[Federal Register Volume 87, Number 3 (Wednesday, January 5, 2022)]
[Notices]
[Pages 523-528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-28577]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93883; File No. SR-IEX-2021-14]


Self-Regulatory Organizations; Investors Exchange LLC; Suspension 
of and Order Instituting Proceedings To Determine Whether To Approve or 
Disapprove a Proposed Rule Change To Amend Its Fee Schedule for Market 
Data Fees

December 30, 2021.

I. Introduction

    On November 1, 2021, Investors Exchange LLC (``IEX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to modify its Fee Schedule to 
establish fees, as of January 3, 2022, for the receipt and distribution 
of proprietary market data feeds. The proposed rule change was 
published for comment in the Federal Register on November 17, 2021.\3\ 
Pursuant to Section 19(b)(3)(C) of the Act,\4\ the Commission is hereby 
temporarily suspending File No. SR-IEX-2021-14 and instituting 
proceedings to determine whether to approve or disapprove File No. SR-
IEX-2021-14.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 93557 (November 10, 
2021), 86 FR 64268 (November 17, 2021).
    \4\ 15 U.S.C. 78s(b)(3)(C).
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II. Description of the Proposed Rule Change

    IEX offers two real-time proprietary market data feeds, ``TOPS'' 
\5\ and ``DEEP'' \6\ (collectively, ``IEX Data'' or the ``market data 
feeds'').\7\ DEEP includes all resting displayed liquidity on the 
Exchange aggregated by price level and it therefore includes the top of 
book quotes contained in TOPS, as well as less aggressively priced 
displayed quotes. IEX has not previously imposed fees to access or 
redistribute its market data feeds.\8\
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    \5\ TOPS is an uncompressed data feed that offers aggregated top 
of book quotations for all displayed orders resting on the IEX Order 
Book and last sale information for executions on the Exchange. See 
Notice, supra note 3, at 64269. According to the Exchange, the data 
available through TOPS is also available through the securities 
information processor feed. See id.
    \6\ DEEP is an uncompressed data feed that provides aggregated 
depth of book quotations for all displayed orders resting on the IEX 
Order Book at each price level and last sale information for 
executions on the Exchange. See Notice, supra note 3, at 64269.
    \7\ See Notice, supra note 3, at 64269.
    \8\ See id.
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    The Exchange proposes to modify its Fee Schedule to assess fees on 
Data Subscribers \9\ that access IEX Data in real-time.\10\ As 
discussed below, IEX would not itself provide or impose a fee for time-
delayed IEX Data.\11\ The Exchange proposes to implement these fees on 
January 3, 2022.
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    \9\ The Exchange proposes to define the term ``Data Subscriber'' 
as ``any natural person or entity that receives Real-Time IEX market 
data either directly from the Exchange or from another Data 
Subscriber.'' See Notice, supra note 3, at 64274. IEX will require 
Data Subscribers to enter into a Data Subscriber Agreement with IEX 
in order to receive Real-Time IEX Data. See id. at 64270, n.23.
    \10\ See Notice, supra note 3, at 64269.
    \11\ See Notice, supra note 3, at 64270, n.22.
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    Specifically, IEX proposes to assess Data Subscribers $2,500 per 
month for its ``Real-Time'' DEEP feed and $500 per

[[Page 524]]

