
[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21464-21469]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08324]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69298; File No. SR-NYSE-2013-24]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Establish Certain Fees for the NYSE Trades and NYSE Realtime Reference 
Prices Market Data Products

April 4, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 21, 2013, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to establish certain fees for the NYSE Trades 
and NYSE Realtime Reference Prices (``NYSE RRP'') market data products. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to establish certain fees for the NYSE Trades 
and NYSE RRP market data products.
Background
Current NYSE Trades Basic and Broadcast Fees
    In 2009, the Securities and Exchange Commission (``SEC'' or the 
``Commission'') approved the NYSE Trades data feed and certain fees for 
it.\4\ NYSE Trades is a NYSE-only market data feed that allows a vendor 
to redistribute on a real-time basis the same last sale information 
that the Exchange reports under the Consolidated Tape Association 
(``CTA'') Plan for inclusion in the CTA Plan's consolidated data 
streams and certain other related data elements. Specifically, NYSE 
Trades includes the real-time last sale price, time, size, and bid/ask 
quotations for each security traded on the Exchange and a stock summary 
message. The stock summary message updates every minute and

[[Page 21465]]

includes NYSE's opening price, high price, low price, closing price, 
and cumulative volume for the security.
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    \4\ See Securities Exchange Act Release No. 59606 (Mar. 19, 
2009), 74 FR 13293 (Mar. 26, 2009) (SR-NYSE-2009-04).
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    The Exchange currently charges NYSE Trades data feed recipients an 
access fee of $1,500 per month, and a subscriber fee for professional 
subscribers of $15 per month per device, which may be counted, at the 
election of the vendor based on the number of ``Subscriber 
Entitlements'' \5\ (collectively, these fees are referred to in this 
filing as ``NYSE Trades basic fees''). In July 2012, the Exchange added 
a fee for distribution by television broadcasters (``Broadcast Fee''), 
which is $40,000 per month.\6\ The television broadcast distribution 
method differs from the other distribution methods in that the data is 
available in a temporary, view-only mode on television screens.
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    \5\ See id. at n.5; Securities Exchange Act Release No. 62038 
(May 5, 2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22).
    \6\ See Securities Exchange Act Release No. 67467 (July 19, 
2012), 77 FR 43636 (July 25, 2012) (SR-NYSE-2012-28).
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Current NYSE RRP Fees
    The Exchange also offers NYSE RRP.\7\ NYSE RRP is designed for Web 
site distribution and includes the real-time last sale price and time 
for each security traded on the Exchange as well as the stock summary 
message, but does not include the size of each trade or bid/ask 
quotations.
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    \7\ See Securities Exchange Act Release No. 61406 (Jan. 22, 
2010), 75 FR 4600 (Jan. 28, 2010) (SR-NYSE-2009-120).
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    The Exchange currently charges a flat fee of $60,000 per month with 
no user-based fees for NYSE RRP. For that fee, the vendor may provide 
NYSE RRP to an unlimited number of the vendor's subscribers and 
customers without having to differentiate between professional 
subscribers and nonprofessional subscribers, without having to account 
for the extent of access to the data, and without having to report the 
number of users. As an alternative to the NYSE RRP flat monthly fee, 
the Exchange offers an alternative fee of $.004 for each real-time 
reference price that a vendor disseminates to its customers (``per 
query fee''), which is capped at $60,000 per month, the same amount as 
the flat fee. In order to take advantage of the per-query fee, a vendor 
must document that it has the ability to measure accurately the number 
of queries and must have the ability to report aggregate query 
quantities on a monthly basis. The per-query fee is imposed on vendors, 
not end-users. There are currently no fees for NYSE RRP that are 
specifically designed for television or mobile device distribution.
    NYSE RRP was created to allow distribution of a last sale data 
product for reference purposes on Web sites at a low cost that would 
facilitate distribution to millions of retail investors and relieve 
vendors of administrative burdens.\8\ NYSE RRP is an alternative to 
delayed prices and is not intended for use in trading decisions.\9\ As 
such, distribution of NYSE RRP is subject to certain requirements. 
