[Federal Register Volume 81, Number 222 (Thursday, November 17, 2016)]
[Notices]
[Pages 81186-81189]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-27596]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79286; File No. SR-NYSE-2016-73]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Adopting a Decommission Extension Fee for Receipt of the NYSE Order 
Imbalances Market Data Product

November 10, 2016.
    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 October 28, 2016, New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a Decommission Extension Fee for 
receipt of the NYSE Order Imbalances market data product. The proposed 
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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt a Decommission Extension Fee for 
receipt of the NYSE Order Imbalances market data product,\3\ as set 
forth on the NYSE Proprietary Market Data Fee Schedule (``Fee 
Schedule''). Recipients of NYSE Order Imbalances would continue to be 
subject to the already existing subscription fees currently set forth 
in the Fee Schedule. The proposed Decommission Extension Fee would 
apply only to those subscribers who decide to continue to receive the 
NYSE Order Imbalances feed in its legacy format for up to two months 
after which the feed will be distributed exclusively in the new format 
explained below.
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    \3\ See Securities Exchange Act Release Nos. 59202 (January 6, 
2009), 74 FR 1744 (January 13, 2009) (SR-NYSE-2008-132--Notice of 
Filing of Proposed Rule Change to Introduce a NYSE Order Imbalance 
Information Fee); and 59543 (March 9, 2009), 74 FR 11159 (March 16, 
2009) (SR-NYSE-2008-132--Approval Order). See also Securities 
Exchange Act Release Nos. 72923 (Aug. 26, 2014), 79 FR 52079 (Sept. 
2, 2014) (SR-NYSE-2014-43) (establishing fees for non-display use of 
NYSE Order Imbalances); and 76972 (January 26, 2016), 81 FR 5142 
(February 1, 2016) (SR-NYSE-2016-08) (amending fees for NYSE Order 
Imbalances and NYSE Alerts).
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    NYSE Order Imbalances is an NYSE-only market data feed of real-time 
order imbalances that accumulate prior to the opening of trading on the 
Exchange and prior to the close of trading on the Exchange. The 
Exchange distributes information about these imbalances in real-time at 
specified intervals prior to the opening and closing auction each 
day.\4\
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    \4\ See Rules 15 (Pre-Opening Indications and Opening Order 
Imbalance Information) and 123C (The Closing Procedures).
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    As part of the Exchange's efforts to regularly upgrade systems to 
support more modern data distribution formats and protocols as 
technology evolves,

[[Page 81187]]

