[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51796-51801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-20340]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70213; File No. SR-NYSEARCA-2013-81]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Amending the Fees 
for Display Use of the NYSE Arca BBO and NYSE Arca Trades Market Data 
Products and Making Certain Technical Changes to the Fee Schedule

August 15, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 1, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 proposes to amend the fees for display use of the NYSE 
Arca BBO and NYSE Arca Trades market data products and make certain 
technical changes to the fee schedule. The changes will be operative on 
August 1, 2013. The text of the proposed rule change is available on 
the Exchange's Web site at www.nyse.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 self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those 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 parts of such statements.

[[Page 51797]]

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend the fees for display use of the NYSE 
Arca BBO \4\ and NYSE Arca Trades \5\ market data products and make 
certain technical changes to the fee schedule. The changes will be 
operative on August 1, 2013.
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    \4\ NYSE Arca BBO is an NYSE Arca-only market data feed that 
allows a vendor to redistribute on a real-time basis the same best-
bid-and-offer information that the Exchange reports under the 
Consolidated Quotation (``CQ'') Plan for inclusion in the CQ Plan's 
consolidated quotation information data stream. The data feed 
includes the best bids and offers for all securities that are traded 
on the Exchange and for which NYSE Arca reports quotes under the CQ 
Plan.
    \5\ NYSE Arca Trades is an NYSE Arca-only market data feed that 
allows a vendor to redistribute on a real-time basis the same last 
sale information that the Exchange reports under the Consolidated 
Tape Association (``CTA'') Plan for inclusion in the CTA Plan's 
consolidated data streams and certain other related data elements. 
Specifically, NYSE Arca Trades includes the real-time last sale 
price, time, size, and bid-ask quotations for each security traded 
on the Exchange and a stock summary message. The stock summary 
message updates every minute and includes NYSE Arca's opening price, 
high price, low price, closing price, and cumulative volume for the 
security.
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    The Exchange currently charges $10 per month for professional users 
and $5 per month for non-professional users for display use of NYSE 
Arca BBO.\6\ Alternatively, the Exchange charges $0.005 per quote for 
display use of NYSE Arca BBO for non-professional users, capped at $5 
per month per non-professional user.\7\ The Exchange currently charges 
$10 per month for professional users for display use of NYSE Arca 
Trades. The Exchange currently does not offer NYSE Arca Trades for non-
professional users under a per-user fee structure.\8\
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    \6\ The Exchange applies the same criteria for qualification as 
a ``non-professional subscriber'' as the CTA and CQ Plan 
participants use. See Securities Exchange Act Release No. 62188 (May 
27, 2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
    \7\ Id. The cap is referenced in this filing, although it does 
not currently appear in the fee schedule.
    \8\ See Securities Exchange Act Release No. 59598 (Mar. 18, 
2009), 74 FR 12919 (Mar. 25, 2009) (SR-NYSEArca-2009-05). When NYSE 
Arca Trades was initially offered, the Exchange had not observed a 
demand for non-professional use because an alternative product was 
available. See id. The Exchange now offers two last sale market data 
products for distribution to non-professional users, NYSE Arca 
Trades Digital Media and NYSE Arca Realtime Reference Prices Digital 
