[Federal Register Volume 75, Number 106 (Thursday, June 3, 2010)]
[Notices]
[Pages 31488-31491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13336]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62181; File No. SR-NYSE-2010-30]
Self-Regulatory Organizations; New York Stock Exchange, LLC;
Order Approving Proposed Rule Change To Establish the NYSE BBO Service
May 26, 2010.
I. Introduction
On April 1, 2010, the New York Stock Exchange, LLC (``NYSE'' or the
``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 the NYSE BBO Service, a service that
will make available the Exchange's best bids and offers and to
establish fees for that service. The proposed rule change was published
for comment in the Federal Register on April 22, 2010.\3\ The
Commission received no comment letters on the proposal. This order
approves the proposed rule change.
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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. 61914 (April 15,
2010), 75 FR 21077.
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II. Description of the Proposal
a. Subscribers and Data Feed Recipients
The NYSE BBO Service is a NYSE-only market data service that allows
a vendor to redistribute on a real-time basis the same best-bid-and-
offer information that NYSE reports under the CQ Plan for inclusion in
the CQ Plan's consolidated quotation information data stream (``NYSE
BBO Information''). NYSE BBO Information would include the best bids
and offers for all securities that are traded on the Exchange and for
which NYSE reports quotes under the CQ Plan. NYSE will make the NYSE
BBO Service available over a single datafeed, regardless of the markets
on which the securities are listed.
The NYSE BBO Service would allow vendors, broker-dealers, private
network providers and other entities (``NYSE-Only Vendors'') to make
NYSE BBO Information available on a real-time basis. NYSE-Only Vendors
may distribute the NYSE BBO Service to both professional and
nonprofessional subscribers.
The Exchange would make NYSE BBO Information available through its
new NYSE BBO Service no earlier than
[[Page 31489]]
it makes that information available to the processor under the CQ Plan.
b. Fees
i. Access Fee
For the receipt of access to the NYSE BBO datafeed, the Exchange
proposes to charge $1500 per month. One $1500 monthly access fee
entitles an NYSE-Only Vendor to receive both the NYSE BBO datafeed as
well as the Exchange's NYSE Trades datafeed.\4\ The fee applies to
receipt of NYSE market data within the NYSE-Only Vendor's organization
or outside of it.
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\4\ The Commission approved the Exchange's NYSE Trades service,
a NYSE-only market data service that allows a vendor to redistribute
on a real-time basis the same last sale information that the
Exchange reports to the Consolidated Tape Association (``CTA'') for
inclusion in CTA's consolidated data stream and certain other
related data elements. See Securities Exchange Act Release No. 59606
(March 19, 2009), 74 FR 13293 (March 26, 2009) (SR-NYSE-2009-04).
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ii. Professional Subscriber Fees
For the receipt and use of NYSE BBO Information, the Exchange
proposes to charge $15 per month per professional subscriber device.
In addition, the Exchange proposes to offer an alternative
methodology to the traditional device fee. Instead of charging $15 per
month per device, it proposes to offer NYSE-Only Vendors the option of
paying $15 per month per ``Subscriber Entitlement.'' The fee entitles
the end-user to receive and use NYSE BBO Information relating to all
securities traded on NYSE, regardless of the market on which a security
is listed. For the purpose of calculating Subscriber Entitlements, the
Exchange proposes to adopt the unit-of-count methodology approved by
the Commission earlier this year with respect to its NYSE
OpenBook[supreg] service (the ``Unit-of-Count Filing'').\5\
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\5\ See Securities Exchange Act Release No. 62038 (May 5, 2010),
75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22) (approving on a
permanent basis the alternative unit-of-count methodology).