month for its ``Real-Time'' TOPS feed. The Exchange proposes to define 
``Real-Time'' as ``IEX market data that is accessed, used, or 
distributed less than fifteen (15) milliseconds after it was made 
available by the Exchange.'' \12\
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    \12\ See Notice, supra note 3, at 64274. IEX will consider 
``market data that is accessed, used, or distributed at least 
fifteen (15) milliseconds after it was made available by the 
Exchange'' as ``Delayed'' IEX Data. See id. IEX only provides Real-
Time IEX Data and will not itself delay the dissemination of IEX 
Data to Data Subscribers. See Notice, supra note 3, at 64269, n.22.
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    Further, the Exchange proposes to assess a $500 per month 
``Distribution Fee'' to each Data Subscriber that redistributes IEX 
Data in Real-Time to an external, non-affiliated third-party.\13\ For 
Data Subscribers that redistribute IEX Data to others, IEX would not 
charge them a Distribution Fee if: (1) They only redistribute the IEX 
Data in Real-Time to internal, affiliated parties; or (2) they delay 
distribution of the data by at least fifteen milliseconds before 
redistributing it.
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    \13\ See Notice, supra note 3, at 64269.
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    For recipients of IEX Data, IEX would not consider them a ``Data 
Subscriber'' and would not charge them the TOPS or DEEP fees if they 
only (1) receive IEX Data subject to a delay of at least a fifteen 
milliseconds \14\ or (2) receive Real-Time IEX Data internally from an 
affiliate.
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    \14\ See Notice, supra note 3, at 64270. The Exchange notes that 
a recipient of Delayed IEX Data may be subject to fees imposed by 
the redistributor of the Delayed IEX Data pursuant to the contract 
between the recipient of the Delayed IEX Data and the third-party 
provider of such market data. See id. at 64270, n.24.
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III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\15\ at any time within 
60 days of the date of filing of an immediately effective proposed rule 
change pursuant to Section 19(b)(1) of the Act,\16\ the Commission 
summarily may temporarily suspend the change in the rules of a self-
regulatory organization (``SRO'') if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
the Act. As described below, the Commission believes a temporary 
suspension of the proposed rule change is necessary and appropriate to 
allow for additional analysis of the proposed rule change's consistency 
with the Act and the rules thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(C).
    \16\ 15 U.S.C. 78s(b)(1).
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    In support of its proposed market data fees, the Exchange states 
``its belief that the fees each equities exchange charges for its 
proprietary market data are not subject to competitive forces'' \17\ 
and therefore has proposed fees that it believes are ``fair and 
reasonable as a form of cost recovery plus the possibility of a 
reasonable return for IEX's aggregate costs of offering IEX Data to its 
Data Subscribers.'' \18\ With respect to its proposed cost-based fees, 
IEX provides a summary of its annual market data infrastructure costs 
($2,483,644 for 2021), with a breakdown of selected line-item costs 
including direct costs, enhancement initiative costs, and personnel 
costs.\19\ IEX states that its proposed fees are reasonable under the 
Act because they are ``based both on the relative costs to IEX to 
generate TOPS and DEEP, as well as IEX's objective to make TOPS broadly 
available to a range of market participants including long-term 
investors.'' \20\ IEX further asserts that its proposed fees ``are 
reasonable because they are designed to generate annual revenue of 
approximately $3.1 million (reflecting a 25% markup over costs),'' \21\ 
though IEX acknowledges a potential markup from ``break even'' or even 
below aggregate costs to an aggregate markup of 95%, depending on the 
number of paying subscribers it ultimately will have.\22\ IEX further 
states that it ``is only charging Data Subscribers who use IEX Data in 
real time'' and argues that its proposed fees ``are significantly less 
than the fees charged by competing equities exchanges'' and that its 
fee proposal ``will not impose onerous audit requirements on Data 
Subscribers.'' \23\
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    \17\ See Notice, supra note 3, at 64274.
    \18\ See Notice, supra note 3, at 64274.
    \19\ See Notice, supra note 3, at 64271.
    \20\ See Notice, supra note 3, at 64274-75.
    \21\ See Notice, supra note 3, at 64275.
    \22\ See Notice, supra note 3, at 64273.
    \23\ See Notice, supra note 3, at 64275.
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    When an Exchange files a proposed rule change with the Commission, 
including fee filings, it is required to provide a statement supporting 
the proposal's basis under the Act and the rules and regulations 
thereunder applicable to the exchange.\24\ The instructions to Form 
19b-4, on which exchanges file their proposed rule changes, specify 
that such statement ``should be sufficiently detailed and specific to 
support a finding that the proposed rule change is consistent with 
[those] requirements.'' \25\
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    \24\ See 17 CFR 240.19b-4 (General Instructions for Form 19b-4--
Information to be Included in the Complete Form--Item 3 entitled 
``Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change'').
    \25\ See id.
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    Section 6 of the Act, including Sections 6(b)(4), (5), and (8), 
requires, among other things, that the rules of an exchange: (1) 
Provide for the equitable allocation of reasonable fees among members, 
issuers, and other persons using the exchange's facilities; \26\ (2) be 
designed to perfect the mechanism of a free and open market and a 
national market system and to protect investors and the public 
interest, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers; \27\ and (3) not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\28\
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    \26\ 15 U.S.C. 78f(b)(4).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's proposed rule change, the 
Commission intends to further consider whether the proposed fees are 
consistent with the statutory requirements applicable to a national 
securities exchange under the Act. In particular, the Commission will 
consider whether the proposed rule change satisfies the standards under 
the Act and the rules thereunder requiring, among other things, that an 
exchange's rules provide for the equitable allocation of reasonable 
fees among members, issuers, and other persons using its facilities; 
are designed to perfect the mechanism of a free and open market and a 
national market system and to protect investors and the public 
interest, and are not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers; and do not impose any burden 
on competition not necessary or appropriate in furtherance of the 
purposes of the Act.\29\
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    \29\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule change.\30\
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    \30\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-IEX-
2021-14 and Grounds for Disapproval Under Consideration

