
[Federal Register Volume 78, Number 143 (Thursday, July 25, 2013)]
[Notices]
[Pages 44984-44994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-17860]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70010; File No. SR-CTA/CQ-2013-04]


Consolidated Tape Association; Notice of Filing and Immediate 
Effectiveness of the Nineteenth Charges Amendment to the Second 
Restatement of the CTA Plan and Eleventh Charges Amendment to the 
Restated CQ Plan

July 19, 2013.
    Pursuant to Section 11A of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 608 thereunder,\2\ notice is hereby given that 
on July 10, 2013, the Consolidated Tape Association (``CTA'') Plan and 
Consolidated Quotation (``CQ'') Plan participants (``Participants'') 
\3\ filed with the Securities and Exchange Commission (``Commission'') 
a proposal to amend the Second Restatement of the CTA Plan and Restated 
CQ Plan (collectively, the ``Plans'').\4\ The amendments (``June Fee 
Simplification Amendments'') respond to requests from industry 
representatives that sit on the Plans' Advisory Committees that the 
Participants simplify the Plans' existing market data fee schedules and 
reduce associated administrative burdens. The Advisory Committee 
consists of individuals representing the key market data customer 
segments, including retail brokers, broker-dealers, alternative trading 
systems and vendors. Acting on the recommendations of the Advisory 
Committee, the Participants seek to compress the current 14-tier 
Network A device rate schedule into just four tiers, consolidate the 
Plans' eight fee schedules into one, update that fee schedule, and 
realign the Plans' charges more closely with the services the Plans 
provide (collectively, the ``Fee Changes''), without materially 
changing the revenues the current fee schedules generate.
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ Each participant executed the proposed amendment. The 
Participants are: BATS Exchange, Inc., BATS-Y Exchange, Inc., 
Chicago Board Options Exchange, Incorporated, Chicago Stock 
Exchange, Inc., EDGA Exchange, Inc. (``EDGA''), EDGX Exchange, Inc. 
(``EDGX''), Financial Industry Regulatory Authority, Inc. 
(``FINRA''), International Securities Exchange, LLC, NASDAQ OMX BX, 
Inc. (``Nasdaq BX''), NASDAQ OMX PHLX, Inc. (``Nasdaq PSX''), Nasdaq 
Stock Market LLC, National Stock Exchange, New York Stock Exchange 
LLC (``NYSE''), NYSE MKT LLC (formerly NYSE Amex, Inc.), and NYSE 
Arca, Inc. (``NYSE Arca'').
    \4\ See Securities Exchange Act Release Nos. 10787 (May 10, 
1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan 
effective); 15009 (July 28, 1978), 43 FR 34851 (August 7, 1978) 
(temporarily authorizing the CQ Plan); and 16518 (January 22, 1980), 
45 FR 6521 (January 28, 1980) (permanently authorizing the CQ Plan). 
The most recent restatement of both Plans was in 1995. The CTA Plan, 
pursuant to which markets collect and disseminate last sale price 
information for non-NASDAQ listed securities, is a ``transaction 
reporting plan'' under Rule 601 under the Act, 17 CFR 242.601, and a 
``national market system plan'' under Rule 608 under the Act, 17 CFR 
242.608. The CQ Plan, pursuant to which markets collect and 
disseminate bid/ask quotation information for listed securities, is 
a ``national market system plan'' under Rule 608 under the Act, 17 
CFR 242.608.
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    The Participants first introduced the Fee Changes in the Sixteenth 
Charges Amendment to the CTA Plan \5\, as modified by the Seventeenth 
Charges Amendment to the CTA Plan \6\ and in the Eighth Charges 
Amendment to the CQ Plan \7\, as modified by the Ninth Charges 
Amendment to the CQ Plan \8\ (collectively, the ``March Fee 
Simplification Amendments''). On May 10, 2013, the Participants filed 
Amendments to reverse the Fee Changes introduced in the March Fee 
Simplification Amendments in the Eighteenth Charges Amendment to the 
CTA Plan \9\ and the Tenth Charges Amendment to the CQ Plan (``Reversal 
Amendments'') \10\. The June Fee Simplification Amendments propose to 
re-introduce them.
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    \5\ See Securities Exchange Act Release No. 69157 (March 18, 
2013), 78 FR 17946 (March 25, 2013) (File No. SR-CTA/CQ-2013-01).
    \6\ See Securities Exchange Act Release No. 69318 (April 5, 
2013), 78 FR 21648 (April 11, 2013) (File No. SR-CTA/CQ-2013-02).
    \7\ See supra note 5.
    \8\ See supra note 6.
    \9\ See Securities Exchange Act Release No. 69593 (May 16, 
2013), 78 FR 30365 (May 22, 2013) (File No. SR-CTA/CQ-2013-03)
    \10\ See id.
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    The Commission received two comment letters regarding the Sixteenth 
Charges Amendment to the CTA Plan and the Eighth Charges Amendment to 
the CQ Plan \11\ and received one comment letter regarding the 
Seventeenth Charges Amendment to the CQ Plan and the Ninth Charges 
Amendment to the CQ Plan.\12\
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    \11\ See Letter to Elizabeth M. Murphy, Secretary, Commission, 
from Henry Schwartz, President and Founder, Trade Alert LLC (``Trade 
Alerts''), dated March 20, 2013 (``Trade Alerts Letter'') and from 
Kimberly Unger, Esq., CEO and Executive Director, The Security 
Traders Association of New York, Inc. (``STANY''), dated April 10, 
2013 (``STANY Letter'').
    \12\ See Letter to the Commission from James Smith, Director, 
Hoffman Estates, IL, dated April 8, 2013.
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    Pursuant to Rule 608(b)(3)(i) under Regulation NMS,\13\ the 
Participants

