[Federal Register Volume 82, Number 245 (Friday, December 22, 2017)]
[Notices]
[Pages 60784-60787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27562]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-82344; File No. SR-NYSEARCA-2017-142]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change To Adopt a
Decommission Extension Fee for Receipt of the NYSE Arca Integrated Feed
Market Data Product
December 18, 2017.
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 December 12, 2017, 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 adopt a Decommission Extension Fee for
receipt of the NYSE Arca Integrated Feed market data product. The
proposed rule change is available on the Exchange's website 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.
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 Arca Integrated Feed market data product,\4\ as set
forth on the NYSE Arca Equities Proprietary Market Data Fee Schedule
(``Fee Schedule'').\5\ Recipients of NYSE Arca Integrated Feed 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 subscribers who choose to continue to
receive the NYSE Arca Integrated Feed in its legacy format for up to
two months after the previously-announced date for the end of
distribution in the legacy format, after which the feed will be
distributed exclusively in the new format as notified to customers
previously and further explained below. The Exchange has provided
customers with adequate notice that it intends to discontinue
dissemination of the data feed in the legacy format, having first
announced this to customers in June 2017.\6\
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\4\ See Securities Exchange Act Release No. 65669 (November 2,
2011), 76 FR 69311 (November 8, 2011) (SR-NYSEArca-2011-78) (notice
of filing and immediate effectiveness of proposed rule change
offering the NYSE Arca Integrated Feed). See also Securities
Exchange Act Release Nos. 66128 (January 10, 2012), 77 FR 2331
(January 17, 2012) (SR-NYSEArca-2011-96) (establishing fees for NYSE
Arca Integrated Feed); 69315 (April 5, 2013), 78 FR 21668 (April 11,
2013) (SR-NYSEArca-2013-37) (establishing non-display usage fees);
73011 (September 5, 2014), 79 FR 54315 (September 11, 2014) (SR-
NYSEArca-2014-93) (amending non-display usage fees); 76914 (January
14, 2016), 81 FR 3484 (January 21, 2016) (SR-NYSEArca-2016-03)
(amending fees for NYSE Arca Integrated Feed); and 82100 (November
16, 2017), 82 FR 55660 (November 22, 2017) (SR-NYSEArca-2017-130)
(amending fees for NYSE Arca Integrated Feed).
\5\ The Exchange originally filed to amend the Fee Schedule on
November 29, 2017 (SR-NYSEArca-2017-136) and withdrew such filing on
December 12, 2017.
\6\ See Trader Update at https://www.nyse.com/trader-update/history#110000065786. See also https://www.nyse.com/trader-update/history#110000078705.
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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, beginning August 21, 2017, NYSE Arca Integrated
Feed began transmitting in a new format, Exchange Data Protocol (XDP).
Since August 21, 2017, the Exchange has been transmitting NYSE Arca
Integrated Feed 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 remained in place until November 30,
2017, the planned decommission date of the legacy format.
The purpose of the proposed Decommission Extension Fee is to
provide customers an incentive to fully transition to the XDP format so
the Exchange does not have to continue to support both the legacy
format and the XDP format and incur, for example, the costs involved in
maintaining additional servers and monitoring multiple distribution
channels and testing environments not needed by the XDP format.
Therefore, beginning December 1, 2017, recipients of NYSE Arca
Integrated Feed who wish to continue to receive NYSE Arca Integrated
Feed in the legacy format will be subject to the proposed Decommission
Extension Fee of $5,000 per month.\7\ During the
[[Page 60785]]
extension period, recipients of NYSE Arca Integrated Feed 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 January 30, 2018, on which date
distribution of NYSE Arca Integrated Feed in the legacy format will be
permanently discontinued as previously announced to customers.
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\7\ The concept of a Decommission Extension Fee is not novel.
