[Federal Register Volume 78, Number 132 (Wednesday, July 10, 2013)]
[Notices]
[Pages 41447-41453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16534]



[[Page 41447]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69935; File No. SR-BYX-2013-23]


Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change To Impose 
Fees for Market Data

July 3, 2013.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 26, 2013, BATS Y-Exchange, Inc. (``BYX'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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

    The Exchange filed with the Commission a proposed rule change to 
amend its fee schedule applicable to Exchange Members \3\ and other 
market data recipients to assess market data fees for internal and 
external distribution of the BYX PITCH (including both TCP PITCH and 
Multicast PITCH), BYX TOP, and BYX Last Sale Feed data feed products 
(PITCH, TOP and Last Sale Feed collectively referred to in this 
proposal as the ``Data Feeds''). Although changes to the fee schedule 
pursuant to this proposal are effective upon filing, the Exchange will 
implement the proposed revised fees on July 1, 2013.
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    \3\ A Member is any registered broker or dealer that has been 
admitted to membership in the Exchange.
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    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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 Exchange 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 Exchange 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
    The purpose of the proposed rule change is to amend the BYX fee 
schedule with respect to the fees for the BYX PITCH (including both TCP 
PITCH and Multicast PITCH), BYX TOP and BYX Last Sale Feed data 
products. For BYX PITCH, data recipients would pay a single fee, 
regardless if the data recipient receives BYX TCP PITCH, BYX Multicast 
PITCH, or both. The Exchange's other data products will continue to be 
offered free of charge. Below is a description of each of the Data 
Feeds, as well as a brief description of the other data products 
offered by the Exchange that are impacted by this proposal.
(i) TCP PITCH
    The BYX TCP PITCH data feed provides Exchange data recipients with 
depth of book quotations and execution information. The PITCH feeds 
offered by BYX (including Multicast PITCH) are the data feeds through 
which Exchange data recipients can receive full, real-time quotation 
and execution information. Each PITCH message reflects the addition, 
deletion or execution of an order in the System.\4\ TCP PITCH is the 
data feed used by Exchange data recipients to receive BYX PITCH 
information via a TCP/IP connection.
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    \4\ As defined in BYX Rule 1.5(aa), the term ``System'' means 
``the electronic communications and trading facility designated by 
the Board through which securities orders of Users are consolidated 
for ranking, execution and, when applicable, routing away.'' As 
defined in BYX Rule 1.5(cc), the term ``User'' means ``any Member or 
Sponsored Participant who is authorized to obtain access to the 
[Exchange's] System pursuant to Rule 11.3.''
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(ii) Multicast PITCH
    The BYX Multicast PITCH data feed, like TCP PITCH, offers depth of 
book quotations and execution information, however, unlike TCP PITCH, 
this data feed is transmitted in a manner that can be processed more 
efficiently by recipients. This is achieved by using binary messages. 
BYX offers both WAN-shaped and Gig-shaped versions of the Multicast 
feed. Exchange data recipients may choose one or more Multicast PITCH 
feed options depending on their location and connectivity to BYX.
(iii) TOP
    The BYX TOP data feed offers top of book quotations and last sale 
execution information. By only providing top of book quotations and 
last sale information, TOP offers data recipients a significant 
reduction in required bandwidth and processing when compared to BYX's 
standard TCP PITCH data feed. The quotations made available via TOP 
provide an aggregated size and do not indicate the size or number of 
individual orders at the best bid or ask.
(iv) Last Sale Feed
    The BYX Last Sale Feed offers real-time, intraday trade 
information, including price, volume and time of executions. Because 
quotes are not shown, the BYX Last Sale Feed results in much less data 
than other BYX data feeds and requires less technology development for 
data recipients.
(v) Other BYX Data Feeds
    The Exchange will continue to offer certain other market data 
products to Members and other market data recipients free of charge. 
These data products include (i) Multicast Latency Feed, which offers 
real-time latency information; (ii) DROP, which contains order 
execution and other information (e.g., modifications and cancellations) 
specific to the Exchange activity of one or more Users; and (iii) BYX 
Historical Data (PITCH, TOP and Last Sale Feed), which offers up to 
three months of data on a T+1 basis available via download from the BYX 
Web site or additional data beyond three months available via an 
external hard drive.
    Upon the Exchange's initial offering of the BYX PITCH (including 
both TCP PITCH and Multicast PITCH) and BYX TOP data products, such 
services were provided at no cost. In SR-BYX-2011-012, the Exchange 
stated that ``should the Exchange determine to charge fees associated 
with [BYX PITCH (including both TCP PITCH and Multicast PITCH) and BYX 
TOP], the Exchange will submit a proposed rule change to the Commission 
in order to implement those fees.'' \5\ Although the Exchange has not 
previously made a BYX Last Sale Feed available to market data 
recipients, the Exchange recently filed a rule change with the 
Commission to add the BYX Last Sale Feed data product to the list of 
data products made available