Specifically, vendors may not provide NYSE RRP in a context in which a 
trading or order routing decision can be implemented unless CTA data is 
available in an equivalent manner, must label NYSE RRP as NYSE-only 
data, and must provide a hyperlinked notice similar to the one provided 
for CTA delayed data.\10\
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    \8\ See Securities Exchange Act Release No. 55354 (Feb. 26, 
2007), 72 FR 9817 (Mar. 5, 2007) (SR-NYSE-2007-04) (proposing NYSE 
RRP pilot).
    \9\ See Securities Exchange Act Release No. 60004 (May 29, 
2009), 74 FR 26905 (June 4, 2009) (SR-NYSE-2009-42) (making NYSE RRP 
pilot permanent) (``NYSE RRP Permanent Approval Order'').
    \10\ Id.
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New Digital Media Offerings
    The Exchange recently created a new version of NYSE Trades, NYSE 
Trades Digital Media, which will allow market data vendors, television 
broadcasters, Web site and mobile device service providers, and others 
to distribute the product to their customers for viewing via 
television, Web site, and mobile devices.\11\ The NYSE Trades Digital 
Media product includes access to the real-time last sale price, time, 
and size for each security traded on the Exchange as well as the stock 
summary message, but does not include access to the bid/ask quotation 
that is included with NYSE Trades product under the basic fees or 
Broadcast Fee. Vendors may not provide the NYSE Trades Digital Media 
product in a context in which a trading or order routing decision can 
be implemented unless CTA data is available in an equivalent manner, 
must label the product as NYSE-only data, and must provide a 
hyperlinked notice similar to the one provided for CTA delayed data.
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    \11\ See SR-NYSE-2013-23.
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    The Exchange also will offer NYSE RRP Digital Media so that NYSE 
RRP will be available for distribution in the same manner as NYSE 
Trades Digital Media, via television, Web site, and mobile devices. The 
data elements of NYSE RRP (last sale price, time, and stock summary 
message) will remain unchanged from today's NYSE RRP product offering.
    The Exchange has established these Digital Media products in 
recognition of the demand for a more seamless and easier-to-administer 
data distribution model that takes into account the expanded variety of 
media and communication devices that investors utilize today. For 
example, a television broadcaster could display the NYSE Trades data 
during market-related television programming and on its Web site and 
allow its viewers to view the data via their mobile devices, creating a 
more seamless distribution model that will allow investors more choice 
in how they receive and view market data.
Proposed Digital Media Fees
    The NYSE Trades Digital Media Enterprise Fee will be $40,000 per 
month, and the NYSE RRP Digital Media Enterprise Fee will be $25,000 
per month. The Exchange notes that the NYSE RRP Digital Media 
Enterprise Fee is lower than NYSE Trades Digital Media Enterprise Fee 
because it does not include trade size data. Vendors that pay these 
fees will not be required to pay an access fee, but they will be 
required to pay the redistribution fees as described below. As with the 
current NYSE RRP product and the Broadcast Fee, a vendor paying the 
Digital Media Enterprise Fee may deliver the NYSE Trades and NYSE RRP 
data to an unlimited number of television, Web site, and mobile device 
viewers without having to differentiate between professional 
subscribers and nonprofessional subscribers, without having to account 
for the extent of access to the data, and without having to report the 
number of users.
    For NYSE Trades, the television-only $40,000 Broadcast Fee option 
will no longer be available. For NYSE RRP, web-only distribution for 
$60,000 per month will no longer be available. The Exchange does not 
believe that any customers would elect these options in light of the 
broader distribution offered with the new Digital Media Enterprise Fees 
and the substantially lower price for NYSE RRP Digital Media.