    In addition to temporarily suspending the proposal, the Commission 
also hereby institutes proceedings pursuant to Sections 19(b)(3)(C) 
\31\ and

[[Page 525]]

19(b)(2)(B) \32\ of the Act to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change to inform the Commission's analysis of 
whether to approve or disapprove the proposed rule change.
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    \31\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \32\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\33\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of whether the Exchange has sufficiently 
demonstrated how the proposed rule change is consistent with Sections 
6(b)(4),\34\ 6(b)(5),\35\ and 6(b)(8) \36\ of the Act. Section 6(b)(4) 
of the Act requires that the rules of a national securities exchange 
provide for the equitable allocation of reasonable dues, fees, and 
other charges among its members and issuers and other persons using its 
facilities. Section 6(b)(5) of the Act requires that the rules of a 
national securities exchange be designed, among other things, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system and, in general, to protect investors and the public 
interest, and not be designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers. Section 6(b)(8) of the Act 
requires that the rules of a national securities exchange not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
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    \33\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also 
provides that proceedings to determine whether to disapprove a 
proposed rule change must be concluded within 180 days of the date 
of publication of notice of the filing of the proposed rule change. 
See id. The time for conclusion of the proceedings may be extended 
for up to 60 days if the Commission finds good cause for such 
extension and publishes its reasons for so finding, or if the 
exchange consents to the longer period. See id.
    \34\ 15 U.S.C. 78f(b)(4).
    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78f(b)(8).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice, in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following aspects of the proposal and asks 
commenters to submit data where appropriate to support their views:
    1. Cost Allocation. IEX states it ``does not believe that exchange 
market data fees are constrained by competitive market forces,'' \37\ 
and that ``each exchange has a natural monopoly over its own market 
data.'' \38\ Consequently, for market data fee filings, IEX believes 
that exchanges ``should meet very high standards of transparency to 
demonstrate why each new fee or fee increase meets the Exchange Act 
requirements'' and that ``each exchange should demonstrate that these 
fees bear a reasonable relationship to its costs and reasonable 
business needs and that it is not taking unfair advantage of its unique 
position as the sole provider of its own proprietary market data.'' 
\39\ In proposing its fees, IEX says it used a ``cost-plus model'' and 
``sought to determine such fees in a transparent way in relation to its 
own aggregate costs of providing the related service. . . .'' \40\ IEX 
says it used a ``conservative methodology (i.e., that strictly 
considers only those costs that are most clearly directly related to 
the production and distribution of IEX Data) to estimate such costs, as 
well as the relative costs of compiling the TOPS and DEEP feeds . . .'' 
\41\ and also considered its ``objective to make TOPS broadly available 
to a range of market participants including long-term investors.'' \42\ 
IEX summarizes its cost components according to (1) direct costs 
(servers, infrastructure, monitoring), (2) enhancement initiative costs 
(new functionality and capacity), and (3) personnel.\43\ IEX asserts 
that direct costs are those that are specifically dedicated to IEX Data 
and that physical assets and software are valued at cost and 
depreciated over three years.\44\ For direct costs, IEX notes that 
``servers included were limited to those specifically dedicated to IEX 
Data'' and that ``[a]ll physical assets and software, which also 
includes assets used for testing and monitoring of market data 
infrastructure, were valued at cost, and depreciated over three 
years.'' \45\ Do commenters believe IEX has provided sufficient detail 
about the specific direct costs it has assigned to market data to 
justify its proposal? For enhancement initiative costs, IEX asserts 
that, though they are one-time costs, it expects to incur ``annual 
enhancement costs on an ongoing basis'' that ``will be similar'' to 
what it incurred in 2021.\46\ Do commenters believe enhancement costs 
are sufficiently clear and defined? Further, do commenters expect costs 
(enhancement costs as well as all other costs) incurred in 2021 to be 
generally representative of an exchange's expected costs going forward 
(to the extent commenters consider 2021 to be an atypical year), or 
should an exchange present an estimated range of costs with an 
explanation of how profit margins could vary along with estimates 
costs? For personnel costs, IEX ``calculated an allocation of employee 
time for employees whose functions include providing and maintaining 
IEX Data and/or the proprietary market data feeds used to transmit IEX 
Data, and used a blended rate of compensation reflecting salary, stock 
and bonus compensation, bonuses, benefits, payroll taxes, and 401(k) 
matching contributions.'' \47\ IEX estimates 6.15 FTEs who ``work in 
support of compiling and disseminating IEX Data,'' \48\ but does not 
identify the department and job title of all employees it counted as 
``work[ing] in support of compiling and disseminating IEX Data'' nor 
does it explain the methodology it used to determine how much of an 
employee's time is devoted to that specific activity (e.g., are 
finance, legal, HR, administrative personnel included in this estimate 
and what portion of their time did IEX count towards market data costs 
and why?). Further, IEX uses a ``blended compensation rate . . . to 
determine the personnel costs associated with compiling and 
disseminating IEX Data,'' \49\ which includes salary, stock 
compensation, annual cash bonus, benefits, payroll taxes, and 401(k) 
matching contributions.\50\ Do commenters believe those are appropriate 
criteria? In particular, would it be appropriate to include stock 
compensation and annual cash bonuses in a blended compensation rate for

[[Page 526]]

