
[Federal Register Volume 78, Number 70 (Thursday, April 11, 2013)]
[Notices]
[Pages 21668-21675]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08464]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69315; File No. SR-NYSEArca-2013-37]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Establishing Non-
Display Usage Fees for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE 
Arca Trades, and NYSE Arca BBO, and a Redistribution Fee for NYSE 
ArcaBook

April 5, 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 28, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 non-display usage fees for NYSE 
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca 
BBO, all of which will be operative on April 1, 2013, and a 
redistribution fee for NYSE ArcaBook, which will be operative on July 
1, 2013. 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 non-display usage fees for NYSE 
Arca Integrated Feed, NYSE ArcaBook, NYSE Arca Trades, and NYSE Arca 
BBO, all of which will be operative on April 1, 2013, and a 
redistribution fee for NYSE ArcaBook, which will be operative on July 
1, 2013. The subsections below describe (1) The background on the 
current fees for these real-time products; (2) the rationale for 
creating a new non-display usage fee structure; (3) the proposed fees 
for non-display use, which will include internal non-display use and 
managed non-display use; (4) the proposed redistribution fee for NYSE 
ArcaBook; and (5) examples comparing the current and proposed fees.

[[Page 21669]]

Background on Current Fees

    The current monthly fees for NYSE Arca Integrated Feed,\4\ NYSE 
ArcaBook,\5\ NYSE Arca BBO,\6\ and NYSE Arca Trades \7\ are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                Digital media    Redistribution
             Product                 Access fee          Subscriber fees       enterprise fee          fee
----------------------------------------------------------------------------------------------------------------
NYSE Arca Integrated Feed \8\...            $3,000  Professional: $40.......               N/A            $3,000
                                                    Non-professional: $20...
NYSE ArcaBook...................              $750  Tape A & B Securities                   NA                NA
                                                     (including ETFs).
                                  ................  Professional: $15.
                                  ................  Non-professional: $5.
                                  ................  Tape C Securities
                                                     (excluding ETFs)
                                  ................  Professional: $15.
                                  ................  Non-professional: $5.
                                  ................  Non-professional Fee
                                                     Cap: $20,000.
NYSE Arca BBO...................              $750  Professional: $10.......                NA                NA
                                                    Non-professional: $5....
NYSE Arca Trades................          \9\ $750  Professional: $10.......           $20,000            * $750
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* (Operative May 1, 2013).

     
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    \4\ See Securities Exchange Act Release No. 66128 (Jan. 10, 
2012), 77 FR 2331 (Jan. 17, 2012) (SR-NYSEArca-2011-96).
    \5\ See Securities Exchange Act Release No. 63291 (Nov. 9, 
2010), 75 FR 70311 (Nov. 17, 2010) (SR-NYSEArca-2010-97).
    \6\ See Securities Exchange Act Release No. 62188 (May 27, 
2010), 75 FR 31484 (June 3, 2010) (SR-NYSEArca-2010-23).
    \7\ See SR-NYSEArca-2013-31.
    \8\ The NYSE Arca Integrated Feed includes: (i) NYSE ArcaBook; 
(ii) NYSE Arca BBO; (iii) NYSE Arca Trades; and (iv) order imbalance 
information. See supra n.4.
    \9\ One $750 monthly access fee entitles a vendor to receive 
both the NYSE Arca BBO data feed as well as the Exchange's NYSE Arca 
Trades data feed. See supra n.6.
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    While the majority of subscribers pay the subscriber fee for each 
display or non-display device that has access to NYSE Arca BBO and NYSE 
Arca Trades as set forth above, a small number of vendors and 
subscribers are eligible for, and have elected, the NYSE Arca Unit-of-
Count Policy that was first introduced by the Exchange's affiliate, New 
York Stock Exchange LLC (``NYSE''), 2009 \10\ and is now also available 
for NYSE Arca BBO and NYSE Arca Trades.\11\ Under this fee structure, 
these vendors and subscribers are subject to a fee structure that 
utilizes the following basic principles:
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    \10\ See Securities Exchange Act Release Nos. 62038 (May 5, 
2010), 75 FR 26825 (May 12, 2010) (SR-NYSE-2010-22); 62181 (May 26, 
2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-2010-30); and 59290 (Jan. 
23, 2009), 74 FR 5707 (Jan. 30, 2009) (SR-NYSE-2009-05).
    \11\ See supra n.6.