    The Exchange will continue to offer the $.004 per query fee for 
NYSE RRP to any vendor that so chooses, but the Exchange proposes to 
reduce the cap to $25,000, the same amount as the NYSE RRP Digital 
Media Enterprise Fee. Vendors and subscribers receiving NYSE Trades via 
traditional distribution methods, e.g. a Bloomberg terminal or a 
broker-dealer customer Web site that permits order entry, will not be 
eligible for Digital Media Enterprise Fees and

[[Page 21466]]

will continue to pay NYSE Trades basic fees.
Redistribution Fees
    The Exchange also proposes to charge a redistribution fee of $1,000 
per month for NYSE Trades and $1,500 per month for NYSE RRP.\12\ The 
redistribution fees will apply regardless of whether the customer is 
eligible for the Digital Media Enterprise Fees or NYSE Trades basic 
fees.
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    \12\ A redistributor is a vendor or any other person that 
provides an NYSE data product to a data recipient or to any system 
that a data recipient uses, irrespective of the means of 
transmission or access.
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Operative Date
    The Digital Media Enterprise Fees will be operative on April 1, 
2013 and the redistribution fees will be operative on May 1, 2013.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides an equitable allocation of reasonable fees among users and 
recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4), (5).
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    The proposed NYSE Trades Digital Media Enterprise Fee of $40,000 
per month and NYSE RRP Digital Media Enterprise Fee of $25,000 per 
month are reasonable because they will offer a means for vendors to 
more widely distribute NYSE Trades and NYSE RRP data to investors for 
informational purposes at the same cost (in the case of NYSE Trades) or 
a lower cost (in the case of NYSE RRP) than is available today. 
Currently, NYSE Trades can be distributed via television for a $40,000 
monthly fee, but that fee does not include Web site or mobile device 
distribution. NYSE RRP can be distributed over Web sites for a $60,000 
monthly fee, but that fee does not include television or mobile device 
distribution. The Exchange believes that the proposed Digital Media 
Enterprise Fees are reasonable because in certain instances they are 
less than the fees charged by another exchange for a similar 
product.\15\ The Exchange also believes that it is reasonable to charge 
more for NYSE Trades Digital Media than NYSE RRP Digital Media because 
the former includes trade size data. The Exchange believes that the 
price reduction for NYSE RRP coupled with the broader distribution 
options will make the product more attractive and result in its greater 
availability to investors. The Exchange believes that reducing the cap 
for the per query fee from $60,000 to $25,000 is reasonable because it 
will be equal to the proposed monthly NYSE RRP Digital Media Enterprise 
Fee. The Exchange believes that reducing the cap for the per query fee 
is equitable and not unfairly discriminatory because it is designed to 
ensure that vendors that elect the per query fee do not pay more for 
real-time reference price data than vendors that pay a flat fee for 
unlimited use.
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    \15\ The NASDAQ Stock Market offers proprietary last sale data 
products for distribution over the Internet and television under 
alternative fee schedules that are subject to a maximum fee is 
$50,000 per month. See NASDAQ Rule 7039(b).
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    The proposed Digital Media Enterprise Fees also are equitable and 
not unfairly discriminatory because they will be applied uniformly to 
market data vendors, television broadcasters, Web site and mobile 
service providers, or any other person that distributes the data on the 
basis described in this filing. The Exchange believes that it is 
appropriate to offer a lower cost fee structure that is designed to 
facilitate broader media distribution of the NYSE Trades and NYSE RRP 
data for informational purposes because it will benefit investors 
generally. Moreover, the value of the data distributed generally in the 
media for informational purposes differs from when it is distributed in 
manner in which it can immediately be utilized for trading decisions. 
The Exchange believes that the data is more valuable in that latter 
context, and as such, it is fair and equitable to have differential 
pricing for it.
    In establishing the Digital Media Enterprise Fees, the Exchange 
recognizes that there is demand for a more seamless and easier-to-
administer data distribution model that takes into account the expanded 
variety of media and communication devices that investors utilize 
today. As is the case with the current NYSE RRP product and the 
Broadcast Fee, the Exchange believes that the Digital Media Enterprise 
Fee will be easy to administer because vendors that purchase it will 
not have to differentiate between professional subscribers and 
nonprofessional subscribers, account for the extent of access to the 
data, or report the number of users; this is a significant reduction in 
vendors' administrative burdens and is a significant value to vendors. 
