[Federal Register Volume 84, Number 198 (Friday, October 11, 2019)]
[Proposed Rules]
[Pages 54794-54806]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-21770]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-87193; File No. S7-15-19]
RIN 3235-AM56


Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee 
Amendments

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or 
``SEC'') is proposing to amend Regulation NMS under the Securities 
Exchange Act of 1934 (``Exchange Act'') to rescind a provision that 
allows a proposed amendment to a national market system plan (``NMS 
plan'') to become effective upon filing if the proposed amendment 
establishes or changes a fee or other charge. As a result of rescinding 
the provision, such a proposed amendment instead would be subject to 
the procedures set forth in Rule 608(b)(1) and (2) that require the 
Commission to publish the proposed amendment, provide an opportunity 
for public comment, and preclude a proposed amendment from becoming 
effective unless approved by the Commission (the ``standard 
procedure'').

DATES: Comments should be received on or before December 10, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to [email protected]. Please include 
File Number S7-15-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa A. 
Countryman, Secretary, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-15-19. This file number 
should be included on the subject line if email is used. To help us 
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/proposed.shtml). Comments 
are also available for website viewing and printing in the Commission's 
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090 on 
official business days between the hours of 10:00 a.m. and 3:00 p.m. 
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.
    Studies, memoranda, or other substantive items may be added by the 
Commission or staff to the comment file during this rulemaking. A 
notification of the inclusion in the comment file of any materials will 
be made available on the Commission's website. To ensure direct 
electronic receipt of such notifications, sign up through the ``Stay 
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Michael Bradley, Special Counsel, at 
(202) 551-5594, Andrew Sherman, Special Counsel, at (202) 551-7255, 
Liliana Burnett, Attorney-Advisor, at (202) 551-2552, Division of 
Trading and Markets, Securities and Exchange Commission, 100 F Street 
NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to amend 17 CFR 
242.608 (Rule 608 of Regulation NMS) under the Exchange Act to rescind 
paragraph (b)(3)(i) of Rule 608 and thereby eliminate the effective-
upon-filing exception for proposed NMS plan amendments to establish or 
change a fee or other charge collected on behalf of all the plan 
participants in connection with access to, or use of, any facility 
contemplated by the plan or amendment (including changes in any 
provision with respect to distribution of any net proceeds from such 
fees or other charges to the participants) (``Proposed Fee Changes'').

Table of Contents

I. Introduction
II. Background
    A. NMS Plans That Charge Fees
    1. Core Data Plans
    2. The CAT Plan
    3. NMS Plans' Fee Setting Process
    B. Rule 608 of Regulation NMS and the Fee Exception
    C. Recent Roundtable Comments and Petitions Regarding the Fee 
Exception
III. Proposed Rescission of the Fee Exception
    A. NMS Plan Fees Must Be Paid by Non-Plan Participants and Are 
Substantial
    B. Proposed Fee Changes To Be Subject to Standard Procedure
IV. Paperwork Reduction Act
V. Economic Analysis
    A. Introduction
    B. Baseline
    1. NMS Plan Fee Filings
    2. Market for Core and Aggregated Market Data Products
    3. Current Structure of the Market for Trading Services in NMS 
Securities
    C. Benefits
    D. Costs
    E. Impact on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    F. Alternative
    G. Request for Comment on the Economic Analysis
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Certification
VIII. Statutory Authority and Text of the Proposed Rule Amendments

I. Introduction

    Section 11A(a) of the Exchange Act directs the Commission to 
facilitate the creation of a national market system for qualified 
securities.\1\ To help implement the national market system, the 
Commission has required the self-regulatory organizations (``SROs'') to 
act jointly through NMS plans to, among other things, establish certain 
facilities. Some NMS plans govern the facilities through which 
registered securities information processors (``SIPs'') collect, 
consolidate, and distribute real-time market information (also known as 
core data) that is essential to investors and others who wish to 
participate in the U.S. markets for exchange-listed equities and 
options. The SRO participants, through these NMS plans, charge fees for 
core data, and the total revenues generated by these fees totaled more 
than $500 million in 2017.\2\ Core data fees are paid by a wide range 
of market participants, including investors, broker-dealers, data 
vendors, and others. The NMS plan governing the consolidated audit 
trail (``CAT'') also contemplates fees would be paid by SRO 
participants and collected from SRO members.
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    \1\ 15 U.S.C. 78k-1(a).
    \2\ See infra Section III.A.
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    Rule 608(b) of Regulation NMS sets forth the procedure and 
requirements for amending an NMS plan. Specifically, pursuant to Rule 
608(b)(1), the Commission shall publish notice of any proposed NMS plan 
amendments, together with the terms of substance of the filing or a 
description of the subjects and issues involved, and provide

[[Page 54795]]

interested persons an opportunity to submit written comments. These 
filings and related comments assist the Commission in determining 
whether to approve the proposed amendment. Pursuant to Rule 608(b)(2), 
the Commission shall approve a proposed NMS plan amendment, with such 
changes or subject to such conditions as the Commission may deem 
necessary or appropriate, if it finds that such plan amendment is 
necessary or appropriate in the public interest, for the protection of 
investors and the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market 
system, or otherwise in furtherance of the purposes of the Exchange 
Act.\3\ Pursuant to Rule 608(b)(1) and (2), the Commission publishes 
public notice of a proposed NMS plan amendment and provides an 
opportunity for public comment before the amendment can go into effect. 
In addition, the rule provides that a proposed amendment cannot become 
effective until it is approved by the Commission.\4\
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    \3\ See Rule 608(b)(2).
    \4\ See Rule 608(b)(1).
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    Paragraph (b)(3)(i) of Rule 608, however, provides an exception to 
the standard procedure for Proposed Fee Changes (``Fee Exception''). 
Under the Fee Exception, a Proposed Fee Change may be put into effect 
upon filing with the Commission, and an NMS plan may begin charging the 
new fee prior to an opportunity for public comment and without 
Commission action.
    Rule 608(b)(3)(iii) also provides that the Commission may summarily 
abrogate a Proposed Fee Change within 60 days after filing and require 
it to be refiled in accordance with the standard procedure if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or the 
maintenance of fair and orderly markets, to remove impediments to, and 
perfect the mechanisms of, a national market system, or otherwise in 
furtherance of the purposes of the Exchange Act. The substance of a 
Proposed Fee Change filed under the Fee Exception is required to be the 
same as the substance of a Proposed Fee Change (or any other proposed 
NMS plan amendment) filed under the standard procedure.\5\
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    \5\ See Rule 608(a).
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    Given the substantial amount and broad effect of NMS plan fees, as 
well as the need of many market participants to obtain core data and 
the potential conflicts of interest in setting fees discussed below,\6\ 
the Commission preliminarily believes that a Proposed Fee Change should 
not become effective (and SROs should not be able to charge new or 
altered fees to investors, broker-dealers, and others) until after the 
public has had an opportunity to comment and the Commission has 
approved the Proposed Fee Change. Accordingly, the Commission is 
proposing to eliminate the Fee Exception by rescinding subparagraph 
(b)(3)(i) of Rule 608.
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    \6\ See infra Sections V.B.1 and V.B.2.
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II. Background

A. NMS Plans That Charge Fees

    The Fee Exception is available for NMS plans that currently charge 
or intend to charge fees and for which the SRO participants, through 
these NMS plans, must file Proposed Fee Changes with the Commission. 
Currently, these NMS plans are the core data plans and the CAT plan.\7\ 
The participants in these plans are all SROs.
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    \7\ NMS plan filings under Rule 608 are available at: https://www.sec.gov/rules/sro/nms.htm.
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1. Core Data Plans
    For each NMS security,\8\ the NMS plans generally define 
consolidated market information (or ``core data'') as consisting of: 
(1) The price, size, and exchange of the last sale; (2) each exchange's 
current highest bid and lowest offer, and the shares available at those 
prices; and (3) the national best bid and offer (i.e., the highest bid 
and lowest offer currently available on any exchange).\9\ Pursuant to 
NMS plans, this core data is collected, consolidated, processed, and 
disseminated by the SIPs.\10\ In addition, the SIPs collect, calculate, 
and disseminate certain regulatory data, including information required 
by the National Market System Plan to Address Extraordinary Market 
Volatility (``LULD Plan''),\11\ information relating to regulatory 
halts and market-wide circuit breakers (``MWCBs''),\12\ and information 
regarding short sale circuit breakers pursuant to Rule 201,\13\ as well 
as collect and disseminate other NMS stock data and disseminate certain 
administrative messages.
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    \8\ See Rule 600(b)(47) (defining ``NMS security'' as any 
security or class of securities for which transaction reports are 
collected, processed, and made available pursuant to an effective 
transaction reporting plan, or an effective national market system 
plan for reporting transactions in listed options); see also Rule 
600(b)(48) (defining ``NMS stock'' as any NMS security other than an 
option).
    \9\ See In the Matter of the Application of Bloomberg L.P., 
Securities Exchange Act Release No. 83755 at 3 (July 31, 2018), 
available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf (``Bloomberg Order'').
    \10\ See Rule 603(b) (requiring that every national securities 
exchange on which an NMS stock is traded and national securities 
association act jointly pursuant to one or more effective NMS plans 
to disseminate consolidated information on quotations for and 
transactions in NMS stocks, and that such plan or plans provide for 
the dissemination of all consolidated information for an individual 
NMS stock through a single plan processor).
    \11\ See Securities Exchange Act Release Nos. 85623 (Apr. 11, 
2019), 84 FR 16086 (Apr. 17, 2019) (approving LULD Plan on a 
permanent basis); 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012) 
(approving LULD Plan, as modified by Amendment No. 1, on a pilot 
basis); see also http://www.luldplan.com/index.html.
    \12\ See Securities Exchange Act Release No. 67090 (May 31, 
2012), 77 FR 33531(June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-025; 
SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-30; 
SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-2011-61; 
SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-NYSEAmex-
2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
    \13\ See Rule 201(b)(3) of Regulation SHO; 17 CFR 242.201(b)(3).
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    Multiple NMS plans currently govern the collection, consolidation, 
processing, and dissemination of core data for NMS stocks. 
Specifically, these plans govern three networks (``Networks'') that 
disseminate core data based on primary listing market: (1) Network A 
for NYSE-listed stocks; (2) Network B for stocks listed on exchanges 
other than the NYSE or Nasdaq; and (3) Network C for stocks listed on 
Nasdaq. Networks A and B are operated pursuant to the Consolidated Tape 
Association (``CTA'') Plan, which governs the collection and 
distribution of transaction information, and the Consolidated Quotation 
(``CQ'') Plan, which governs the collection and distribution of 
quotation information. Transaction and quotation information for 
Network C stocks is collected and distributed pursuant to the Joint 
Self-Regulatory Organization Plan Governing the Collection, 
Consolidation, and Dissemination of Quotation and Transaction 
Information for Nasdaq-Listed Securities Traded on Exchanges on an 
Unlisted Trading Privilege Basis (``Nasdaq/UTP'').
    In addition, one NMS plan governs the collection, consolidation, 
processing, and dissemination of last sale and quotation information 
for listed options, namely, the plan for Reporting of Consolidated 
Options Last Sale Reports and Quotation Information (``OPRA'').
2. The CAT Plan
    The NMS plan governing the CAT was approved by the Commission on 
November 15, 2016.\14\ The purpose of

