[Federal Register Volume 85, Number 119 (Friday, June 19, 2020)]
[Notices]
[Pages 37123-37129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13201]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89065; File No. SR-NYSENAT-2020-05]


Self-Regulatory Organizations; NYSE National, Inc.; Request for 
Information and Additional Comment on a Proposed Rule Change To 
Establish Fees for the NYSE National Integrated Feed

June 12, 2020.

I. Introduction

    On February 3, 2020, NYSE National, Inc. (``NYSE National'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to establish fees for the NYSE National Integrated 
Feed. The proposed rule change was immediately effective upon filing 
with the Commission pursuant to Section 19(b)(3)(A) of the Act.\3\ The 
proposed rule change was published for comment in the Federal Register 
on February 20, 2020.\4\ On April 1, 2020, the Division of Trading and 
Markets, for the Commission pursuant to delegated authority, 
temporarily suspended the proposed rule change and instituted 
proceedings to determine whether to approve or disapprove the proposed 
rule change.\5\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 88211 (February 14, 
2020), 85 FR 9847 (``Notice''). Comments received on the Notice are 
available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2020-05/srnysenat202005.htm. The Commission 
notes that, on December 4, 2019, NYSE National filed a proposed rule 
change to establish fees for the NYSE National Integrated Feed that 
are identical to the fees proposed in this filing. See Securities 
Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025 
(December 26, 2019) (SR-NYSENAT-2019-31). Comments received on SR-
NYSENAT-2019-31 are available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931.htm. On 
January 31, 2020, the Commission temporarily suspended SR-NYSENAT-
2019-31 and instituted proceedings to determine whether to approve 
or disapprove that proposed rule change. See Securities Exchange Act 
Release No. 88109, 85 FR 6982 (February 6, 2020) (``SR-NYSENAT-2019-
31 OIP''). On February 3, 2020, NYSE National withdrew SR-NYSENAT-
2019-31. See Securities Exchange Act Release No. 88118 (February 4, 
2020), 85 FR 7611 (February 10, 2020).
    \5\ See Securities Exchange Act Release No. 88538, 85 FR 19541 
(April 7, 2020) (``Suspension Order'').
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II. Description of the Proposal and Comment Letters

    NYSE National proposes to establish fees for the NYSE National 
Integrated Feed.\6\ According to NYSE National, the NYSE National 
Integrated Feed is a NYSE National-only market data feed that provides 
vendors and subscribers on a real-time basis with a unified view of 
events, in sequence, as they appear on the NYSE National matching 
engine.\7\ The NYSE National Integrated Feed includes depth-of-book 
order data, last sale data, security status updates (e.g., trade 
corrections and trading halts), and stock summary messages.\8\ It also 
includes information about NYSE

[[Page 37124]]