For example, a television broadcaster could display the NYSE Trades 
Digital Media data during market-related television programming and on 
its Web site and allow its viewers to view the data via their mobile 
devices, creating a more seamless distribution model that will allow 
investors more choice in how they receive and view market data, all 
without having to account for and/or measure who accesses the data and 
how much they do so. By easing administration, broadening distribution 
channels, and, in the case of NYSE RRP, reducing prices, the Exchange 
believes that more vendors will choose to offer NYSE Trades and NYSE 
RRP, thereby expanding the distribution of market data for the benefit 
of investors.
    The proposed redistribution fees also are reasonable because they 
are comparable to other redistribution fees charged by other 
exchanges.\16\ The Exchange believes it is reasonable to charge 
redistribution fees because vendors receive value from redistributing 
the data in their business products for their customers. The 
redistribution fees also are equitable and not unfairly discriminatory 
because they will be charged on an equal basis only to those vendors 
that choose to redistribute the data.
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    \16\ For example, NYSE Arca, Inc. (``NYSE Arca'') and NYSE MKT 
LLC (``NYSE MKT'') charge redistribution fees of $2,000 per month 
for certain proprietary options market data products. See Securities 
Exchange Act Release Nos. 68005 (Oct. 9, 2012), 77 FR 63362 (Oct. 
16, 2012) (SR-NYSEArca-2012-106), and 68004 (Oct. 9, 2012), 77 FR 
62582 (Oct. 15, 2012) (SR-NYSEMKT-2012-49). NYSE Arca charges a 
$3,000 per month redistribution fee for the NYSE Arca Integrated 
Feed. See Securities Exchange Act Release No. 66128 (Jan. 10, 2012), 
77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96). The Options Price 
Reporting Authority's Fee Schedule, available at http://www.opradata.com/pdf/fee_schedule.pdf, includes an ``Internet 
Service Only'' redistribution fee ($650/month) and standard 
redistribution fee ($1,500/month).
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld the Commission's reliance upon the existence of 
competitive market mechanisms to set reasonable and equitably allocated 
fees for proprietary market data.
    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are removed' 
and that the SEC wield its regulatory power `in those situations where 
competition may not be sufficient,' such as in the creation of a 
`consolidated transactional reporting system.'
    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted 
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's 
conclusion that ``Congress intended that `competitive

[[Page 21467]]

forces should dictate the services and practices that constitute the 
U.S. national market system for trading equity securities.' '' \17\
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    \17\ NetCoalition, 615 F.3d at 535.
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    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for data and that the Commission can 
rely upon such evidence in concluding that the fees established in this 
filing are the product of competition and therefore satisfy the 
relevant statutory standards.\18\ In addition, the existence of 
alternatives to NYSE Trades and NYSE RRP, including real-time 
consolidated data, free delayed consolidated data, and proprietary last 
sale data from other sources, as described below, further ensures that 
the Exchange cannot set unreasonable fees, or fees that are 
unreasonably discriminatory, when vendors and subscribers can elect 
such alternatives.
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    \18\ Section 916 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act of 2010 (the ``Dodd-Frank Act'') amended 
paragraph (A) of Section 19(b)(3) of the Act, 15 U.S.C. 78s(b)(3), 
to make clear that all exchange fees for market data may be filed by 
exchanges on an immediately effective basis.
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    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach, and the Exchange 
incorporates by reference into this proposed rule change its 
affiliate's analysis of this topic in another rule filing.\19\
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    \19\ See Securities Exchange Act Release No. 63291 (Nov. 9, 
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
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    For these reasons, the Exchange believes that the proposed fees are 
reasonable, equitable, and not unfairly discriminatory.

