[Federal Register Volume 83, Number 172 (Wednesday, September 5, 2018)]
[Notices]
[Pages 45152-45155]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-19238]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84000; File No. SR-CboeEDGX-2018-036]
Self-Regulatory Organizations; Cboe EDGX Exchange, Inc.; Notice
of Filing and Immediate Effectiveness of a Proposed Rule Change Related
to Fees for Use on Cboe EDGX Exchange, Inc.
August 30, 2018.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 16, 2018, Cboe EDGX Exchange, Inc. (the ``Exchange'' or
``EDGX'') 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
Exchange has designated the proposed rule change as one establishing or
changing a member due, fee, or other charge imposed by the Exchange
under Section 19(b)(3)(A)(ii) of the Act \3\ and Rule 19b-4(f)(2)
thereunder,\4\ which renders the proposed rule change effective upon
filing with the Commission. 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.
\3\ 15 U.S.C. 78s(b)(3)(A)(ii).
\4\ 17 CFR 240.19b-4(f)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange filed a proposal to amend fee schedule to institute a
new fee for the distribution of data derived from EDGX Top on third-
party websites or other electronic platforms.
The text of the proposed rule change is available at the Exchange's
website at www.markets.cboe.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 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 purpose of the proposed rule change is to introduce a new
pricing model to keep pace with an evolving practice. Other exchanges
have pricing programs in place that allow Distributors make ``Derived
Data'' available on a website or other electronic platform that is
branded by a third party, or co-branded by a Distributor and a third
party.\5\ The proposed rule change would implement a new pricing
structure for use of Derived Data--i.e., the EDGX Derived Data White
Label Service Program (the ``Program'')--that would compete with
similar programs currently offered on other equities markets.
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\5\ The Nasdaq Stock Market LLC (``Nasdaq''), for example,
operates a program whereby it charges Distributors that employ a
hosted display solution to distribute Derived Data taken from its
Nasdaq Basic product. See Securities Exchange Act Release No. 79228
(November 3, 2016), 81 FR 78890 (November 9, 2016) (SR-NASDAQ-2016-
144).
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``Derived Data'' is pricing data or other data that (i) is created
in whole or in part from Exchange Data, (ii) is not
[[Page 45153]]
an index or financial product, and (iii) cannot be readily
reverse[hyphen]engineered to recreate Exchange Data or used to create
other data that is a reasonable facsimile or substitute for Exchange
Data. The type of Derived Data subject to the proposed fee is taken
from EDGX Top, which is a proprietary data product that provides top of
book quotations and execution information for all equity securities
traded on the Exchange.\6\
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\6\ See Rule 13.8(c).
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The Derived Data subject to the proposed fee is made available to
subscribers within a White Label Service which is a type of hosted
display solution in which a Distributor hosts or maintains a website or
platform on behalf of a third-party entity. The service allows
Distributors to make Derived Data available on a platform that is
branded with a third-party brand, or co-branded with a third party and
a Distributor. The Distributor maintains control of the application's
data, entitlements and display.
The White Label Service may be used for a number of different
purposes, to be determined by the Distributor. Possible uses include
the display of information or data, or the creation of derivative
instruments, such as swaps,\7\ swaptions,\8\ or contracts for
difference.\9\ The specific use of the data will be determined by the
Distributor, as the proposed fee will not depend on the purpose for
placing the Derived Data on a White Label Service.
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\7\ A swap is a derivative contract in which two parties agree
to exchange financial instruments.
\8\ A swaption, or swap option, is an option to enter into a
swap at a specified time.
\9\ A contract for difference is an agreement to exchange the
difference between the current value of an asset and its future
value. If the price increases, the seller pays the buyer the amount
of the increase. If the price decreases, the buyer pays the seller
the amount of the decrease.
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As proposed, a Distributor that provides a White Label Service for
Derived Data taken from EDGX Top is liable for the following fees
instead of the fees normally applicable for the distribution of EDGX
Top. First, instead of the regular fee for external distribution,
Distributors would be charged a tiered External Subscriber Fee based on
the number of White Label Service Platforms (i.e., ``External
Subscribers'') that receive Derived Data from the Distributor through a
White Label Service. Specifically, Distributors would be charged a fee
of: (1) $300 per month for each External Subscriber if the Distributor
makes Derived Data available to 1-5 External Subscribers; (2) $250 per
month for each External Subscriber if the Distributor makes Derived
Data available to 6-10 External Subscribers; and (3) $200 per month for
each External Subscriber if the Distributor makes Derived Data
available to 11 or more External Subscribers. The External Subscriber
Fee is non-progressive and, as mentioned above, is based on the number
of External Subscribers that receive Derived Data from the Distributor.