National's best bid or offer at any given time.\9\ NYSE National 
proposes the following fees for the NYSE National Integrated Feed:
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    \6\ The fees became effective on February 3, 2020. Prior to 
February 3, 2020, NYSE National did not charge any fees for the NYSE 
National Integrated Feed. See Notice, supra note 4, at 9847.
    \7\ See id.
    \8\ See id.
    \9\ See id.
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     $2,500 per month access fee, which would be charged (once 
per firm) to any data recipient that receives a data feed of the NYSE 
National Integrated Feed; \10\
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    \10\ Data recipients that only use display devices to view NYSE 
National Integrated Feed data and do not separately receive a data 
feed would not be charged an access fee. See id. at 9848.
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     $1,500 per month redistribution fee, which would be 
charged (once per redistributor account) to any redistributor \11\ of 
the NYSE National Integrated Feed;
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    \11\ A redistributor would be a vendor or person that provides a 
real-time NYSE National market data product externally to a data 
recipient that is not its affiliate or wholly-owned subsidiary, or 
to any system that an external data recipient uses, irrespective of 
the means of transmission or access. See id.
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     $10 per month professional per user fee and $1 per month 
non-professional per user fee, which would apply to each display device 
that has access to the NYSE National Integrated Feed; \12\
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    \12\ See id.
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     Non-display use \13\ fees:
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    \13\ Non-display use would mean accessing, processing, or 
consuming the NYSE National Integrated Feed, delivered directly or 
through a redistributor, for a purpose other than in support of a 
data recipient's display or further internal or external 
redistribution. See id. As proposed, non-display use would include 
trading uses such as high frequency or algorithmic trading, as well 
as any trading in any asset class, automated order or quote 
generation and order pegging, price referencing for algorithmic 
trading or smart order routing, operations controls programs, 
investment analysis, order verification, surveillance programs, risk 
management, compliance, and portfolio management. See id. One, two, 
or three categories of non-display use may apply to a data 
recipient. See id. Moreover, data recipients that receive the NYSE 
National Integrated Feed for non-display use would be required to 
complete and submit a non-display use declaration before they would 
be authorized to receive the feed. See id. at 9849. In addition, if 
a data recipient's use of the NYSE National Integrated Feed data 
changes at any time after the data recipient submits a non-display 
use declaration, the data recipient must inform NYSE National of the 
change by completing and submitting an updated declaration 
reflecting the change of use at the time of the change. See id.
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    [cir] $5,000 per month category 1 non-display fee, which would 
apply when a data recipient's non-display use of real-time market data 
is on its own behalf;
    [cir] $5,000 per month category 2 non-display fee, which would 
apply when a data recipient's non-display use of real-time market data 
is on behalf of its clients;
    [cir] $5,000 per platform per month category 3 non-display fee 
(capped at $15,000), which would apply when a data recipient's non-
display use of real-time market data is for the purpose of internally 
matching buy and sell orders within an organization, including matching 
customer orders on a data recipient's own behalf and on behalf of its 
clients; \14\
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    \14\ According to NYSE National, category 3 non-display fees 
would apply to non-display use in trading platforms, such as, but 
not limited to, alternative trading systems (``ATSs''), broker 
crossing networks, broker crossing systems not filed as ATSs, dark 
pools, multilateral trading facilities, exchanges, and systematic 
internalization systems. See id. at 9848-49.
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     $1,000 per month non-display use declaration late fee, 
which would apply to any data recipient that is paying an access fee 
for the NYSE National Integrated Feed and that fails to complete and 
submit the annual non-display use declaration by December 31 of the 
year, and would apply beginning January 1 and for each month thereafter 
until the data recipient has completed and submitted the annual non-
display use declaration; \15\ and
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    \15\ See id. at 9849.
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     $200 per month multiple data feed fee, which would apply 
to any data recipient that takes a data feed for a market data product 
in more than two locations, and would apply to each location, beyond 
the first two locations, where the data recipient receives a data 
feed.\16\
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    \16\ See id.
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    The access fees, professional user fees, and non-display fees would 
not apply to Federal agencies \17\ that subscribe to the products 
listed on the proposed fee schedule that includes such fees.\18\
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    \17\ The term ``Federal agencies'' as used in the proposed fee 
schedule would include all Federal agencies subject to the Federal 
Acquisition Regulation (``FAR''), as well as any Federal agency not 
subject to FAR that has promulgated its own procurement rules. See 
id. All Federal agencies that subscribe to the NYSE National real-
time proprietary market data products would continue to be required 
to execute the appropriate subscriber agreement, which includes, 
among other things, provisions against the redistribution of data. 
See id.
    \18\ The proposed fee schedule lists NYSE National BBO, NYSE 
National Trades, and NYSE National Integrated Feed, and specifies 
that there would be no fees for NYSE National BBO and NYSE National 
Trades.
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    Finally, first-time subscribers \19\ would be eligible for a free 
trial by contacting NYSE National and would not be charged the access 
fee, the non-display fee, any applicable professional and non-
professional user fee, and the redistribution fee for one calendar 
month for each of the products listed on the proposed fee schedule.\20\ 
The free trial would be for the first full calendar month following the 
date a subscriber is approved to receive trial access to NYSE National 
market data.\21\ As proposed, NYSE National would provide the one-month 
free trial for a particular product to each subscriber only once.\22\
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    \19\ A first-time subscriber would be any firm that has not 
previously subscribed to a particular product listed on the proposed 
fee schedule. See Notice, supra note 4, at 9849.
    \20\ See id.
    \21\ See id. at 9849-50.
    \22\ See id. at 9850.
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    In its proposal, NYSE National makes multiple arguments in support 
of the proposed fees. With respect to whether the proposed fees are 
reasonable, NYSE National states that exchanges in general function as 
platforms between consumers of market data and consumers of trading 
services, and that overall competition between exchanges will limit 
their overall profitability.\23\ In connection with these arguments, 
NYSE National asserts that the introduction of the NYSE Integrated Feed 
in 2015 attracted more trading to NYSE by both subscribers and non-
subscribers to the NYSE Integrated Feed,\24\ and concludes that overall 
competition between exchanges will limit their overall profitability 
(not margins on any particular side of the platform).\25\ According to 
NYSE National, exchanges are platforms for market data and transaction 
services and competition for order flow on the trading side of the 
platform acts to constrain the pricing of market data on the other side 
of the platform.\26\
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    \23\ See id. at 9852.
    \24\ See id. NYSE National provides a report by Marc Rysman to 
support these arguments. See Marc Rysman, Stock Exchanges as 
Platforms for Data and Trading (December 2, 2019) (``Rysman 
Paper''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3b.pdf. NYSE National also states that, since May 2018, 
when NYSE National relaunched trading, it has observed a direct 
correlation between the steady increase of subscribers to the NYSE 
National Integrated Feed and the increase in NYSE National's 
transaction market share volume over the same period. See Notice, 
supra note 4, at 9850. NYSE National states that, between May 2018 
and October 2019, it has grown from 0% to nearly 2% market share of 
consolidated trading volume and, between May 2018 and November 2019, 
the number of NYSE National Integrated Feed subscribers increased 
from 12 to 57. See id. at 9847-48, 9852.
    \25\ See Notice, supra note 4, at 9852 (citing Rysman Paper, 
supra note 24).
    \26\ See id. at 9853.
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    In addition, NYSE National argues that, due to the ready 
availability of substitutes and the low cost to move order flow to the 
substitute trading venues, an exchange setting market data fees that 
are not at competitive levels would expect to quickly lose business to 
alternative platforms with more attractive pricing.\27\ NYSE National 
argues that subscribing to the NYSE National Integrated Feed is 
optional, that its customers may choose to discontinue using the feed 
once the proposed fees are effective, and that any customers who choose 
to discontinue