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iii. Nonprofessional Subscriber Fee
The Exchange proposes to charge each NYSE-Only Vendor $5.00 per
month for each nonprofessional subscriber to whom it provides NYSE BBO
Information. The Exchange proposes to impose the charge on the NYSE-
Only Vendor, rather than on the nonprofessional Subscriber. In
addition, the Exchange proposes, to establish as an alternative to the
fixed $5.00 monthly fee, a fee of $.005 for each response that a NYSE-
Only Vendor disseminates to a nonprofessional Subscriber's inquiry for
a best bid or offer under the NYSE BBO service. The Exchange proposes
to limit a NYSE-Only Vendor's exposure under this alternative fee to
$5.00 per month, the same amount as the proposed fixed monthly
nonprofessional Subscriber flat fee. In order to take advantage of the
per-query fee, a NYSE-Only Vendor must document in its Exhibit A that
it can: (1) Accurately measure the number of queries from each
nonprofessional Subscriber and (2) report aggregate query quantities on
a monthly basis.
The Exchange will impose the per-query fee only on the
dissemination of best bids and offers to nonprofessional Subscribers.
The per-query charge is imposed on NYSE-Only Vendors, not end-users,
and is payable on a monthly basis. NYSE-Only Vendors may elect to
disseminate the NYSE BBO service pursuant to the per-query fee rather
than the fixed monthly fee.
In establishing a nonprofessional Subscriber fee for the NYSE BBO
Service, the Exchange proposes to apply the same criteria for
qualification as a ``nonprofessional subscriber'' as the CTA and CQ
Plan Participants use. Similar to the CTA and CQ Plans, classification
as a nonprofessional subscriber is subject to Exchange review and
requires the subscriber to attest to his or her nonprofessional
subscriber status. A ``nonprofessional subscriber'' is a natural person
who uses the data solely for his personal, non-business use and who is
neither:
A. Registered or qualified with the Securities and Exchange
Commission, the Commodities Futures Trading Commission, any state
securities agency, any securities exchange or association, or any
commodities or futures contract market or association,
B. Engaged as an ``investment adviser'' as that term is defined in
Section 202(a)(11) of the Investment Advisors Act of 1940 (whether or
not registered or qualified under that act), nor
C. Employed by a bank or other organization exemption from
registration under Federal and/or state securities laws to perform
functions that would require him/her to be so registered or qualified
if he/she were to perform such function for an organization not so
exempt.
c. Justification of Fees
The Exchange believes that the proposed monthly access fee,
professional subscriber fee and nonprofessional subscriber fee for the
NYSE BBO Service will enable NYSE-Only Vendors and their subscribers to
contribute to the Exchange's operating costs in a manner that is
appropriate for the distribution of NYSE BBO Information in the form
taken by the proposed services. In setting the level of the proposed
fees, the Exchange considered several factors, including:
(i) NYSE's expectation that the NYSE BBO Service is likely to be a
premium service, used by investors most concerned with receiving NYSE
BBO Information on a low latency basis;
(ii) The fees that the CQ Plan Participants, Nasdaq, NYSE Amex and
NYSE Arca are charging for similar services (or that NYSE anticipates
they will soon propose to charge);
(iii) Consultation with some of the entities that the Exchange
anticipates will be the most likely to take advantage of the proposed
service;
(iv) The contribution of market data revenues that the Exchange
believes is appropriate for entities that are most likely to take
advantage of the proposed service;
(v) The contribution that revenues accruing from the proposed fee
will make to meet the overall costs of the Exchange's operations;
(vi) The savings in administrative and reporting costs that the
NYSE BBO Service will provide to NYSE-Only Vendors (relative to
counterpart services under the CQ Plan); and
(vii) The fact that the proposed fees provide alternatives to
existing fees under the CQ Plan, alternatives that vendors will
purchase only if they determine that the perceived benefits outweigh
the cost.
d. Administrative Requirements
The Exchange will require each NYSE-Only Vendor to enter into a
vendor agreement just as the CTA and CQ Plans require recipients of the
Network A datafeeds to enter (the ``Consolidated Vendor Form''). The
agreement will authorize the NYSE-Only Vendor to provide NYSE BBO
Information to its customers or to distribute the data internally.