[[Page 41448]]

by BYX, as set forth in Rule 11.22,\6\ and is proposing to charge a fee 
for such data feed through this proposal.
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    \5\ Securities Exchange Act Release No. 34-64444 (May 9, 2011) 
76 FR 28115 (May 13, 2011) (File No. SR-BYX-2011-012).
    \6\ See SR-BYX-2013-022, filed June 24, 2013, available at: 
http://cdn.batstrading.com/resources/regulation/rule_filings/approved/2013/SR-BYX-2013-022_approved.pdf.
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    This proposal is designed to implement fees for the receipt of 
PITCH (including both TCP PITCH and Multicast PITCH), TOP and Last Sale 
Feed data products.
    The proposed amendment to the BYX fee schedule codifies such fees 
associated with the receipt of PITCH (including both TCP PITCH and 
Multicast PITCH), TOP and Last Sale Feed. The Exchange, like other 
market centers and other data providers, intends to assess fees for 
individuals and entities that receive real-time market data directly or 
indirectly and act as either internal or external distributors of such 
market data.
    A ``Data Recipient'' of Exchange data is any entity that receives a 
Data Feed directly from the Exchange or indirectly through another 
entity and then distributes such data internally (within that entity) 
to ``Internal Subscribers'' or externally (outside that entity) to 
``External Subscribers'' or ``Data Feed Subscribers.'' An ``Internal 
Subscriber'' is any end-user of the Exchange data affiliated with the 
Data Recipient where the Data Recipient can substantially control the 
Exchange data for purpose of reporting usage or qualification of the 
end-user. An ``External Subscriber'' is any end-user of the Exchange 
data not affiliated with the Data Recipient where the Data Recipient 
can substantially control the Exchange data for purpose of reporting 
usage or qualification of the end-user. A ``Data Feed Subscriber'' is 
any end-user of the Exchange data outside of the Data Recipient that 
receives the Exchange data from a Data Recipient for which the Data 
Recipient cannot substantially control the Exchange data for the 
purpose of reporting usage or qualification of the end-user.
    All Data Recipients and Data Feed Subscribers must execute a BATS 
Global Markets, Inc. Data Agreement with BATS Global Markets, Inc., 
acting on behalf of itself and the Exchange, and, as a result, would be 
charged the applicable monthly access fee described below. All External 
Subscribers must execute a BATS Global Markets, Inc. Subscriber 
Agreement or equivalent with the Data Recipient that is distributing 
the Exchange data to such External Subscriber; however, neither 
External Subscribers nor Internal Subscribers would be charged the 
monthly access fee described below for the receipt of such data.
    Data Recipients (including Data Feed Subscribers) would be charged 
a separate monthly access fee to access: (i) The BYX PITCH data 
product; (ii) the BYX TOP data product; and/or (iii) the BYX Last Sale 
Feed data product. The amount of the monthly access fees would depend 
on whether the Data Recipient is distributing the Exchange data 
internally or externally. Data Recipients distributing the Exchange 
data internally are proposed to be charged $500 per month for access to 
the BYX PITCH data product, $500 per month for access to the BYX TOP 
data product, and $500 per month for access to the BYX Last Sale Feed 
data product. Data Recipients distributing the Exchange data externally 
are proposed to be charged $2,500 per month for access to the BYX PITCH 
data product, $2,500 per month for access to the BYX TOP data product, 
and $2,500 for access to the BYX Last Sale Feed data product. The fee 
paid by a Data Recipient distributing the Exchange data externally 
includes the fee for distributing the Exchange data internally and thus 
permits a Data Recipient distributing the Exchange data externally to 