[[Page 37125]]

using the feed may choose to shift order flow away from NYSE 
National.\28\ Similarly, NYSE National argues that its market data 
pricing is constrained by the availability of numerous substitute 
platforms offering competing proprietary market data products and 
trading services.\29\
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    \27\ See id.
    \28\ See id. at 9850, 9853.
    \29\ See id. at 9853.
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    In addition to its platform-based arguments, NYSE National presents 
an alternative competition-based argument, asserting that the NYSE 
National Integrated Feed is sold in a competitive market.\30\ NYSE 
National asserts that exchanges compete with each other in selling 
proprietary market data products, as well as with consolidated data 
feeds and with data provided by ATSs.\31\ More specifically, NYSE 
National states that NYSE National BBO (which includes best bid and 
offer information for NYSE National on a real-time basis), NYSE 
National Trades (which includes NYSE National last sale information on 
a real-time basis), and consolidated data feeds are substitutes for the 
NYSE National Integrated Feed and constrain NYSE National's ability to 
charge supracompetitive prices for the feed.\32\ In addition, NYSE 
National states that, since the date of filing of SR-NYSENAT-2019-31 
and before the proposed fees went into effect on February 3, 2020, five 
subscribers to the NYSE National Integrated Feed (i.e., nearly nine 
percent of the prior subscriber base) have cancelled their 
subscriptions due to the imminent imposition of the fees.\33\ Moreover, 
NYSE National states that a sixth customer informed NYSE National that 
if NYSE National is permitted to impose the fees, the customer would 
cancel its subscription to the NYSE National Integrated Feed and 
instead subscribe to the NYSE National BBO feed.\34\
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    \30\ See id. at 9851.
    \31\ See id. NYSE National provides a report by Charles M. Jones 
to support these arguments. See Charles M. Jones, Understanding the 
Market for U.S. Equity Market Data (August 31, 2018) (``Jones 
Paper''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3a.pdf. The Jones Paper also states that the market for 
order flow and the market for market data are closely linked, and 
that an exchange needs to consider the negative impact on its order 
flow if it raises the price of market data. See id.
    \32\ See Notice, supra note 4, at 9854.
    \33\ See id. at 9848.
    \34\ NYSE National states that six lost subscribers constitute 
10.5 percent of the prior NYSE National Integrated Feed subscriber 
base. See id.
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    With respect to the other requirements under the Act, NYSE National 
argues that the proposed fees are equitably allocated and are not 
unfairly discriminatory because they would apply on an equal basis to 
all data recipients that choose to subscribe to the data in a manner 
that is subject to an applicable fee and because any differences among 
categories of users are justified.\35\ Specifically, NYSE National 
argues that the professional and non-professional user fee structure 
has long been used by NYSE National to reduce the price of data to non-
professional users and to make it more broadly available, and that the 
non-display fee structure results in subscribers with greater uses of 
the data paying higher fees and subscribers with fewer uses of the data 
paying lower fees.\36\ For similar reasons, and because it claims 
numerous substitute market data products are available, NYSE National 
argues that the proposed fees do not impose an unnecessary or 
inappropriate burden on competition.\37\
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    \35\ See id. at 9856-58.
    \36\ See id. at 9856-57.
    \37\ See id. at 9858-59.
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    With respect to the redistribution fee, NYSE National argues that 
the proposed fee is reasonable because vendors that would be charged 
the proposed fee would profit by re-transmitting NYSE National's market 
data to their customers,\38\ and that the proposed fee is equitable and 
not unfairly discriminatory because the fees would be charged on an 
equal basis to those vendors that choose to redistribute the feed.\39\ 
Similarly, with respect to category 3 non-display fees, which would be 
charged to each trading platform on which the customer uses non-display 
data (capped at three platforms), NYSE National argues that the 
proposal is reasonable, equitable, and not unfairly discriminatory 
because such use of data is directly in competition with NYSE National 
and NYSE National should be permitted to recoup some of its lost 
trading revenue by charging for the data that makes such competition 
possible.\40\
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    \38\ See id. at 9854.
    \39\ See id. at 9856-57.
    \40\ See id. at 9855-58.
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    Finally, with respect to the non-display use declaration late fee 
and the multiple data feed fee, NYSE National claims that these fees 
are reasonable, equitable, and not unfairly discriminatory because they 
would offset NYSE National's administrative burdens and costs 
associated with incorrect billing, late payments, and tracking data 
usage locations.\41\
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    \41\ See id.
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    One commenter states that NYSE National fails to provide the 
necessary information for the Commission to determine whether the 
proposed fees meet the requirements of the Act.\42\ This commenter 
argues that the NYSE National Integrated Feed is not subject to 
competitive forces because there are no available substitutes to NYSE 
National's depth-of-book product.\43\ This commenter also argues that 
competition for order flow under the ``platform theory'' does not 
constrain the cost of market data, but instead results in supra-
monopoly prices for market data products.\44\ In addition, this 
commenter argues that NYSE National makes an unpersuasive attempt to 
show an elasticity of demand for the NYSE National Integrated Feed 
(i.e., in response to the fee increase, 5 of the 57 subscribers 
notified NYSE National of their intent to cancel their subscriptions 
before the fees went into effect).\45\ Moreover, this commenter argues 
that exchanges have yet to show an increase (or decrease) in trading 
volume after reducing (or increasing) a respective exchange's price of 
market data, and that NYSE National does not state the anticipated 
impact on order flow from losing subscribers to the NYSE National 
Integrated Feed.\46\ Finally, the commenter argues that, because it 
believes competitive forces have not constrained the cost of market 
data, NYSE National should provide additional information on cost.\47\
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    \42\ See letter from Ellen Greene, Managing Director, Equities & 
Options Market Structure, Securities Industry and Financial Markets 
Association (``SIFMA''), to Vanessa Countryman, Secretary, 
Commission, dated March 11, 2020 (``SIFMA Letter''). This commenter 
also refers to the comment letter it submitted on SR-NYSENAT-2019-31 
in stating that the proposal does not meet the requirements of the 
Act. See id. at 2. See also SR-NYSENAT-2019-31 OIP, supra note 4, at 
6984-85 (describing the commenter's letter on SR-NYSENAT-2019-31); 
letter from Robert Toomey, Managing Director and Associate General 
Counsel, SIFMA, to Vanessa Countryman, Secretary, Commission, dated 
January 21, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6678406-204968.pdf.
    \43\ See SIFMA Letter, supra note 42, at 2.
    \44\ See id.
    \45\ See id.
    \46\ See id.
    \47\ See id.