For example, a Distributor providing Derived Data based on EDGX Top to
six External Subscribers would be charged a monthly fee of $1,500
(i.e., 6 External Subscribers x $250 each). Second, the Exchange would
charge a monthly Professional User fee of $4 per month for each
Professional User, which is equivalent to the current Professional User
fee for external distribution of EDGX Top. There would be no monthly
Non-Professional User fee for accessing Derived Data through a White
Label Service.
The Program is entirely optional, in that it applies only to
Distributors that opt to use Derived Data from EDGX Top to create a
White Label Service, as described herein. It does not impact or raise
the cost of any other Exchange product, nor does it affect the cost of
EDGX Top, except in instances where Derived Data is made available on a
White Label Service. A Distributor that provides a White Label Service
for EDGX Top data that is not Derived Data or distributes Derived Data
through a platform other than a White Label Service would be liable for
the fees normally applicable for the distribution of EDGX Top.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the objectives of Section 6 of the Act,\10\ in general, and
furthers the objectives of Section 6(b)(4),\11\ in particular, as it is
designed to provide for the equitable allocation of reasonable dues,
fees and other charges among its members and other recipients of
Exchange data. The Exchange believes that the proposed rates are
equitable and non-discriminatory in that they apply uniformly to all
recipients of Exchange data. The Exchange believes the proposed fees
are competitive with those charged by other venues and, therefore,
reasonable and equitably allocated to recipients.
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\10\ 15 U.S.C. 78f.
\11\ 15 U.S.C. 78f(b)(4).
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The Exchange also believes that the proposed rule change is
consistent with Section 11(A) of the Act \12\ in that it supports (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,\13\ 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. In adopting Regulation NMS, the Commission granted
self-regulatory organizations and broker-dealers increased authority
and flexibility to offer new and unique market data to the public. It
was believed that this authority would expand the amount of data
available to consumers, and also spur innovation and competition for
the provision of market data.
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\12\ 15 U.S.C. 78k-1.
\13\ See 17 CFR 242.603.
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The Exchange notes that the Commission is not required to undertake
a cost-of-service or rate-making approach. The Exchange believes that,
even if it were possible as a matter of economic theory, cost-based
pricing for non-core market data would be so complicated that it could
not be done practically.\14\
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\14\ The Exchange believes that cost-based pricing would be
impractical because it would create enormous administrative burdens
for all parties, including 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. See also Securities
Exchange Act Release No. 73816 (December 11, 2014), 79 FR 75200
(December 17, 2014) (SR-NYSE-2014-64) (Notice of Filing and
Immediate Effectiveness of Proposed Rule Change to Establish an
Access Fee for the NYSE Best Quote and Trades Data Feed, Operative
December 1, 2014).
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The Exchange believes that the introduction of a fee for the use of
Derived Data on White Label Services is
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reasonable because: (i) All proprietary data fees are constrained by
the Exchange's need to compete for order flow; and (ii) proprietary
data fees are subject to market competition from substitute products.
The proposed rule change would provide an alternate fee structure for
providing EDGX Top market data to Distributors that make Derived Data
available to External Subscribers on White Label Services. The Exchange
believes that this will encourage additional Distributors to subscribe
to EDGX Top market data due to the lower cost associated with Derived
Data provided under the Program. Nasdaq already has a similar pricing
structure in place for providing Derived Data through a hosted display
solution.\15\ The Exchange believes that Distributors of EDGX Top
market data would benefit from a similar solution. Furthermore, the
proposed fees are lower than those currently in place on Nasdaq, which
charges a fee of $400 per month for each hosted display solution under
their program,\16\ and may be further lowered for Distributors of EDGX
Top Derived Data based on the number of External Subscribers.
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\15\ See supra note 5.
\16\ Id.