also provide the data internally (i.e., to users within their own 
organization) for a single access fee. The Exchange does not propose to 
charge Data Recipients a per user fee for internal or external 
distribution of Exchange Data.
    The Exchange will use commercially reasonable efforts to provide at 
least 60 days advance notice to Data Recipients (delivered via email 
and posted to BYX' Web site) of any changes to fees for the Exchange 
data, provided, however, that such notice shall be not less than 30 
days prior to the effectiveness of the change. Receipt or use of the 
Exchange data after the applicable notice period will constitute 
acceptance of such fees.
    Data Recipients will only pay one access fee, regardless of the 
number of locations or users to which the Data Feeds are received or 
distributed. In addition, neither Data Recipients nor their end-users 
will be charged per-user device fees when used to receive the Data 
Feeds, nor will they be charged per-user display fees when used to 
present the Data Feeds.
    If a Data Recipient desires to have one or more of its affiliates 
\7\ be bound by the terms and conditions of the BATS Global Markets, 
Inc. Data Agreement, the Data Recipient may submit a list of any such 
affiliate(s) to BATS Global Markets, Inc. Including affiliates under 
the same data agreement would entitle any such affiliate to access and 
use data from the Exchange for no additional fee (assuming either (i) 
the Data Recipient and the affiliate each are distributing the data 
internally, or (ii) the Data Recipient is distributing the data 
externally and the affiliate is distributing the data either internally 
or externally). One or more of the entities (each a ``Connected 
Entity'') that is part of the group comprised of the Data Recipient and 
the affiliates included under the same agreement (collectively, the 
``Affiliate Group'') is permitted to own connectivity directly with 
BYX. Further, any member of the Affiliate Group that, in addition to 
receiving Exchange data directly from BYX, also receives uncontrolled 
Exchange data indirectly from another Data Recipient (in addition to 
the Connected Entity) is not required to execute a separate data 
agreement; rather, that entity is bound by the same data agreement 
executed by the applicable member of the Affiliate Group. Lastly, if a 
Data Recipient is receiving Exchange data from (i) multiple third-party 
distributors or (ii) from one or more third-party distributors and the 
Exchange, the Data Recipient would only be required to pay one access 
fee--either the internal distribution access fee or the external 
distribution access fee--depending on whether the Data Recipient is 
distributing the Exchange data internally or externally.
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    \7\ An ``affiliate'' of a Data Recipient includes any entity 
that, from time to time, directly or indirectly Controls, is 
Controlled by, or is under common Control with the Data Recipient. 
``Control'' means the power to direct or cause the direction of the 
management of policies of another entity, whether through the 
ownership of voting securities, by contract, or otherwise.
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    The Exchange intends to implement the proposed fees on July 1, 
2013.
2. Statutory Basis
    The Exchange believes that the rule change proposed in this 
submission is consistent with the requirements of the Act and the rules 
and regulations thereunder that are applicable to a national securities 
exchange, and, in particular, with the requirements of Section 6(b) of 
the Act.\8\ Specifically, the Exchange believes that the proposed 
change is consistent with Section 6(b)(4) and 6(b)(5) of the Act,\9\ 
because it provides an equitable allocation of reasonable fees among 
its Members and other recipients of Exchange data and is not designed 
to permit unfair discrimination between them. The Exchange believes 
that its proposed fees