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[[Page 37126]]

    Another commenter also states that the information provided by NYSE 
National is not adequate to establish that the proposed fees are 
consistent with the Act and Commission rules.\48\ This commenter 
questions whether third parties can compete with NYSE National in 
offering data related to activity on NYSE National.\49\ This commenter 
also questions NYSE National's assertion that market participants have 
a meaningful ability to choose whether or not to connect to the NYSE 
National Integrated Feed and believes instead that many market 
participants must buy the feed.\50\ This commenter acknowledges that 
NYSE National provides the number of customers that discontinued using 
the NYSE National Integrated Feed in response to the proposed fees, but 
expresses concern that NYSE National has not provided any relevant 
information about these customers (e.g., why they subscribed to the 
NYSE National Integrated Feed in the first place; whether they were 
proprietary trading firms, agency brokers, or data vendors; and whether 
and how often they sent orders to NYSE National).\51\ This commenter 
also states that NYSE National should update and further elaborate on 
information about the remaining subscribers.\52\
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    \48\ See letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Vanessa Countryman, Office of the 
Secretary, Commission, dated March 12, 2020 (``Healthy Markets 
Letter''). See also SR-NYSENAT-2019-31 OIP, supra note 4, at 6984 
(describing the commenter's letter on SR-NYSENAT-2019-31); letter 
from Tyler Gellasch, Executive Director, The Healthy Markets 
Association, to Vanessa Countryman, Office of the Secretary, 
Commission, dated January 16, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6663540-203934.pdf.
    \49\ See Healthy Markets Letter, supra note 48, at 6-8. This 
commenter states that NYSE National controls who, under what terms, 
and when anyone other than NYSE National can obtain order-related 
information about NYSE National. See id. at 7.
    \50\ See id. at 4-5. According to this commenter, if one set of 
market participants has access to a faster, richer data set, then 
those without that information will not be as competitive and may 
not be able to quote or otherwise route orders in a manner that 
could effectively achieve best execution. See id. at 8.
    \51\ See id. at 5-6.
    \52\ See id. at 6.
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    Moreover, this commenter argues that NYSE National's discussions 
regarding the reasonableness of the proposed fees (i.e., the comparison 
to similar fees charged by affiliated exchanges, the nature of the 
market for order flow, the availability of other data options, and the 
lack of a relation between the proposed fees and the costs of 
production) do not support a finding that the proposed fees are 
reasonable.\53\ This commenter also states that NYSE National does not 
provide any information about the costs of production for the NYSE 
National Integrated Feed, the expected revenue NYSE National projects 
to generate from the proposed fees, the impact of the proposed fees on 
subscribers, the competition between subscribers and non-subscribers, 
and whether the proposed fees would be equitably allocated and would 
not impose any undue burden on competition.\54\ In addition, the 
commenter states that NYSE National does not provide any information 
about the latency difference between the NYSE National Integrated Feed 
and the consolidated data feed or other methods of transmitting 
data.\55\ Finally, this commenter objects to NYSE National's platform-
based arguments, stating that the supply and demand functions for order 
flow and market data are separate.\56\
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    \53\ See id. at 8-9.
    \54\ See id. at 9.
    \55\ See id.
    \56\ See id. at 9-10.
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III. Request for Information and Additional Comment