 B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. An exchange's ability to 
price its proprietary data feed products is constrained by (1) Actual 
competition for the sale of proprietary market data products, (2) the 
existence of inexpensive real-time consolidated data and free delayed 
consolidated data, and (3) the inherent contestability of the market 
for proprietary last sale data and the joint product nature of exchange 
platforms.
    The Existence of Actual Competition. The market for proprietary 
data products is currently competitive and inherently contestable 
because there is fierce competition for the inputs necessary to the 
creation of proprietary data and strict pricing discipline for the 
proprietary products themselves. Numerous exchanges compete with each 
other for listings and order flow and sales of market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to compete in any or all of those areas, including producing and 
distributing their own market data. Proprietary data products are 
produced and distributed by each individual exchange, as well as other 
entities, in a vigorously competitive market.
    Competitive markets for listings, order flow, executions, and 
transaction reports provide pricing discipline for the inputs of 
proprietary data products and therefore constrain markets from 
overpricing proprietary market data. The U.S. Department of Justice 
also has acknowledged the aggressive competition among exchanges, 
including for the sale of proprietary market data itself. In announcing 
that the bid for NYSE Euronext by NASDAQ OMX Group Inc. and 
IntercontinentalExchange Inc. had been abandoned, Assistant Attorney 
General Christine Varney stated that exchanges ``compete head to head 
to offer real-time equity data products. These data products include 
the best bid and offer of every exchange and information on each equity 
trade, including the last sale.'' \20\
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    \20\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abondoning 
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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    It is common for broker-dealers to further exploit this recognized 
competitive constraint by sending their order flow and transaction 
reports to multiple markets, rather than providing them all to a single 
market. As a 2010 Commission Concept Release noted, the ``current 
market structure can be described as dispersed and complex'' with 
``trading volume * * * dispersed among many highly automated trading 
centers that compete for order flow in the same stocks'' and ``trading 
centers offer[ing] a wide range of services that are designed to 
attract different types of market participants with varying trading 
needs.'' \21\
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    \21\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 
2010) (File No. S7-02-10). This Concept Release included data from 
the third quarter of 2009 showing that no market center traded more 
than 20% of the volume of listed stocks, further evidencing the 
dispersal of and competition for trading activity. Id. at 3598.
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    In addition, in the case of products that are distributed through 
market data vendors, the market data vendors themselves provide 
additional price discipline for proprietary data products because they 
control the primary means of access to certain end users. These vendors 
impose price discipline based upon their business models. For example, 
vendors that assess a surcharge on data they sell are able to refuse to 
offer proprietary products that their end users do not or will not 
purchase in sufficient numbers. Internet portals, such as Google, 
impose price discipline by providing only data that they believe will 
enable them to attract ``eyeballs'' that contribute to their 
advertising revenue. Similarly, television broadcasters and Web site 
and mobile device service providers will not elect to make available 
NYSE Trades or NYSE RRP unless they believe it will help them attract 
or maintain viewers/customers for their television, Web site, or mobile 
device offerings. All of these operate as constraints on pricing 
proprietary data products.
    Joint Platform. Transaction execution and proprietary data products 
are complementary in that market data is both an input and a byproduct 
of the execution service. In fact, market data and trade executions are 
a paradigmatic example of joint products with joint costs. The decision 
whether and on which platform to post an order will depend on the 
attributes of the platforms where the order can be posted, including 
the execution fees, data quality, and price and distribution of their 
data products. The more trade executions a platform does, the more 
valuable its market data products become.
    The costs of producing market data include not only the costs of 
the data distribution infrastructure, but also the costs of designing, 
maintaining, and operating the exchange's transaction execution 
platform and the cost of regulating the exchange to ensure its fair 
operation and maintain investor confidence. The total return that a 
trading platform earns reflects the revenues it receives from both 
products and the joint costs it incurs. Moreover, an exchange's broker-
dealer customers view the costs of transaction executions and market 
data as a unified cost of doing business with the exchange.