purposes of assessing market data costs if those items are based on an 
exchange's overall profitability or performance and not the individual 
employee's performance (and thus not directly attributable to market 
data)? Across all of these costs, what are commenters' views on whether 
the Exchange has provided sufficient detail on the elements that go 
into its market data costs, including how it allocated and attributed 
shared costs to market data expenses, to permit an independent review 
of its costs and meaningfully assess the reasonableness of purported 
cost-based fees and the corresponding profit margin thereon?
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    \37\ Notice, supra note 3 at 64272.
    \38\ Notice, supra note 3 at 64269.
    \39\ Notice, supra note 3 at 64269.
    \40\ Notice, supra note 3 at 64269-70.
    \41\ Notice, supra note 3 at 64270.
    \42\ Notice, supra note 3 at 64274-75.
    \43\ Notice, supra note 3 at 64270-71.
    \44\ Notice, supra note 3 at 64271.
    \45\ Notice, supra note 3 at 64271.
    \46\ Notice, supra note 3 at 64270, n.31.
    \47\ Notice, supra note 3 at 64271.
    \48\ Notice, supra note 3 at 64271, n.33.
    \49\ Notice, supra note 3 at 64271, n.33.
    \50\ See, e.g., Cost Study at 3.
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    2. TOPS versus DEEP. IEX states that its proposed market data fee 
structure is ``designed to make real time access to IEX's top of book 
widely available to a broad base of market participants'' and, to 
accomplish that goal, IEX ``proposes to allocate its cost plus 
structure so that TOPS is materially more affordable than DEEP.'' IEX 
notes that ``because it contains multiple price levels, DEEP requires 
more processing (and related costs) for IEX to generate than TOPS.'' 
\51\ As proposed, DEEP ($2,500) is five times more expensive than TOPS 
($500). However, IEX does not assert in its filing that DEEP is five 
times more costly for it to produce than TOPS, nor does IEX present its 
separate costs to produce DEEP and TOPS individually. Rather, IEX 
appears to be subsidizing TOPS, though it has not presented a cost-
based explanation for how it is doing so or explained the extent to 
which it is subsidizing TOPS through the proposed fees for DEEP or some 
other source of revenue. Do commenters believe that the price 
difference between TOPS and DEEP is consistent with IEX's assertions 
that it set the level of its proposed fees ``in relation to its own 
aggregate costs of providing the related service. . .'' \52\ and 
according to the ``relative costs of compiling the TOPS and DEEP 
feeds?'' \53\ Do commenters believe that IEX should provide more detail 
about the types of market participants that subscribe to TOPS and DEEP 
in order to assess, among other things, IEX's statement that ``fees 
also do not depend on any distinctions between Members, customers, 
broker-dealers, or any other entity, because they are solely determined 
by the individual Data Subscriber's business needs?'' \54\
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    \51\ Notice, supra note 3 at 64270.
    \52\ Notice, supra note 3 at 64269.
    \53\ Notice, supra note 3 at 64270.
    \54\ Notice, supra note 3 at 64275.
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    3. Subscribers. IEX acknowledges that imposing a fee on the 
proprietary market data it previously offered for free may cause some 
of its current market data subscribers to terminate or modify their 
current subscriptions.\55\ Specifically, IEX says it ``currently has 70 
Data Subscribers who it believes are individuals and expects that most, 
if not all, of the individual Data Subscribers will terminate their 
subscriptions for IEX Data'' once IEX charges for Real-Time data 
(though ``if they choose to continue to receive IEX Data, [they] can 
opt to receive Delayed IEX Data from a third-party vendor or through 
HIST'').\56\ IEX says (without providing supporting numbers) that the 
``remaining, non-individual, Data Subscribers are made up of 
approximately one-third IEX Members, one-third professional market 
participants that are not IEX Members (e.g., hedge funds and broker-
dealers), and one-third data vendors'' and ``[b]ased on IEX's general 
understanding of many of its current Data Subscribers' business models, 