In addition, the Exchange will require each professional end-user
that receives NYSE BBO Information from a vendor or broker-dealer to
enter into the form of professional subscriber agreement into which the
CTA and CQ Plans require end users of Network A data to enter. It will
also require NYSE-Only Vendors to subject nonprofessional subscribers
to the same contract requirements as the CTA and CQ Plan Participants
require of Network A nonprofessional subscribers.
III. Discussion
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to
[[Page 31490]]
a national securities exchange.\6\ In particular, it is consistent with
Section 6(b)(4) of the Act,\7\ which 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 parties using its facilities, and Section 6(b)(5) of the
Act,\8\ which requires, among other things, that the rules of a
national securities exchange be designed 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.
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\6\ In approving this 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).
\7\ 15 U.S.C. 78f(b)(4).
\8\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\9\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\10\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\11\
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\9\ 15 U.S.C. 78f(b)(8).
\10\ 17 CFR 242.603(a).
\11\ NYSE is an exclusive processor of the NYSE BBO service
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes information with respect to quotations or
transactions on an exclusive basis on its own behalf.
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The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for non-core market data fees.\12\ In the
NYSE Arca Order, the Commission stated that ``when possible, reliance
on competitive forces is the most appropriate and effective means to
assess whether the terms for the distribution of non-core data are
equitable, fair and reasonable, and not unreasonably discriminatory.''
\13\ It noted that the ``existence of significant competition provides
a substantial basis for finding that the terms of an exchange's fee
proposal are equitable, fair, reasonable, and not unreasonably or
unfairly discriminatory.'' \14\ If an exchange ``was subject to
significant competitive forces in setting the terms of a proposal,''
the Commission will approve a proposal unless it determines that
``there is a substantial countervailing basis to find that the terms
nevertheless fail to meet an applicable requirement of the Exchange Act
or the rules thereunder.'' \15\
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\12\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order''). In the NYSE Arca Order, the Commission describes in
great detail the competitive factors that apply to non-core market
data products. The Commission hereby incorporates by reference the
data and analysis from the NYSE Arca Order into this order.
\13\ Id. at 74771.
\14\ Id. at 74782.
\15\ Id. at 74781.
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As noted in the NYSE Arca Order, the standards in Section 6 of the
Act and Rule 603 of Regulation NMS do not differentiate between types
of data and therefore apply to exchange proposals to distribute both
core data and non-core data. Core data is the best-priced quotations
and comprehensive last-sale reports of all markets that the Commission,
pursuant to Rule 603(b), requires a central processor to consolidate
and distribute to the public pursuant to joint-SRO plans.\16\ In
contrast, individual exchanges and other market participants distribute
non-core data voluntarily.\17\ The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees.\18\ Non-core data products and their fees
are, by contrast, much more sensitive to competitive forces. The
Commission therefore is able to use competitive forces in its
determination of whether an exchange's proposal to distribute non-core
data meets the standards of Section 6 and Rule 603.\19\ Because NYSE's
instant proposal relates to the distribution of non-core data, the
Commission will apply the market-based approach set forth in the NYSE
Arca Order.
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\16\ See 17 CFR 242.603(b). (``Every national securities
exchange on which an NMS stock is traded and national securities
association shall act jointly pursuant to one or more effective
national market system plans to disseminate consolidated
information, including a national best bid and national best offer,
on quotations for and transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all consolidated information
for an individual NMS stock through a single plan processor.'')
\17\ See NYSE Arca Order at 74779.
\18\ Id.
\19\ Id.
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The Exchange proposes to establish a service that would allow a
vendor to redistribute best bids and offers for all securities that are
traded on the Exchange and for which NYSE reports quotes under the CQ
Plan. The Exchange proposes to establish a monthly vendor fee and an
alternative fee rate that uses the unit-of-count methodology. The
Exchange represents that this change would provide investors with a
less expensive alternative to access bids and offer calculations than
the CQ Plan's consolidated data.
The proposal before the Commission relates to fees for NYSE BBO
Information which is a non-core, market data product. As in the
Commission's NYSE Arca Order analysis, at least two broad types of
significant competitive forces applied to NYSE in setting the terms of
this proposal: (i) NYSE's compelling need to attract order flow from
market participants; and (ii) the availability to market participants
of alternatives to purchasing NYSE's BBO Information.