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the CAT plan is to provide for the creation, implementation, and 
maintenance of a comprehensive audit trail for the U.S. securities 
markets.\15\ This consolidated audit trail is designed to ``capture 
customer and order event information for orders in NMS securities, 
across all markets, from the time of order inception through routing, 
cancellation, modification, or execution in a single, consolidated data 
source.'' \16\
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    \14\ See Limited Liability Company Agreement of CAT NMS, LLC 
(effective Jan. 10, 2018), available at https://www.catnmsplan.com/wp-content/uploads/2018/01/CAT-NMS-Plan-Current-as-of-1.10.18.pdf 
(``2018 CAT Plan''); Securities Act Release No. 79318 (Nov. 15, 
2016), 81 FR 84696 (Nov. 23, 2016) (``CAT Plan Approval Order''). In 
2012, the Commission adopted Rule 613, which required national 
securities exchanges and national securities associations to submit 
a national market system plan to create, implement, and maintain a 
consolidated audit trail. See Securities Act Release No. 67457 (July 
18, 2012), 77 FR 45721 (Aug. 1, 2012).
    \15\ See CAT Plan Approval Order, supra note 14, at 84698.
    \16\ See id.
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    The CAT plan approved by the Commission allows the operating 
committee of CAT NMS, LLC (the entity charged with the creation, 
implementation, and maintenance of CAT), to establish funding for CAT 
NMS, LLC, including establishing an allocation of its related costs 
among SRO participants and SRO members that is consistent with the 
Exchange Act.\17\ The CAT plan thus contemplates that fees would be 
paid by the SRO plan participants, as well as collected from SRO 
members, which are the ``Industry Members'' under the plan.\18\
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    \17\ 2018 CAT Plan, supra note 14, at Sections 11.1-11.2. The 
operating committee's funding responsibility also includes, among 
other things, establishing a ``tiered fee structure'' in which the 
fees charged to ``execution venues'' (i.e., SRO participants and 
alternative trading systems) are based upon the level of market 
share, and the fees charged to SRO members' non-ATS activities are 
based upon message traffic, as well as avoiding ``any disincentives 
such as placing an inappropriate burden on competition and reduction 
in market quality[.]'' Id. at Section 11.2.
    \18\ See CAT Plan Approval Order, supra note 14, at 84710; see 
also 2018 CAT Plan, supra note 14, at Section 1.1 (defining an 
``Industry Member'' as a member of a national securities exchange or 
a member of a national securities association) and Section 11.1(b).
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3. NMS Plans' Fee Setting Process
    Each of the NMS plans is governed by an operating committee 
composed of one voting representative from each SRO participant.\19\ 
Through their participation in the plan operating committees and votes 
to approve plan amendments, the SRO plan participants approve new fee 
proposals for each plan and, in the case of the core data plans (CTA/
CQ, Nasdaq/UTP and OPRA), new proposed allocations of fee revenues.\20\ 
Under the CAT plan, the operating committee has discretion to establish 
fees, which the SRO participants will implement, for both SRO 
participants and Industry Members.\21\ Once a fee or revenue allocation 
proposal has been approved by the SRO plan participants, the proposal 
must be filed with the Commission pursuant to Rule 608 of Regulation 
NMS in order to become effective.
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    \19\ See Second Restatement of CTA Plan Articles (effective Aug. 
27, 2018), available at https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTA%20Plan%20-%20Composite%20as%20of%20August%2027,%202018.pdf (``2018 CTA 
Plan''), at I.(b), IV.(a); Restatement of CQ Plan (effective July 9, 
2018), available at https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CQ_Plan_Composite_as_of_July_9_2018.pdf 
(``2018 CQ Plan''), at IV.(a); Joint Self-Regulatory Organization 
Plan Governing the Collection, Consolidation and Dissemination of 
Quotation and Transaction Information for Nasdaq-Listed Securities 
Traded on Exchanges on an Unlisted Trading Privilege Basis 
(effective Jan. 9, 2018), available at https://www.utpplan.com/DOC/Nasdaq-UTPPlan_after_43rd_Amendment-Excluding_21st_36th_38th_42nd_Amendments.pdf (``2018 Nasdaq/UTP 
Plan''), at IV.A; Limited Liability Company Agreement of Options 
Price Reporting Authority, LLC (effective Nov. 3, 2017), available 
at https://uploads-ssl.webflow.com/5ba40927ac854d8c97bc92d7/5bf419a6b7c4f5085340f9af_opra_plan.pdf (``2017 OPRA Plan''), at 
Section 4.2 (the 2017 OPRA Plan refers to its operating committee as 
the ``Management Committee'' and its SRO participants as 
``Members''; the terms ``operating committee'' and ``participants'' 
are used throughout this release for ease of reference and are meant 
to be interchangeable with the terms ``Management Committee'' and 
``Members'' in the context of the OPRA Plan); 2018 CAT Plan, supra 
note 14, at Section 4.2.
    \20\ See 2018 CTA Plan, supra note 19, at XII.(a) and 
XII.(b)(iii); 2018 CQ Plan, supra note 19, at IX.(a) and 
IX.(b)(iii); 2018 Nasdaq/UTP Plan, supra note 19, at IV.B.(3), 
IV.B.(5) and IV.C; 2017 OPRA Plan, supra note 19, at Sections 
4.1(d), 7.1, 10.3; 2018 CAT Plan, supra note 14, at Sections 11.1-
11.2.
    \21\ See 2018 CAT Plan, supra note 14, at Sections 11.1(b) and 
11.2.
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B. Rule 608 of Regulation NMS and the Fee Exception

    Rule 608 of Regulation NMS sets forth requirements for filing and 
amendment of NMS plans. Rule 608(a) provides that any two or more SROs, 
acting jointly, may file a new proposed NMS plan or a proposed 
amendment to an existing NMS plan by submitting to the Commission the 
text of the plan or amendment along with extensive supporting 
information. Rule 608(b) addresses the effectiveness of proposed NMS 
plans and plan amendments. It sets forth the standard procedure, along 
with exceptions for certain types of proposals. Specifically, 
paragraphs (b)(1) and (b)(2) of Rule 608 generally require that 
proposed plan changes must be filed with the Commission, published for 
comment, and approved by Commission order before they can become 
effective and implemented.\22\ Paragraph (b)(3) of Rule 608, however, 
provides an exception to this procedure in three contexts: (i) To 
establish or change fees or charges (including the allocation of 
resulting revenues among the participating SROs) (i.e., the Fee 
Exception), (ii) solely plan administration matters, and (iii) solely 
technical or ministerial matters. Proposed NMS plan amendments fitting 
one of these contexts may (but are not required to) be filed pursuant 
paragraph (b)(3) of Rule 608 and thereby avoid the standard procedure 
of paragraphs (b)(1) and (2).
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    \22\ The Commission is required to approve an NMS plan amendment 
within 120 days of the date of publication of notice of the filing, 
with such changes or subject to such conditions as the Commission 
may deem necessary or appropriate, if it finds that such plan or 
amendment is necessary or appropriate in the public interest. See 
Rule 608(b)(2). The Commission may extend this review period up to 
180 days if it finds such a longer review period to be appropriate 
and publishes its reasons for so finding, or if the sponsors of the 
proposal consent to a longer review period. Id.
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    A proposed NMS plan amendment that is filed pursuant to paragraph 
(b)(3) of Rule 608 is deemed effective upon filing, prior to an 
opportunity for public comment and without Commission action. Paragraph 
(b)(3)(iii), however, provides that the Commission, at any time within 
60 days of the filing of an immediately effective amendment, may 
summarily abrogate the amendment and require that the amendment be re-
filed pursuant to the standard procedure of paragraphs (b)(1) and (2). 
Consequently, while Rule 608(b)(3) provides an opportunity for public 
comment and for the Commission to abrogate a Proposed Fee Change, the 
effective-upon-filing provision means that market participants can be 
charged a new or altered fee before comments can be submitted and 
before the Commission can evaluate whether to abrogate a Proposed Fee 
Change.
    The Commission originally adopted the Fee Exception in 1981 in Rule 
11Aa3-2, the predecessor to Rule 608. Rule 11Aa3-2 was adopted pursuant 
to Section 11A(a)(3)(B) of the Exchange Act, which broadly authorizes 
the Commission to require SROs to act jointly with respect to matters 
relating to the national market system or facilities thereof, including 
NMS plans.\23\ Separate from the context of NMS plans and the SROs' 
roles as participants in those plans, SROs also charge fees 
individually pursuant to a different section of the Exchange Act. In 
contrast to Section 11A(a)(3)(B), which

