[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Notices]
[Pages 20018-20021]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8689]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61885; File No. SR-BATS-2010-002]
Self-Regulatory Organizations; BATS Exchange, Inc.; Order
Approving a Proposed Rule Change, As Amended, To Offer Certain BATS
Exchange Data Products
April 9, 2010.
I. Introduction
On February 2, 2010, BATS Exchange, Inc. (``BATS'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 \2\
thereunder, a proposed rule change to offer certain new Exchange data
products to Exchange Members \3\ and other market data recipients. On
February 22, 2010, BATS filed Amendment No. 1 to the proposed rule
change. The proposed rule change, as modified by Amendment No. 1, was
published for comment in the Federal Register on March 5, 2010.\4\ The
Commission received one comment letter in response to the proposed rule
change.\5\ On April 8 , 2010, BATS filed Amendment No. 2 to the
proposed rule change.\6\ This order approves the proposed rule change,
as modified by Amendment Nos. 1 and 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ A Member is any registered broker or dealer that has been
admitted to membership in the Exchange.
\4\ See Securities Exchange Act Release No. 61592 (March 5,
2010), 75 FR 10332 (``Notice'').
\5\ See letter to Elizabeth M. Murphy, Secretary, SEC, from Joan
C. Conley, Senior Vice President and Corporate Secretary, The NASDAQ
OMX Group, Inc., dated March 26, 2009 (``NASDAQ OMX Letter'').
\6\ See Amendment No. 2 dated April 8, 2010 (``Amendment No.
2''). The text of Amendment No. 2 is available on the Exchange's Web
site at http://www.batstrading.com, at the principal office of BATS,
and on the Commission's Web site (http://www.sec.gov/rules/sro.shtml). Amendment No. 2 is a non-substantive, clarifying
amendment.
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II. Description of the Proposal
The Exchange proposes to offer several new market data products:
BATS Last Sale Feed; BATS Historical Data Products; and BATS Market
Insight (``New Market Data Products''). In connection with making
available the New Market Data Products, the Exchange proposes to amend
its fee schedule applicable to Members and non-members of the Exchange
pursuant to BATS Rules 15.1(a) and (c).\7\
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\7\ The Exchange currently offers other data products to Members
and other data recipients free of charge. The Exchange states that
such data products include, but are not limited to, TCP PITCH,
Multicast PITCH, and TCP FAST PITCH, which are depth of book data
feeds containing real-time quotation and transaction data from the
Exchange; TCP DROP, which contains order execution and other
information (e.g., modifications and cancellations) specific to the
Exchange activity of one or more Users; and TCP TOP, which contains
real-time top of book quotation and transaction information from the
Exchange. The Exchange represents that BATS will file a proposed
rule change pursuant to Section 19(b)(1) of the Act and Rule 19b-4
thereunder to describe its existing free data feeds. See Amendment
No. 2, supra note 6.
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[[Page 20019]]
BATS Last Sale Feed. The BATS Last Sale Feed will be a direct data
feed product that provides real-time, intraday trade information,
including price, volume, and time of executions.\8\ The BATS Last Sale
Feed will include last sale information regarding all NYSE-listed
securities (``Tape A Securities''), NASDAQ-listed securities (``Tape C
Securities''), and securities listed on exchanges other than NYSE or
NASDAQ (``Tape B Securities'') with respect to activity occurring
solely on the Exchange.\9\
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\8\ The BATS Last Sale feed will not include quotation
information.
\9\ Currently, under the joint-industry plans that provide for
the dissemination of last sale information for equity securities,
the Exchange and other self-regulatory organizations (``SROs'')
provide real-time last sale information to a Security Information
Processor (``SIP''), which then consolidates the information into a
single stream for dissemination to the public, including market data
vendors.