    i. Vendors.
     ``Vendors'' are market data vendors, broker-dealers, 
private network providers, and other entities that control 
Subscribers' access to a market data product through Subscriber 
Entitlement Controls (as described below).
    ii. Subscribers.
     ``Subscribers'' are unique individual persons or 
devices (which include both display and non-display devices) to 
which a Vendor provides a market data product. Any individual or 
device that receives the market data product from a Vendor is a 
Subscriber, whether the individual or device works for or belongs to 
the Vendor, or works for or belongs to an entity other than the 
Vendor.
     Only a Vendor may control Subscriber access to the 
market data product.
     Subscribers may not redistribute the market data 
product in any manner.
    iii. Subscriber Entitlements.
     A Subscriber Entitlement is a Vendor's permitting a 
Subscriber to receive access to the market data product through an 
Exchange-approved Subscriber Entitlement Control.
     A Vendor may not provide access to a market data 
product to a Subscriber except through a unique Subscriber 
Entitlement.
     The Exchange will require each Vendor to provide a 
unique Subscriber Entitlement to each unique Subscriber.
     At prescribed intervals (normally monthly), the 
Exchange will require each Vendor to report each unique Subscriber 
Entitlement.
    iv. Subscriber Entitlement Controls.
     A Subscriber Entitlement Control is the Vendor's 
process of permitting Subscribers' access to a market data product.
     Prior to using any Subscriber Entitlement Control or 
changing a previously approved Subscriber Entitlement Control, a 
Vendor must provide the Exchange with a demonstration and a detailed 
written description of the control or change and the Exchange must 
have approved it in writing.
     The Exchange will approve a Subscriber Entitlement 
Control if it allows only authorized, unique end-users or devices to 
access the market data product or monitors access to the market data 
product by each unique end-user or device.
     Vendors must design Subscriber Entitlement Controls to 
produce an audit report and make each audit report available to the 
Exchange upon request. The audit report must identify:
     Each entitlement update to the Subscriber Entitlement 
Control;
     The status of the Subscriber Entitlement Control; and
     Any other changes to the Subscriber Entitlement Control 
over a given period.
     Only the Vendor may have access to Subscriber 
Entitlement Controls.

    Vendors must count every Subscriber Entitlement, whether it be an 
individual person or a device. Thus, the Vendor's count would include 
every person and device that accesses the data regardless of the 
purpose for which the individual or device uses the data.
    Vendors must report all Subscriber Entitlements in accordance with 
the following:

    i. In connection with a Vendor's external distribution of the 
market data product, the Vendor should count as one Subscriber 
Entitlement each unique Subscriber that the Vendor has entitled to 
have access to the market data product. However, where a device is 
dedicated specifically to a single individual, the Vendor should 
count only the individual and need not count the device.
    ii. In connection with a Vendor's internal distribution of a 
market data product, the Vendor should count as one Subscriber 
Entitlement each unique individual (but not devices) that the Vendor 
has entitled to have access to such market data.
    iii. The Vendor should identify and report each unique 
Subscriber. If a Subscriber uses the same unique Subscriber 
Entitlement to gain access to multiple market data services, the 
Vendor should count that as one Subscriber Entitlement.
    However, if a unique Subscriber uses multiple Subscriber 
Entitlements to gain access to one or more market data services 
(e.g., a single Subscriber has multiple passwords and user 
identifications), the Vendor should report all of those Subscriber 
Entitlements.
    iv. Vendors should report each unique individual person who 
receives access through multiple devices as one Subscriber 
Entitlement so long as each device is dedicated specifically to that 
individual.
    v. The Vendor should include in the count as one Subscriber 
Entitlement devices serving no entitled individuals. However, if the 
Vendor entitles one or more individuals

[[Page 21670]]

to use the same device, the Vendor should include only the entitled 
individuals, and not the device, in the count.