beginning October 31, 2016, NYSE Order Imbalances will be transmitted 
in a new format, Exchange Data Protocol (XDP). Beginning October 31, 
2016, the Exchange will transmit NYSE Order Imbalances in both the 
legacy format and in XDP format without any additional fee being 
charged for providing this data feed in both formats. The dual 
dissemination will remain in place until February 28, 2017, the planned 
decommission date of the legacy format. Beginning March 1, 2017, 
recipients of NYSE Order Imbalances who wish to continue to receive 
NYSE Order Imbalances in the legacy format will be subject to the 
proposed Decommission Extension Fee of $5,000 per month.\5\ During the 
extension period, recipients of NYSE Order Imbalances would continue to 
be subject to the subscription fees currently noted in the Fee 
Schedule. The extension period for receiving this data feed in the 
legacy format will expire on April 28, 2017, on which date distribution 
of NYSE Order Imbalances in the legacy format will be permanently 
discontinued.
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    \5\ The concept of a Decommission Extension Fee is not novel. 
The Exchange recently adopted a Decommission Extension Fee for 
receipt of the NYSE BBO and NYSE Trades market data products when 
the Exchange migrated those products to the XDP format. See 
Securities Exchange Act Release No. 77388 (March 17, 2016), 81 FR 
15363 (March 22, 2016) (SR-NYSE-2016-21).
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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,\6\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\7\ in particular, in that it 
provides an equitable allocation of reasonable fees among users and 
recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that adopting an extension fee for 
subscribers of NYSE Order Imbalances who wish to receive this data feed 
in the legacy format for a period of time beyond the built-in overlap 
period is reasonable, equitable and not unfairly discriminatory because 
the proposed fee would apply equally to all data recipients that 
currently subscribe to NYSE Order Imbalances. The Exchange believes 
that it is reasonable to require data recipients to pay an additional 
fee for taking the data feed in the legacy format beyond the period of 
time specifically allotted by the Exchange for data feed customers to 
adapt to the new XDP format at no extra cost. To that end, the 
extension fee is designed to encourage data recipients to migrate to 
the XDP format in order to continue to receive NYSE Order Imbalances in 
XDP as the legacy format would no longer be available after that date. 
The Exchange does not intend to support the legacy format at all after 
April 28, 2017.
    The Exchange notes that NYSE Order Imbalances is entirely optional. 
The Exchange is not required to make NYSE Order Imbalances available or 
to offer any specific pricing alternatives to any customers, nor is any 
firm required to purchase NYSE Order Imbalances, nor is the Exchange 
required to offer any feed (NYSE Order Imbalances, or otherwise) in a 
particular format, and it is a benefit to the markets generally that 
NYSE update its distribution technology to make it more efficient (and 
at the same time eliminate less efficient forms of dissemination). 
Firms that do purchase NYSE Order Imbalances do so for the primary 
goals of using them to increase revenues, reduce expenses, and in some 
instances compete directly with the Exchange (including for order 
flow); those firms are able to determine for themselves whether NYSE 
Order Imbalances or any other similar products are attractively priced 
or not.\8\
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    \8\ See, e.g., Proposing Release on Regulation of NMS Stock 
Alternative Trading Systems, Securities Exchange Act Release No. 
76474 (Nov. 18, 2015) (File No. S7-23-15). See also, ``Brokers 
Warned Not to Steer Clients' Stock Trades Into Slow Lane,'' 
Bloomberg Business, December 14, 2015 (Sigma X dark pool to use 
direct exchange feeds as the primary source of price data).
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    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 Securities and Exchange Commission 
(``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.' '' \9\
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    \9\ 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 proprietary market 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. In addition, the existence of 
alternatives to the legacy format, such as converting to XDP as soon as 
possible, further ensures that the Exchange cannot set unreasonable 
fees, or fees that are unreasonably discriminatory, when vendors and 
subscribers can select such alternatives.
    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach. The Exchange 
believes that, even if it were possible as a matter of economic theory, 
cost-based pricing for proprietary market data would be so complicated 
that it could not be done practically or offer any significant 
benefits.\10\ For these reasons, the Exchange believes that the 
proposed fees are reasonable, equitable, and not unfairly 
discriminatory.
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    \10\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties and the Commission to cost-regulate a large number 
of participants and standardize and analyze extraordinary amounts of 
information, accounts, and reports. In addition, and as described 
below, it is impossible to regulate market data prices in isolation 
from prices charged by markets for other services that are joint 
products. Cost-based rate regulation would also lead to litigation 
and may distort incentives, including those to minimize costs and to 
innovate, leading to further waste. Under cost-based pricing, the 
Commission would be burdened with determining a fair rate of return, 
and the industry could experience frequent rate increases based on 
escalating expense levels. Even in industries historically subject 
to utility regulation, cost-based ratemaking has been discredited. 
As such, the Exchange believes that cost-based ratemaking would be 
inappropriate for proprietary market data and inconsistent with 
Congress's direction that the Commission use its authority to foster 
the development of the national market system, and that market 
forces will continue to provide appropriate pricing discipline. See 
Appendix C to NYSE's comments to the Commission's 2000 Concept 
Release on the Regulation of Market Information Fees and Revenues, 
which can be found on the Commission's Web site at http://www.sec.gov/rules/concept/s72899/buck1.htm. Finally, the prices set 
herein are prices for continuing to support distribution formats the 
Exchange has elected to retire in favor of new and more efficient 
distribution formats, making cost-based analyses even less relevant.
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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 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. An