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No market participant will be required to subscribe to the BATS
Last Sale Feed and the same last sale prices will continue to be
available in the Exchange's other data feeds.\10\ The Exchange
represents that it will not distribute the BATS Last Sale Feed sooner
than it makes available the data that is provided to the SIPs for
consolidation and dissemination.\11\ BATS proposes to charge $5,000 per
month for the BATS Last Sale Feed for any data recipient that chooses
to receive the data feed for internal use only (``Internal
Distributor''). The Exchange will not require data recipients that wish
to redistribute the BATS Last Sale Feed to count, classify (e.g.,
professional or non-professional), or report to the Exchange
information regarding the customers to which they provide the data.
Instead, the Exchange proposes a flat fee of $25,000 per month for any
data recipient that wishes to redistribute the BATS Last Sale Feed
externally (``External Distributor''). End users will not have to pay
the Exchange for the BATS Last Sale Feed or enter into contracts with
the Exchange.
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\10\ See supra note 7.
\11\ See Notice, supra note 4, at 10333.
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BATS Historical Data Products. The Exchange proposes to offer data
recipients upon request the following three products: (1) Historical
top of book data from the Exchange's TOP data feed (``Historical TOP
Data''); (2) historical quotation and transaction data from the
Exchange's PITCH data feed (``Historical PITCH Data''); and (3)
historical transaction data from the Exchange's Last Sale Feed
(``Historical Last Sale Data'').\12\ BATS Historical TOP Data, BATS
Historical PITCH Data and BATS Historical Last Sale Data will be
provided to data recipients for internal use only, and thus, no
redistribution will be permitted.\13\
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\12\ The Exchange proposes to provide data recipients with the
requested historical data on an external hard drive provided by the
Exchange. As an alternative means to obtain historical data, the
Exchange proposes to provide market participants with access to a
database from which they can download data that is up to three
months old.
\13\ The Exchange currently provides historical data upon
request on an ad hoc basis, but proposes to begin charging a fee due
to the infrastructure costs of storing and providing such data.
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The proposed cost of user-accessible BATS Historical TOP Data, BATS
Historical PITCH Data or BATS Historical Last Sale Data is $500 per
month of data accessed by any individual user. For data that the
Exchange provides on an external hard drive to a market participant the
proposed cost is $2,500 per 1 terabyte (TB) drive generated by the
Exchange.\14\
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\14\ For a more detailed description of how the proposed fees
operate, see Notice, supra note 4, at 10334.
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BATS Market Insight. The Exchange proposes to begin offering BATS
Market Insight that can be used to analyze the depth of liquidity of
the Exchange's book, including reserve and hidden interest, on a
historical basis. BATS Market Insight will provide a market participant
with information regarding the depth of the market at the Exchange in
minute increments. Data will become available for access by market
participants 10 days following each trade date (T + 10) and will be
available for 30 days.\15\ BATS Market Insight will be provided to data
recipients for internal use only, and thus, no redistribution will be
permitted. The proposed cost for access to BATS Market Insight is
$1,000 per user per month.
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\15\ Specifically, a participant using BATS Market Insight will
be able to obtain data regarding total order interest, displayed
order interest and hidden order interest at each price point in
specific Tape A, B, and C securities traded on the Exchange.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.\16\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(4) of the Act,\17\ 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,\18\ which requires, among other things, that the
rules of an exchange not be designed to permit unfair discrimination
between customers, issuers, brokers, or dealers. The Commission also
finds that the proposed rule change is consistent with Section 6(b)(8)
of the Act\19\ in that it does not impose any burden on competition not
necessary or appropriate in furtherance of the purposes of the Act.
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\16\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\17\ 15 U.S.C. 78f(b)(4).
\18\ 15 U.S.C. 78f(b)(5).
\19\ 15 U.S.C. 78f(b)(8).
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The Commission has reviewed the proposal using the approach set
forth by the Commission for non-core market data fees.\20\ 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.''
\21\ 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.'' \22\ 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.'' \23\
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\20\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SR-NYSEArca-2006-21) (``NYSE
Arca Order'').
\21\ Id. at 74771.
\22\ Id. at 74782.
\23\ Id. at 74781.