    Other market participants have noted that the liquidity provided by 
the order book, trade execution, core market data, and non-core market 
data are joint products of a joint platform and have

[[Page 21468]]

common costs.\22\ The Exchange agrees with and adopts those discussions 
and the arguments therein. The Exchange also notes that the economics 
literature confirms that there is no way to allocate common costs 
between joint products that would shed any light on competitive or 
efficient pricing.\23\
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    \22\ See Securities Exchange Act Release No. 62887 (Sept. 10, 
2010), 75 FR 57092, 57095 (Sept. 17, 2010) (SR-Phlx-2010-121); 
Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 75 FR 
57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110); and Securities 
Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 57321, 57324 
(Sept. 20, 2010) (SR-NASDAQ-2010-111) (``all of the exchange's costs 
are incurred for the unified purposes of attracting order flow, 
executing and/or routing orders, and generating and selling data 
about market activity. The total return that an exchange earns 
reflects the revenues it receives from the joint products and the 
total costs of the joint products.''); see also August 1, 2008 
Comment Letter of Jeffrey S. Davis, Vice President and Deputy 
General Counsel, NASDAQ OMX Group, Inc., Statement of Janusz Ordover 
and Gustavo Bamberger (``because market data is both an input to and 
a byproduct of executing trades on a particular platform, market 
data and trade execution services are an example of `joint products' 
with `joint costs.' ''), attachment at pg. 4, available at 
www.sec.gov/comments/34-57917/3457917-12.pdf.
    \23\ See generally Mark Hirschey, Fundamentals of Managerial 
Economics, at 600 (2009) (``It is important to note, however, that 
although it is possible to determine the separate marginal costs of 
goods produced in variable proportions, it is impossible to 
determine their individual average costs. This is because common 
costs are expenses necessary for manufacture of a joint product. 
Common costs of production--raw material and equipment costs, 
management expenses, and other overhead--cannot be allocated to each 
individual by-product on any economically sound basis.* * * Any 
allocation of common costs is wrong and arbitrary.''). This is not 
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to 
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4) 
438, 465 (July 1891) (``Yet, surely, the division is purely 
arbitrary. These items of cost, in fact, are jointly incurred for 
both sorts of traffic; and I cannot share the hope entertained by 
the statistician of the Commission, Professor Henry C. Adams, that 
we shall ever reach a mode of apportionment that will lead to 
trustworthy results.'').
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    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products. Thus, because it 
is impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, system costs and regulatory costs affect the price of both of 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.
    The level of competition and contestability in the market is 
evident in the numerous alternative venues that compete for order flow, 
including 12 equities self-regulatory organization (``SRO'') markets, 
as well as internalizing broker-dealers (``BDs'') and various forms of 
alternative trading systems (``ATSs''), including dark pools and 
electronic communication networks (``ECNs''). Competition among trading 
platforms can be expected to constrain the aggregate return that each 
platform earns from the sale of its joint products, but different 
platforms may choose from a range of possible, and equally reasonable, 
pricing strategies as the means of recovering total costs. For example, 
some platforms may choose to pay rebates to attract orders, charge 
relatively low prices for market data products (or provide market data 
products free of charge), and charge relatively high prices for 
accessing posted liquidity. Other platforms may choose a strategy of 
paying lower rebates (or no rebates) to attract orders, setting 
relatively high prices for market data products, and setting relatively 
low prices for accessing posted liquidity. In this environment, there 
is no economic basis for regulating maximum prices for one of the joint 
products in an industry in which suppliers face competitive constraints 
with regard to the joint offering.
    Existence of Alternatives. The large number of SROs, BDs, and ATSs 
that currently produce proprietary data or are currently capable of 
producing it provides further pricing discipline for proprietary data 
products. Each SRO, ATS, and BD is currently permitted to produce 
proprietary data products, and many currently do or have announced 
plans to do so, including but not limited to the Exchange, NYSE MKT, 
NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.