Media. See Securities Exchange Act Release No. 69299 (Apr. 4, 2013), 
78 FR 21436 (Apr. 10, 2013) (SR-NYSEArca-2013-31).
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    The Exchange also charges an access fee of $750 per month for NYSE 
Arca BBO and an access fee of $750 for NYSE Arca Trades. However, a 
single access fee applies for clients receiving both NYSE Arca BBO and 
NYSE Arca Trades.
    Vendors that redistribute NYSE Arca Trades data pay a 
redistribution fee of $750 per month.
    The Exchange proposes to lower the professional user fees for 
display use of NYSE Arca BBO from $10 per month to $4 per month, lower 
the non-professional user fees for display use of NYSE Arca BBO from $5 
per month to $0.25 per month, and eliminate the per quote option for 
display use of NYSE Arca BBO for non-professional users. The Exchange 
also proposes to lower the professional user fee for display use of 
NYSE Arca Trades from $10 per month to $4 per month and introduce a fee 
for display use of NYSE Arca Trades by non-professional users of $0.25 
per month.
    The Exchange also proposes to establish a $175,000 per month 
enterprise fee for an unlimited number of professional and non-
professional users for NYSE Arca BBO and a $175,000 per month 
enterprise fee for an unlimited number of professional and non-
professional users for NYSE Arca Trades. A single enterprise fee will 
apply for vendors receiving both NYSE Arca BBO and NYSE Arca Trades.
    As an example, under the current fee structure, if a firm had 9,000 
professional users who each received NYSE Arca Trades at $10 per month 
and NYSE Arca BBO at $10 per month, then the firm currently pays 
$180,000 per month in professional user fees. Under the proposed 
enterprise fee, the firm will pay a flat fee of $175,000 for an 
unlimited number of professional and non-professional users for both 
products.
    A vendor that pays the enterprise fee would not have to report the 
number of such users on a monthly basis.\9\ However, every six months, 
a vendor must provide the Exchange with a count of the total number of 
natural person users of each product, including both professional and 
non-professional users.
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    \9\ Most professional users currently are subject to a per 
display device count, except for a small number of professional 
users that have qualified for the Exchange's Unit-of-Count Policy. 
See SR-NYSEArca-2010-23, supra n.6; SR-NYSEArca-2009-05, supra n.8. 
That policy continues to apply to such professional users for 
display use only if the proposed enterprise fee does not apply. See 
Securities Exchange Act Release No. 69315 (Apr. 5, 2013), 78 FR 
21668 (Apr. 11, 2013) (SR-NYSEArca-2013-37).
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    Lastly, the Exchange proposes to make certain technical corrections 
to clarify its fee schedule and to delete operative dates that are no 
longer needed.
    The purpose of the foregoing changes is to encourage greater use of 
NYSE Arca BBO and NYSE Arca Trades by making them more affordable, to 
compete more effectively with similar products in the marketplace, and 
to clarify the fee schedule. The Exchange is eliminating the per quote 
option for display use of NYSE Arca BBO for non-professional users 
because non-professional users are not electing to use it. The Exchange 
is not aware of any significant problems that persons affected are 
likely to have in complying with the proposed rule change.
    The Exchange further believes that the proposed rule change is 
consistent with the market-based approach of the Securities and 
Exchange Commission (``Commission''). 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), upheld reliance by the 
Commission upon the existence of competitive market mechanisms to set 
reasonable and equitably allocated fees for proprietary 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.''

Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted in 
1975 U.S.C.C.A.N. 323). 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.''' \10\
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    \10\ NetCoalition, 615 F.3d at 535.
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    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for data and that the Commission can 
rely upon such evidence in concluding that the fees established in this 
filing are the product of competition and therefore satisfy the 
relevant statutory standards.\11\ In addition, the existence of 
alternatives to NYSE Arca BBO and NYSE Arca Trades, including real-time 
consolidated data, free delayed consolidated data, and proprietary data 
from other sources, as

[[Page 51798]]

described below, further ensures that the Exchange cannot set 
unreasonable fees, or fees that are unreasonably discriminatory, when 
vendors and subscribers can elect such alternatives.
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    \11\ Section 916 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended 
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), 
to make clear that all exchange fees for market data may be filed by 
exchanges on an immediately effective basis.
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    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach, and the Exchange 
incorporates by reference into this proposed rule change its analysis 
of this topic in another rule filing.\12\
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    \12\ See Securities Exchange Act Release No. 63291 (Nov. 9, 
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides an equitable allocation of reasonable fees among its members, 
issuers, and other persons using its facilities and is not designed to 
permit unfair discrimination among customers, issuers, brokers, or 
dealers. The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \15\ in that it is consistent 
with (i) fair competition among brokers and dealers, among exchange 
markets, and between exchange markets and markets other than exchange 
markets and (ii) the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities. Furthermore, the proposed rule change is consistent with 
Rule 603 of Regulation NMS,\16\ which provides that any national 
securities exchange that distributes information with respect to 
quotations for or transactions in an NMS stock do so on terms that are 
not unreasonably discriminatory.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4), (5).
    \15\ 15 U.S.C. 78k-1.
    \16\ See 17 CFR 242.603.
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    The Exchange believes that lowering the professional and non-
professional user fees for NYSE Arca BBO and lowering the professional 
user fee for NYSE Arca Trades is reasonable because it will make the 
products more affordable and result in their greater availability to 
professional and non-professional users. The Exchange believes that 
introducing a non-professional fee for NYSE Arca Trades is reasonable 
because it provides an additional method for retail investors to access 
NYSE Arca last sale data and provides the same last sale data that is 
available to professional users, an option heretofore unavailable.\17\ 
The Exchange believes it is reasonable to eliminate the per quote 
option for non-professional users of NYSE Arca BBO because non-
professional users have not elected this option.
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    \17\ See supra n.8.
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    In addition, the Exchange believes that the proposed fees are 
reasonable when compared to fees for comparable products offered by at 
least one other exchange and under the CTA and CQ Plans. Specifically, 
The NASDAQ Stock Market LLC (``NASDAQ'') offers NASDAQ Basic, which 
includes best bid and offer and last sale data, for a monthly fee of 
$10 per professional subscriber and $0.50 per non-professional 
subscriber; alternatively, a broker-dealer may purchase an enterprise 
license at a rate of $100,000 per month for distribution to an 
unlimited number of non-professional subscribers only.\18\ The 
Exchange's proposed per-user fees are lower than NASDAQ's fees. While 
the Exchange's enterprise fee is higher, the Exchange will permit 