[[Page 41449]]

for the data products described herein are reasonable in light of the 
benefits to data recipients and the fact that certain other Exchange 
data feeds will continue to be provided free of charge.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    As described in more detail below, the proposed fees are based on 
pricing conventions and distinctions that exist in the fee schedules of 
other exchanges. These distinctions (depth-of-book versus top-of-book 
and internal distribution versus external distribution) are each based 
on principles of fairness and equity that have helped for many years to 
maintain fair, equitable, and not unreasonably discriminatory fees, and 
that apply with equal or greater force to the current proposal.
    For example, NASDAQ Exchange (``NASDAQ'') charges data recipients 
of its NASDAQ TotalView data feed $2,000 per month for NASDAQ-listed 
security depth entitlements and $1,000 per month for non NASDAQ-listed 
security depth entitlements to receive the data feed directly from 
NASDAQ. If the data recipient then distributes the data, it pays an 
additional internal or external distribution fee depending on the 
method of distribution. NASDAQ charges $1,000 per month for internal 
distribution of NASDAQ-listed security depth entitlements and $500 per 
month for internal distribution of non NASDAQ-listed security depth 
entitlements, and $2,500 per month for external distribution of NASDAQ-
listed security depth entitlements and $1,250 per month for external 
distribution of non NASDAQ-listed security depth entitlements. NASDAQ 
also charges end-user fees per professional and non-professional 
subscriber for NASDAQ TotalView.\10\
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    \10\ See NASDAQ OMX Rule 7019 and NASDAQ OMX Rule 7023.
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    NASDAQ charges data recipients that distribute its NASDAQ Basic 
data feed $1,500 per month for best bid and offer and last sale 
information for all U.S. exchange-listed securities. Data recipients 
that subscribe to the NASDAQ Basic web service must pay a fee of $1,500 
per month, plus the applicable distribution and subscriber fees. NASDAQ 
also charges end-user fees per professional and non-professional 
subscriber or, in the alternative, NASDAQ charges per query fees for 
NASDAQ Basic.\11\
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    \11\ Id.
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    NASDAQ OMX PSX (``PSX'') charges data recipients of its book feed, 
PSX TotalView, a $1,000 monthly fee to receive its data feed directly 
from PSX. If the data recipient then distributes the data, it pays an 
additional internal or external distribution fee depending on the 
method of distribution. These distribution fees are $500 per month for 
internal distribution and $1,250 per month for external distribution. 
PSX also charges end-user fees per professional and non-professional 
subscriber for PSX TotalView.\12\ NASDAQ OMX BX (``BX'') charges data 
recipients of its book feed, BX TotalView, the same access fees and 
distribution fees as PSX, and also charges end-user fees per 
professional and non-professional subscriber for BX TotalView.\13\
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    \12\ See NASDAQ PSX Pricing Schedule.
    \13\ See NASDAQ OMX BX Rule 7019 and NASDAQ OMX BX Rule 7023.
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    NYSE charges data recipients of its book feed, NYSE OpenBook, a 
$5,000 monthly fee to receive its data feed directly or indirectly from 
NYSE. NYSE also charges end-user fees per professional and non-
professional subscriber for NYSE OpenBook. NYSE charges data recipients 
of its last sale feed, NYSE Real-Time Reference Prices, a $60,000 
monthly fee to receive this feed containing only NYSE data directly or 
indirectly from NYSE. If a data recipient wishes to receive NYSE, NYSE 
Arca and NYSE MKT data, NYSE charges the data recipient a $100,000 
monthly fee to receive this feed.\14\
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    \14\ See NYSE Schedule of Fees.
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    Each of EDGX Exchange (``EDGX'') and EDGA Exchange (``EDGA'') 
charge $500 per month for internal distribution and $2,500 per month 
for external distribution of their EDGX and EDGA book feeds, 
respectively. In addition, each of EDGX and EDGA charge $2,500 per 
month for internal distribution and $5,000 per month for external 
distribution of their EdgeBook Attributed feeds.\15\ Neither EDGX nor 
EDGA charge a per user fee for internal or external distribution of its 
data.
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    \15\ See EDGX Exchange Fee Schedule; See also EDGA Exchange Fee 
Schedule.
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    Revenue generated from Exchange data fees will help offset the 
costs that the Exchange incurs in operating and regulating a highly 
efficient and reliable platform for the trading of U.S. equities. This 
increased revenue stream will permit the Exchange to offer an 
innovative service at a reasonable rate, structured in a manner 
comparable to and consistent with other market centers that provide 
similar market data products.\16\
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    \16\ See infra note 21 and accompanying text.
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    The Exchange will continue to make such data available until such 
time as it changes its rule.
    The Exchange believes that the proposal is also consistent with 
Section 6(b)(8) of the Act \17\ in that it does not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act. The fees charged would be the same for all 
similarly-situated market participants, and therefore do not 
unreasonably discriminate among market participants.
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    \17\ 15 U.S.C. 78f(b)(8).
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations (``SROs'') and broker-dealers (``BDs'') increased 
authority and flexibility to offer new and unique market data to the 
public. It was believed that this authority would expand the amount of 
data available to consumers and also spur innovation and competition 
for the provision of market data.
    The Exchange believes that its Data Feeds are precisely the sort of 
market data products that the Commission envisioned when it adopted 
Regulation NMS. The Commission concluded that Regulation NMS--by 
deregulating the market in proprietary data--would itself further the 
Act's goals of facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\18\
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    \18\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