    The fact that proprietary data from ATSs, BDs, and vendors can 
bypass SROs is significant in two respects. First, non-SROs can compete 
directly with SROs for the production and sale of proprietary data 
products. Second, because a single order or transaction report can 
appear in an SRO proprietary product, a non-SRO proprietary product, or 
both, the amount of data available via proprietary products is greater 
in size than the actual number of orders and transaction reports that 
exist in the marketplace. Because market data users can thus find 
suitable substitutes for most proprietary market data products, a 
market that overprices its market data products stands a high risk that 
users may substitute another source of market data information for its 
own.
    Moreover, consolidated data provides two additional measures of 
pricing discipline for proprietary data products that are a subset of 
the consolidated data stream. First, the consolidated data is widely 
available in real-time at $1 per month for non-professional users. 
Second, consolidated data is also available at no cost with a 15- or 
20-minute delay. Because consolidated data contains marketwide 
information, it effectively places a cap on the fees assessed for 
proprietary data (such as last sale data) that is simply a subset of 
the consolidated data. The mere availability of low-cost or free 
consolidated data provides a powerful form of pricing discipline for 
proprietary data products that contain data elements that are a subset 
of the consolidated data by highlighting the optional nature of 
proprietary products.
    Those competitive pressure imposed by available alternatives are 
evident in the Exchange's proposed pricing. The Digital Media 
Enterprise Fees, which will permit broader distribution at the same 
price (in the case of NYSE Trades) or a lower price (in the case of 
NYSE RRP) than is available today, also are lower than the maximum fee 
for a similar product offered by another exchange \24\ and lower than 
the television distribution fee charged by CTA.\25\ The proposed 
redistribution fees also are comparable to other exchanges' similar 
fees.\26\
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    \24\ See supra n.15.
    \25\ See CTA Plan dated July 1, 2012, Exhibit E, Schedule A-1 at 
n.6 (television distribution fee capped at $125,000 per month in 
2010, with certain increases permitted thereafter) available at 
http://www.nyxdata.com/CTA.
    \26\ See supra n.16.
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    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. Today, BATS 
and Direct Edge provide certain market data at no charge on their Web 
sites in order to attract more order flow, and use revenue rebates from 
resulting additional

[[Page 21469]]

executions to maintain low execution charges for their users.\27\
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    \27\ This is simply a securities market-specific example of the 
well-established principle that in certain circumstances more sales 
at lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
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    Further, data products are valuable to certain end users only 
insofar as they provide information that end users expect will assist 
them or their customers in tracking prices and market trends. The 
Exchange believes that the Digital Media Enterprise Fees, which will 
permit wider distribution of last sale information at a lower price, 
may encourage more vendors to choose to offer NYSE Trades or NYSE RRP 
over multiple communication devices and thereby benefit public 
investors and other market participants by providing them with more 
convenient ways to track prices and market trends during the course of 
the trading day. The Exchange further believes that only vendors that 
expect to derive a reasonable benefit from redistributing NYSE Trades 
and NYSE RRP data will choose to become redistributors and pay the 
attendant monthly fees.
    In establishing the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary data and all of the 
implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish fair, reasonable, and not unreasonably 
discriminatory fees and an equitable allocation of fees among all 
users. The existence of numerous alternatives to the Exchange's 
products, including real-time consolidated data, free delayed 
consolidated data, and proprietary data from other sources, ensures 
that the Exchange cannot set unreasonable fees, or fees that are 
unreasonably discriminatory, when vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if its cost to purchase is not justified by the returns 
any particular vendor or subscriber would achieve through the purchase.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \28\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \29\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \28\ 15 U.S.C. 78s(b)(3)(A).
    \29\ 17 CFR 240.19b-4(f)(2).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change 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. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \30\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \30\ 15 U.S.C. 78s(b)(2)(B).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. 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 rule-comments@sec.gov. Please include 
File Number SR-NYSE-2013-24 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSE-2013-24. 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 Web site (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 Web site 
viewing and printing in the Commission's Public Reference Room 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 offices of NYSE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2013-24, and should be submitted on or before May 
1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
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    \31\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-08324 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P