Rationale for New Non-Display Usage Fee Structure

    As noted in the original NYSE Arca Unit-of-Count Policy proposal, 
``technology has made it increasingly difficult to define `device' and 
to control who has access to devices, [and] the markets have struggled 
to make device counts uniform among their customers.'' \12\ Significant 
change has characterized the industry in recent years, stemming in 
large measure from changes in regulation and technological advances, 
which has led to the rise in automated and algorithmic trading. 
Additionally, market data feeds have become faster and contain a vastly 
larger number of quotes and trades. Today, a majority of trading is 
done by leveraging non-display devices consuming massive amounts of 
data. Some firms base their business models largely on incorporating 
non-display data into applications and do not require widespread data 
access by the firm's employees. Changes in market data consumption 
patterns have increased the use and importance of non-display data.
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    \12\ See Securities Exchange Act Release No. 59544 (Mar. 9, 
2009), 74 FR 11162 (Mar. 16, 2009) (SR-NYSE-2008-131). At least one 
other Exchange also has noted such administrative challenges. In 
establishing a non-display usage fee for internal distributors of 
TotalView and OpenView, NASDAQ Stock Market LLC (``NASDAQ'') noted 
that as ``the number of devices increase, so does the administrative 
burden on the end customer of counting these devices.'' See 
Securities Exchange Act Release No. 61700 (Mar. 12, 2010), 75 FR 
13172 (Mar. 18, 2010) (SR-NASDAQ-2010-034).
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    Applications that can be used in non-display devices provide added 
value in their capability to manipulate and spread the data they 
consume. Such applications have the ability to perform calculations on 
the live data stream and manufacture new data out of it. Data can be 
processed much faster by a non-display device than it can be by a human 
being processing information that he or she views on a data terminal. 
Non-display devices also can dispense data to multiple computer 
applications as compared with the restriction of data to one display 
terminal.
    While the non-display data has become increasingly valuable to data 
recipients who can use it to generate substantial profits, it has 
become increasing difficult for them and the Exchange to accurately 
count non-display devices. The number and type of non-display devices, 
as well as their complexity and interconnectedness, have grown in 
recent years, creating administrative challenges for vendors, data 
recipients, and the Exchange to accurately count such devices and audit 
such counts. Unlike a display device, such as a Bloomberg terminal, it 
is not possible to simply walk through a trading floor or areas of a 
data recipient's premises to identify non-display devices. During an 
audit, an auditor must review a firm's entitlement report to determine 
usage. While display use is generally associated with an individual end 
user and/or unique user ID, a non-display use is more difficult to 
account for because the entitlement report may show a server name or 
Internet protocol (``IP'') address or it may not. The auditor must 
review each IP or server and further inquire about downstream use and 
quantity of servers with access to data; this type of counting is very 
labor-intensive and prone to inaccuracies.
    For these reasons, the Exchange determined that its current fee 
structure, which is based on counting non-display devices, is no longer 
appropriate in light of market and technology developments and does not 
reflect the value of the non-display data and its many profit-
generating uses for subscribers. As such, the Exchange, in conjunction 
with its domestic and foreign affiliate exchanges, undertook a review 
of its market data policies with a goal of bringing greater consistency 
and clarity to its fee structure; easing administration for itself, 
vendors, and subscribers; and setting fees at a level that better 
reflects the current value of the data provided. As a result of this 
review, the Exchange has determined to implement a new fee structure 
for display and non-display use of certain market data products. 
Initially, the Exchange will implement the new non-display use fee 
structure for NYSE Arca Integrated Feed, NYSE ArcaBook, NYSE Arca BBO, 
and NYSE Arca Trades, operative on April 1, 2013. The Exchange 
anticipates implementing a new display use fee structure later this 
year; until such time, existing fees for display use will apply.