By removing ``unnecessary regulatory restrictions'' on the ability of 
exchanges to sell their own data, Regulation NMS advanced the goals of 
the Act and the principles reflected in its legislative history. If the 
free market should determine whether proprietary data is sold to BDs at 
all, it follows that the price at which such data is sold should be set 
by the market as well.
    On July 21, 2010, President Barak [sic] Obama signed into law H.R. 
4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (``Dodd-Frank Act''), which amended Section 19 of the Act. Among 
other things, Section 916 of the Dodd-Frank Act amended paragraph (A) 
of Section 19(b)(3) of the Act by inserting the phrase ``on any person, 
whether or not the person is a member of the self-regulatory 
organization'' after ``due, fee or other charge imposed by the self-
regulatory organization.'' As a result, all SRO rule proposals 
establishing or changing dues, fees, or other charges are

[[Page 41450]]

immediately effective upon filing regardless of whether such dues, 
fees, or other charges are imposed on members of the SRO, non-members, 
or both. Section 916 further amended paragraph (C) of Section 19(b)(3) 
of the Act to read, in pertinent part, ``At any time within the 60-day 
period beginning on the date of filing of such a proposed rule change 
in accordance with the provisions of paragraph (1) [of Section 19(b)], 
the Commission summarily may temporarily suspend the change in the 
rules of the self-regulatory organization made thereby, if it appears 
to the Commission that such action is necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of this title. If the Commission takes such 
action, the Commission shall institute proceedings under paragraph 
(2)(B) [of Section 19(b)] to determine whether the proposed rule should 
be approved or disapproved.''
    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for market data. ``In fact, the legislative history indicates that the 
Congress intended that the market system `evolve through the interplay 
of competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.' '' \19\ 
The court agreed with the Commission's conclusion that ``Congress 
intended that `competitive forces should dictate the services and 
practices that constitute the U.S. national market system for trading 
equity securities.' '' \20\
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    \19\ NetCoalition, at 535 (quoting H.R. Rep. no. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
    \20\ Id.
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    The Exchange believes that the proposed fees are fair and 
equitable, and not unreasonably discriminatory. Specifically, the 
Exchange believes that the fees proposed for the Data Feeds are fair 
and equitable in that they are optional and apply uniformly to all data 
recipients irrespective of each recipient's relationship to the 
Exchange (e.g., Member, non-Member data recipient, etc.) except with 
respect to reasonable distinctions as between internal and external 
distribution.\21\ The proposed fees are based on pricing conventions 
and distinctions (e.g., internal versus external distribution and 
controlled versus uncontrolled data feed) based on established 
principles of fairness and equity that have helped to maintain fair, 
equitable, and not unreasonably discriminatory fees, and that apply 
with equal or greater force to the current proposal.
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    \21\ The Exchange notes that distinctions based on internal 
versus external distribution have been previously filed with the 
Commission by NASDAQ, BX, PSX, and EDGX. See Nasdaq Rule 7019(b). 
See also Securities Exchange Act Release Nos. 62876 (September 9, 
2010), 75 FR 56624 (September 16, 2010) (File No. SR-PHLX-2010-120); 
62907 (September 14, 2010), 75 FR 57314 (September 20, 2010) (File 
No. SR-NASDAQ-2010-110); 63442 (December 6, 2010), FR 77029 
(December 10, 2010) (File No. SR-BX-2010-081); 66864 (April 26, 
2012), 77 FR 26064 (May 2, 2012) (File No. SR-EDGX-2012-14).