IEX projects at least half of the data vendors will retain all of their 
existing subscriptions for IEX Data while the others may cancel their 
real-time data subscriptions, and also anticipates that several Members 
and non-Members will cancel their real-time data subscriptions for 
either TOPS, DEEP, or both.'' \57\ IEX did not offer any further 
explanation of its basis for these projections. For example, how many 
non-individual Data Subscribers does IEX have that subscribe to each of 
TOPS, DEEP, or TOPS and DEEP, and on what basis does IEX estimate they 
will alter their current subscriptions? Has IEX received any verbal or 
written indication of such subscribers' likely intent? Do commenters 
believe IEX has provided sufficient information regarding its current 
market data subscriber base as well as sufficient information to 
support its projections regarding what types of current subscribers 
(i.e., individuals, vendors, members, and non-members) may terminate or 
modify their current subscriptions and why? Do commenters believe that 
additional detail on estimated subscribers to TOPS, DEEP, or TOPS and 
DEEP is necessary and useful to assess the Exchange's estimated profit 
margin on market data?
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    \55\ See Notice, supra note 3 at 64273 (discussing IEX's 
projections regarding how fees are likely to impact IEX market data 
subscriptions).
    \56\ Notice, supra note 3 at 64273.
    \57\ See id.
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    4. Profit Margin Range. IEX states that its proposed fee structure 
is ``designed to recoup its costs and limit any revenue in excess of 
cost to an amount that represents no more than what IEX believes is a 
reasonable rate of return over such costs.'' \58\ Depending on how many 
paying subscribers IEX will have once the fees take effect, IEX 
projects that the proposed market data fees will generate revenue of up 
to 95% above cost, though it has targeted and projects a 25% return 
over costs based on its estimate of subscribers.\59\ IEX attributes the 
wide range to its inability to know beforehand who will subscribe to 
TOPS or DEEP (or both or neither). If IEX is incorrect and all people 
that currently obtain IEX Data (for free) keep that data and pay the 
fee, IEX estimates it could generate revenue of 95% above cost. On the 
other hand, IEX also acknowledges that ``revenues could range from 
`break even' (or even below aggregate costs)'' if its projections are 
incorrect.\60\ However, IEX does not specify the circumstances under 
which it would receive zero or negative profit margins or the 
likelihood of that occurring. Further, IEX does not specifically 
explain why it believes that profit margins of up to 95% are 
appropriate nor does it provide an argument to support a finding that 
fees within that range would be reasonable under the Act. Do commenters 
find IEX's projected range to be appropriately narrow for a cost-based 
fee filing, or should IEX provide a more detailed and precise estimate 
in order to facilitate consideration of whether the proposed fees are 
reasonable and equitably allocated? Do commenters believe that the top-
end of the range (95%) would constitute a reasonable rate of return 
over cost for proprietary market data?
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    \58\ Notice, supra note 3 at 64271.
    \59\ Notice, supra note 3 at 64273.
    \60\ Notice, supra note 3 at 64273.
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    5. Reasonable Rate of Return. IEX believes that a 95% return ``is 
unlikely'' and ``is targeting a return of 25% over its costs'' \61\ 
because ``market participants that do not need real-time data will have 
the option to receive Delayed IEX Data (at a minimal delay of only 15 
milliseconds) in lieu of real-time data, without paying a fee to IEX.'' 
\62\ IEX states that its proposed fees are reasonable because, among 
other things, ``IEX is only charging Data Subscribers who use IEX Data 
in real time'' and the fees ``are significantly less than the fees 
charged by competing equities exchanges. . . .'' \63\ If IEX's 
subscriber estimates are correct, do commenters agree with IEX that its 
targeted 25% profit margin would constitute a reasonable rate of return 
over cost for proprietary market data? If not, what would commenters 
consider