[[Page 81188]]

exchange's ability to price its proprietary market data feed products 
is constrained by actual competition for the sale of proprietary market 
data products, the joint product nature of exchange platforms, and the 
existence of alternatives to the Exchange's proprietary data (and in 
this instance, the ability of any firm to switch to the new 
distribution format in a time frame that eliminates the need to pay 
these fees entirely).
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 for the creation of proprietary data and strict 
pricing discipline for the proprietary products themselves. Numerous 
exchanges compete with one another for listings and order flow and 
sales of market data itself, providing ample 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. Indeed, 
the U.S. Department of Justice (``DOJ'') (the primary antitrust 
regulator) has expressly acknowledged the aggressive actual competition 
among exchanges, including for the sale of proprietary market data. In 
2011, the DOJ 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.'' \11\
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    \11\ 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; see 
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case 
No. 11-cv-2280 (D.C. Dist.) ] 24 (``NYSE and Direct Edge compete 
head-to-head . . . in the provision of real-time proprietary equity 
data products.'').
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    Moreover, 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. Broker-dealers send their order 
flow and transaction reports to multiple venues, rather than providing 
them all to a single venue, which in turn reinforces this competitive 
constraint. 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.'' \12\ More recently, SEC Chair Mary Jo White has noted that 
competition for order flow in exchange-listed equities is ``intense'' 
and divided among many trading venues, including exchanges, more than 
40 alternative trading systems, and more than 250 broker-dealers.\13\
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    \12\ 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. Data 
available on ArcaVision show that from June 30, 2013 to June 30, 
2014, no exchange traded more than 12% of the volume of listed 
stocks by either trade or dollar volume, further evidencing the 
continued dispersal of and fierce competition for trading activity. 
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
    \13\ Mary Jo White, Enhancing Our Equity Market Structure, 
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage 
Conference (June 5, 2014) (available on the Commission Web site), 
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS 
OTC Trading in National Market System Stocks,'' at 7-8.
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    If an exchange succeeds in competing for quotations, order flow, 
and trade executions, then it earns trading revenues and increases the 
value of its proprietary market data products because they will contain 
greater quote and trade information. Conversely, if an exchange is less 
successful in attracting quotes, order flow, and trade executions, then 
its market data products may be less desirable to customers in light of 
the diminished content and data products offered by competing venues 
may become more attractive. Thus, competition for quotations, order 
flow, and trade executions puts significant pressure on an exchange to 
maintain both execution and data fees at reasonable levels.
    In addition, in the case of products that are also redistributed 
through market data vendors, such as Bloomberg and Thompson Reuters, 
the 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. Vendors will not elect to make available NYSE Order Imbalances 
in the legacy format unless their customers request it, and customers 
will not elect to pay the proposed fees unless NYSE Order Imbalances 
can provide value in the legacy formats by sufficiently increasing 
revenues or reducing costs in the customer's business in a manner that 
will offset the fees. The Exchange has provided customers with adequate 
notice that it intends to discontinue dissemination of the data feed in 
the legacy format. Therefore, the proposed Decommission Extension Fee 
would only be applicable to those customers who have a need or desire 
to continue to take the data feed in the legacy format beyond the 
period provided for migration to the XDP format. Customers who timely 
migrate to the XDP format to receive the data feed would not need to 
receive the data feed in the legacy format and therefore would not be 
subject to the Decommission Extension Fee at all. All of these factors 
operate as constraints on pricing proprietary data products.

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 has become effective pursuant to Section 
19(b)(3)(A) of the Act \14\ and paragraph (f) of Rule 19b-4 \15\ 
thereunder. 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 will institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f).
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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:

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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-NYSE-2016-73 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2016-73. 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 such 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-NYSE-2016-73, and should be 
submitted on or before December 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-27596 Filed 11-16-16; 8:45 am]
 BILLING CODE 8011-01-P