    The Commission must determine on a factual record whether NYSE 
National has established by a preponderance of the record that its 
proposed fees: (1) Provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using the exchange's 
facilities; \57\ (2) perfect the mechanism of a free and open market 
and a national market system, protect investors and the public 
interest, and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers; \58\ and (3) do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\59\
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    \57\ 15 U.S.C. 78f(b)(4).
    \58\ 15 U.S.C. 78f(b)(5).
    \59\ 15 U.S.C. 78f(b)(8).
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    The Commission believes that there are significant unresolved 
questions about whether NYSE National has produced sufficient factual 
support to satisfy its burden to demonstrate that its proposed fees 
meet the standards set forth in the Act. Under Commission Rule of 
Practice 700(b)(3), NYSE National has the ``burden to demonstrate that 
a proposed rule change is consistent with the [Act] and the rules and 
regulations issued thereunder.'' \60\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\61\ and any failure of an SRO to provide this level of 
information may result in the Commission not having a sufficient basis 
to make an affirmative finding that a proposed rule change is 
consistent with the Act and the applicable rules and regulations.\62\
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    \60\ 17 CFR 201.700(b)(3).
    \61\ See id.
    \62\ See id. Moreover, as is the case with a proposed rule 
change under Section 19(b)(2) of the Act, the Commission must make 
an affirmative finding to approve any fee filing for which it has 
instituted proceedings to determine whether the proposed rule change 
is consistent with the Act.
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    In seeking additional information and comment, the Commission 
intends to further consider whether NYSE National has met its burden to 
establish that the proposed fees for the NYSE National Integrated Feed 
are consistent with the regulatory requirements applicable to a 
national securities exchange.

1. Are the proposed fees constrained by competition?

    As noted above, in support of the proposed fees, NYSE National 
asserts that exchanges function as platforms between consumers of 
market data and consumers of trading services, and that competition 
among exchanges will limit their overall profitability (not margins on 
any particular side of the platform).\63\ According to NYSE National, 
exchanges are platforms for market data and transaction services, and 
competition for order flow on the trading side of the platform acts to 
constrain the pricing of market data on the other side of the 
platform.\64\ In connection with this platform theory-based argument, 
the Commission believes that it does not have sufficient information to 
make an affirmative finding that the rule change is consistent with the 
Act and the rules and regulations thereunder. The Commission believes 
that additional information from NYSE National would assist the 
Commission's analysis of whether NYSE National has met its burden under 
the Act. The Commission recognizes that there are various combinations 
of factual information and analysis that NYSE National could provide to 
establish the presence of sufficient competitive forces or otherwise to 
meet its burden under the Act.
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    \63\ See Notice, supra note 4, at 9852 (citing Rysman Paper, 
supra note 24).
    \64\ See id. at 9853.
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    The Commission further believes that with regard to NYSE National's 
platform theory-based arguments, some or all of the following 
information, including in combination with other information,

[[Page 37127]]