The Exchange's affiliates, NYSE and NYSE American, have both
previously adopted a Decommission Extension Fee for receipt of
multiple market data products when those products migrated to the
XDP format. See Securities Exchange Act Release Nos. 79286 (November
10, 2016), 81 FR 81186 (November 17, 2016) (SR-NYSE-2016-73); 79287
(November 10, 2016), 81 FR 81216 (November 17, 2016) (SR-NYSEMKT-
2016-100); 77388 (March 17, 2016), 81 FR 15363 (March 22, 2016) (SR-
NYSE-2016-21); and 77389 (March 17, 2016), 81 FR 15375 [sic] (March
22, 2016) (SR-NYSEMKT-2016-37).
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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,\8\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(4), (5).
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The Exchange believes that adopting an extension fee for
subscribers of NYSE Arca Integrated Feed 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 subscribe to NYSE Arca Integrated Feed. The Exchange believes that
it is reasonable to require data recipients to pay the proposed
Decommission Extension fee during the extension period 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 Arca Integrated in XDP as the legacy format
would no longer be available after close of trading on January 30,
2018. The Exchange does not intend to support the legacy format at all
after January 30, 2018.
The Exchange notes that NYSE Arca Integrated Feed is entirely
optional. Firms are not required to purchase NYSE Arca Integrated Feed,
nor is the Exchange required to offer any feed (NYSE Arca Integrated
Feed, or otherwise) in a particular format, and it is a benefit to the
markets generally that NYSE Arca 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 Arca Integrated
Feed 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 Arca Integrated Feed or any other similar
products are attractively priced or not.\10\
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\10\ 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 (DC 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.' '' \11\
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\11\ 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.\12\
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\12\ 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, 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 website 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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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
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 market data feed products is constrained by
actual competition for the sale of proprietary market data products,
the joint product nature of exchange platforms,\13\ 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
[[Page 60786]]
that eliminates the need to pay these fees entirely).
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\13\ See generally Pricing of Market Data Services, An Economic
Analysis at vi (``Given the general structure of electronic order
books and electronic order matching, it is not possible to provide
transaction services without generating market data, and it is not
possible to generate trade transaction--or market depth--data
without also supplying a trade execution service. In economic terms,
trade execution and market data are joint products.'') (Oxera 2014).
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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.'' \14\
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\14\ 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 (DC 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.'' \15\ More recently, former 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.\16\ And as the Commission's own Chief Administrative Law Judge
found after considering extensive fact and expert testimony and
documentary evidence on the subject, ``there is fierce competition for
trading services (or `order flow')'' among exchanges, and ``the record
evidence shows that competition plays a significant role in restraining
exchange pricing of depth-of-book products.'' In the Matter of the
Application of Securities Industry And Financial Markets Association
For Review of Actions Taken By Self-Regulatory Organizations, Initial
Decision Release No. 1015, Administrative Proceeding File No. 3-15350
(June 1, 2016), at pp. 8 and 33.
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\15\ 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.
According to NYSE Internal Database and Consolidated Tape
Statistics, in aggregate, from January 1, 2016 to October 31, 2017,
no exchange traded more than 14% of the volume of listed stocks by
either trade or dollar volume, further evidencing the continued
dispersal of and fierce competition for trading activity.
\16\ 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 website),
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 Arca Integrated
Feed in the legacy format unless their customers request it, and
customers will not elect to pay the proposed fees unless NYSE Arca
Integrated Feed in the legacy format can provide value by sufficiently
increasing revenues or reducing costs in the customer's business in a
manner that will offset the fees. And as noted above, the Exchange has
provided customers with adequate notice that it intends to discontinue
dissemination of the data feed in the legacy format.\17\ 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.
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\17\ See supra note 6.
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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) \18\ of the Act and subparagraph (f)(2) of Rule
19b-4 \19\ thereunder, because it establishes a due, fee, or other
charge imposed by the Exchange.
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\18\ 15 U.S.C. 78s(b)(3)(A).
\19\ 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) \20\ of the Act to
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determine whether the proposed rule change should be approved or
disapproved.
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\20\ 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-2017-142 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-NYSEARCA-2017-142. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEARCA-2017-142 and should be
submitted on or before January 12, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27562 Filed 12-21-17; 8:45 am]
BILLING CODE 8011-01-P