[[Page 44985]]

designated the June Fee Simplification Amendments as establishing or 
changing a fee or other charge collected on their behalf in connection 
with access to, or use of, the facilities contemplated by the Plans. As 
a result, the June Fee Simplification Amendments became effective upon 
filing with the Commission. At any time within 60 days of the filing of 
the June Simplification Amendments, the Commission may summarily 
abrogate the June Fee Simplification Amendments and require that the 
June Fee Simplification Amendments be refiled in accordance with 
paragraph (a)(1) of Rule 608 and reviewed in accordance with paragraph 
(b)(2) of Rule 608, if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or the maintenance of fair and orderly markets, to remove 
impediments to, and perfect the mechanisms of, a national market system 
or otherwise in furtherance of the purposes of the Act.
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    \13\ 17 CFR 242.608(b)(3)(i).
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    The Commission is publishing this notice to solicit comments from 
interested persons on the proposed June Fee Simplification Amendments.

I. Rule 608(a)

A. Purpose of the Amendments

1. In General
    Prior to the March Fee Simplification Amendments, the Participants 
last filed a fee structure change in 1986. Since then, however, 
significant change has characterized the industry, stemming in large 
measure from technological advances, the advent of trading algorithms 
and automated trading, new investment patterns, new securities 
products, unprecedented levels of trading, decimalization, 
internationalization and developments in portfolio analysis and 
securities research.
    Industry representatives who sit on the Plans' Advisory Committee 
have noted these changes and have urged adoption of a modernized, 
simpler, easier to read fee schedule. Despite the STANY Letter's 
assertions to the contrary, the Participants have discussed the 
proposed fee changes with those industry representatives on multiple 
occasions. The Participants recommend that STANY speak with the 
Advisory Committee and incorporate their views into any future comment 
letter. The industry representatives have requested a reduction in the 
rate spread inherent in the 14-tier Network A device rate structure, 
reduced administrative burdens and a simplified pricing structure that 
is consistent with current technology and that promotes the use of 
real-time market data. Those are the goals of the Fee Changes.
    The Fee Changes also move in the direction of harmonizing fees 
between Network A and Network B and of harmonizing fees under the Plans 
with fees under two other national market system plans: The Joint Self-
Regulatory Plan Governing the Collection, Consolidation and 
Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges 
Basis (the ``Nasdaq/UTP Plan'') and the OPRA Plan. This would reduce 
administrative burdens for broker-dealers and other market data users 
and simplify fee calculations.
    The June Fee Simplification Amendments also propose to consolidate, 
simplify and update the market data fee schedules under both Plans to 
arrive at a single, consolidated CTA/CQ Fee Schedule. This would make 
it easier for market data users to understand and apply the fee 
schedule.
    The proposed Fee Changes rebalance the fee schedule but are 
approximately revenue neutral to the overall market data revenues 
generated under the Plans.
2. The Proposed Fee Schedule Changes
a. Professional Subscriber Charges
i. Network A
    A principal purpose of the proposed Fee Changes is to address the 
14-tier fee structure that the Participants have in place for Network A 
professional subscribers. That structure has been in place for more 
than 25 years. Under the tiered structure, a firm reports how many 
display devices the professional subscribers it employs use and that 
number then is used to determine the tier within which the firm falls.
    For reporting purposes, a display device is any device capable of 
displaying market data. Where a professional subscriber receives market 
data services from multiple vendors, separate device fees apply for 
each vendor's service. Where a vendor provides market data to a 
professional subscriber by means of multiple applications, separate 
device fees apply for each application.
    At one extreme, the current Network A fee tiered structure imposes 
a monthly charge of $18.75 per device for firms employing professional 
subscribers who use more than 10,000 devices. At the other extreme, it 
imposes a monthly charge of $127.25 per device for a single 
professional subscriber. (For Network A, the rates entitle the 
professional subscriber to receive both Network A last sale information 
under the CTA Plan and Network A quotation information under the CQ 
Plan.)
    Market data users have told the Participants that they find the 14-
tier structure challenging to administer and the $18.75-to-$127.25 
spread between the highest and lowest tiers too wide. The proposed 
changes seek to address both concerns. The Participants propose a new 
four-tier monthly Network A fee structure for the display units of 
professional subscribers, as follows:

 
 
 
1. 1-2 devices..........................................          $50.00
2. 3-999 devices........................................           30.00
3. 1,000-9,999 devices..................................           25.00
4. 10,000 devices or more...............................           20.00
 

    The proposed narrowing of the gap between the highest rates and the 
lowest rates would result in a more equitable rate distribution and 
benefit both individuals who have not qualified as nonprofessional 
subscribers and smaller firms. In particular, individuals and firms 
having one device would see their monthly Network A rate drop from 
$127.25 to $50, and firms having two devices would see their monthly 
Network A rate drop from $79.50 per device to $50 per device. Firms 
whose professional subscriber employees use between 3 and 29 devices 
would also have lower rates.
    On the other hand, larger firms would see higher rates in respect 
of their internal distribution of market data to their employees. For 
example, the rates for firms whose employees use between 750 devices 
and 9,999 devices would rise from $19.75 or $20.75 per device to $25 
per device, and the rates for firms whose employees use more than 
10,000 devices would rise from $18.75 to $20.00.
    Many firms distribute market data to ``Customers'' and pay CTA/CQ 
fees on behalf of those Customers. Those firms should pay less for 
their external distribution to each Customer because the rates that 
they would pay on behalf of each Customer would drop (assuming that the 
firm does not provide service to more than 29 devices of the Customer). 
The amount of the decrease would depend on the tier into which the 
Customer falls.
    ``Customer'' refers to a consultant to the firm, an individual 
client of the firm, an independent contractor who may be associated 
with the firm but is not an employee of the firm, a trading company 
that receives market data from the firm for use by its traders (who may 
or may not be employees of that trading company), and any other 
corporate, broker-dealer or other entity to which the firm provides 
data.