would assist its analysis of whether NYSE National has met its burden:
     An explanation of NYSE National's characterization that 
market data and transaction services are the two sides of the exchange 
platform, including whether there are any other sides of the exchange 
platform (e.g., connectivity; listings, for an exchange that lists 
securities) and, if so, whether the other sides of the exchange 
platform should also be considered in analyzing the proposed fees.
     Information sufficient to assess whether aggregate profit 
margins, returns on assets, or other metrics indicate the presence of 
competition. In discussing these metrics, it may be relevant to discuss 
whether and, if so, to what extent some of NYSE National's business 
lines would cross-subsidize its other business lines with the proposed 
fees in place. For example, NYSE National could compute operating 
profit margins and returns on assets for the entirety of NYSE National 
and for each of its business lines (including proprietary market data 
products, consolidated market data products, market connectivity 
services, and transaction services) for a period when the proposed fees 
were in place (e.g., for the period from February 3, 2020 to the date 
of the Suspension Order). NYSE National could also estimate projected 
operating profit margins and returns on assets for the entirety of NYSE 
National and for each of its business lines (including proprietary 
market data products, consolidated market data products, market 
connectivity services, and transaction services) for a period in the 
second half of 2020 (e.g., for the third calendar quarter of 2020), 
with the assumption that the proposed fees are in place during that 
period.\65\ Accordingly, explaining the methodology for computing 
profit margins, returns on assets, or any other metrics provided 
(including the methodology for allocating expenses and assets to 
business lines and among the affiliated exchanges under the NYSE Group 
\66\) and supporting any assumptions that it may need to make (such as 
assumptions underlying its treatment of costs of revenues and 
assumptions needed to project financials) may be necessary for the 
metrics to be meaningful.
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    \65\ NYSE National may seek confidential treatment for such 
projected financial information, or other information requested in 
this order. The Commission anticipates that such information will 
remain non-public subject to federal law.
    \66\ The Commission notes that NYSE National, New York Stock 
Exchange LLC (``NYSE''), NYSE Arca, Inc., NYSE American LLC, and 
NYSE Chicago, Inc. are all, directly or indirectly, wholly-owned 
subsidiaries of NYSE Group, Inc. (``NYSE Group''). The methodology 
for allocating expenses across affiliated exchanges under the NYSE 
Group would enable the Commission to assess how an analysis of NYSE 
National may be different from its affiliated exchanges because it 
is a smaller exchange that is part of a larger exchange group. In 
this context, infrastructure and other NYSE National expenses may be 
cross-subsidized from investments and services provided by the other 
NYSE Group exchanges. To the extent that this is the case, NYSE 
National should explain how this potentially affects the analysis 
and computation of its expenses, profit margins, and returns-on-
assets.
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     Any other information to support the argument that 
competition between exchanges will limit the overall profitability of 
NYSE National and meaningfully constrain NYSE National's ability to 
price its proprietary market data products at supracompetitive prices. 
In particular, NYSE National should consider providing empirical 
support substantiating its claims. For example, because NYSE National 
supported its arguments with information relating to NYSE and the NYSE 
Integrated Feed,\67\ such empirical support could include the financial 
information specified above for NYSE before and after specific 
increases or decreases in the NYSE Integrated Feed fees. To the extent 
that NYSE National argues that competition from other exchanges on the 
trading side meaningfully constrains the pricing on the market data 
side (or other applicable sides) of the platform, it could produce 
disaggregated (i.e., by business line) profit-margin and return-on-
assets information in order to establish that it has met its burden 
under the Act.
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    \67\ See Rysman Paper, supra note 24.
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     An explanation of whether platform-based competition 
functions differently for an exchange with a smaller market share 
(e.g., NYSE National) as compared to an exchange with a larger market 
share (e.g., NYSE) and if so, an explanation of any differences.
     NYSE National may provide other data to substantiate its 
platform theory-based argument, including the claims that competition 
among exchanges will limit the overall profitability of NYSE National's 
platform and competition for order flow on the trading side of the 
platform acts to constrain the pricing of market data on the other side 
of the platform.
    As noted above, in addition to its platform theory-based arguments, 
NYSE National argues that an exchange setting market data fees that are 
not at competitive levels would expect to quickly lose business to 
alternative platforms with more attractive pricing.\68\ NYSE National 
argues that subscribing to the NYSE National Integrated Feed is 
optional, that its customers may choose to discontinue using the feed 
once the proposed fees are effective, and that any customer who chooses 
to discontinue using the feed may choose to shift order flow away from 
NYSE National.\69\ The Commission believes that some or all of the 
following information (including in combination with other information) 
would inform the Commission's analysis of these arguments:
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    \68\ See Notice, supra note 4, at 9853.
    \69\ See id. at 9850, 9853.
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     For periods that would provide meaningful comparisons 
(e.g., each completed calendar quarter of 2019 and 2020, and for each 
full month from November 2019 to date): (1) The number of NYSE National 
Integrated Feed customers and the market participant type of each 
customer (e.g., ATS, broker-dealer, market data vendor, any other 
specified type of market participant); (2) the total number of unique 
clients, and the average number of unique clients per customer, under 
each of the proposed fees (i.e., each product code as used by NYSE 
National) (calculated separately for the group of customers that 
discontinued using the NYSE National Integrated Feed after the proposed 
fees became effective (``discontinued NYSE National customers''), the 
group of customers that continued using the NYSE National Integrated 
Feed after the proposed fees became effective (``continued NYSE 
National customers''), and others (e.g., customers that discontinued 
using the NYSE National Integrated Feed before the proposed fees became 
effective, customers that started using the NYSE National Integrated 
Feed after the proposed fees became effective)); and (3) the aggregate 
dollar trading volume for customers and firms on NYSE National and the 
average dollar trading volume per customer or firm on NYSE National 
(calculated separately for discontinued NYSE National customers, 
continued NYSE National customers, and others (e.g., customers that 
discontinued using the NYSE National Integrated Feed before the 
proposed fees became effective, customers that started using the NYSE 
National Integrated Feed after the proposed fees became effective, 
firms that have not used the NYSE National Integrated Feed)). The 
Commission believes that this type of information would inform the 
Commission's analysis of NYSE National's argument that customers who 
choose to discontinue using the NYSE National Integrated Feed may 
choose to shift order flow away from NYSE National.
     Other specific, factual information that demonstrates that 
customers may choose to discontinue using an