Proposed Non-Display Usage Fees

    The Exchange proposes to establish new monthly fees for non-display 
usage, which for purposes of the proposed fee structure will mean 
accessing, processing or consuming an NYSE Arca data product delivered 
via direct and/or Redistributor \13\ data feeds, for a purpose other 
than in support of its display or further internal or external 
redistribution. The proposed non-display fees will apply to the non-
display use of the data product as part of automated calculations or 
algorithms to support trading decision-making processes or the 
operation of trading platforms (``Non-Display Trading Activities''). 
They include, but are not limited to, high frequency trading, automated 
order or quote generation and/or order pegging, or price referencing 
for the purposes of algorithmic trading and/or smart order routing. 
Applications and devices that solely facilitate display, internal 
distribution, or redistribution of the data product with no other uses 
and applications that use the data product for other non-trading 
activities, such as the creation of derived data, quantitative 
analysis, fund administration, portfolio management, and compliance, 
are not covered by the proposed non-display fee structure and are 
subject to the current standard per-device fee structure. The Exchange 
reserves the right to audit data recipients' use of NYSE Arca market 
data products in Non-Display Trading Activities in accordance with NYSE 
Arca's vendor and subscriber agreements.
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    \13\ ``Redistributor'' means a vendor or any other person that 
provides an NYSE Arca 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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    There will be two types of fees, which are described below. The 
first type of fee is for internal non-display use. The second type of 
fee is for managed non-display services. The current NYSE Arca Unit-of-
Count Policy will no longer apply to any non-display usage for NYSE 
Arca BBO and NYSE Arca Trades.\14\
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    \14\ Existing customers that are approved for the NYSE Arca 
Unit-of-Count Policy for NYSE Arca BBO and NYSE Arca Trades display 
usage may continue to follow that Policy until the new display fees 
are implemented.
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Proposed Fees for Internal Non-Display Use

    The proposed internal non-display use fees will apply to NYSE Arca 
Integrated Feed, NYSE ArcaBook, NYSE Arca BBO, and NYSE Arca Trades. 
Internal non-display use occurs when a data recipient either manages 
its own non-display infrastructure and controls the access to and 
permissioning of the market data product on its non-display 
applications or when the data recipient's non-display applications are 
hosted by a third party that has not been approved to provide the 
managed non-display services as described below.
    The fee structure will have three categories, which recognize the 
different uses for the market data. Category 1 Fees apply where a data 
recipient's non-display use of real time market data is for the purpose 
of principal trading.

[[Page 21671]]

Category 2 Fees apply where a data recipient's non-display use of 
market data is for the purpose of broker/agency trading, i.e., trading-
based activities to facilitate the recipient's customers' business. If 
a data recipient trades both on a principal and agency basis, then the 
data recipient must pay both categories of fees. Category 3 Fees apply 
where a data recipient's non-display use of market data is, in whole or 
in part, for the purpose of providing reference prices in the operation 
of one or more trading platforms, including but not limited to 
multilateral trading facilities, alternative trading systems, broker 
crossing networks, dark pools, and systematic internalization systems. 
A data recipient will not be liable for Category 3 Fees for those 
market data products for which it is also paying Category 1 and/or 
Category 2 Fees.
    The fees for internal non-display use per data recipient 
organization for each category will be as follows:

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                                                                    Category 1      Category 2      Category 3
                                                                    trading as      trading as        trading
                             Product                              principal (per   broker/agency   platform (per
                                                                      month)        (per month)       month)
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NYSE Arca Integrated Feed.......................................          $5,000          $5,000          $5,000
NYSE ArcaBook...................................................           4,000           4,000           4,000
NYSE Arca BBO...................................................           1,000           1,000           1,000
NYSE Arca Trades................................................           1,000           1,000           1,000
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    Subscribers to NYSE Arca Integrated Feed, which includes access to 
NYSE ArcaBook, NYSE Arca BBO, NYSE Arca Trades, and order imbalance 
information, are not required to subscribe to these individual services 
as part of the non-display activity for these products. Subscribers who 
are not currently subscribing to NYSE Arca Integrated Feed \15\ will be 
responsible for the individual product licenses for the non-display 
activity.
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    \15\ See supra n.8.
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    For internal non-display use, there will be no reporting 
requirements regarding non-display device counts, thus doing away with 
the administrative burdens described above. Data recipients will be 
required to declare the market data products used within their non-
display trading applications by executing an NYSE Euronext Non-Display 
Usage Declaration.