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governs Rule 608 and NMS plan fees, Section 19(b) of the Exchange Act 
governs the fees that a SRO charges individually.\24\ Unlike Section 
11A(a)(3)(B), which does not statutorily mandate an effective-upon-
filing procedure for Proposed Fee Changes, Section 19(b)(3)(A) 
specifically mandates by statute an effective-upon-filing procedure for 
all fee changes that SROs individually propose, regardless of whether 
the fee is charged to persons other than members of the SRO.\25\ 
Congress added this mandate to Section 19(b)(3)(A) of the Exchange Act 
in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (``Dodd-Frank Act'').\26\ The legislative history of the Dodd-
Frank Act indicates that Congress was responding to a concern expressed 
by several exchanges that the Section 19(b) SRO rule filing process 
creates a significant competitive advantage for less regulated 
competitors that do not have to seek regulatory approval before 
changing their rules.\27\
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    \23\ See 15 U.S.C. 78k-1(a)(3)(B); see also Securities Exchange 
Act Release No. 17580 (Feb. 26, 1981), 46 FR 15866 (Mar. 10, 1981) 
(``Rule 608 Adopting Release'').
    \24\ 15 U.S.C. 78s(b).
    \25\ See 15 U.S.C. 78s(b)(3)(A).
    \26\ Public Law 111-203, 124 Stat. 1833 (July 21, 2010).
    \27\ See S. Rep. No. 111-176, at 106 (2010).
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    NMS plan fees, in contrast, are not subject to Section 19(b) of the 
Exchange Act and, as discussed above, Congress, in amending Section 
19(b)(3)(A), was responding to concerns about competitive disparities 
in the context of individual SRO fees. Indeed, the Commission 
previously has noted that Congress did not intend to treat NMS plan 
amendments the same as individual SRO rule changes. For example, when 
the Commission adopted Rule 11Aa3-2 (the prior designation of Rule 
608), the Commission stated that it did ``not believe that it was the 
intent of Congress to treat NMS Plans as analogous to SRO rules'' and 
rejected the argument of some commenters that the procedures for NMS 
plan amendments under Section 11A should incorporate the same 
procedures specified in Section 19 for rule changes by individual 
SROs.\28\
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    \28\ See Rule 608 Adopting Release, supra note 23, at 15868 
(noting that the legislative history ``indicates that Congress 
viewed the Commission's authority in Section 11A(a)(3)(B) as 
distinct from its authority contained in Section 19 or any other 
provision of the Act.'').
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    Although the Commission did not believe that Congress mandated 
Section 19 procedures for NMS plan amendments, Rule 11Aa3-2, as adopted 
in 1981, included all three of the effective-upon-filing exceptions 
that currently are in Rule 608 and that were similar to the effective-
upon-filing exceptions in Section 19.\29\ At that time, the Commission 
stated that the Fee Exception was added in response to concerns 
expressed by exchanges that they should be able to change NMS plan fees 
without prior Commission approval to avoid administrative delay.\30\
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    \29\ See Rule 608 Adopting Release, supra note 23.
    \30\ Id. at 15869.
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    When Regulation NMS was adopted in 2005, Rule 11Aa3-2 was 
redesignated as Rule 608 (and will hereinafter be referred to as Rule 
608).\31\ Several commenters on the proposal of Regulation NMS in 2004 
advocated eliminating the effective-upon-filing procedure; they argued 
that it gave excessive power to self-interested parties and did not 
facilitate informed and meaningful public and industry participation 
and comment.\32\ When adopted however, Regulation NMS did not change 
the effective-upon-filing procedure. Rather, the Commission stated that 
issues relating to the level of core data fees would be most 
appropriately addressed in the broader context of its separate review 
of SRO structure, governance, and transparency, which included a 2004 
proposal on SRO transparency and a 2004 concept release on SRO 
structure.\33\ The Commission ultimately did not take further action on 
the proposal or concept release.
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    \31\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37495, 37570 (June 29, 2005).
    \32\ See Letter from Carrie E. Dwyer, General Counsel and 
Executive Vice President, Charles Schwab & Co., Inc. (June 30, 2004) 
at 9, available at https://www.sec.gov/rules/proposed/s71004/dwyer63004.pdf; Letter from Marc E. Lackritz, President, Securities 
Industry Association (June 30, 2004) at 26, available at https://www.sec.gov/rules/proposed/s71004/s71004-362.pdf; Letter from Marc 
E. Lackritz, President, Securities Industry Association (Feb. 1, 
2005) at 26, available at https://www.sec.gov/rules/proposed/s71004/sia020105.pdf; Letter from Lisa M. Utasi, President, et. al., The 
Security Traders Association of New York, Inc. (June 30, 2004) at 
15, available at https://www.sec.gov/rules/proposed/s71004/stany063004.pdf.
    \33\ See Securities Exchange Act Release Nos. 51808 (June 9, 
2005), 70 FR 37495, 37560-61 (June 29, 2005) (Regulation NMS 
adopting release); 50699 (Nov. 18, 2004), 69 FR 71125 (Dec. 8, 2004) 
(SRO governance and transparency proposing release); 50700 (Nov. 18, 
2004), 69 FR 71255 (Dec. 8, 2004) (Concept Release Concerning Self-
Regulation). One commenter on the SRO structure concept release 
echoed the sentiment expressed by commenters on the Regulation NMS 
proposal that the effective-upon-filing procedure gives excessive 
power to self-interested parties and does not facilitate informed 
and meaningful public and industry participation and comment. See 
Letter from Phylis M. Esposito, Executive Vice President and Chief 
Strategy Officer, Ameritrade, Inc. (Mar. 8, 2005) at 3, available at 
https://www.sec.gov/rules/concept/s74004/pmesposito030805.pdf.
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C. Recent Roundtable Comments and Petitions Regarding the Fee Exception

    Some market participants questioned the Fee Exception more 
recently. Two petitions for rulemaking were submitted to the Commission 
in 2017 and 2018 requesting, among other things, that the Fee Exception 
be rescinded.\34\ One of the petitions was submitted by 24 firms 
representing a broad cross section of market participants, including 
institutional investors, broker-dealers, and data vendors.\35\ In 
connection with and during the Roundtable on Market Data and Market 
Access (``Roundtable'') that was hosted by SEC staff in October 2018, 
commenters and panelists urged the Commission to rescind the Fee 
Exception to allow for more public and Commission scrutiny of Proposed 
Fee Changes for core data before they are effective.\36\ These 
commenters and petitioners believe that market participants do not have 
an opportunity to meaningfully comment on Proposed Fee Changes for core 
data before the

[[Page 54798]]

market participants are subject to the new fees.\37\
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    \34\ See Petition for Rulemaking Regarding Market Data Fees and 
Request for Guidance on Market Data Licensing Practice; Investor 
Access to Market Data (Aug. 22, 2018) (SEC 4-728) at 2, 11, 
available at https://www.sec.gov/rules/petitions/2018/petn4-728.pdf 
(noting that Section 11A does not mandate that SIP fee increases be 
effective upon filing and expressing the public's need for time to 
comment); Petition for Rulemaking Concerning Market Data Fees (Dec. 
6, 2017) (SEC 5-716) at 8, available at https://www.sec.gov/rules/petitions/2017/petn4-716.pdf (``December 6, 2017 Petition'') 
(similarly noting that Section 11A of the Exchange Act does not 
speak to the immediate effectiveness of SIP fee filings, and 
proposing that the Commission remove paragraph (b)(3)(i) from Rule 
608); see also Letter from Melissa MacGregor, Managing Director and 
Associate General Counsel, SIFMA (May 21, 2018) at 1, available at 
https://www.sec.gov/comments/4-716/4716-3678964-162455.pdf 
(endorsing the December 6, 2017 Petition's proposal, among other 
things, that the Commission repeal immediate effectiveness for SIP 
fee filings).
    \35\ See December 6, 2017 Petition, supra note 34, at 9.
    \36\ See, e.g., Letter from Marcy Pike, SVP, Enterprise 
Infrastructure, Krista Ryan, VP, Associate General Counsel, Fidelity 
Investments (Oct. 26, 2018) at 6-7, available at https://www.sec.gov/comments/4-729/4729-4566044-176136.pdf (``Fidelity 
Letter'') (recommending ``that the SEC amend Rule 608(b) under 
Regulation NMS to prevent SIP fees from becoming effective 
immediately upon filing with the SEC, and to require a public notice 
and comment period for all SIP fee filings''); Letter from Mehmet 
Kinak, Vice President--Global Head of Systematic Trading & Market 
Structure, and Jonathan D. Siegel, Vice President--Senior Legal 
Counsel (Legislative & Regulatory Affairs), T. Rowe Price 
Associates, Inc. (Jan. 10, 2019) at 2 available at https://www.sec.gov/comments/4-729/4729-4844471-177204.pdf (recommending 
that fee changes by the SIPs be ``subject to notice and public 
comment before approval or disapproval by the SEC''); Equity Market 
Structure Roundtables: Roundtable on Market Data and Market Access 
October 26, 2018 Transcript, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf (``Oct. 26 Tr.''), at 
239:13-20 (statement of Mr. Rich Steiner, RBC Capital Markets, 
noting that rescinding the Fee Exception ``would require a public 
notice and comment period prior to the SEC's approval or disapproval 
of any fee changes, thereby allowing transparency and stakeholder 
input'').
    \37\ See, e.g., Fidelity Letter, supra note 36, at 6-7 (noting 
that ``[f]rom a practical standpoint, [the Fee Exception] means that 
market participants do not know until after a fee filing is 
effective that fees have increased, or have an opportunity to 
meaningfully comment on fee increases before being subject to 
them.''); December 6, 2017 Petition, supra note 34, at 6-7 (``In the 
public interest and for the protection of investors, there should be 
more transparency and stakeholder input into fee filings through the 
public notice and comment process, as well as more transparency into 
fee increases that come in the form of policy changes or changes to 
the terms and conditions stipulating allowable uses of market 
data.'').
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III. Proposed Rescission of the Fee Exception

    The Commission is proposing to rescind Rule 608(b)(3)(i) and 
thereby eliminate the effective-upon-filing procedure for Proposed Fee 
Changes. As a result, the standard procedure, which requires public 
notice, an opportunity for public comment, and Commission approval by 
order before a proposed plan amendment can become effective, would 
apply to any Proposed Fee Change.
    The proposed rescission of the Fee Exception would not change any 
requirements regarding the substantive information that must be set 
forth in Proposed Fee Changes. The information required by paragraph 
(a) of Rule 608 and the relevant provisions of the Exchange Act apply 
whether a proposed fee change filing is submitted under the Fee 
Exception or the standard procedure.
    The Commission preliminarily believes that eliminating the Fee 
Exception and instead requiring the standard procedure for Proposed Fee 
Changes would help ensure that fees are fair and reasonable before they 
go into effect. NMS plan fee changes can significantly affect the 
interests of investors and market participants. By changing the timing 
of effectiveness, the proposed rescission of the Fee Exception would 
give commenters an opportunity to provide their views about a Proposed 
Fee Change prior to the time they are charged a new or altered fee. 
Moreover, while the Commission can abrogate an immediately effective 
NMS plan amendment, the input of commenters is an important part of the 
Commission's review of Proposed Fee Changes, and the Commission 
generally has not abrogated a Proposed Fee Change prior to reviewing 
the comments. Rather than allow an NMS plan to charge new or altered 
fees during this review process, with the potential that investors and 
market participants may not have adequate notice or time to plan for a 
fee change before it goes into effect, the Commission preliminarily 
believes, for the reasons discussed throughout, that the effectiveness 
and implementation of new or altered fees should occur only after the 
comment and review process is complete.

A. NMS Plan Fees Must Be Paid by Non-Plan Participants and Are 
Substantial

    Non-SRO market participants, including investors, broker-dealers, 
data vendors, and others, are required to pay the fees charged by the 
NMS plans to obtain access to core data.\38\ Retail investors that 
access core data through their broker-dealers (and not directly) can 
still be affected by core data fees in that such fees paid by their 
broker-dealers can affect their ready access through their broker-
dealer to full NBBO market information.\39\ The Commission has 
previously stated that investors must have core data to participate in 
the U.S. equity markets.\40\ And many market participants, including 
all broker-dealers, must have access to core data to meet their 
regulatory obligations. Broker-dealer panelists at the Roundtable noted 
that they are compelled to purchase core data for various reasons, 
including to receive Limit Up/Limit Down (``LULD'') plan price bands, 
to perform checks required by Rule 15c3-5 under the Exchange Act (the 
``market access'' rule),\41\ and for redundancy purposes.\42\ Moreover, 
some broker-dealers use core data to comply with the requirements of 
Rule 611 of Regulation NMS to prevent trade-throughs and to meet their 
duty of best execution for customer orders. Also, pursuant to Rule 
603(c) of Regulation NMS,\43\ known as the ``Vendor Display Rule,'' if 
a broker-dealer displays any information with respect to quotations for 
or transactions in an NMS stock in certain contexts, it must also 
provide a consolidated display for such stock.\44\ Broker-dealers 
typically meet this regulatory requirement by using core data, for 
which fees must be paid.\45\
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    \38\ SROs also pay the relevant fees for use of core data. The 
CAT plan is currently being funded by the plan participants, but the 
CAT plan contemplates a funding model in which both plan 
participants and market participants would contribute to the funding 
of the CAT. See 2018 CAT Plan, supra note 14, at Article XI.
    \39\ As discussed in Section V.B.2 below, some broker-dealers 
provide customers with market information from SRO proprietary top-
of-book data feeds as substitutes for core data in certain 
applications. This proprietary top-of-book data may be less 
expensive than SIP data, but may only contain information from one 
exchange or one exchange family.
    \40\ See Bloomberg Order, supra note 9, at 4.
    \41\ 17 CFR 240.15c3-5.
    \42\ See Equity Market Structure Roundtables: Roundtable on 
Market Data and Market Access October 25, 2018 Transcript, available 
at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf (``Oct. 25 Tr.''), at 138:23-139:3, 169:12-24 
(statements of Adam Inzirillo, Bank of America Merrill); Oct. 25 
Tr., at 184:14-185:2 (statement of Michael Friedman, Trillium).
    \43\ 17 CFR 242.603(c).
    \44\ See Rule 603(c).
    \45\ See December 6, 2017 Petition, supra note 34, at 1 (``As 
required by the SEC's Display Rule, vendors and broker-dealers are 
required to display consolidated data from all the market centers 
that trade a stock. In order to comply with the Display Rule, such 
vendors and broker-dealers must purchase and display consolidated 
data feeds distributed by securities information processors 
(`SIPs'), which are owned by the exchanges and operated pursuant to 
NMS plans. The fees charged by SIPs are distributed as income to 
each of the participating exchanges.'').
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    Similarly, pursuant to the CAT plan, the SRO participants may set 
fees that Industry Members must pay for the costs of the CAT 
system.\46\ As discussed above, the CAT plan allows the SRO plan 
participants, through the operating committee of CAT, to establish an 
allocation of costs among SRO participants and Industry Members, and 
collect fees from Industry Members.\47\ SRO participants, in setting 
the allocation of costs among themselves and Industry Members, are 
beset by similar conflicts that exist when setting fees for core 
data.\48\
---------------------------------------------------------------------------