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    Regardless of a Data Recipient's reasons for subscribing to the 
Data Feeds, the fees for such feeds apply equally to all Data 
Recipients that wish to use the feeds for internal use only and equally 
to all Data Recipients that wish to redistribute the feeds.
    The Exchange proposes charging Data Recipients that distribute 
Exchange data externally more than Data Recipients that distribute 
Exchange data internally because of higher administrative costs 
associated with monitoring methods of distribution and ongoing 
reporting by those Data Recipients distributing the data externally, as 
required in the BATS Global Markets, Inc. Data Agreement and Exchange 
requirements referenced therein. The Exchange believes that the access 
fees for the Data Feeds are reasonable and fair in light of 
alternatives offered by other market centers, as described above.
    Efficiency is promoted when Members who do not need the Data Feeds 
are not required to receive (and pay for) such data. The Exchange also 
believes that efficiency is promoted when Members may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data. Only those consumers that deem such 
products to be of sufficient overall value and usefulness will purchase 
them. The Exchange is not required to make the Data Feeds available or 
to offer specific pricing alternatives for potential purchases. The 
Exchange has chosen to make the Data Feeds available to improve market 
quality, attract order flow, and increase transparency. The Exchange 
can discontinue offering a pricing alternative and firms can 
discontinue their use at any time and for any reason, including due to 
their assessment of the reasonableness of fees charged.
    Lastly, competition is promoted as the Exchange cannot set 
unreasonable fees without losing business to its competitors.\22\ The 
Exchange continues to establish and revise pricing policies aimed at 
increasing fairness and equitable allocation of fees among data 
recipients. If the market deems the proposed fees to be unfair or 
inequitable, firms can diminish or discontinue their use of the data.
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    \22\ See infra discussion in Section 4 [sic], ``Self-Regulatory 
Organization's Statement on Burden on Competition.''
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B. Self-Regulatory Organization's Statement on Burden on Competition

    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, as amended. 
Notwithstanding its determination that the Commission may rely upon 
competition to establish fair and equitably allocated fees for market 
data, the NetCoalition court found that the Commission had not, in that 
case, compiled a record that adequately supported its conclusion that 
the market for the data at issue in the case was competitive. The 
Exchange believes that a record may readily be established to 
demonstrate the competitive nature of the market in question.
    The proposal is, as described below, pro-competitive. There is 
intense competition between trading platforms that provide transaction 
execution and routing services and proprietary data products. 
Transaction execution and proprietary data products are complementary 
in that market data is both an input and a byproduct of the execution 
service. In fact, market data and trade execution are a paradigmatic 
example [sic] of joint products with joint costs. The decision whether 
and on which platform to post an order will depend on the attributes of 
the platform where the order can be posted, including the execution 
fees, data quality and price and distribution of its data products. 
Without the prospect of a taking order seeing and reacting to a posted 
order on a particular platform, the posting of the order would 
accomplish little. Without orders entered and trades executed, exchange 
data products cannot exist. Data products are valuable to many end 
users only insofar as they provide information that end users expect 
will assist them or their customers in making trading decisions.