Proposed Fees for Managed Non-Display Services

    The Exchange also proposes to establish fees for managed non-
display services for NYSE Arca Integrated Feed, NYSE ArcaBook, and NYSE 
Arca Trades. Under the managed non-display service, a data recipient's 
non-display applications must be hosted by a Redistributor approved by 
the Exchange, and this Redistributor must manage and control the access 
to NYSE Arca Integrated Feed, NYSE ArcaBook, and/or NYSE Arca Trades 
for these applications and may not allow for further internal 
distribution or external redistribution of these market data products. 
The Redistributor of the managed non-display services and the data 
recipient must be approved under the current NYSE Arca Unit-of-Count 
Policy described above,\16\ which will no longer be available for non-
display use after the proposed fees are implemented. If a data 
recipient is receiving NYSE Arca Integrated Feed, NYSE ArcaBook, and/or 
NYSE Arca Trades for Non-Display Trading Activities from a 
Redistributor that is not approved under the NYSE Arca Unit-of-Count 
Policy, then the internal non-display fees described above will apply.
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    \16\ See supra n.11. The Redistributor and data recipient will 
qualify if they are approved for NYSE Arca Unit-of-Count Policy for 
any NYSE Arca market data product. The products that are currently 
approved for NYSE Arca Unit-of-Count Policy are NYSE Arca Trades and 
NYSE Arca BBO.
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    The fees for managed non-display services per data recipient 
organization will be as follows:

------------------------------------------------------------------------
                                             Managed Non-Display Use Fee
                  Product                            (per month)
------------------------------------------------------------------------
NYSE Arca Integrated Feed.................  $1,750
NYSE ArcaBook.............................  1,500
NYSE Arca Trades..........................  400
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    Data recipients will not be liable for managed non-display fees for 
those market data products for which they pay the internal non-display 
fee.
    Upon request, a Redistributor offering managed non-display services 
must provide the Exchange with a list of data recipients that are 
receiving NYSE Arca Integrated Feed, NYSE ArcaBook, or NYSE Arca Trades 
through the Redistributor's managed non-display service. Data 
recipients of the managed non-display service have no additional 
reporting requirements, thus easing the administrative burdens 
described above.

NYSE ArcaBook Redistribution Fee

    The Exchange proposes to establish a monthly redistribution fee of 
$1,500 for NYSE ArcaBook that will be operative on July 1, 2013. The 
Exchange believes that it is reasonable to charge this redistribution 
fee because vendors receive value from redistributing the data in their 
business products for their customers.

Examples

    Broker-Dealer A obtains NYSE Arca Trades directly from the Exchange 
for internal use and does not fall under the NYSE Arca Unit-of-Count 
Policy. Broker-Dealer A trades both on a principal and agency basis and 
has (i) 80 individual persons who use 100 display devices and (ii) 50 
non-display devices.
     Under the current fee schedule, Broker-Dealer A pays the 
Exchange the $750 access fee plus $10 for each of the 100 display 
devices (although 80 individual persons use them, the number of devices 
is counted), or $1,000, and $10 for each of the 50 non-display devices, 
or $500, for a total of $2,250 per month.
     Under the proposed fee schedule, Broker-Dealer A would pay 
the Exchange the $750 access fee plus $10 for each of the 100 display 
devices, or $1,000, and Category 1 and Category 2 fees for internal 
non-display use, or $2,000, for a total of $3,750 per month. No 
redistribution fee would be charged.
    Broker-Dealer B, which only trades as principal, obtains NYSE Arca 
Trades from Vendor X. Broker-Dealer B and Vendor X are both approved 
for the NYSE Arca Unit-of-Count Policy. Broker-Dealer B has (i) 10 
individual persons who use 12 display devices and (ii) 5 non-display 
devices.
     Today, Vendor X pays the $750 access fee and Broker-Dealer 
B pays $150 ($10 for the 10 individual persons (under the NYSE Arca 
Unit-of-Count Policy, the larger number of display devices is not 
counted), or $100, plus $10 for each of the 5 non-display devices, or 
$50).

[[Page 21672]]