[[Page 44986]]

    A firm may only include its own employees in determining the tier 
applicable to it. It may not include in that determination any Customer 
to which it provides market data or the employees of any Customer. The 
rate applicable to each Customer is separately determined based on the 
tier into which the Customer falls.
    In monitoring compliance by market data recipients, the Network A 
Administrator has discovered improper use of the employee-independent 
contractor distinction. Some firms with non-employment ties to traders 
and others have inappropriately characterized those traders and others 
as ``employees,'' thereby causing those persons to be included in the 
firm's tier and allowing a lower per-device rate to apply to those 
persons.
    For that reason, the amendments propose to add a footnote (proposed 
footnote 2) to clarify that a firm may only include employees and not 
independent contractors in the firm's tier for purposes of determining 
the device fee rate applicable to data recipients.
    The footnote does not propose to change the Participant's long-
standing policy regarding the employee-independent contractor 
distinction. CTA deems a person to be an ``employee'' of a data 
recipient if the data recipient deems the person to be an employee in 
its dealings with the Internal Revenue Service; that is, if the data 
recipient issues a Form W-2 in respect of the person, rather than a 
Form 1099 or another Internal Revenue Service form. Persons that are 
not W-2 employees maintain independent contractor status or some other 
status. For any person located in a country other than the United 
States, the person would qualify as an ``employee'' for market data 
purposes if the firm characterizes the person as an ``employee'' for 
tax purposes under that country's income tax laws and rules. If a 
country does not have tax laws and rules that differentiate an employee 
from an independent contractor, the firm should apply the standard that 
the United States Internal Revenue Service uses to determine whether a 
person qualifies as an employee.\14\ In addition, if a firm holds an 
active Form U-4 for an individual, and that individual is engaged in 
the securities business of the firm, the individual shall be deemed to 
be an ``employee'' of the firm for Network A professional subscriber 
device fee purposes.
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    \14\ The Internal Revenue Service describes more fully who 
qualifies as an employee and who qualifies as an independent 
contractor in a publication that can be found at http://www.irs.gov/
pub/irs[hyphen]pdf/p15a.pdf.
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    CTA maintains a written statement of its employee-independent 
contractor policy on its Web site at http://www.nyxdata.com/Docs/Market-Data/Policies. It also describes the ``employee'' definition in 
its ``Multiple Installations, Single User'' (``MISU'') policy, which 
can be found at the same Web site.
    Also for purposes of discouraging abuse, the amendments propose to 
eliminate the reference to a firm's officers and partners as authorized 
internal distributees of a firm, entitled to be included in the firm's 
tier for per-device rate purposes.
    Together with the other proposed amendments to the fee schedule, it 
is anticipated that the changes to the Network A professional 
subscriber tiered fee structure would not result in a material change 
in overall revenues under the Plans.
ii. Network B
    Professional subscribers currently pay one amount for Network B 
last sale information and a separate amount for Network B quotation 
information. Firms that are members of a Participant currently pay 
slightly less than non-members. A member pays $27.25 per month per 
device to receive both last sale and quotation Network B information 