[[Page 41451]]

    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's BD 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A BD will direct 
orders to a particular exchange only if the expected revenues from 
executing trades on the exchange exceed net transaction execution costs 
and the cost of data that the BD chooses to buy to support its trading 
decisions (or those of its customers). The choice of data products is, 
in turn, a product of the value of the products in making profitable 
trading decisions. If the cost of the product exceeds its expected 
value, the BD will choose not to buy it.
    Moreover, as a BD chooses to direct fewer orders to a particular 
exchange, the value of the product to that BD decreases, for two 
reasons. First, the product will contain less information, because 
executions of the BD's orders will not be reflected in it. Second, and 
perhaps more important, the product will be less valuable to that BD 
because it does not provide information about the venue to which it is 
directing its orders. Data from the competing venue to which the BD is 
directing orders will become correspondingly more valuable. Thus, a 
super-competitive increase in the fees charged for either transactions 
or data has the potential to impair revenues from both products.
    ``No one disputes that competition for order flow is `fierce'.'' 
\23\ However, the existence of fierce competition for order flow 
implies a high degree of price sensitivity on the part of BDs with 
order flow, since they may readily reduce costs by directing orders 
toward the lowest-cost trading venues. A BD that shifted its order flow 
from one platform to another in response to order execution price 
differentials would both reduce the value of that platform's market 
data and reduce its own need to consume data from the disfavored 
platform. Similarly, if a platform increases its market data fees, the 
change will affect the overall cost of doing business with the 
platform, and affected BDs will assess whether they can lower their 
trading costs by directing orders elsewhere and thereby lessening the 
need for the more expensive data.
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    \23\ NetCoalition, at 24 [sic].
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    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of an exchange's costs to the market data 
portion of an exchange's joint product. Rather, all of an exchange's 
costs are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data about 
market activity. The total return that an exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return each platform earns from the sale of its joint 
products, but different platforms may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some platforms may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information free of charge) and charge relatively high prices 
for accessing posted liquidity. Other platforms may choose a strategy 
of paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market information, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering. Such regulation is unnecessary 
because an ``excessive'' price for one of the joint products will 
ultimately have to be reflected in lower prices for other products sold 
by the firm, or otherwise the firm will experience a loss in the volume 
of its sales that will be adverse to its overall profitability. In 
other words, an increase in the price of data will ultimately have to 
be accompanied by a decrease in the cost of executions, or the volume 
of both data and executions will fall.
    The market for market data products is competitive and inherently 
contestable because there is fierce competition for the inputs 
necessary to the creation of proprietary data and strict pricing 
discipline for the proprietary products themselves. Numerous exchanges 
compete with each other for listings, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    BDs currently have numerous alternative venues for their order 
flow, including thirteen SRO markets, as well as internalizing BDs and 
various forms of alternative trading systems (``ATSs''), including dark 
pools and electronic communication networks (``ECNs''). Each SRO market 
competes to produce transaction reports via trade executions, and two 
FINRA-regulated Trade Reporting Facilities (``TRFs'') compete to 
attract internalized transaction reports. Competitive markets for order 
flow, executions, and transaction reports provide pricing discipline 
for the inputs of proprietary data products.
    The large number of SROs, TRFs, BDs, and ATSs that currently 
produce proprietary data or are currently capable of producing it 
provides further pricing discipline for proprietary data products. Each 
SRO, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do or have announced plans to do so, 
including, but not limited to, NASDAQ, NYSE, NYSE MKT, NYSE Arca, 
Direct Edge and International Securities Exchange.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple BDs' 
production of proprietary data products. The potential sources of 
proprietary products are virtually limitless.
    The fact that proprietary data from ATSs, BDs, and vendors can by-
pass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products, as the Exchange and Arca did before registering as exchanges 
by publishing proprietary book data on the Internet. Second, because a 
single order or transaction report can appear in an SRO proprietary 
product, a non-SRO proprietary product, or both, the data available in 
proprietary products is exponentially greater than the actual number of 
orders and transaction reports that exist in the marketplace. Indeed, 
in the case of the Data Feeds, the data provided through these products 
appears both in (i) real-time core data products offered by the SIPs 
for a fee, and (ii) free SIP data products