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As noted in the NYSE Arca Order, the standards in Section 6 of the
Act do not differentiate between types of data and therefore apply to
exchange proposals to distribute both core data and non-core data.\24\
All U.S. exchanges trading NMS
[[Page 20020]]
stocks are required pursuant to Rule 603(b) \25\ of the Act to provide
``core data''--the best-priced quotations and comprehensive last sale
reports--to a SIP to consolidate and disseminate to the public pursuant
to joint-SRO plans.\26\ In contrast, individual exchanges and other
market participants distribute non-core data voluntarily.\27\ The
mandatory nature of the core data disclosure regime leaves little room
for competitive forces to determine products and fees.\28\ Non-core
data products and their fees are, by contrast, much more sensitive to
competitive forces. The Commission therefore is able to rely on
competitive forces in its determination of whether an exchange's
proposal to distribute non-core data meets the standards of Section
6.\29\
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\24\ Id. at 74779.
\25\ 17 CFR 242.603(b).
\26\ See Consolidated Tape Association Plan (``CTA Plan'') and
Consolidated Quotation Plan (``CQ Plan). The two plans, which have
been approved by the Commission, are available at http://www.nysedata.com. See also the Joint-Self-Regulatory Organization
Plan Governing the Collection, Consolidation and Dissemination of
Quotation and Transaction Information for Nasdaq-Listed Securities
Traded on Exchanges on an Unlisted Trading Privileges Basis
(``Nasdaq UTP Plan''). The Nasdaq UTP Plan, which has been approved
by the Commission, is available at http://www.utpdata.com.
\27\ See NYSE Arca Order, supra note 20, at 74779.
\28\ Id.
\29\ Id.
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Because the instant proposal to offer New Market Data Products
relates to the distribution of non-core data, the Commission will apply
the market-based approach set forth in the NYSE Arca Order. Pursuant to
this approach, the first step is to determine whether BATS was subject
to significant competitive forces in setting the terms of its non-core
market data proposal, including the level of any fees. As in the NYSE
Arca Order, in determining whether BATS was subject to significant
competitive forces in setting the terms of New Market Data Products,
the Commission has analyzed BATS' compelling need to attract order flow
from market participants, and the availability to market participants
of alternatives to purchasing BATS' non-core market data.
Attracting order flow is the core competitive concern of any equity
exchange. Given the competitive pressures that currently characterize
the U.S. equity markets, no exchange can afford to take its market
share percentages for granted--they can change significantly over time,
either up or down.\30\ BATS competes with the other national securities
exchanges that currently trade equities, with electronic communication
networks, with quotes posted in FINRA's Alternative Display Facility,
with alternative trading systems, and with securities firms that
primarily trade as principal with their customer order flow.\31\
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\30\ Id. at 74782.
\31\ See Notice, supra note 4, at 10334.
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In addition to the need to attract order flow, the availability of
alternatives to New Market Data Products significantly affect the terms
on which BATS can distribute this market data.\32\ In setting the fees
for New Market Data Products, BATS must consider the extent to which
market participants would choose one or more alternatives instead of
purchasing its data.\33\ With respect to BATS Last Sale Feed, market
participants can also gain access to BATS last sale prices through free
data feeds provided by the Exchange or those integrated with the prices
that other markets make available through the SIPs.\34\ Further, other
national securities exchanges, the several Trade Reporting Facilities
of FINRA, and ECNs can produce last sale information products, and thus
are sources of potential competition for BATS.\35\ With respect to BATS
Market Insight, BATS states that a market participant could gain access
to the same information through a combination of: (1) Existing, free
data feeds from the Exchange (for displayed trading interest); and (2)
information gathered by the market participant through its trading
activities on the Exchange and/or through the consolidated data
published by the SIPs reporting executions that occurred on the
Exchange (for non-displayed trading interest).\36\ With respect to BATS
Historical Data Products, the Exchange notes that market participants
can gain access to the same information that BATS proposes to make
available through BATS Historical Data Products feed through existing,
free data feeds from the Exchange. Further, the Commission notes that
BATS last sale and quotation information also is available through the
consolidated data feed disseminated by the SIPs. The Exchange also
notes that a similar product is offered by Nasdaq.\37\
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\32\ See NYSE Arca Order supra, note 20, at 74784.