and a non-member pays $30.20. Network B is the only network that still 
distinguishes between members and non-members.
    To simplify Network B professional subscriber rates and to remove 
the differential, the Participants propose a single monthly rate of 
$24.00 per device, applicable to both members and non-members.
    The $24.00 Network B rate would amount to a savings for most 
professional subscribers, the majority of which currently receive both 
last sale and quotation information. Network B has a small number of 
data recipients who receive last sale information or quotation 
information, but not both. The change would amount to a fee increase 
for them. The Network B Participants note that Network A and the 
Participants in the Nasdaq/UTP Plan and the OPRA Plan have not charged 
separately for last sale information and quotation information for many 
years.
    The Participants believe that a single fee for Network B devices 
would prove administratively efficient for data users and the network 
administrators. They note that the Nasdaq/UTP Plan imposes a single fee 
of $20 for each device and that the OPRA Plan imposes a single fee 
(currently $25) for each device.
iii. Broker-Dealer Enterprise Maximums
    Currently, the monthly broker-dealer enterprise maximums are set at 
$660,000 per month for Network A and $500,000 per month for Network B. 
For that amount, the enterprise maximums allow a broker-dealer to 
provide last sale and quotation information to an unlimited number of 
its own employees and its nonprofessional subscriber brokerage account 
customers. The Plans provide that the amounts of the broker-dealer 
enterprise maximums increase each calendar year by an amount equal to 
the percentage increase in the annual composite share volume for the 
preceding calendar year, subject to a maximum annual increase of five 
percent.
    The Participants propose to modify the means for determining the 
increase in the broker-dealer enterprise maximums. Under the proposal, 
the Participants may increase the broker-dealer enterprise maximums for 
Network A and Network B by the affirmative vote of not less than two-
thirds of the Participants, provided, however, that they may not 
increase either network's enterprise maximum by more than four percent 
for any calendar year. The Participants may elect not to increase the 
fee for any calendar year.
    This proposed means for determining the increase in the broker-
dealer enterprise maximums would reduce the amount of any one year's 
permissible increase from five percent to four percent and would better 
reflect inflation than does the current means. The maximum four percent 
increase is consistent with the average annual cost of living 
adjustment (``COLA'') as published by the Social Security 
Administration for Supplemental Security Income for the past 38 
years.\15\
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    \15\ The Participants use COLA as the measure for the annual 
increase in the fixed fee that they pay to the network 
administrators for the administrators' services.
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    The Participants have not increased the Network A broker-dealer 
enterprise maximum for more than five years. They have not increased 
the Network B broker-dealer enterprise maximum since they first adopted 
it in 1999. They propose to increase the amount of both networks' 
enterprise maximums for 2013. As a result, the monthly Network A 
broker-dealer enterprise maximum would increase to $686,400 and the 
monthly Network B broker-dealer enterprise maximum would increase to 
$520,000. These changes would not take effect until the implementation 
date for the other changes set forth in the amendments. Currently, only 
one firm reaches the enterprise caps and, in the