    \46\ See supra note 17.
    \47\ See supra Section II.A.2.
    \48\ See infra Section V.B.1.
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    Moreover, the total revenues derived from NMS plan fees are 
substantial. For example, the total revenues generated by fees for core 
data totaled more than $500 million in 2017.\49\ Similarly, with 
respect to the CAT plan, the fees related to the costs of creation and 
maintenance of the CAT systems are and will continue to be 
substantial.\50\ The substantial fees charged by NMS plans to a wide 
range of market participants heightens the need for full review of 
Proposed Fee Changes prior to the time that a new or altered fee is 
charged to market participants.
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    \49\ This figure is derived from 2017 audited financial 
statements for the CTA/CQ and Nasdaq/UTP plans, and from 2017 
summary financial information for the OPRA plan.
    \50\ See, e.g., CAT Plan Approval Order, supra note 14, at 
84801-02; Securities Exchange Act Release No. 81189 (July 21, 2017), 
82 FR 35005, 35008 (July 27, 2017) (stating that the Operating 
Committee estimated overall CAT costs to be $50,700,000 in total for 
the year beginning November 21, 2016).
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B. Proposed Fee Changes To Be Subject to Standard Procedure

    As noted above,\51\ the Commission added the Fee Exception to Rule 
608 in 1981 in response to concerns expressed by exchanges about the 
administrative burdens and delays that could occur if

[[Page 54799]]

fees could not be changed without prior Commission approval.\52\ A 
potential concern about administrative delay could arise in 
circumstances where an SRO's competitive position might be harmed by 
the inability to change its fee quickly. However, the Commission 
previously has noted that where plans responsible for providing core 
data are monopolistic providers of such data, there is no market 
competition that can be relied upon to set competitive prices.\53\ For 
example, the core data plans provide critical market information that 
is not available from other sources, such as LULD plan price bands and 
administrative messages.\54\
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    \51\ See supra Section II.B.
    \52\ See Rule 608 Adopting Release, supra note 23, at 15869.
    \53\ See, e.g., Bloomberg Order, supra note 9, at 4. Because the 
CTA, CQ, and Nasdaq/UTP plans establish the only processors to whom 
exchanges and associations are required to report their NMS stock 
data under Rule 603(b) of Regulation NMS, they effectively have a 
monopoly over core data. Cf. Securities Exchange Act Release No. 
42208 (Dec. 9, 1999), 64 FR 70613, 70627 (Dec. 17, 1999) (Concept 
Release on Regulation of Market Information Fees and Revenues) 
(characterizing ``exclusive processors of [core data] market 
information'' as ``monopolistic provider[s] of a service'').
    \54\ Examples of administrative messages include free form text 
messages that, among other things, announce systems problems at an 
exchange.
---------------------------------------------------------------------------

    Moreover, SRO structures and the nature of SRO relations with their 
members have changed substantially since the Fee Exception was adopted 
in 1981. Then, exchange SROs were structured as mutual organizations 
that were owned, for the most part, by SRO members that were registered 
broker-dealers.\55\ Today, in contrast, nearly all exchange SROs are 
part of publicly-traded exchange groups that are not owned by the SRO 
members, and there is less opportunity for members to influence a 
Proposed Fee Change before it is filed with the Commission. As a 
result, the Commission preliminarily believes that it is more important 
today than it was prior to the demutualization of the exchange SROs for 
members and other interested parties to have an opportunity, via the 
standard procedure, to express their views on a Proposed Fee Change 
after it is filed with the Commission but before it is effective and 
can be charged to market participants. This opportunity is not 
available under the Fee Exception because, even if a Proposed Fee 
Change is subsequently abrogated, the fee is effective immediately upon 
filing, remains effective for the period between filing and abrogation, 
and market participants can be charged the fee during the entire period 
between filing and abrogation.
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    \55\ See Securities Exchange Act Release No. 50699 (Nov. 18, 
2004), 69 FR 71125, 71132 (Dec. 8, 2004) (noting that SROs had been 
challenged by the trend to demutualize and that the ``impact of 
demutualization is the creation of another SRO constituency--a 
dispersed group of public shareholders--with a natural tendency to 
promote business interests'').
---------------------------------------------------------------------------

    The Commission recognizes that eliminating the Fee Exception and 
subjecting Proposed Fee Changes to the standard procedure may extend 
the timeframe in which NMS plan participants can put into effect new or 
amended fees. But the Commission preliminarily believes that changes in 
the costs of operating NMS plans generally can be reasonably forecasted 
and that NMS plan participants should be able to account for the longer 
time periods of the standard procedure in planning new or amended fees. 
Moreover, as discussed below, few Proposed Fee Changes are filed each 
year under Rule 608, and we estimate based on past practice that the 
median time it would take the Commission to make a decision to approve 
or disapprove proposed NMS plan amendments would be 70.5 days from the 
time of filing.\56\ In the Commission's preliminary view, this delay 
should not disrupt the ability of NMS plan participants to implement 
new or amended fees as necessary to perform their plan 
responsibilities. On balance, therefore, the Commission preliminarily 
believes that subjecting Proposed Fee Changes to the standard procedure 
should not impose significant costs, and that any such costs are 
justified by the benefit of requiring public notice, an opportunity for 
public comment, and Commission approval by order before a Proposed Fee 
Change can become effective and market participants are charged a new 
or altered fee.
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    \56\ See infra Section V.B.1. The Commission recognizes that 
this estimate is based on historical data on proposed NMS plan 
amendments. This historical data necessarily reflects the substance 
of the particular amendments, the comments received on those 
amendments, and other factors that can affect the timing of 
Commission action. As a result, the estimate based on historical 
data may not reflect the time periods for Commission action going 
forward.
---------------------------------------------------------------------------

    The Commission therefore is proposing that all Proposed Fee Changes 
be subject to the standard procedure set forth in Rule 608(b)(1) and 
(2).
    Requests for Comment:
    The Commission requests comment on all aspects of this proposal as 
well as, in particular, on the following:
    1. Do commenters agree that the Commission should rescind the Fee 
Exception? Why or why not?
    2. Are there positive or negative implications, in addition to 
those discussed above, of the Commission's proposal to rescind the Fee 
Exception?
    3. Is the procedure for notice, comment, and Commission approval or 
disapproval under existing Rule 608(b)(1) and (2) appropriate for 
Proposed Fee Changes? Should there be an opportunity for public comment 
before Proposed Fee Changes can become effective? Should Commission 
approval be required before Proposed Fee Changes can become effective? 
Should the time periods set forth in Rule 608(b)(2) be longer or 
shorter if applied to Proposed Fee Changes? Should any other aspects of 
paragraphs (b)(1) or (b)(2) of Rule 608 be altered in their application 
to Proposed Fee Changes?
    4. Does the current effective-upon-filing procedure detract from 
the willingness of commenters to submit their views on Proposed Fee 
Changes, given that the proposed fee is already in effect when 
commenters may submit their views? Would market participants be more 
likely to comment on Proposed Fee Changes if they knew that the fees at 
issue were not yet effective and could not become effective without 
Commission action after consideration of comments? If so, do commenters 
believe that the proposed approach would lead to a more diverse and 
rich comment process and thereby promote a more informed evaluation of 
Proposed Fee Changes than is currently provided by the Fee Exception? 
If commenters do not believe the change would promote a more informed 
evaluation, why not?
    5. Instead of rescinding the Fee Exception altogether, should the 
Commission modify the abrogation procedure in Rule 608(b)(3)(iii) such 
that Proposed Fee Changes are not effective immediately upon filing, 
but become automatically effective some time period (e.g., 60 or 90 
days) after filing if the Commission does not abrogate the filing? This 
alternative would assure that commenters had an opportunity to comment 
prior to being charged a new or altered fee, as well as provide the 
Commission an opportunity to review the comments in deciding whether to 
abrogate the filing. If this new period between the date of filing and 
automatic effectiveness expired without Commission abrogation, the 
Proposed Fee Change would become effective without Commission action. 
Do commenters believe this alternative is preferable to the proposed 
rescission of the Fee Exception? What, if any, additional aspects of 
this potential alternative should be considered?
    6. Are there other alternative approaches that the Commission could 
adopt for achieving the goal of providing an opportunity for public 
comment on and Commission review of

[[Page 54800]]

Proposed Fee Changes prior to the time they become effective and new or 
altered fees are charged to market participants?
    7. Do commenters believe that the fact that nearly all exchange 
SROs are public companies that have demutualized raises concerns about 
immediate effectiveness of Proposed Fee Changes? Do commenters believe 
that, currently, investors and other market participants that are not 
plan participants do not have a meaningful opportunity to influence 
Proposed Fee Changes before they become effective under the Fee 
Exception? Do commenters believe that such an opportunity is provided 
under the Rule 608(b)(1) and (2) procedures?
    8. What issues or improvements relating to Rule 608 procedures 
would you recommend the Commission address or undertake to ensure 
Proposed Fee Changes are not unduly delayed if the immediate 
effectiveness procedure were eliminated?
    9. Do commenters believe that additional guidance on the content of 
Proposed Fee Changes would help improve the process for handling such 
filings?
    10. Does the availability of proprietary data products sold by some 
SROs mitigate the Commission's preliminary concerns about subjecting 
market participants to new fees prior to any review by the Commission 
or opportunity for comment? Do those proprietary data products 
represent viable, competitively-priced alternatives to the core data 
distributed by the NMS plan processors?