\33\ Id. at 74783.
\34\ See Notice, supra note 4, at 10334.
\35\ BATS represented that many other market centers, including
Nasdaq and the New York Stock Exchange LLC, do in fact currently
produce last sale information products. Id.
\36\ See Notice, supra note 4, at 10334.
\37\ See Nasdaq Rule 7022.
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The Commission believes that there are a number of alternative
sources of information that impose significant competitive pressures on
BATS in setting the terms for distributing the New Market Data
Products. The Commission believes that the availability of those
alternatives, as well as BATS' compelling need to attract order flow,
imposed significant competitive pressure on BATS to act equitably,
fairly, and reasonably in setting the terms of its proposal.
Because BATS 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 the terms of the proposal fail to meet the applicable requirements
of the Act or the rules thereunder. An analysis of the proposal does
not provide such a basis. The Commission notes that the proposed fees
for BATS Last Sale Feed are lower for Internal Distributors than for
External Distributors. Because Internal Distributors are by definition
more limited in the scope of their distribution of BATS Last Sale Feed
than External Distributors, it is reasonable to expect that Internal
Distributors will provide BATS Last Sale Feed to a smaller number of
internal recipients.\38\ The Commission notes that the fees for BATS
Historical Data Products and BATS Market Insight are the same for all
persons. The fees therefore do not unreasonably discriminate among
types of recipients.
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\38\ Conversely, External Distributors can reasonably be
expected to distribute BATS Last Sale Feed to a higher number of
recipients because they do not have the same limitation.
Accordingly, the Exchange will charge a higher fee to External
Distributors than to Internal Distributors. The Exchange noted in
its filing that ``[r]egardless of a data recipient's reasons for
subscribing to the BATS Last Sale Feed, the fee for such feed
applies equally to all data recipients that wish to use the feed for
internal use only and equally to all data recipients that wish to
redistribute the feed.'' See Notice, supra note 4, at 10333. For a
similar distinction, see, e.g., Securities Exchange Act Release No.
60459 (August 7, 2009), 74 FR 41466 (August 17, 2009) (SR-Phlx-2009-
54) (order approving a proposed rule change to establish fees for
the Top of Phlx Options direct data feed product).
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As noted above, the Commission received one comment letter on the
proposed rule change.\39\ The commenter questions whether the Act and
the rules thereunder require SROs to file a proposed rule change to
offer at no charge electronic data feeds of transaction information
generated by an SRO. In response to this comment, BATS filed Amendment
No. 2, in which it represents that BATS will file a proposed rule
change pursuant to Section 19(b)(1) of the Act and Rule 19b-4\40\
thereunder describing its current free data feeds.\41\
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\39\ See supra note 5.
\40\ 17 CFR 240.19b-4.
\41\ See supra note 6.
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Further, NASDAQ OMX asserts that the proposal raises the question
of
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whether the Act permits an exchange to offer the same transaction
information via two different delivery mechanisms for two different
prices.\42\ NASDAQ OMX then cites two of its own proposed rule changes
and attempts to analogize them with the instant proposal, stating that
the instant proposal implicates issues of what constitutes fair versus
unfair discrimination with respect to the fees charged for market data.
The Commission believes that the two proposed rule changes cited by
NASDAQ OMX are factually different than the BATS' proposed rule change.
As discussed above, the Commission believes that BATS offering of New
Market Data Products is not unfairly discriminatory.
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\42\ NASDAQ OMX was referring to the BATS Last Sale Feed that
contains last sale information that is also offered via PITCH free
of charge.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-BATS-2010-002), as modified by
Amendments No. 1 and 2, be, and hereby is, approved.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8689 Filed 4-15-10; 8:45 am]
BILLING CODE 8011-01-P