[[Page 527]]

to be a reasonable rate of return for proprietary market data fees? The 
rate of return is dependent on the accuracy of the cost allocations 
which, if inflated (intentionally or unintentionally), may render the 
projected profit margin meaningless. What are commenters' views 
regarding what factors should be considered in determining what 
constitutes a reasonable rate of return for proprietary market data 
fees?
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    \61\ Notice, supra note 3 at 64271.
    \62\ Notice, supra note 3 at 64272.
    \63\ Notice, supra note 3 at 64275.
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    6. Periodic Reevaluation. IEX represented that ``[i]f the revenue 
IEX receives from the proposed fees materially deviates from IEX's 
projections described herein, IEX will assess whether it is appropriate 
to make a rule filing pursuant to Section 19(b) of the Act to increase 
or decrease the fees accordingly.'' \64\ In light of the impact that 
the number of subscribers has on market data profit margins (because 
market data costs do not necessarily linearly change as the number of 
subscribers increase or decrease), what are commenters' views on the 
need for exchanges to commit to reevaluate, on an ongoing and periodic 
basis, their cost-based proprietary market data fees to ensure that 
they stay in line with their stated profitability target and do not 
become unreasonable over time, for example, by failing to adjust for 
efficiency gains, cost increases or decreases, and changes in 
subscribers? How formal should that process be, how often should that 
reevaluation occur, and what metrics and thresholds should be 
considered? How soon after a new market data fee change is implemented 
should an exchange assess whether its subscriber estimates were 
accurate and at what threshold should an exchange commit to file a fee 
change if its estimates were inaccurate? Should an initial review take 
place within the first 30 days after a proprietary market data fee 
becomes operative?
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    \64\ Notice, supra note 3 at 64271, n.44.
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    7. Real-Time. IEX is only proposing to assess fees for market data 
that is made available in ``Real-Time.'' The Exchange is proposing to 
define ``Real-Time'' market data as IEX market data that is accessed, 
used, or distributed less than fifteen milliseconds after it was made 
available by the Exchange. IEX states that it ``sought informal 
feedback from Members and other Data Subscribers'' and, ``[b]ased upon 
that informal feedback, IEX believes that most, if not all, non-
electronic trading desks would be able to continue to use IEX Data if 
it was received subject to at least a fifteen-millisecond delay.'' \65\ 
What are commenters' views on this threshold and whether this 
definition accurately reflects and correlates to IEX's assertion that 
``it is the very demand for real-time, low latency data that drives 
much of the costs associated with creating and distributing'' such 
data? \66\ Do commenters agree with IEX's statement that ``most, if not 
all, non-electronic trading desks would be able to continue to use IEX 
Data if it was received subject to at least a fifteen-millisecond 
delay,'' and that (conversely) electronic trading desks that need IEX 
Data for trading purposes require the data to have less than a 15 
millisecond delay? \67\ Similarly, do commenters agree with IEX's 
statement that a fifteen-millisecond delay is ``a time frame that is 
usable for most trading purposes'' (i.e., does usefulness to ``non-
electronic trading desks'' cover ``most trading purposes''), while the 
fifteen-minute delay offered by other exchanges ``makes the data stale 
for any subscribers using the data to make trading decisions''? \68\
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    \65\ Notice, supra note 3 at 64273.