IV. Paperwork Reduction Act

    The Commission believes that the proposed rescission of the Fee 
Exception would not impose any new, or revise any existing, collection 
of information requirement as defined by the Paperwork Reduction Act of 
1995, as amended (``PRA'').\57\ Accordingly, the Commission is not 
submitting this proposal to the Office of Management and Budget for 
review under the PRA.\58\ The Commission requests comment on whether 
the proposed rescission of the Fee Exception would create any new, or 
revise any existing, collection of information pursuant to the PRA.
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    \57\ 44 U.S.C. 3501 et seq.
    \58\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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V. Economic Analysis

A. Introduction

    Section 3(f) of the Exchange Act requires the Commission, whenever 
it engages in rulemaking and is required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
to consider, in addition to the protection of investors, whether the 
action would promote efficiency, competition, and capital 
formation.\59\ In addition, Section 23(a)(2) of the Exchange Act 
requires the Commission, when making rules under the Exchange Act, to 
consider the impact such rules would have on competition.\60\ Exchange 
Act Section 23(a)(2) prohibits the Commission from adopting any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78c(f).
    \60\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Wherever possible, the Commission has quantified the likely 
economic effects of the proposed amendments. However, most of the 
costs, benefits, and other economic effects discussed are inherently 
difficult to quantify. Therefore, much of our discussion is qualitative 
in nature. Our inability to quantify certain costs, benefits, and 
effects does not imply that such costs, benefits, or effects are less 
significant. We request that commenters provide relevant data and 
information to assist us in analyzing the economic consequences of the 
proposed amendments.

B. Baseline

    The Commission has assessed the likely economic effects of the 
proposed amendments, including benefits, costs, and effects on 
efficiency, competition, and capital formation, against a baseline that 
consists of the existing regulatory process for NMS plan fee filings in 
practice, the structure of the market for core data and aggregated 
market data products, and the structure of the market for trading 
services in NMS securities.
1. NMS Plan Fee Filings
    There are currently a total of five NMS plans that either charge 
fees or could charge fees and have filed Proposed Fee Changes under the 
Fee Exception. These consist of the CAT Plan along with four NMS plans 
that govern the collection and dissemination of core data: The CTA 
Plan, the CQ Plan, the Nasdaq/UTP Plan, and the OPRA Plan.\61\
---------------------------------------------------------------------------

    \61\ See supra Section II.A.
---------------------------------------------------------------------------

    The SROs approve all Proposed Fee Changes.\62\ This can create 
potential conflicts of interest for the SROs because their duties 
administering NMS plans that either charge or could charge fees could 
potentially come into conflict with other products the SROs sell or 
costs they incur as part of their businesses.\63\ For example, some of 
the SROs sell proprietary data products that can, in some situations, 
be used as substitutes for core data.\64\ This can create a conflict of 
interest with respect to the four NMS plans that set fees for core data 
because the SROs vote to set SIPs' fees and also own and control the 
dissemination of all equity and option market data and set the prices 
of some of the proprietary data products SIPs may compete against.\65\ 
Another conflict potentially exists because both SRO participants and 
Industry Members are responsible for paying fees related to the CAT 
plan; however, the CAT operating committee decides how these fees 
should be split.\66\ The Commission comment process is one of the only 
ways market participants have to express their views on these Proposed 
Fee Changes.\67\ However, under the current process, market 
participants do not have the opportunity to comment before the Proposed 
Fee Changes become effective.\68\
---------------------------------------------------------------------------

    \62\ See id.
    \63\ See supra Section III.B and infra Section V.B.2.
    \64\ However, these proprietary data products do not contain 
some critical market information, such as LULD plan price bands and 
administrative messages, which are only available through the SIPs. 
See supra note 54 and accompanying text; see also infra Section 
V.B.2.
    \65\ See infra Section V.B.2.
    \66\ See supra note 17 and accompanying text.
    \67\ Industry members and other market participants also sit on 
the Advisory Committees to NMS plans and can express their views 
during Operating Committee meetings. However, they cannot vote on 
Proposed Fee Changes. See supra note 19.
    \68\ See supra Section III.B.
---------------------------------------------------------------------------

    Because Proposed Fee Changes are effective upon filing, fees in 
connection with an NMS plan can be charged immediately upon filing with 
the Commission.\69\ In some cases, SRO members or subscribers to core 
data plans may not be given adequate time to plan for a new or altered 
fee before it is implemented.\70\ For example, if

[[Page 54801]]

subscribers to SIP core data are not given enough warning before a SIP 
changes fees, some subscribers, such as market data vendors, might not 
have enough time to adjust to the fee changes.
---------------------------------------------------------------------------

    \69\ SRO participants must post a proposed amendment to an NMS 
plan on their website no later than two business days after the 
filing of the proposed amendment with the Commission. See Rule 
608(a)(8)(ii).
    \70\ The median time it takes NMS plans to begin charging new 
fees pursuant to Proposed Fee Changes is 62.5 days after filing with 
the Commission. See infra note 72 and accompanying text. However, a 
few Proposed Fee Changes give significantly less notice before 
beginning to charge new fees. See, e.g., Securities Exchange Act 
Release Nos. 69157 (Mar. 18, 2013), 78 FR 17946 (Mar. 25, 2013) and 
69361 (Apr. 10, 2013), 78 FR 22588 (Apr. 16, 2013). In some 
instances, commenters have indicated that they did not receive 
enough notice regarding the fee changes. See, e.g., Letter from 
Peter Moss, Managing Director, Trading, Financial and Risk, Thomson 
Reuters (May 7, 2013) at 1-2, available at https://www.sec.gov/comments/s7-24-89/s72489-34.pdf (``Moss Letter'') (commenting on 
need to ``make necessary changes to billing systems and to notify 
clients of the changes''); Letter from Kimberly Unger, Esq., CEO and 
Executive Director, The Security Traders Association of New York, 
Inc., New York, New York (Apr. 10, 2013) at 2, available at https://www.sec.gov/comments/sr-ctacq-2013-01/ctacq201301-2.pdf (``Unger 
Letter''); Letter from Ira D. Hammerman, Senior Managing Director & 
General Counsel, SIFMA (Mar. 28, 2013) at 6-7, available at https://www.sec.gov/comments/s7-24-89/s72489-31.pdf (``Hammerman Letter'') 
(commenting on need of ``professionals and their firms, as well as 
market data vendors, to alter their systems and business plans''); 
and Fidelity Letter, supra note 36, at 6.
---------------------------------------------------------------------------

    Table 1 shows information on the number of Proposed Fee Changes 
filed under Rule 608(b)(3)(i) since 2010 for each of the NMS plans that 
either charge fees or could charge fees. Since 2010, an average of 4.2 
Proposed Fee Changes have been filed each year. The median time it 
takes the Commission to notice a Proposed Fee Change on its website is 
25.5 days from the time it is filed.\71\ The median time it takes an 
NMS plan to begin charging new fees pursuant to Proposed Fee Changes is 
62.5 days after filing with the Commission.\72\ Table 1 also contains 
information on how many of the fee filings were abrogated by the 
Commission or withdrawn by the NMS plan after receiving comments from 
market participants. For cases in which the Commission abrogates a NMS 
plan fee filing, the median time the fee filing is effective before the 
Commission abrogates the filing is 57 days.\73\ No Proposed Fee Changes 
that have been abrogated by the Commission have been refiled under the 
standard procedure.\74\ For cases in which an NMS plan withdraws a fee 
filing, the median time that the fee filing is effective before the NMS 
plan withdraws the filing is 46.5 days.\75\ The median time it takes 
the Commission to notice fee filings that have been withdrawn is 34 
days.\76\ When an NMS plan refiles a withdrawn Proposed Fee Change, it 
is refiled on an immediately effective basis. The median time it takes 
an NMS plan to refile a withdrawn Proposed Fee Change is 174 days from 
the time the initial Proposed Fee Change was withdrawn.\77\ The median 
time it takes the Commission to determine whether to approve an NMS 
plan amendment filed under the standard procedure is 45 days from the 
time it was noticed.\78\
---------------------------------------------------------------------------

    \71\ Statistics on the number of days it takes the Commission to 
notice a Proposed Fee Change and the number of days it takes the 
Commission to notice a withdrawn Proposed Fee Change were determined 
from NMS plan fee filing amendments to the CAT Plan, the CTA Plan, 
the CQ Plan, the Nasdaq/UTP Plan, and the OPRA Plan filed under Rule 
608(b)(3)(i) between 2014 and 2019. The Commission chose this five-
year lookback time period to calculate these measures because it 
reflects a current snapshot of the timeframes under which the 
Commission provides notices of Proposed Fee Changes and withdrawn 
Proposed Fee Changes. The Commission preliminarily believes that the 
median value is the most appropriate measure to estimate these 
times. The Commission preliminarily believes that the average is not 
an informative estimate for these measures because the sample size 
is small and contains extreme outliers. NMS plan amendments are 
available at: https://www.sec.gov/rules/sro/nms.htm.
    \72\ Statistics on the number of days it takes an NMS plan to 
begin charging a new fee are based on dates determined from NMS plan 
fee filing amendments to the CTA Plan, the CQ Plan, the Nasdaq/UTP 
Plan, and the OPRA Plan filed under Rule 608(b)(3)(i) between 2010 
and 2019. NMS plan fee filings that contained policy changes and did 
not alter or impose a fee or fee cap were not included in this 
calculation. These statistics do not include NMS plan fee filing 
amendments to the CAT Plan. NMS plan amendments are available at: 
https://www.sec.gov/rules/sro/nms.htm.
    \73\ The input of commenters are an important part of the 
Commission's review of Proposed Fee Changes, and the Commission 
generally has not abrogated a Proposed Fee Change prior to reviewing 
the comments. See supra Section III and Section II.B. Statistics on 
the number of days it takes the Commission to abrogate an NMS plan 
fee filing were determined from NMS plan fee filing amendments to 
the CAT Plan, the CTA Plan, the CQ Plan, the Nasdaq/UTP Plan, and 
the OPRA Plan filed under Rule 608(b)(3)(i) between 2010 and 2019. 
NMS plan amendments are available at: https://www.sec.gov/rules/sro/nms.htm.
    \74\ See supra Section II.B.
    \75\ Statistics on the number of days it takes an NMS plan to 
withdraw a fee filing were determined from NMS plan fee filing 
amendments to the CAT Plan, the CTA Plan, the CQ Plan, the Nasdaq/
UTP Plan, and the OPRA Plan filed under Rule 608(b)(3)(i) between 
2010 and 2019. Note these statistics do not include the Twenty-
fourth amendment to the CTA Plan and the Fifteenth amendment to the 
CQ Plan. See Securities Exchange Act Release No. 84194 (Sept. 18, 
2018), 83 FR 48356 (Sept. 24, 2018). These amendments withdraw fee 
changes from the Twenty-second amendment to the CTA Plan and the 
Thirteenth amendment to the CQ Plan, which was challenged by 
Bloomberg and stayed by the Commission on July 31, 2018. See 
Bloomberg Order, supra note 9. NMS plan amendments are available at: 
https://www.sec.gov/rules/sro/nms.htm.
    \76\ See supra note 71.
    \77\ Some refiled Proposed Fee Changes were modified but 
remained substantially similar to the withdrawn fee changes. See, 
e.g., Securities Exchange Act Release No. 82071 (Nov. 14, 2017), 82 
FR 55130 (Nov. 20, 2017). Other refiled Proposed Fee Changes were 
modified in response to comments. See, e.g., Securities Exchange Act 
Release No. 70953 (Nov. 27, 2013), 78 FR 72932 (Dec. 4, 2013).
    \78\ The time it takes for the Commission to determine whether 
to approve an NMS plan amendment filed under the standard procedure 
ranges from a minimum of 28 days to a maximum of 111 days. It takes 
the Commission an average of 60.8 days to determine whether to 
approve an NMS plan amendment filed under the standard procedure 
from the time it was noticed. Statistics on the number of days it 
takes the Commission to approve an NMS plan amendment filed under 
the standard procedure are based on NMS plan amendments to the CAT 
Plan, the CTA Plan, the CQ Plan, the Nasdaq/UTP Plan, and the OPRA 
Plan filed under the standard procedure between 2010 and 2019. NMS 
plan amendments are available at: https://www.sec.gov/rules/sro/nms.htm.

