.\37\
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    \32\ See NYSE Arca Order supra, note 20, at 74784.
    \33\ Id. at 74783.
    \34\ See Notice, supra note 4, at 10334.
    \35\ BATS represented that many other market centers, including 
Nasdaq and the New York Stock Exchange LLC, do in fact currently 
produce last sale information products. Id.
    \36\ See Notice, supra note 4, at 10334.
    \37\ See Nasdaq Rule 7022.
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    The Commission believes that there are a number of alternative 
sources of information that impose significant competitive pressures on 
BATS in setting the terms for distributing the New Market Data 
Products. The Commission believes that the availability of those 
alternatives, as well as BATS' compelling need to attract order flow, 
imposed significant competitive pressure on BATS to act equitably, 
fairly, and reasonably in setting the terms of its proposal.
    Because BATS 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 the terms of the proposal fail to meet the applicable requirements 
of the Act or the rules thereunder. An analysis of the proposal does 
not provide such a basis. The Commission notes that the proposed fees 
for BATS Last Sale Feed are lower for Internal Distributors than for 
External Distributors. Because Internal Distributors are by definition 
more limited in the scope of their distribution of BATS Last Sale Feed 
than External Distributors, it is reasonable to expect that Internal 
Distributors will provide BATS Last Sale Feed to a smaller number of 
internal recipients.\38\ The Commission notes that the fees for BATS 
Historical Data Products and BATS Market Insight are the same for all 
persons. The fees therefore do not unreasonably discriminate among 
types of recipients.
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    \38\ Conversely, External Distributors can reasonably be 
expected to distribute BATS Last Sale Feed to a higher number of 
recipients because they do not have the same limitation. 
Accordingly, the Exchange will charge a higher fee to External 
Distributors than to Internal Distributors. The Exchange noted in 
its filing that ``[r]egardless of a data recipient's reasons for 
subscribing to the BATS Last Sale Feed, the fee for such feed 
applies equally to all data recipients that wish to use the feed for 
internal use only and equally to all data recipients that wish to 
redistribute the feed.'' See Notice, supra note 4, at 10333. For a 
similar distinction, see, e.g., Securities Exchange Act Release No. 
60459 (August 7, 2009), 74 FR 41466 (August 17, 2009) (SR-Phlx-2009-
54) (order approving a proposed rule change to establish fees for 
the Top of Phlx Options direct data feed product).
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    As noted above, the Commission received one comment letter on the 
proposed rule change.\39\ The commenter questions whether the Act and 
the rules thereunder require SROs to file a proposed rule change to 
offer at no charge electronic data feeds of transaction information 
generated by an SRO. In response to this comment, BATS filed Amendment 
No. 2, in which it represents that BATS will file a proposed rule 
change pursuant to Section 19(b)(1) of the Act and Rule 19b-4\40\ 
thereunder describing its current free data feeds.\41\
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    \39\ See supra note 5.
    \40\ 17 CFR 240.19b-4.
    \41\ See supra note 6.
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    Further, NASDAQ OMX asserts that the proposal raises the question 
of

[[Page 20021]]

whether the Act permits an exchange to offer the same transaction 
information via two different delivery mechanisms for two different 
prices.\42\ NASDAQ OMX then cites two of its own proposed rule changes 
and attempts to analogize them with the instant proposal, stating that 
the instant proposal implicates issues of what constitutes fair versus 
unfair discrimination with respect to the fees charged for market data. 
The Commission believes that the two proposed rule changes cited by 
NASDAQ OMX are factually different than the BATS' proposed rule change. 
As discussed above, the Commission believes that BATS offering of New 
Market Data Products is not unfairly discriminatory.
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    \42\ NASDAQ OMX was referring to the BATS Last Sale Feed that 
contains last sale information that is also offered via PITCH free 
of charge.
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-BATS-2010-002), as modified by 
Amendments No. 1 and 2, be, and hereby is, approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8689 Filed 4-15-10; 8:45 am]
BILLING CODE 8011-01-P