    \66\ Notice, supra note 3 at 64270.
    \67\ Notice, supra note 3 at 64273.
    \68\ Notice, supra note 3 at 64275.
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    8. Distribution Fee. IEX proposes a $500 redistribution fee because 
``[e]nabling redistribution in real time adds to IEX's administrative 
expenses related to the need to identify and track the recipients of 
IEX Data.'' \69\ IEX does not, however, provide any estimate of such 
administrative expenses, nor does it mention its targeted profit margin 
on the proposed Distribution Fee. IEX also justifies the proposed 
Distribution Fee by noting that ``if it allowed Data Subscribers to 
redistribute IEX Data in real time without any additional fees, it 
could enable Data Subscribers to circumvent IEX's fees for providing 
IEX Data, which would conflict with IEX's objective to recover its 
costs of producing IEX Data.'' \70\ IEX does not explain how the 
proposed Distribution Fee would discourage Data Subscribers from 
circumventing the TOPS and/or DEEP fees. What are commenters' views on 
the adequacy of the information IEX provides regarding its proposed 
Distribution Fee?
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    \69\ Notice, supra note 3 at 64270.
    \70\ Notice, supra note 3 at 64270.
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    9. Delayed IEX Data. IEX does not propose to itself directly offer 
Delayed IEX Data, nor does it propose to charge persons that access, 
receive, or distribute Delayed IEX Data from third parties. IEX states 
that its proposal will continue ``to allow market participants to 
access IEX Data free of charge if they can wait at least fifteen 
milliseconds to receive it'' \71\ but acknowledges that 
``[d]istributors of Delayed IEX Data may charge a fee for the data, but 
that fee is not payable to IEX.'' \72\ What do commenters think will be 
the end costs to consumers of Delayed IEX Data? While IEX itself will 
not charge for Delayed IEX Data, do commenters think there is 
sufficient competition among data vendors such that market participants 
will have access to Delayed IEX Data for a reasonable fee?
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    \71\ Notice, supra note 3 at 64275.
    \72\ Notice, supra note 3 at 64276, n.75.
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    10. Sharing with Affiliates. In an example discussing the other 
exchanges that charge for proprietary market data, IEX explains that 
``the aggregate monthly cost for those 11 equity exchanges [to obtain 
IEX Data] would be $3,000 per exchange family.'' \73\ That statement, 
however, appears to be inconsistent with the rule text and the proposed 
definition of Data Subscriber. Specifically, IEX's proposed rule text 
defines ``Data Subscriber'' as ``any natural person or entity that 
receives Real-Time IEX market data either directly from the Exchange or 
from another Data Subscriber.'' \74\ Further, it states that each Data 
Subscriber ``must enter into a Data Subscriber Agreement with IEX in 
order to receive Real-Time IEX market data'' \75\ as well as pay the 
applicable fee. Yet, IEX's example of affiliated exchanges states that 
an exchange family would only be assessed $3,000 in fees (i.e., $2,500 
for DEEP and $500 for TOPS), despite the fact that each exchange within 
a family would independently meet the proposed definition of Data 
Subscriber. IEX's filing appears incomplete with respect to how the 
proposed fees would apply in the case of internal sharing of TOPS and/
or DEEP with an affiliate.
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    \73\ Notice, supra note 3 at 64272.
    \74\ Notice, supra note 3 at 64274.
    \75\ See id.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \76\ 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,\77\ and any failure of an SRO to provide this 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