broader distribution of its data for this fee, i.e., to both 
professional and non-professional users. Under the current CTA Plan, 
Tape B market data includes NYSE Arca and certain other exchanges' 
data. Monthly fees for professional users range from $13.60-$14.60 for 
consolidated last sale data and $13.65-$15.60 for bid-ask data; the 
monthly fee for each non-professional subscriber is $1.00 for both last 
sale and bid-ask data.\19\ A monthly enterprise fee of $500,000 is 
available under which a U.S. registered broker-dealer may distribute 
data to an unlimited number of its own employees and its 
nonprofessional subscriber brokerage account customers. Participants in 
the CTA and CQ Plans recently submitted an immediately effective filing 
with rate changes that are expected to be implemented September 1, 
2013.\20\ The Exchange is proposing professional and non-professional 
user fees and enterprise fees that are substantially less than the fees 
currently charged and proposed for the CTA and CQ Plans. In contrast to 
NASDAQ and the CTA and CQ Plans, the Exchange also will permit 
enterprise distribution by a non-broker-dealer.
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    \18\ See NASDAQ Rule 7047.
    \19\ See CTA Plan dated July 25, 2012 and CQ Plan dated August 
23, 2010, available at https://cta.nyxdata.com/CTA.
    \20\ See Securities Exchange Act Release No. Release No. 70010 
(July 19, 2013) (File No. SR-CTA/CQ-2013-04). Monthly fees will be 
$24 for professional subscribers and $1 for non-professional 
subscribers for Tape B last sale and bid-ask data, and the monthly 
enterprise fee described above will be increased to $520,000.
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    The proposed enterprise fees for NYSE Arca BBO and NYSE Arca Trades 
also are reasonable because they could result in a fee reduction for 
vendors with a large number of professional and non-professional users, 
as described in the example above. If a vendor has a smaller number of 
professional users of NYSE Arca BBO and/or NYSE Arca Trades, then it 
may continue using the per user structure and benefit from the per user 
fee reductions. By reducing prices for vendors with a large number of 
professional and non-professional users, the Exchange believes that 
more vendors may choose to offer NYSE Arca BBO and NYSE Arca Trades, 
thereby expanding the distribution of this market data for the benefit 
of investors. The Exchange also believes that offering an enterprise 
fee will expand the range of options for offering NYSE Arca BBO and 
NYSE Arca Trades and will allow vendors greater choice in selecting the 
most appropriate level of data and fees for the professional and non-
professional users they are servicing.
    The Exchange further believes that the proposed enterprise fees are 
reasonable because they will simplify billing for certain recipients 
that have large numbers of professional and non-professional users. 
Firms that pay the proposed enterprise fees will not have to report the 
number of users on a monthly basis as they currently do, but rather 
will only have to count natural person users every six months; this is 
a significant reduction in administrative burdens and is a significant 
value. The Exchange believes that it is reasonable to charge a single 
enterprise fee for clients receiving both NYSE Arca BBO and NYSE Arca 
Trades because the Exchange has charged a single access fee for both 
products since 2010,\21\ and the products will continue to be offered 
separately for vendors and users that so choose.
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    \21\ See SR-NYSEArca-2010-23, supra n.6.
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    The Exchange believes that the proposed fees are equitable and not 
unfairly discriminatory because they will be charged uniformly to 
vendors and users that select these products. The Exchange notes that 
the fee structure of differentiated professional and non-professional 
fees has long been used by the Exchange for other products, by other 
exchanges for their products, and by the CTA and CQ Plans in order to 
reduce the price of data to retail investors and make it more broadly 
available.\22\ The Exchange further believes that offering NYSE Arca 
Trades to non-professional users with the same data available to 
professional users