                                                              Table 1--Information on NMS Plan Fee Filings Under Rule 608(b)(3)(i)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Number filed                              Number abrogated                            Number withdrawn
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                            Year                                          NASDAQ/                                     NASDAQ/                                     NASDAQ/
                                                                CTA/CQ      UTP        OPRA       CAT       CTA/CQ      UTP        OPRA       CAT       CTA/CQ      UTP        OPRA       CAT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................          2          0          1  .........          0          0          0  .........          0          0          0  .........
2011........................................................          0          2          4  .........          0          0          0  .........          0          0          0  .........
2012........................................................          0          0          2  .........          0          0          0  .........          0          0          0  .........
2013........................................................          3          3          1  .........          0          0          0  .........          2          2          0  .........
2014........................................................          2          1          2  .........          0          0          0  .........          0          0          0  .........
2015........................................................          0          0          0  .........          0          0          0  .........          0          0          0  .........
2016........................................................          0          0          5          0          0          0          0          0          0          0          0          0
2017........................................................          2          1          2          1          0          0          0          1          2          0          0          0
2018........................................................          1          2          0          1          1          1          0          0          0          0          0          1
                                                             -----------------------------------------------------------------------------------------------------------------------------------
    Total...................................................         10          9         17          2          1          1          0          1          4          2          0          1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
This table shows the number of Proposed Fee Changes filed under Rule 608(b)(3)(i) of Regulation NMS, the number of Proposed Fee Changes that were abrogated by the Commission, and the number of
  Proposed Fee Changes that were withdrawn by the NMS plan each year from 2010-2018 for the following NMS plans: The CTA and CQ Plans, the NASDAQ/UTP Plan, the OPRA Plan, and the CAT Plan.
  Proposed Fee Changes to the CTA and CQ Plans are included in one category because fee changes to both NMS plans are included in the same filing.
Source: This table was compiled from NMS plan rule filings available at https://www.sec.gov/rules/sro/nms.htm.


[[Page 54802]]

    Since 2010, the four NMS plans that govern core data have filed a 
total of 36 Proposed Fee Change amendments under Rule 608(b)(3)(i). Two 
of these filings have been abrogated by the Commission and six have 
been withdrawn by the SRO participants.
    Since 2017, the CAT Plan has filed two Proposed Fee Change 
amendments under Rule 608(b)(3)(i) to establish the allocation of 
funding for the CAT. One of these fee filings was abrogated by the 
Commission and one was withdrawn by the SRO participants.
2. Market for Core and Aggregated Market Data Products
    Under the NMS plans described above,\79\ core data is collected, 
consolidated, processed, and disseminated by the SIPs.\80\ NMS plan 
operating committees, which are composed of the SROs, set the fees the 
SIPs charge for core data.\81\ Any revenue earned by the SIPs, after 
deducting costs, is split among the SROs.\82\
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    \79\ See supra Section II.A.1.
    \80\ See supra note 10 and accompanying text.
    \81\ See supra Section II.A.3.
    \82\ FINRA rebates a portion of the SIP revenue it receives back 
to its members. See FINRA Rule 7610B, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=7355.
    One Roundtable commenter estimated that from 2013 to 2017, 
through the Nasdaq/UTP plan, the FINRA/Nasdaq TRF gave 83 percent of 
SIP revenue it received to broker-dealers. See Letter from Thomas 
Wittman, Executive Vice President, Head of Global Trading and Market 
Services and CEO, Nasdaq Stock Exchange (Oct. 25, 2018) at 19, 
available at https://www.sec.gov/comments/4-729/4729-4562784-176135.pdf.
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    The Commission preliminarily believes that the SIPs have 
significant market power in the market for core and aggregated market 
data products and are monopolistic providers of certain 
information,\83\ which means that for all such products they would have 
the market power to charge supracompetitive prices.\84\ Fees for core 
data are paid by a wide range of market participants, including 
investors, broker-dealers, data vendors, and others.
---------------------------------------------------------------------------

    \83\ See supra note 54 accompanying text.
    \84\ See NCAA v. Board of Regents, 468 U.S. 85, 109 n.38 (1984).
---------------------------------------------------------------------------

    One reason the SIPs have significant market power is that, although 
some market data products are comparable to SIP data and could be used 
by some core data subscribers as substitutes for SIP data in certain 
situations, these products are not perfect substitutes and are not 
viable substitutes across all use cases. For example, in the equity 
markets, some third party data aggregators buy direct depth-of-book 
feeds from the exchanges and aggregate them to produce products similar 
to the equity market SIPs.\85\ However, these products do not provide 
market information that is critical to some subscribers and only 
available through the SIPs, such as LULD plan price bands and 
administrative messages.\86\ Additionally, some SROs offer top-of-book 
data feeds, which may be considered by some to be viable substitutes 
for SIP data for certain applications.\87\ However, in the equity 
markets, broker-dealers typically rely on the SIP data to fulfill their 
obligations under Rule 603 of Regulation NMS, i.e., the ``Vendor 
Display Rule'', which requires a broker-dealer to show a consolidated 
display of market data in situations in which a trading or order 
routing decision can be implemented.\88\
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    \85\ The feeds produced by third party data aggregators offer 
additional features, such as lower latency, but usually cost more 
than SIP data. See Oct. 25 Tr., supra note 42, at 126:20-129:8 
(statement of Mr. Skalabrin).
    The equity market SIPs are the core data governed by the CTA 
Plan, the CQ Plan, and the Nasdaq/UTP Plan. See supra Section 
II.A.1.
    \86\ See supra note 54 and accompanying text.
    \87\ In the equity markets, the top-of-book feeds offered by the 
SROs are usually less expensive than SIP data. However, they may 
only contain information from one exchange, or one exchange family. 
See, e.g., Nasdaq Basic available at: https://business.nasdaq.com/intel/GIS/nasdaq-basic.html; CBOE One available at: https://markets.cboe.com/us/equities/market_data_services/cboe_one/; and 
NYSE BQT available at: https://www.nyse.com/market-data/real-time/nyse-bqt.
    In the options markets, some SROs also offer top-of-book data 
feeds that aggregate options data from exchanges in their exchange 
family. However, they do not offer consolidated information from all 
of the options exchanges. These data feeds usually offer lower 
latency than OPRA. See, e.g., CBOE BBO available at: https://markets.cboe.com/us/options/market_data_services/; and Best of 
NASDAQ Options (BONO) available at: http://www.nasdaqtrader.com/Micro.aspx?id=BONO.
    \88\ See supra note 45 and accompanying text.
---------------------------------------------------------------------------

    The purchase of market data from all SROs, either directly or 
indirectly, is necessary for all broker-dealers executing orders in NMS 
securities. For example, Rule 611(a) of Regulation NMS requires trading 
centers to establish policies and procedures reasonably designed to 
prevent trade-throughs. In order to prevent trade-throughs, executing 
broker-dealers need to be able view the protected quotes on all 
exchanges. They can fulfill this requirement by using SIP data, 
proprietary data feeds offered by the SROs, or by using a combination 
of both. Additionally, some broker-dealers use core data to meet their 
duty of best execution for customer orders.
    SROs have significant influence over the prices of most market data 
products. For example, SROs set the pricing of the top-of-book data 
feeds that compete with SIP data, and they also collectively, as 
participants in the NMS plans, decide what fees to set for SIP 
data.\89\ Although third party data aggregators might compete with the 
SIPs by offering products that provide core data for the equity 
markets, they ultimately derive their data from exchange proprietary 
direct feeds, whose prices are set by the SROs.\90\
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    \89\ Fees are subject to Commission approval. See supra Section 
II.A.3 and Section II.B.
    \90\ Pursuant to Section 19(b) of the Exchange Act and Rule 19b-
4 thereunder, SROs submit proposed rule changes to the Commission in 
which they set prices for their direct feed data, and those prices 
can vary depending on the type of end user.
---------------------------------------------------------------------------

3. Current Structure of the Market for Trading Services in NMS 
Securities
    The Commission described the structure of the market for trading in 
NMS securities, as of that time, in the Notice and the CAT NMS Plan 
Approval Order.\91\ While the Commission's analysis of state of 
competition in the Notice is fundamentally unchanged, the market for 
trading services in options and equities currently consists of 23 
national securities exchanges, all but one of which are participants to 
NMS plans,\92\ as well as off-exchange trading venues including broker-
dealer internalizers and 31 NMS Stock ATSs,\93\ which are not 
participants in NMS plans.\94\ The 23 exchanges are currently 
controlled by seven separate entities; three of which operate a single 
exchange.\95\
---------------------------------------------------------------------------

    \91\ See CAT NMS Plan Approval Order, supra note 14, Section 
V.G.1.
    \92\ LTSE is not yet a participant to NMS plans.
    \93\ As of September 18, 2019, 31 NMS Stock ATSs are operating 
pursuant to an initial Form ATS-N. A list of NMS Stock ATSs, 
including access to initial Form ATS-N filings that are effective, 
can be found at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
    \94\ Members from some ATSs or broker-dealer internalizers may 
serve on the Advisory Committees of some NMS plans, but they would 
not be able to vote on NMS plan amendments. See supra note 67.
    \95\ Cboe Global Markets, Inc. controls BYX, BZX, C2, EDGA, EDGX 
and CBOE; Miami Internal Holdings, Inc. controls Miami 
International, MIAX Emerald and MIAX PEARL; NASDAQ, Inc. controls 
BX, GEMX, ISE, MRX, PHLX and Nasdaq; Intercontinental Exchange, Inc. 
controls NYSE, Arca, American, Chicago and National. The three 
entities that control a single-exchange are IEX Group which controls 
IEX, a consortium of broker-dealers which controls BOX, and Long 
Term Stock Exchange, Inc. which controls LTSE.
---------------------------------------------------------------------------

    As discussed above, broker-dealer internalizers and ATSs subscribe 
to SIP data as well as other proprietary data products offered by the 
exchanges and data aggregators.\96\ Additionally, FINRA rebates a 
portion of the SIP revenue it receives back to broker-dealer 
internalizers and ATSs based on the trade volume they report.\97\ The 
CAT NMS Plan Approval Order discusses

[[Page 54803]]

how the CAT funding model and the allocation of fees between SRO 
participants and Industry Members could affect competition in the 
market for trading services in options and equities.\98\
---------------------------------------------------------------------------

    \96\ See supra Section V.B.2.
    \97\ See supra note 82.
    \98\ See CAT Plan Approval Order, supra note 14, at 84882-84.
---------------------------------------------------------------------------