[[Page 44987]]

aggregate, the Fee Changes would reduce the fees payable by that firm 
by 13 percent, based on its April 2013 level of activity.
    The STANY Letter expresses concern ``that the change gives the 
Participants the opportunity to increase monthly Network A and B fees 
without correlation to volume increases.'' First, we note that after 
many years of experience with the enterprise cap, the Participants have 
come to realize that year-to-year changes in volume do not reflect 
changes in data message traffic or inflation as well as the 38-year 
record of four percent increases in COLA. In recent years, message 
traffic has continued to grow, while volume remains lower than it was 
five years ago.
    Additionally, it is possible that firms may reach the enterprise 
caps by means of merger, which could materially impact overall market 
data revenue without natural growth in the market. The reduction of the 
maximum annual increase from five percent to four percent, as well as 
the discretion given to the Participants to agree annually to a lower 
increase, or to no increase at all, should make the proposed change 
more palatable to the very small number of entities that take advantage 
of the enterprise cap.\16\
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    \16\ Currently, only one firm takes advantage of the Network A 
enterprise cap and only one firm takes advantage of the Network B 
enterprise cap.
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b. Nonprofessional Subscriber Charges
    Currently, a firm pays $1.00 per month in respect of its first 
250,000 Network A nonprofessional subscribers and $0.50 for Network A 
nonprofessional subscribers in excess of 250,000. A firm pays $1.00 per 
month for each of its Network B nonprofessional subscribers, regardless 
of how many such subscribers a firm has.
    The Participants propose to harmonize the treatment of large and 
small firms by applying the $1.00 per month rate in respect of all 
Network A nonprofessional subscribers, regardless of the number of 
nonprofessional subscribers. This would also harmonize the Network A 
nonprofessional subscriber fee with the Network B nonprofessional 
subscriber fee, as well as the $1.00 nonprofessional subscriber fee 
payable under the Nasdaq/UTP Plan. (The fee applicable to 
nonprofessional subscribers under the OPRA Plan is $1.25.) The 
Participants note that the number of firms that have more than 250,000 
Network A nonprofessional subscribers is very small.
c. Per-Query Charges
    Currently, Network A and Network B impose identical three-tiered 
per-query rates as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
1 to 20 million quotes....................  $.0075 each.
20 to 40 million quotes...................  $.005 each.
Over 40 million quotes....................  $.0025 each.
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    The Participants propose to modify their per-query rate structure 
by replacing the three-tier structure with the same one-tier rate as 
the Nasdaq/UTP Plan and the OPRA Plan imposes: $.005 for each inquiry 
for both Network A and Network B.
    As before, a vendor's per-query fee exposure for any 
nonprofessional subscriber is limited to $1.00 per month (i.e., the 
nonprofessional subscriber rate.)
    The single-tiered rate would simplify per-query calculations. It 
would also harmonize the Network A and Network B per-query fees with 
the Nasdaq/UTP Plan and the OPRA Plan per-query fees.
d. Access Fees
    Current and proposed access fees for direct access to last sale 
prices are as follows:
    Current Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................       $1,000.00
Network B...............................................          350.00
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    Proposed Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................       $1,250.00
Network B...............................................          750.00
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    Current and proposed access fees for indirect access to last sale 
prices are as follows:
    Current Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................         $500.00
Network B...............................................          200.00
------------------------------------------------------------------------