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As proposed, if a Distributor uses a White Label Service to display
Derived Data, the Distributor will be charged a fee that is tiered
based on the number of External Subscribers that are provided access to
that data instead of the higher fee normally charged for external
distribution. The Exchange believes that this fee is equitable and not
unfairly discriminatory because the Exchange will apply the same fees
to all similarly situated Distributors based on the number of External
Subscribers provided access to Derived Data through a White Label
Service. Furthermore, the proposed fees will only apply to Distributors
that elect to participate in the Program by distributing Derived Data
through a White Label Service. EDGX Top market data is distributed and
purchased on a voluntary basis, in that neither the Exchange nor market
data distributors are required by any rule or regulation to make this
data available. Distributors of EDGX Top are not required to
participate in the proposed Program, which is merely an alternative
option being proposed by the Exchange to potentially lower costs for
market data that is Derived Data. Accordingly, Distributors can
discontinue use at any time and for any reason, including due to an
assessment of the reasonableness of fees charged. Firms have a wide
variety of alternative market data products from which to choose, such
as similar proprietary data products offered by other exchanges and
consolidated data. Moreover, the Exchange is not required to make any
proprietary data products available or to offer any specific pricing
alternatives to any customers.
In addition to the tiered distribution fee described above, the
Exchange will continue to charge a small fee for Professional Users but
would eliminate Non-Professional User fees for data provided under the
Program. The Exchange believes that it is equitable and not unfairly
discriminatory to charge a fee for Professional Users but no fee for
Non-Professional Users. Non-Professional Users are already subject to a
heavily discounted fee for EDGX Top market data relative to
Professional Users. Differential fees for Professional and Non-
Professional Users are widely used by the Exchange and other exchanges
for their proprietary market data as this reduces costs for retail
investors and makes market data more broadly available.
In addition, the fees that are the subject of this rule filing are
constrained by competition. As explained below in the Exchange's
Statement on Burden on Competition, the existence of alternatives to
the proposed program further ensures that the Exchange cannot set
unreasonable fees, or fees that are unreasonably discriminatory, when
subscribers can elect such alternatives. That is, the Exchange competes
with other exchanges and their affiliates that provide similar market
data products. If another exchange or its affiliate were to charge less
for a similar product than the Exchange charges under the proposed fee
structure, prospective subscribers likely would not subscribe to, or
would cease subscribing to, the Program.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended. The
Exchange's ability to price this data product is constrained by: (i)
Competition among exchanges, other trading platforms, and Trade
Reporting Facilities (``TRF'') that compete with each other in a
variety of dimensions; (ii) the existence of inexpensive real-time
consolidated data and market-specific data and free delayed data; and
(iii) the inherent contestability of the market for proprietary data.
The Exchange and its market data products are subject to
significant competitive forces and the proposed fees represent
responses to that competition. To start, the Exchange competes
intensely for order flow. It competes with the other national
securities exchanges that currently trade equities, with electronic
communication networks, with quotes posted in FINRA's Alternative
Display Facility, with alternative trading systems, and with securities
firms that primarily trade as principal with their customer order flow.
The proposed fees apply to data derived from EDGX Top, which is
subject to competition from the Nasdaq, NYSE, and other exchanges that
offer similar products, including exchanges that provide similar
pricing options for Derived Data made available on a White Label
Service. In sum, the availability of a variety of alternative sources
of information imposes significant competitive pressures on Exchange
data products and the Exchange's compelling need to attract order flow
imposes significant competitive pressure on the Exchange to act
equitably, fairly, and reasonably in setting the proposed data product
fees. The proposed data product fees are, in part, responses to that
pressure. The Exchange believes that the proposed fees would reflect an
equitable allocation of its overall costs to users of its facilities.
In addition, when 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 subscribers. The existence of alternatives to EDGX Top,
including existing similar feeds by other exchanges, consolidated data,
and proprietary data from other sources, ensures that the Exchange
cannot set unreasonable fees, or fees that are unreasonably
discriminatory, when 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 either solicited or received.
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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 \17\ and paragraph (f) of Rule 19b-4
thereunder.\18\ 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.
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\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 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:
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-CboeEDGX-2018-036 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeEDGX-2018-036. 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 this filing will also 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-CboeEDGX-2018-036 and should be
submitted on or before September 26, 2018.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-19238 Filed 9-4-18; 8:45 am]
BILLING CODE 8011-01-P