C. Benefits

    Overall, the Commission preliminarily believes that the proposed 
rescission of the Fee Exception will not have significant economic 
effects for a number of reasons. First, on average, there are very few 
(only 4.2) proposed NMS plan fee changes in a year.\99\ Second, because 
the existing filing procedure allows for Commission abrogation of 
proposed fee changes, the impact of the proposed amendments on the fees 
paid by market participants would largely be restricted to the two to 
six month Commission review period, during which a fee change is 
effective under the current procedure, but would not be effective under 
the proposed amendments.\100\ Third, as discussed above, the Commission 
preliminarily believes that the SIPs have significant market power in 
the market for core and aggregated market data products and are 
monopolistic providers of certain information.\101\ Therefore, the 
Commission preliminarily believes the proposed amendments would have a 
minimal effect on the SIPs' pricing models. Additionally, because the 
proposed amendments are a procedural change, they would not affect the 
contents of the SIP data or comparable products.\102\
---------------------------------------------------------------------------

    \99\ See supra Section V.B.1.
    \100\ The Commission preliminarily believes that the median 
delay from the proposed amendments would be 70.5 days. See infra 
note 106.
    \101\ See supra Section V.B.2.
    \102\ See id.
---------------------------------------------------------------------------

    Nonetheless, the Commission preliminarily believes that the 
proposed amendments offer three potential benefits. First, the 
Commission preliminarily believes that the proposed amendments would 
provide a benefit to market participants because Proposed Fee Changes 
to NMS plans would be subject to public notice, an opportunity for 
public comment, and Commission approval by order before they could 
become effective. Therefore, under the proposed amendments, changes to 
NMS plan fees and charges could not be immediately imposed, and market 
participants would not have to pay fees (even temporarily) that the 
Commission may later determine do not meet the standard for approval.
    Second, the Commission preliminarily believes that the proposed 
amendments offer a benefit to SRO members and subscribers of SIP data. 
Because Proposed Fee Changes to NMS plans would not become effective 
until after they are subject to public comment and approved by the 
Commission, in cases where SRO members and subscribers to SIP data may 
not have received adequate notice, they should have more time to plan 
and prepare before they are subject to a new or altered NMS plan 
fee.\103\ For example, under the proposed amendments, third party 
vendors of SIP data would learn about potential fee changes to a type 
of SIP fee (i.e., non-displayed fees) earlier, which could give them 
more time to make adjustments and notify their clients before they are 
subject to the fee changes.
---------------------------------------------------------------------------

    \103\ See supra note 70 and accompanying text.
---------------------------------------------------------------------------

    Third, the Commission preliminarily believes that the proposed 
amendments could benefit SRO members and subscribers of SIP data if a 
Proposed Fee Change increased an NMS plan fee. Under the proposed 
amendments, SRO members and subscribers of SIP data could benefit from 
the delay caused by the comment and Commission approval process because 
they would not have to pay the increased fee until the Commission 
approved the fee change and it became effective. However, the 
Commission preliminarily believes this benefit to SRO members and 
subscribers of SIP data would also represent a corresponding cost to 
the SROs.\104\
---------------------------------------------------------------------------

    \104\ Correspondingly, if a Proposed Fee Change decreased an NMS 
plan fee, the delay caused by the comment and Commission approval 
process could impose a cost on SRO members and subscribers of SIP 
data and provide a benefit to the SROs. One comment letter submitted 
in response to the Roundtable contained analysis examining the 
change in fees that some broker-dealers paid for CTA data between 
2010 and 2018. The analysis showed that CTA fees for most categories 
of data increased by an average of 5% between 2010 and 2018. 
However, the change in the total amount each broker-dealer spent on 
CTA data varied based on the type of broker-dealer. They found that 
the average amount of money spent on CTA data by retail broker-
dealers declined by 4% between 2010 and 2017, but the average amount 
spent by institutional broker-dealers increased by 7%. See Letter 
from Melissa MacGregor, Managing Director and Associate General 
Counsel and Theodore R. Lazo, Managing Director and Associate 
General Counsel, SIFMA (Oct. 24, 2018) at 21-28, available at 
https://www.sec.gov/comments/4-729/4729-4559181-176197.pdf.
---------------------------------------------------------------------------

D. Costs

    The Commission preliminarily believes that the proposed amendments 
could impose costs on SROs because they could be delayed from 
implementing Proposed Fee Changes while they wait for the Commission to 
determine whether to approve a fee change. In the case of the SIPs, if 
the Proposed Fee Change would increase the revenue earned by the SIP, 
then this delay could cause the SIP to lose out on the incremental 
revenue it could have collected compared to the baseline, where the 
Proposed Fee Change would have been effective immediately upon filing. 
This, in turn, could reduce the revenues the SROs are able to collect 
from the SIP, as well as the SIP revenue that FINRA rebates back to its 
members.\105\ In the case of the CAT plan, the proposed amendments 
could also delay the SROs from recovering money for costs they might 
have already incurred. However, the Commission preliminarily believes 
that the costs of the proposed amendments would not be significant 
because the Commission preliminarily estimates that the median delay 
caused by the proposed amendments to the implementation of Proposed Fee 
Changes would be 70.5 days.\106\ Additionally, on average, there are 
not many NMS plan fee changes in a year.\107\ The Commission 
preliminarily believes that any lost revenue or delay in recovering 
money by the SROs could represent a corresponding benefit to SRO 
members and subscribers of SIP data. Similarly, if a Proposed Fee 
Change decreased an NMS plan fee, the delay caused by the comment and 
Commission approval process from the proposed amendments could impose a 
cost on SRO members and subscribers of SIP data and provide a benefit 
to SROs.\108\
---------------------------------------------------------------------------

    \105\ See supra note 82; see also supra Section V.B.2.
    \106\ The Commission preliminarily believes that the median 
delay caused by the proposed amendments to the implementation of 
Proposed Fee Changes would be 70.5 days. This estimate is based on 
the median time it takes the Commission to notice a Proposed Fee 
Change from the time it is filed, 25.5 days, and the median time it 
takes the Commission to determine whether to approve an NMS plan 
amendment filed under the standard procedure from the time it was 
noticed, 45 days. However, the Commission could extend the review 
period for a Proposed Fee Filing up to a total 180 days from the 
time it is noticed. See supra note 56; see also supra Section V.B.1 
and Section II.B.
    This delay does not include the time between when an NMS plan 
fee change is filed and the NMS plan begins charging the fee. Under 
the proposed amendments, an NMS plan fee filing could specify a date 
when fees will begin being charged based on a certain number of days 
after the fee filing is approved by the Commission. It is possible 
that the median delay specified by the NMS plan between approval and 
when the NMS plan begins charging fees could be similar to the 
current median delay, i.e., 62.5 days. The delay could also be 
shorter, since market participants would have received earlier 
notice about the potential fee change due to the delay caused by the 
Commission approval process. See supra note 70.
    \107\ See supra Section V.B.1.
    \108\ See supra note 104.
---------------------------------------------------------------------------

    The proposed rescission of the Fee Exception is a procedural 
amendment and impacts the timing of effectiveness of Proposed Fee 
Changes; it does not

[[Page 54804]]

affect the supporting information that must be included in all proposed 
NMS plan amendments.\109\ Therefore, the Commission preliminarily 
believes that the proposed amendments will not impose implementation 
costs on the administration of NMS plans or on market participants.
---------------------------------------------------------------------------

    \109\ See supra Section I.
---------------------------------------------------------------------------

E. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    For the reasons discussed above,\110\ the Commission preliminarily 
believes that the proposed amendments will not have significant 
effects. Nonetheless, the Commission preliminarily believes that the 
proposed amendments could affect efficiency in a number of ways.
---------------------------------------------------------------------------

    \110\ See supra Section V.C.
---------------------------------------------------------------------------

    First, the Commission preliminarily believes that the proposed 
amendments could improve the efficiency with which SRO members and 
subscribers to SIP data adjust to fee changes to NMS plans. 
Specifically, the notice of Proposed Fee Changes to NMS plans before 
they are approved by the Commission and become effective might give 
market participants more time to plan and prepare before they are 
subject to a new or altered NMS plan fee. For example, under the 
proposed amendments, in circumstances where market participants 
previously would not have received adequate notice,\111\ market 
participants such as market data vendors would now have more time to 
make adjustments and notify their clients before they are subject to a 
change in fees.
---------------------------------------------------------------------------

    \111\ See supra note 70 and accompanying text.
---------------------------------------------------------------------------

    Second, the Commission preliminarily believes that the proposed 
amendments could improve efficiency for Proposed Fee Changes to NMS 
plans that would otherwise have been abrogated.\112\ As discussed 
above, the median time it takes the Commission to abrogate a fee filing 
is 57 days, during which time the filings are effective. Under the 
proposed amendments, the Commission would not need to abrogate the fee 
filings; absent approval by the Commission, such fee changes would 
never take effect. To the extent that a fee filing would later be 
disapproved by the Commission, the proposed change would make the 
filing process more efficient than the current process.
---------------------------------------------------------------------------

    \112\ The proposed amendments may also improve the efficiency of 
implementing some Proposed Fee Changes that would otherwise have 
been withdrawn and later refiled. These fee changes are refiled on 
an immediately effective basis. The median time it takes an NMS plan 
to refile these fee changes is 174 days. If these amendments are 
ultimately approved more quickly under the proposed amendments, it 
could increase the efficiency of their implementation. See supra 
Section V.B.1.
---------------------------------------------------------------------------

    On the other hand, the proposed amendments could also have a 
negative impact on efficiency because they could delay when NMS plans 
could begin charging new fees. As discussed above,\113\ if plan 
participants seek to change existing NMS plan fees, possibly due to 
changes in technology or market conditions or other demonstrable 
increases in NMS plan costs, then the proposed amendments could reduce 
efficiency because any Proposed Fee Changes would take longer to become 
effective under the standard procedure than under the effective-upon-
filing procedure.
---------------------------------------------------------------------------

    \113\ See supra Section V.D.
---------------------------------------------------------------------------

2. Competition
    The Commission preliminarily believes that the proposed amendments 
will not have a significant impact on competition in either the market 
for core and aggregated market data products or in the market for 
trading services in NMS securities.
    The Commission preliminarily believes that the proposed amendments 
will not have a significant impact on competition in the market for 
core and aggregated market data products because, for the reasons 
discussed above, the Commission preliminarily believes the proposed 
amendments will not have a significant effect on the fees charged for 
core data.\114\ Although the proposed amendments are not likely to have 
a significant effect on the market power of the SIPs, the Commission 
preliminarily believes the proposed amendments could have minor effects 
on the SIPs' ability to compete. On the margin, the SIPs' competitive 
positions could be negatively affected by the proposed amendments 
because the amendments would allow the SIPs' competitors, such as third 
party data aggregators and SRO top-of-book feeds, to be able to adjust 
their fees and prices more quickly than the SIPs. Under the proposed 
amendments, the SIPs would face a delay in adjusting their prices, 
because they could not make any fee changes until they had been noticed 
for public comment and approved by the Commission. Other market data 
products would not face this delay because fee changes to products 
offered directly by the SROs would still be effective upon filing with 
the Commission and vendors that aggregate market data are not required 
to file with the Commission to change their prices. This means that if 
these data products were subject to a cost shock, vendors and data 
products offered by the SROs would be able to adjust their prices more 
quickly in response to the cost shock, while the SIPs would face a 
delay. However, for the reasons discussed above, the Commission 
preliminarily believes that these competitive effects will not be 
significant.
---------------------------------------------------------------------------