[[Page 37128]]

exchange proprietary depth-of-book market data feed in response to a 
new fee or fee increase, and that the customers who choose to 
discontinue using the market data feed also shift order flow away from 
such exchange. For example, because NYSE National supported its 
arguments with information relating to the NYSE Integrated Feed,\70\ 
NYSE National could provide the following information, calculated 
before and after specific increases in the NYSE Integrated Feed fees: 
(1) The number of NYSE Integrated Feed customers and the market 
participant type of each customer; (2) the total number of unique 
clients, and the average number of unique clients per customer, under 
each fee (i.e., each product code as used by NYSE) (calculated 
separately for the group of customers that discontinued using the NYSE 
Integrated Feed after the fee was initially imposed or after the fee 
increase (``discontinued NYSE customers''), the group of customers that 
continued using the NYSE Integrated Feed after the fee was initially 
imposed or after the fee increase (``continued NYSE customers''), and 
others); and (3) the aggregate dollar trading volume for customers and 
firms on NYSE and the average dollar trading volume per customer or 
firm on NYSE (calculated separately for discontinued NYSE customers, 
continued NYSE customers, and others). This type of information would 
inform the Commission's analysis of whether NYSE National has met its 
burden to demonstrate that customers who choose to discontinue using a 
depth-of-book market data feed also shift order flow away from the 
exchange offering the feed.
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    \70\ See Rysman Paper, supra note 24.
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     NYSE National may provide other data to substantiate its 
claim that customers may choose to discontinue using the NYSE National 
Integrated Feed once the proposed fees are effective, and that 
customers who choose to discontinue using the feed may choose to shift 
order flow away from NYSE National.

2. Are there substitutes for the NYSE National Integrated Feed?

    The Commission also believes that additional information regarding 
NYSE National's substitution-based arguments would assist the 
Commission in its analysis of whether NYSE National has met its burden 
under the Act. The Commission believes that some or all of the 
following information (including in combination with other information) 
would further inform the Commission's analysis of NYSE National's 
substitution-based arguments:
     Information regarding how many of the five original 
subscribers that cancelled their NYSE National Integrated Feed 
subscription subsequently started using the NYSE National BBO or NYSE 
National Trades feed, or any other proprietary market data feed, and 
the market participant type of each of these five subscribers.
     Information regarding how many additional customers 
discontinued (or notified NYSE National of their intention to 
discontinue) using the NYSE National Integrated Feed after the proposed 
fees were implemented on February 3, 2020, how many of these customers 
subsequently started (or notified NYSE National of their intention to 
start) using the NYSE National BBO or NYSE National Trades feed, or any 
other proprietary market data feed, and the market participant type of 
each of these customers.
     NYSE National may provide other data to substantiate its 
substitution-based arguments.
    The Commission believes that responses to some or all of these 
requests would inform the Commission's analysis of NYSE National's 
argument that the NYSE National Integrated Feed is sold in a 
competitive market and that other market data feeds are substitutes for 
the NYSE National Integrated Feed.