[[Page 528]]

and regulations.\78\ Moreover, ``unquestioning reliance'' on an SRO's 
representations in a proposed rule change would not be sufficient to 
justify Commission approval of a proposed rule change.\79\
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    \76\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \77\ See id.
    \78\ See id.
    \79\ See Susquehanna Int'l Group, LLP v. Securities and Exchange 
Commission, 866 F.3d 442, 446-47 (D.C. Cir. 2017) (rejecting the 
Commission's reliance on an SRO's own determinations without 
sufficient evidence of the basis for such determinations).
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    The Commission believes it is appropriate to institute proceedings 
to allow for additional consideration and comment on the issues raised 
herein, including as to whether the proposed fees are consistent with 
the Act, any potential comments or supplemental information provided by 
the Exchange, and any additional independent analysis by the 
Commission.

V. Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns and issues identified above, as well as any other relevant 
concerns. In particular, the Commission invites the written views of 
interested persons concerning whether the proposal is consistent with 
Sections 6(b)(4), 6(b)(5), and 6(b)(8), or any other provision of the 
Act, or the rules and regulations thereunder. The Commission asks that 
commenters address the sufficiency and merit of the Exchange's 
statements in support of the proposal, in addition to any other 
comments they may wish to submit about the proposed rule change. 
Although there do not appear to be any issues relevant to approval or 
disapproval that would be facilitated by an oral presentation of views, 
data, and arguments, the Commission will consider, pursuant to Rule 
19b-4, any request for an opportunity to make an oral presentation.\80\
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    \80\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by January 26, 2022. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
February 9, 2022.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-IEX-2021-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-IEX-2021-14. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number IEX-2021-14 and should be submitted on or 
before January 26, 2022. Rebuttal comments should be submitted by 
February 9, 2022.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\81\ that File No. SR-IEX-2021-14 be, and hereby is, temporarily 
suspended. In addition, the Commission is instituting proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.
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    \81\ 15 U.S.C. 78s(b)(3)(C).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\82\
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    \82\ 17 CFR 200.30-3(a)(57) and (58).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2021-28577 Filed 1-4-22; 8:45 am]
BILLING CODE 8011-01-P