[[Page 51799]]

results in greater equity among data recipients. The Exchange believes 
that eliminating the per quote non-professional user fee for NYSE Arca 
BBO is equitable and not unfairly discriminatory because non-
professional users have not elected this option and the Exchange will 
continue offering other methods by which non-professional users can 
access this data. Finally, the Exchange believes that it is equitable 
and not unfairly discriminatory to establish an enterprise fee because 
it reduces the Exchange's costs and administrative burdens in tracking 
and auditing large numbers of users.
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    \22\ See, e.g., Securities Exchange Act Release No. 20002, File 
No. S7-433 (July 22, 1983) (establishing nonprofessional fees for 
CTA data); NASDAQ Rules 7023(b), 7047.
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    The proposed technical corrections to the fee schedule will benefit 
vendors and users by making the fee schedule clearer and easier to 
understand.
    For these reasons, the Exchange believes that the proposed fees are 
reasonable, equitable, and not unfairly discriminatory.

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

    In accordance with Section 6(b)(8) of the Act,\23\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act. An exchange's ability to price its proprietary 
data feed products is constrained by (1) the inherent contestability of 
the market for proprietary data and actual competition for the sale of 
such data, (2) the joint product nature of exchange platforms, and (3) 
the existence of alternatives to proprietary data.
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    \23\ 15 U.S.C. 78f(b)(8).
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    The Existence of Actual Competition. The market for proprietary 
data products is currently 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 and order flow and sales of market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to compete in any or all of those areas, including producing and 
distributing their own market data. Proprietary data products are 
produced and distributed by each individual exchange, as well as other 
entities, in a vigorously competitive market.
    Competitive markets for listings, order flow, executions, and 
transaction reports provide pricing discipline for the inputs of 
proprietary data products and therefore constrain markets from 
overpricing proprietary market data. The U.S. Department of Justice 
also has acknowledged the aggressive competition among exchanges, 
including for the sale of proprietary market data itself. In announcing 
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and 
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney 
General Christine Varney stated that exchanges ``compete head to head 
to offer real-time equity data products. These data products include 
the best bid and offer of every exchange and information on each equity 
trade, including the last sale.'' \24\
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    \24\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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    It is common for broker-dealers to further exploit this recognized 
competitive constraint by sending their order flow and transaction 
reports to multiple markets, rather than providing them all to a single 
market. As a 2010 Commission Concept Release noted, the ``current 
market structure can be described as dispersed and complex'' with 
``trading volume . . . dispersed among many highly automated trading 
centers that compete for order flow in the same stocks'' and ``trading 
centers offer[ing] a wide range of services that are designed to 
attract different types of market participants with varying trading 
needs.'' \25\
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    \25\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 
2010) (File No. S7-02-10). This Concept Release included data from 
the third quarter of 2009 showing that no market center traded more 
than 20% of the volume of listed stocks, further evidencing the 
dispersal of and competition for trading activity. Id. at 3598.
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    In addition, in the case of products that are distributed through 
market data vendors, the market data vendors themselves provide 
additional price discipline for proprietary data products because they 
control the primary means of access to certain end users. These vendors 
impose price discipline based upon their business models. For example, 
vendors that assess a surcharge on data they sell are able to refuse to 
offer proprietary products that their end users do not or will not 
purchase in sufficient numbers. Internet portals, such as Google, 
impose price discipline by providing only data that they believe will 
enable them to attract ``eyeballs'' that contribute to their 
advertising revenue. Similarly, vendors will not offer NYSE Arca BBO or 
NYSE Arca Trades unless those products will help them maintain current 
users or attract new ones. For example, a broker-dealer will not choose 
to offer NYSE Arca BBO or NYSE Arca Trades to its retail customers 
unless the broker-dealer believes that the retail customers will use 
and value the data and the provision of such data will help the broker-
dealer maintain the customer relationship, which allows the broker-
dealer to generate profits for itself. Professional users will not 
request NYSE Arca BBO or NYSE Arca Trades from market data vendors 
unless they can use the data for profit-generating purposes in their 
businesses. All of these operate as constraints on pricing proprietary 
data products.
    Joint Product Nature of Exchange Platform. 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 executions are a paradigmatic example of joint products 
with joint costs. The decision whether and on which platform to post an 
order will depend on the attributes of the platforms where the order 
can be posted, including the execution fees, data quality, and price 
and distribution of their data products. The more trade executions a 
platform does, the more valuable its market data products become.
    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 broker-
dealer customers view the costs of transaction executions and market 
data as a unified cost of doing business with the exchange.
    Other market participants have noted that the liquidity provided by 
the order book, trade execution, core market data, and non-core market 
data are joint products of a joint platform and have common costs.\26\ 
The Exchange agrees

[[Page 51800]]