Attracting order flow is the core competitive concern of any equity
exchange, including NYSE. Attracting order flow is an essential part of
NYSE's competitive success. If NYSE cannot attract order flow to its
market, it will not be able to execute transactions. If NYSE cannot
execute transactions on its market, it will not generate transaction
revenue. If NYSE cannot attract orders or execute transactions on its
market, it will not have market data to distribute, for a fee or
otherwise, and will not earn market data revenue and thus not be
competitive with other exchanges that have this ability. Table 1 below
provides a useful recent snapshot of the state of competition in the
U.S. equity markets in the month of September 2009:\20\
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\20\ The Commission recently published estimated trading
percentages in NMS Stocks in its Concept Release on Equity Market
Structure. See Securities Exchange Act Release No. 61358 (January
14, 2010), 75 FR 3594, 3597 n. 21 (January 21, 2010) (File No. S7-
02-10).
Table 1--Trading Centers and Estimated % of ShareVolume in NMS Stocks
September 2009
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Share
Trading Venue Volume in
NMS Stocks
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Registered Exchanges:
NASDAQ................................................... 19.4
NYSE..................................................... 14.7
NYSE Arca................................................ 13.2
BATS..................................................... 9.5
NASDAQ OMX BX............................................ 3.3
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Other Registered Exchanges............................... 3.7
ECNs:
5 ECNS................................................... 10.8
Dark Pools:
32 Dark Pools (Estimated)................................ 7.9
Broker-Dealer Internatization:
200+ Broker-Dealers (Estimated).......................... 17.5
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The market share percentages in Table 1 strongly indicate that NYSE
must compete vigorously for order flow to maintain its share of trading
volume. This compelling need to attract order flow imposes significant
pressure on NYSE to act reasonably in setting its fees for NYSE market
data, particularly given that the market participants that must pay
such fees often will be the same market participants from whom NYSE
must attract order flow. These market participants particularly include
the large broker-dealer firms that control the handling of a large
volume of customer and proprietary order flow. Given the portability of
order flow from one trading venue to another, any exchange that seeks
to charge unreasonably high data fees would risk alienating many of the
same customers on whose orders it depends for competitive survival.\21\
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\21\ See NYSE Arca Order at 74783.
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In addition to the need to attract order flow, the availability of
alternatives to NYSE's BBO Information data significantly affect the
terms on which NYSE can distribute this market data.\22\ In setting the
fees for its NYSE BBO Service, NYSE must consider the extent to which
market participants would choose one or more alternatives instead of
purchasing the exchange's data.\23\ Of course, the most basic source of
information generally available at an exchange is the complete record
of an exchange's transactions that is provided in the core data
feeds.\24\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to
the exchange's market data product.\25\ The various self-regulatory
organizations, the several Trade Reporting Facilities of FINRA, and
ECNs that produce proprietary data are all sources of competition.
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\22\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific
Railway Co. v. U.S., 356 U.S. 1 (1958).
\23\ See NYSE Arca Order at 74783.
\24\ Id.
\25\ Id.
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In sum, there are a variety of alternative sources of information
that impose significant competitive pressures on the NYSE in setting
the terms for distributing its NYSE BBO Information. The Commission
believes that the availability of those alternatives, as well as the
NYSE's compelling need to attract order flow, imposed significant
competitive pressure on the NYSE to act equitably, fairly, and
reasonably in setting the terms of its proposal.
Because the NYSE was subject to significant competitive forces in
setting the terms of the proposal, the Commission will approve the
proposal in the absence of a substantial countervailing basis to find
that its terms nevertheless fail to meet an applicable requirement of
the Act or the rules thereunder. An analysis of the proposal does not
provide such a basis.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-NYSE-2010-30) be, and hereby
is, approved.
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\26\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-13336 Filed 6-2-10; 8:45 am]
BILLING CODE 8010-01-P