     Under the proposed fee schedule, Broker-Dealer B would pay 
$100 as it does today for its individual persons using display devices, 
and $400 for managed non-display use, for a total of $500 per month in 
fees. Vendor X would pay the $750 access fee and, as of May 1, 2013, 
the redistribution fee of $750 for a total of $1,500.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\17\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\18\ 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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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(4), (5).
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    As described in detail in the section ``Rationale for New Non-
Display Usage Fee Structure'' above, which is incorporated by reference 
herein, technology has made it increasingly difficult to define 
``device'' and to control who has access to devices. Significant change 
has characterized the industry in recent years, stemming in large 
measure from changes in regulation and technological advances, which 
has led to the rise in automated and algorithmic trading, which have 
the potential to generate substantial profits. Indeed, data used in a 
single non-display device running a single trading algorithm can 
generate large profits. Market data technology and usage has evolved to 
the point where it is no longer practical, nor fair and equitable, to 
simply count non-display devices. The administrative costs and 
difficulties of establishing reliable counts and conducting an 
effective audit of non-display devices have become too burdensome, 
impractical, and non-economic for the Exchange, vendors, and data 
recipients. Rather, the Exchange believes that its proposed flat fee 
structure for non-display use is reasonable, equitable, and not 
unfairly discriminatory in light of these developments.
    Other exchanges also have established differentiated fees based on 
non-display usage, including a flat or enterprise fee. For example, 
NASDAQ professional subscribers pay monthly fees for non-display usage 
based upon direct access to NASDAQ Level 2, NASDAQ TotalView, or NASDAQ 
OpenView, which range from $300 per month for customers with one to 10 
subscribers to $75,000 for customers with 250 or more subscribers.\19\ 
In addition, NASDAQ OMX PHLX, Inc. (``Phlx'') offers an alternative 
$10,000 per month ``Non-Display Enterprise License'' fee that permits 
distribution to an unlimited number of internal non-display subscribers 
without incurring additional fees for each internal subscriber.\20\ The 
Non-Display Enterprise License covers non-display subscriber fees for 
all Phlx proprietary direct data feed products and is in addition to 
any other associated distributor fees for Phlx proprietary direct data 
feed products. NASDAQ OMX BX, Inc. (``BX'') also offers an alternative 
non-display usage fee of $16,000 for its BX TotalView data feed.\21\ 
NASDAQ and Phlx also both offer managed non-display data solutions at 
higher overall fees than the Exchange proposes to charge.\22\
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    \19\ See NASDAQ Rule 7023(b)(4).
    \20\ See Securities Exchange Act Release No. 68576 (Jan. 3, 
2013), 78 FR 1886 (Jan. 9, 2013) (SR-Phlx-2012-145). Alternatively, 
Phlx charges each professional subscriber $40 per month.
    \21\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX 
charges each professional subscriber $40 per month.
    \22\ NASDAQ established fees for a Managed Data Solution to 
Distributors, which includes a monthly Managed Data Solution 
Administration fee of $1,500 and monthly Subscriber fees ranging 
from $60 to $300. See NASDAQ Rule 7026(b). Phlx also established a 
Managed Data Solution, which includes a monthly Managed Data 
Solution Administration fee of $1,500 and a monthly Subscriber fee 
of $250. The monthly License fee is in addition to Phlx's monthly 
Distributor fee of $2,500 (for external usage), and the $250 monthly 
Subscriber fee is assessed for each Subscriber of a Managed Data 
Solution. See Securities Exchange Act Release No. 67466 (July 19, 
2012), 77 FR 43629 (July 25, 2012) (SR-Phlx-2012-93).
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    The Exchange also believes that it is reasonable, equitable, and 
not unfairly discriminatory to charge relatively lower fees for managed 
non-display services because the Exchange expects that they will 
generally be used by a small number of Redistributors and data 
recipients that are currently eligible for the NYSE Arca Unit-of-Count 
Policy. These data recipients are constrained by whatever applications 
are available via Redistributors operating in the Exchange's co-
location center and other hosted facilities. In comparison, a data 
recipient that elects internal non-display use is free to use the data 
in any manner it chooses and create new uses in an unlimited number of 
non-display devices. The lack of constraint in this regard will make 
the non-display usage of the data more valuable to such an internal use 
data recipient.
    The proposed redistribution fee for NYSE ArcaBook also is 
reasonable because it is comparable to other redistribution fees that 
are currently charged by the Exchange and other exchanges.\23\ As noted 
above, the Exchange believes that 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 to those vendors that 
choose to redistribute the data.
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    \23\ The Exchange charges a $3,000 per month redistribution fee 
for the NYSE Arca Integrated Feed, which includes depth-of-book 
data. See supra n.4. In addition, the Exchange 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). All distributors of a 
NASDAQ Last Sale Data Feed also pay a monthly fee of $1,500. See 
NASDAQ Rule 7039(d).
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    The Exchange has not raised the market data fees for NYSE Arca 
Integrated Feed and NYSE Arca BBO since the fees were adopted in 2011 
and 2010, respectively.\24\ The Exchange set the NYSE ArcaBook 
professional subscriber fee at $15 and non-professional subscriber fee 
for Tape A and B Securities (including ETFs) or Tape C Securities 
(excluding ETFs) in 2006, and the NYSE Arca Trades professional 
subscriber fee at $10 in 2010.\25\ The Exchange believes that the new 
fee schedule, which may result in certain vendors and data recipients 
paying more than they have in the last several years, is fair and 
reasonable in light of market and technology developments. The current 
per-device fee structure no longer reflects the significant overall 
value that non-display data can provide in trading algorithms and other 
uses that provide professional users with the potential to generate 
substantial profits. The Exchange believes that it is equitable and not 
unfairly discriminatory to establish an overall monthly fee that better 
reflects the value of the data to the data recipients in their profit-
generating activities and does away with the costs and administrative 
burdens of counting non-display devices.
---------------------------------------------------------------------------