with and adopts those discussions and the arguments therein. The 
Exchange also notes that the economics literature confirms that there 
is no way to allocate common costs between joint products that would 
shed any light on competitive or efficient pricing.\27\
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    \26\ See Securities Exchange Act Release No. 62887 (Sept. 10, 
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121); 
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR 
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities 
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324 
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the 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.''); see also August 1, 2008 
Comment Letter of Jeffrey S. Davis, Vice President and Deputy 
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover 
and Gustavo Bamberger (``because market data is both an input to and 
a byproduct of executing trades on a particular platform, market 
data and trade execution services are an example of `joint products' 
with `joint costs.'''), attachment at pg. 4, available at 
www.sec.gov/comments/34-57917/3457917-12.pdf.
    \27\ See generally Mark Hirschey, Fundamentals of Managerial 
Economics, at 600 (2009) (``It is important to note, however, that 
although it is possible to determine the separate marginal costs of 
goods produced in variable proportions, it is impossible to 
determine their individual average costs. This is because common 
costs are expenses necessary for manufacture of a joint product. 
Common costs of production--raw material and equipment costs, 
management expenses, and other overhead--cannot be allocated to each 
individual by-product on any economically sound basis. . . . Any 
allocation of common costs is wrong and arbitrary.''). This is not 
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to 
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4) 
438, 465 (July 1891) (``Yet, surely, the division is purely 
arbitrary. These items of cost, in fact, are jointly incurred for 
both sorts of traffic; and I cannot share the hope entertained by 
the statistician of the Commission, Professor Henry C. Adams, that 
we shall ever reach a mode of apportionment that will lead to 
trustworthy results.'').
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    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products. Thus, because it 
is impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, system costs and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. 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.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including 12 equities self-regulatory organization (``SRO'') markets, 
as well as internalizing broker-dealers (``BDs'') and various forms of 
alternative trading systems (``ATSs''), including dark pools and 
electronic communication networks (``ECNs''). Competition among trading 
platforms can be expected to constrain the aggregate return that 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 data products (or provide market data 
products 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 data products, 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.
    Existence of Alternatives. The large number of SROs, 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, 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 the Exchange, NYSE, NYSE 
MKT, NASDAQ OMX, BATS, and Direct Edge.
    The fact that proprietary data from ATSs, BDs, and vendors can 
bypass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products. Second, because a single order or transaction report can 
appear in an SRO proprietary product, a non-SRO proprietary product, or 
both, the amount of data available via proprietary products is greater 
in size than the actual number of orders and transaction reports that 
exist in the marketplace. Because market data users can thus find 
suitable substitutes for most proprietary market data products, a 
market that overprices its market data products stands a high risk that 
users may substitute another source of market data information for its 
own.
    Moreover, consolidated data provides two additional measures of 
pricing discipline for proprietary data products that are a subset of 
the consolidated data stream. First, the consolidated data is widely 
available in real-time at $0.50-$1 per month for non-professional 
users. Second, consolidated data is also available at no cost with a 
15- or 20-minute delay. Because consolidated data contains marketwide 
information, it effectively places a cap on the fees assessed for 
proprietary data that is simply a subset of the consolidated data (such 
as NYSE Arca Trades and NYSE Arca BBO). The mere availability of low-
cost or free consolidated data provides a powerful form of pricing 
discipline for proprietary data products that contain data elements 
that are a subset of the consolidated data by highlighting the optional 
nature of proprietary products.
    Those competitive pressures imposed by available alternatives are 
clearly evident in the Exchange's proposed pricing. As noted above, the 
Exchange's proposed per-user fees are lower than NASDAQ's fees. While 
the Exchange's enterprise fee is higher, the Exchange will permit 
broader distribution of its data, i.e., to both professional and non-
professional users.\28\ The Exchange's proposed user and enterprise 
fees are less (in most cases substantially less) than the fees charged 
by the CTA and CQ Plans, and the Exchange's enterprise fee also permits 
distribution by a non-broker-dealer.\29\
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    \28\ See supra n.18.
    \29\ See supra nn.19-20.
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    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 and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS 
and Direct Edge provide certain market data at no charge on their Web 
sites in order to attract more order flow, and use revenue rebates from 
resulting additional executions to maintain low execution charges for 
their users.\30\
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    \30\ This is simply a securities market-specific example of the 
well-established principle that in certain circumstances more sales 
at lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
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    Further, data products are valuable to professional users only if 
they can be used for profit-generating purposes in their businesses and 
valuable to non-professional users only insofar as they provide 
information that such users

[[Page 51801]]

expect will assist them in tracking prices and market trends and making 
order routing and trading decisions.\31\ The Exchange believes that the 
proposed lower user fees and the enterprise fees, which may permit 
wider distribution of last sale and quote information at a lower cost 
to vendors with a large number of professional and non-professional 
users, may encourage more users to demand and more vendors to choose to 
offer NYSE Arca BBO and NYSE Arca Trades, thereby benefitting 
professional and non-professional users, including public investors. 
The Exchange also believes that offering NYSE Arca Trades for non-
professional users on a per user basis and providing the same 
information as is provided to professional users will create more 
choices for vendors that will allow them to offer products with the 
appropriate level of information at a range of prices, thereby 
encouraging wider distribution of the data.
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    \31\ Rule 603(c) of Regulation NMS requires vendors to make the 
consolidated core data feeds available to customers when trading and 
order-routing decisions can be implemented. See 17 CFR 242.603(c).
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    In establishing the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary data and all of the 
implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
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 Exchange's 
products, 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, when vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if its cost to purchase is not justified by the returns 
any particular vendor or subscriber would achieve through the purchase.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \32\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \33\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \32\ 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such 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 under 
Section 19(b)(2)(B) \34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \34\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEARCA-2013-81 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEARCA-2013-81. 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 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 the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEARCA-2013-81and should 
be submitted on or before September 11, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20340 Filed 8-20-13; 8:45 am]
BILLING CODE 8011-01-P