[[Page 41452]]

with a 15-minute delay, and find close substitutes in products of 
competing venues.
    Market data vendors provide another form of price discipline for 
proprietary data products because they control the primary means of 
access to end users. Vendors impose price restraints based upon their 
business models. For example, vendors such as Bloomberg and Reuters 
that assess a surcharge on data that they sell may refuse to offer 
proprietary products that end users will not purchase in sufficient 
numbers. Internet portals, such as Google, impose a discipline by 
providing only data that will enable them to attract ``eyeballs'' that 
contribute to their advertising revenue. Retail BDs, such as Schwab and 
Fidelity, offer their customers proprietary data only if it promotes 
trading and generates sufficient commission revenue. Although the 
business models may differ, these vendors' pricing discipline is the 
same: They can simply refuse to purchase any proprietary data product 
that fails to provide sufficient value. The Exchange and other 
producers of proprietary data products must understand and respond to 
these varying business models and pricing disciplines in order to 
market proprietary data products successfully. Moreover, the Exchange 
believes that products such as the Data Feeds can enhance order flow to 
the Exchange by providing more widespread distribution of information 
about transactions in real time, thereby encouraging wider 
participation in the market by investors with access to the Internet 
and television. Conversely, the value of such products to distributors 
and investors decreases if order flow falls, because the products 
contain less content.
    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid, inexpensive, and profitable. 
The history of electronic trading is replete with examples of entrants, 
including the Exchange, that swiftly grew into some of the largest 
electronic trading platforms and proprietary data producers: 
Archipelago, Bloomberg Tradebook, Island, RediBook, Attain, TracECN and 
Direct Edge. A proliferation of dark pools and other ATSs operate 
profitably with fragmentary shares of consolidated market volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While BDs have 
previously published their proprietary data individually, Regulation 
NMS encourages market data vendors and BDs to produce proprietary 
products cooperatively in a manner never before possible. Multiple 
market data vendors already have the capability to aggregate data and 
disseminate it on a profitable scale, including Bloomberg, and Thomson 
Reuters.
    Competition among platforms has driven the Exchange continually to 
improve its market data offerings and to cater to customers' data 
needs. For example, the Exchange has developed and maintained multiple 
delivery mechanisms that enable customers to receive data in the form 
and manner they prefer and at the lowest cost to them.
    The Exchange offers data via multiple extranet providers, thereby 
helping to reduce network and total cost for its data products. Despite 
these enhancements and a dramatic increase in message traffic, to date 
the Exchange has been able to offer most of its market data without 
charge. Moreover, platform competition has intensified as new entrants 
have emerged, constraining prices for both executions and for data.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the last few years. In all cases, 
firms make decisions on how much and what types of data to consume on 
the basis of the total cost of interacting with the Exchange or other 
exchanges. Of course, the explicit data fees are but one factor in a 
total platform analysis. Some competitors have lower transactions fees 
and higher data fees, and others are vice versa. The market for the 
proposed data is highly competitive and continually evolves as products 
develop and change.
    In establishing the fees for the Data Feeds, the Exchange 
considered the competitiveness of the market for the type of data being 
offered and all of the implications of that competition. The Exchange 
believes that it has considered all relevant factors in order to 
establish fair, reasonable, and not unreasonably discriminatory fees 
and an equitable allocation of fees among all users. The existence of 
numerous alternatives to the Data Feeds, including real-time 
consolidated data, free delayed consolidated data, and proprietary data 
from other sources ensures that the Exchange cannot set unreasonable 
fees, or fees that are unreasonably discriminatory, without losing 
business to these alternatives.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any written comments from members or other interested parties.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act \24\ and Rule 19b-4(f)(2) thereunder,\25\ 
because it establishes a due, fee, or other charge imposed by BYX.
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    \24\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \25\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 email to [email protected]. Please include 
File Number SR-BYX-2013-23 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-BYX-2013-23. This file 
number should be included on the subject line if email 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

[[Page 41453]]

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 Web site viewing and printing in the 
Commission's Public Reference Room, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of BYX. 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-BYX-2013-23 and should be submitted on 
or before July 31, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16534 Filed 7-9-13; 8:45 am]
BILLING CODE 8011-01-P