    \114\ See supra Section V.C.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments 
will not have a significant impact on competition in the market for 
trading services in NMS securities. First, for the reasons discussed 
above, the Commission preliminarily believes the proposed amendments 
will not have a significant impact on revenues SROs receive or the 
costs broker-dealer internalizers and ATSs pay for core data.\115\ 
Second, the Commission preliminarily believes that the proposed 
amendments will not have a significant impact on the future fees the 
CAT plan will collect from Industry Members or the allocation of costs 
among Participants and Industry Members because the Commission already 
has the ability to abrogate NMS plan fee filings.\116\
---------------------------------------------------------------------------

    \115\ See supra Section V.C and Section V.D.
    \116\ See supra Section II.A.2.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission preliminarily believes that the proposed amendments 
will not have a significant impact on capital formation because, for 
the reasons discussed above, the proposed amendments will not have a 
significant impact on NMS plan fees or on the average costs to the 
subscribers of SIP market data.\117\ Since the proposed amendments are 
unlikely to have a significant effect on the cost of core data, they 
are also unlikely to significantly affect the fees that investors pay 
or investor participation in the market. Therefore, the Commission 
preliminarily believes the proposed amendments are unlikely to have a 
significant impact on capital formation.
---------------------------------------------------------------------------

    \117\ See supra Section V.C.
---------------------------------------------------------------------------

F. Alternative

    The Commission considered an alternative where the Commission would 
amend Rule 608(b)(3)(i) of Regulation NMS to provide that NMS plan fee 
filings would not become effective immediately upon filing, but would 
instead become effective automatically without the Commission having to 
approve the fee filing at the end of the 60 day period, during which 
the Commission could potentially abrogate the fee filing. If the

[[Page 54805]]

Commission did abrogate the fee filing, then the amendment would still 
need to be re-filed pursuant to the standard procedure of paragraphs 
(b)(1) and (2).
    This alternative would provide a comment period for Proposed Fee 
Changes to NMS plans before they go into effect. Therefore, similar to 
the proposed amendments, market participants would benefit from being 
able to comment on Proposed Fee Changes before they could become 
effective. SRO members and subscribers to SIP data should have more 
time to plan and prepare before they are subject to a new or altered 
NMS plan fees.
    Compared to the proposed amendments, the time until a Proposed Fee 
Filing becomes effective could be shorter.\118\ Therefore, the costs to 
the SROs from the delay in implementing NMS plan fee changes could be 
lower than under the proposed amendments.\119\
---------------------------------------------------------------------------

    \118\ Under this alternative, Proposed Fee Filings would become 
effective 60 days after filing unless the Commission decided to 
abrogate the fee filing. Under the proposed amendments, the 
Commission preliminarily estimates that the median time it would 
take for Proposed Fee Filings to be approved by the Commission and 
become effective would be 70.5 days from the time of filing. See 
supra note 106.
    \119\ See supra Section V.D.
---------------------------------------------------------------------------

    However, under this alternative, the Commission could not extend 
the 60 day abrogation period.\120\ This would provide market 
participants with more certainty about when the Proposed Fee Changes 
would become effective because the Commission could not extend its 
review period. However, if a Proposed Fee Filing is complicated, the 
Commission may be unable to complete its review during the 60 day 
abrogation period. If the filing were abrogated by the Commission, it 
could be subject to the delays of refiling under the standard 
procedure, which could cause these fee filings to take longer to be 
approved from the date of initial filing than under the proposed 
amendments.\121\
---------------------------------------------------------------------------

    \120\ The Commission could also consider an alternative where it 
had the option to extend the 60 day abrogation period to allow the 
Commission more time to consider the filing and comments. The filing 
would not become effectively automatically until the expiration of 
this longer time period. This alternative would have similar 
benefits and costs to the proposed amendments.
    \121\ See supra Section II.B.
---------------------------------------------------------------------------

G. Request for Comment on the Economic Analysis

    The Commission is sensitive to the potential economic effects, 
including the costs and benefits, of the proposed amendments to Rule 
608 of Regulation NMS. The Commission has identified above certain 
costs and benefits associated with the proposal and requests comment on 
all aspects of its preliminary economic analysis. The Commission 
encourages commenters to identify, discuss, analyze, and supply 
relevant data, information, or statistics regarding any such costs or 
benefits. In particular, the Commission seeks comment on the following:
    11. Do you believe the Commission's analysis of the potential 
effects of the proposed amendments to Rule 608 of Regulation NMS is 
reasonable? Why or why not? Please explain in detail.
    12. What is the state of competition in the market for core and 
aggregated market data products? Is the state of competition similar in 
the equities and options markets? Why or why not? Please explain in 
detail.
    13. The Commission requests that commenters provide relevant data 
and analysis to assist us in determining the economic consequences of 
the proposed amendments. In particular, the Commission requests data 
and analysis regarding the costs SROs and SRO members and subscribers 
of SIP data may incur from the proposed amendments delaying the 
implementation of Proposed NMS Fee Changes.
    14. Do you agree with the Commission's assessment that the proposed 
amendments will not have significant effects on efficiency, benefits, 
or competition? Why or why not? Please explain in detail.
    15. Do you agree with the Commission's analysis of the benefits of 
the proposed amendments? Why or why not? Please explain in detail.
    16. Do you agree with the Commission's analysis of the costs of the 
proposed amendments? Why or why not? Please explain in detail.
    17. Do you agree with the Commission's assessment that the proposed 
amendments will have a minimal effect on the SIPs' pricing models? Why 
or why not? Please explain in detail.
    18. Do you agree with the Commission's analysis of the effects the 
proposed amendments will have on efficiency, competition, and capital 
formation? Why or why not? Please explain in detail.
    19. Do you believe the proposed amendments will have effects on 
efficiency, competition, and/or capital formation that the Commission 
has not recognized? Please explain in detail.
    20. Should the Commission adopt an alternative approach in which 
the Commission does not need to approve NMS plan fee filings but 
instead delays them from becoming effective until after the 60 day 
period in which the Commission can abrogate the fee filing? Why or why 
not? What are the benefits and costs of such an approach? Please 
explain in detail.
    21. Are there other reasonable alternatives for the proposed 
amendments to Rule 608 of Regulation NMS? If so, please provide 
additional alternatives and how their costs and benefits, as well as 
their potential impacts on the promotion of efficiency, competition, 
and capital formation, would compare to the proposed amendments.
    22. Commenters should provide analysis and empirical data to 
support their views on the benefits and costs of the proposed 
amendments to Rule 608 of Regulation NMS.

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\122\ the Commission requests comment on the 
potential effect of this proposal on the United States economy on an 
annual basis. The Commission also requests comment on any potential 
increases in costs or prices for consumers or individual industries, 
and any potential effect on competition, investment, or innovation. 
Commenters are requested to provide empirical data and other factual 
support for their views to the extent possible.
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    \122\ Public Law 104-121, Title II, 110 Stat. 857 (1996) 
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note 
to 5 U.S.C. 601).
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VII. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \123\ requires Federal 
agencies, in promulgating rules, to consider the impact of those rules 
on small entities. Section 603(a) \124\ of the Administrative Procedure 
Act,\125\ as amended by the RFA, generally requires the Commission to 
undertake a regulatory flexibility analysis of all proposed rules, or 
proposed rule amendments, to determine the impact of such rulemaking on 
``small entities.'' \126\ Section 605(b) of the RFA states that this 
requirement shall not apply to any proposed rule or proposed rule 
amendment which, if adopted, would not have a significant economic 
impact

[[Page 54806]]

on a substantial number of small entities.\127\
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    \123\ 5 U.S.C. 601 et seq.
    \124\ 5 U.S.C. 603(a).
    \125\ 5 U.S.C. 551 et seq.
    \126\ Although Section 601(b) of the RFA defines the term 
``small entity,'' the statute permits agencies to formulate their 
own definitions. The Commission has adopted definitions for the term 
``small entity'' for purposes of Commission rulemaking in accordance 
with the RFA. Those definitions, as relevant to this proposed 
rulemaking, are set forth in Rule 0-10, 17 CFR 240.0-10.
    \127\ See 5 U.S.C. 605(b).
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    The proposed rule would apply to national securities exchanges 
registered with the Commission under Section 6 of the Exchange Act and 
national securities associations registered with the Commission under 
Section 15A of the Exchange Act.\128\ None of the exchanges registered 
under Section 6 that would be subject to the proposed amendments are 
``small entities'' for purposes of the Regulatory Flexibility Act.\129\ 
There is only one national securities association, and the Commission 
has previously stated that it is not a small entity as defined by 13 
CFR 121.201.\130\
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    \128\ See supra Section II.A.3.
    \129\ See 17 CFR 240.0-10(e). Paragraph (e) of Rule 0-10 states 
that the term ``small business,'' when referring to an exchange, 
means any exchange that has been exempted from the reporting 
requirements of Rule 601 of Regulation NMS, 17 CFR 242.601, and is 
not affiliated with any person (other than a natural person) that is 
not a small business or small organization as defined in Rule 0-10. 
Under this standard, none of the exchanges subject to the proposed 
amendment to Rule 608 is a ``small entity'' for the purposes of the 
RFA. See also Securities Exchange Act Release Nos. 82873 (Mar. 14, 
2018), 83 FR 13008, 13074 (Mar. 26, 2018) (File No. S7-05-18) 
(Transaction Fee Pilot for NMS Stocks); 55341 (May 8, 2001), 72 FR 
9412, 9419 (May 16, 2007) (File No. S7-06-07) (Proposed Rule Changes 
of Self-Regulatory Organizations Proposing Release).
    \130\ See, e.g., Securities Exchange Act Release No. 62174 (May 
26, 2010), 75 FR 32556, 32605 n.416 (June 8, 2010) (``FINRA is not a 
small entity as defined by 13 CFR 121.201.'').
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    For the above reasons, the Commission certifies that the proposed 
amendment to Rule 608, if adopted, would not have a significant 
economic impact on a substantial number of small entities for purposes 
of the Regulatory Flexibility Act.
    The Commission invites commenters to address whether the proposed 
rules would have a significant economic impact on a substantial number 
of small entities, and, if so, what would be the nature of any impact 
on small entities. The Commission requests that commenters provide 
empirical data to support the extent of such impact.

VIII. Statutory Authority and Text of the Proposed Rule Amendments

    Pursuant to the Exchange Act, and particularly Section 2, 3, 6, 9, 
10, 11A, 15, 15A, 17 and 23(a) thereof, 15 U.S.C. 78b, 78c, 78f, 78l, 
78j, 78k-1, 78o, 78o-3 and 78w(a), the Commission proposes to amend 
Section 242.608 of chapter II of title 17 of the Code of Federal 
Regulations in the manner set forth below.

List of Subjects in 17 CFR Part 242

    Brokers, Reporting and recordkeeping requirements, Securities.

    For the reasons stated in the preamble, the Commission is proposing 
to amend title 17, chapter II of the Code of Federal Regulations as 
follows:

PART 242--REGULATIONS M, SHO, ATS, AC, NMS AND SBSR AND CUSTOMER 
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
1. The authority citation for part 242 continues to read as follows:

    Authority: 15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2), 
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g), 
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 
80a-37.


Sec.  242.608   [Amended]

0
2. Amend Sec.  242.608 by removing and reserving paragraph (b)(3)(i).

    By the Commission.

    Dated: October 1, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-21770 Filed 10-10-19; 8:45 am]
 BILLING CODE 8011-01-P