3. Are the fees reasonable, equitable, and not unfairly discriminatory?

    The Commission believes that additional information from NYSE 
National could inform the Commission's analysis of the allocation of 
the proposed fees to different types of market participants (e.g., 
whether most of the fees are borne by a particular type of customer and 
whether such an outcome would result in an inequitable allocation of 
the fees or render the fees unfairly discriminatory). For example, some 
or all of the following information (including in combination with 
other information) could meaningfully inform the Commission's analysis:
     In addition to the customer, unique client, and dollar 
trading volume information discussed in Item 1 above,\71\ NYSE National 
could provide projections of the same customer and unique client 
information (with the assumption that the proposed fees are in place, 
and including the methodology for and assumptions underlying such 
projections) for the uncompleted calendar quarters of 2020 up to the 
third calendar quarter of 2020. The Commission believes that this type 
of information would inform the Commission's analysis of the impact of 
the proposed fees on different groups of market participants, including 
because this type of information would allow the Commission to compare: 
(1) The number of discontinued NYSE National customers against the 
number of continued NYSE National customers and the number of other 
customers; and (2) the total and average number of unique clients and 
the aggregate and average dollar trading volume across these three 
groups of customers.
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    \71\ NYSE National states that, based on usage at the time of 
the filing of SR-NYSENAT-2019-31, at least 34 firms would be subject 
to category 1 non-display fees, at least 14 firms would be subject 
to category 2 non-display fees, and at least 10 firms would be 
subject to category 3 non-display fees. See Notice, supra note 4, at 
9850. However, NYSE National does not provide the same usage 
information for each of the other proposed fees (e.g., the number of 
professional users and non-professional users).
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     NYSE National may provide other data to substantiate its 
claims that the proposed fees are equitably allocated, are not unfairly 
discriminatory, and do not impose an unnecessary or inappropriate 
burden on competition.
    With respect to the redistribution fee, as noted above, NYSE 
National argues that the proposed fee is reasonable because vendors 
that would be charged the proposed fee would profit by re-transmitting 
NYSE National's market data to their customers,\72\ and that the 
proposed fee is equitable and not unfairly discriminatory because the 
fee would be charged on an equal basis to those vendors that choose to 
redistribute the feed.\73\ Similarly, with respect to category 3 non-
display fees, which would be charged to each trading platform on which 
the customer uses non-display data (capped at three platforms), NYSE 
National argues that the proposal is reasonable, equitable, and not 
unfairly discriminatory because such use of data is directly in 
competition with NYSE National and NYSE National should be permitted to 
recoup some of its lost trading revenue by charging for the data that 
makes such competition possible.\74\ The Commission believes its 
analysis of the proposed redistribution fee and category 3 non-display 
fees would benefit from a fuller explanation, with supporting facts, of 
why these fees, which are applied specifically to NYSE National's 
competitors, would not be unfairly discriminatory toward those 
competitors or impose an unnecessary or inappropriate burden on 
competition.
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    \72\ See id. at 9854.
    \73\ See id. at 9856-57.
    \74\ See id. at 9855-58.

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[[Page 37129]]

    Finally, as noted above, with respect to the non-display use 
declaration late fee and the multiple data feed fee, NYSE National 
claims that these fees are reasonable, equitable, and not unfairly 
discriminatory because they would offset NYSE National's administrative 
burdens and costs associated with incorrect billing, late payments, and 
tracking data usage locations.\75\ The Commission again believes that 
its analysis would benefit from a fuller explanation, with supporting 
facts, of NYSE National's ``administrative burdens'' and 
``administrative costs'' associated with these activities. The 
Commission believes that such information would inform the Commission's 
analysis of the non-display use declaration late fee and the multiple 
data feed fee.
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    \75\ See id.
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4. General Request for Comment

    The Commission asks that commenters address the sufficiency and 
merit of NYSE National's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. For example, the Commission believes that its 
analysis may benefit from comment, including, where relevant, any 
specific data, statistics, or studies, on the following:
     Do the proposed fees represent an equitable allocation of 
reasonable fees, not permit unfair discrimination, and not impose any 
unnecessary or inappropriate burden on competition? Please explain and 
provide supporting information.
     Are the proposed fees constrained by robust competition? 
Please explain and provide supporting information.
     Are NYSE National's characterization of platform 
competition and characterization of market data and transaction 
services as two sides of an exchange platform correct? Are there any 
other sides of an exchange platform (e.g., connectivity, listing) and 
should these other sides be considered in analyzing the proposed fees?
     Should the question of whether the NYSE National 
Integrated Feed fees are constrained by competitive forces be analyzed 
using any separate methodology not discussed in the proposal (i.e., 
other than substitution and platform competition)? If so, please 
explain such methodology.
     Does an analysis of the total market data revenue from 
NYSE National's parent company demonstrate or support NYSE National's 
assertion that the market for proprietary market data products is 
characterized by robust competition? \76\ Why or why not? Should other 
data, such as operating profit margins and returns on assets for the 
entirety of NYSE National and for each of its business lines (including 
proprietary market data products, consolidated market data products, 
market connectivity services, and transaction services), also be 
analyzed in order to evaluate NYSE National's assertion? Why or why 
not?
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    \76\ See Jones Paper, supra note 31.
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     Does an analysis of the effect of the introduction of the 
NYSE Integrated Feed on trading volume on NYSE demonstrate or support 
NYSE National's assertions that platform economics applies to 
exchanges' sale of proprietary market data products and trading 
services and that platform competition effectively constrains the 
pricing of those data products? \77\ Why or why not?
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    \77\ See Rysman Paper, supra note 24.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File No. SR-NYSENAT-2020-05 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NYSENAT-2020-05. The file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of NYSE National. 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 publicly available. All submissions 
should refer to File No. SR-NYSENAT-2020-05 and should be submitted on 
or before July 10, 2020.

    By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-13201 Filed 6-18-20; 8:45 am]
BILLING CODE 8011-01-P