    \24\ See supra nn.4, 6.
    \25\ See Securities Exchange Act Release No. 54597 (Oct. 12, 
2006), 71 FR 62029 (Oct. 20, 2006) (SR-NYSEArca-2006-21); supra n.5.
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    The Exchange also notes that products described herein are entirely 
optional. Firms are not required to purchase NYSE Arca Integrated Feed, 
NYSE ArcaBook, NYSE Arca BBO, or NYSE Arca Trades. Firms have a wide 
variety of alternative market data products from which to choose.\26\ 
Moreover, the Exchange is not required to make these

[[Page 21673]]

proprietary data products available or to offer any specific pricing 
alternatives to any customers.
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    \26\ See supra nn.19-22.
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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 reliance by the Securities and Exchange Commission 
(``Commission'') 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 forces should 
dictate the services and practices that constitute the U.S. national 
market system for trading equity securities.''' \27\
---------------------------------------------------------------------------

    \27\ 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.\28\ In addition, the existence of 
alternatives to these data products, such as 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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    \28\ 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 analysis 
of this topic in another rule filing.\29\
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    \29\ 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 actual 
competition for the sale of proprietary market data products, the joint 
product nature of exchange platforms, and the existence of alternatives 
to the Exchange's proprietary last sale data.
    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 for the 
creation of proprietary data and strict pricing discipline to 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.'' \30\
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    \30\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at: http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
---------------------------------------------------------------------------

    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.'' \31\
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    \31\ 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.
---------------------------------------------------------------------------

    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, vendors will not elect to make 
available the NYSE Arca products described herein unless their 
customers request them, and customers will not elect to purchase them 
unless they can be used for profit-generating purposes. All of these 
operate as constraints on pricing proprietary data products.
    Joint Product Nature of Exchange 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.

[[Page 21674]]

    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 common costs.\32\ 
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.\33\
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    \32\ 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.
    \33\ 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 
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, NYSE 
MKT, 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,\34\ 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.
---------------------------------------------------------------------------

    \34\ See supra nn.19-22.
---------------------------------------------------------------------------

    Those competitive pressures imposed by available alternatives are 
evident in the Exchange's proposed pricing. As noted above, the 
proposed non-display fees for NYSE Arca Integrated Feed, NYSE ArcaBook, 
NYSE Arca Trades, and NYSE Arca BBO are generally lower than the 
maximum non-display fees charged by other exchanges such as NASDAQ, 
Phlx, and BX for comparable products.\35\ The proposed redistribution 
fee for NYSE ArcaBook also is comparable to the Exchange's and other 
exchanges' similar fees.\36\
---------------------------------------------------------------------------

    \35\ Id.
    \36\ See supra n.23.
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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, 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 executions to maintain low execution charges for 
their users.\37\
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    \37\ 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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[[Page 21675]]

    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. The Exchange believes the proposed non-display 
fees will benefit customers by providing them with a clearer way to 
determine their fee liability for non-display devices, and with respect 
to internal use, to obviate the need to count such devices. The 
Exchange further believes that only vendors that expect to derive a 
reasonable benefit from redistributing the market data products 
described herein 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 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) \38\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \39\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    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) \40\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \40\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-NYSEArca-2013-37 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- NYSEArca-2013-37. 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-NYSEARCA-2013-37, and should be submitted on or before May 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08464 Filed 4-10-13; 8:45 am]
BILLING CODE 8011-01-P