    Proposed Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................         $750.00
Network B...............................................          400.00
------------------------------------------------------------------------

    Current and proposed access fees for direct access to quotation 
information are as follows:
    Current Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................       $1,100.00
Network B...............................................          400.00
------------------------------------------------------------------------

    Proposed Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................       $1,750.00
Network B...............................................        1,250.00
------------------------------------------------------------------------

    Current and proposed access fees for indirect access to quotation 
information are as follows:
    Current Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................         $700.00
Network B...............................................          250.00
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    Proposed Fees:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Network A...............................................       $1,250.00
Network B...............................................          600.00
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    Access fees are charged to those who obtain Network A and Network B 
data feeds. Consistent with current practice, within each of a firm's 
billable accounts, the Participants only charge one access fee for last 
sale information and one access fee for quotation information, 
regardless of the number of data feeds that the firm receives for that 
account. The Participants believe that increases in these fees are fair 
and reasonable because today's data feeds provide significant 
incremental value in comparison to the data feeds that the Participants 
provided when they first set the access fees.
    For example, the data feeds contain a vastly larger number of last 
sale prices and bids and offers. Since April 2006, the growth of quotes 
and trades per second has increased over 12,200 percent and 2500 
percent, respectively. Additionally, the growth in Exchange Traded 
Products (``ETPs'') has contributed to a significant increase in 
Network B activity. For example, in April 2013, Network B listed 1,362 
ETPs, which accounted for 93 percent of volume. The data feeds also 
contain far more information beyond prices and quotes, such as the 
national best bid and offer (``NBBO''), short sale restriction 
indications, circuit breaker tabs, retail price improvement 
indications, and, since April 2013, limit up/limit down information. In 
addition to the vast increase in content, there has been significant 
improvement in the latency of the data feeds.
    Further, data feeds have become more valuable, as recipients now 
use them to perform a far larger array of non-display functions. Some 
firms even base their business models on the incorporation of data 
feeds into black boxes and application programming interfaces that 
apply trading algorithms to the data, but that do not require 
widespread data access by the firm's employees. As a result, these 
firms pay little for data usage beyond access fees, yet their data 
access and usage is critical to their businesses.
    The Participants estimate the revenues resulting from the revised 
access fees would increase total Network A and Network B revenues by 
six percent, but this increase would be largely offset by an estimated 
five

[[Page 44988]]

percent decrease in total revenues resulting from the revised 
professional subscriber device fees and an estimated two percent 
decrease resulting from the revised quote usage fees. The majority of 
customers taking data feeds would also benefit from lower professional 
subscriber fees and/or lower quote-usage fees.
    CTA and CQ data feeds include a full consolidated data set of last 
sale and quotation information across all Participants, including 
FINRA's Trade Reporting Facilities (``TRFs''). In contrast, the data 
feeds found in the proprietary data products of individual exchanges 
contain a far more limited set of data. Of the firms that are charged 
an access fee for consolidated data, 86 percent take the cheaper data 
feed through indirect access. The following chart compares access fees 
for the receipt of last sale information and quotation information:

Proposed CTA Network A:
    Direct Access: $3,000
    Indirect Access: $2,000
Proposed CQ Network B:
    Direct Access: $2,000
    Indirect Access: $1,000
NYSE: $5,000
Nasdaq: $2,000
Nasdaq BX: $1,000
Nasdaq PSX: $1,000
NYSE Arca: $750
EDGA: $500
EDGX: $500
e. Data Redistribution Charges
    The Participants propose to establish a new monthly charge of 
$1,000 for the redistribution of Network A last sale price information 
and/or Network A quotation information and a similar $1,000 monthly 
charge for the redistribution of Network B last sale price information 
and/or Network B quotation information. This will not necessitate any 
additional reporting obligations.
    The redistribution charges would apply to any entity that makes 
last sale information or quotation information available to any other 
entity or to any person other than its own employees, irrespective of 
the means of transmission or access. That is, all firms that 
redistribute market data outside of their organization would be 
required to pay the redistribution fee. The fee would not apply to a 
firm whose receipt, use and distribution of market data is limited to 
its own employees in a controlled environment.
    The proposed redistribution charge harmonizes CTA/CQ fees with OPRA 
Plan fees, which impose a redistribution charge on every vendor that 
redistributes OPRA data to any person. OPRA's redistribution fee is 
$1,500 per month (or $650 for an internet-only service). Redistribution 
fees are also common for exchange proprietary data products.
    Revenues from the redistribution charge along with the access fees 
would help to offset anticipated decreases in revenues resulting from 
the proposed changes to the professional subscriber device fees.
    In its comment letter, Trade Alerts wrote that it is a small 
financial technology company that vends proprietary trading systems 
that allow individuals to trade securities, that its clients include 
the largest Wall Street broker-dealers and active retail investors, and 
that the new redistribution fee would substantially increase its 
monthly market data costs. It also notes that the redistribution fee 
favors large vendors because the fee is the same amount for all 
redistributors.
    Market data redistributors like Trade Alerts, however, base their 
business models on procuring data from exchanges and turning around and 
redistributing that data to their customers and subscribers. The costs 
that redistributors incur for acquiring their inventory (i.e., CTA/CQ 
market data) are very low, sometimes amounting only to their payment of 
access fees. Some vendors convert this low-cost inventory into large 
profits, charging fees for the Participants' market data that are not 
subject to regulation. The proposed redistribution charges would 
require them to contribute somewhat more, relative to the end-user 
community. Regarding Trade Alerts suggestion that the redistribution 
fee should provide a discount for smaller redistributors, we are not 
aware of any market or NMS Plan that provides a discount based on the 
size of the redistributor. We believe that the redistribution fee is 
consistent with a fair and equitable allocation of charges among 
industry participants.
f. Television Broadcast Charges
    The Participants do not propose to make any changes to current 
television broadcast charges. In the case of Network A, the 
Participants do not propose to change the maximum amount payable for 
television broadcasts. However, the Plans provide for an annual 
increase to that maximum amount. The Network A Participants in some 
years have elected not to apply the annual increase. The Network A 
Participants propose to codify the practice of voting to waive a 
calendar year's maximum increase by adding footnote language to that 
effect.
g. Multiple Data Feed Charges
    The Participants propose to establish a new monthly fee for firms 
that take more than one primary data feed and one backup data feed. 
(This will not necessitate any additional reporting obligations.) The 
fee would be as follows:

$50 for Network A last sale information data feeds
$50 for Network A quotation information data feeds
$50 for Network B last sale information data feeds
$50 for Network B quotation information data feeds

    For both last sale and bid-ask data feeds, this charge would apply 
to each data feed that a data recipient receives in excess of the data 
recipient's receipt of one primary data feed and one backup data feed.
    To date, the Participants have not required data recipients that 
receive multiple data feeds to pay any more than data recipients that 
receive one primary and one back up data feed. The Participants believe 
that it is appropriate to have them do so. The fee would encourage 
firms to better manage their requests for additional data feeds and to 
monitor their usage of data feeds. Participants note that the OPRA Plan 
imposes a charge of $100 per connection for circuit connections in 
addition to the primary and backup connections.
h. Late/Clearly Erroneous Reporting Charges
    The Participants propose to establish a new monthly fee for firms 
that fail to comply with their reporting obligations in a timely 
manner. The charge is $2500 for each network. The charge would not be 
assessed until a firm fails to report its data usage and entitlements 
for more than three months. A report is not considered to have been 
provided if the report is clearly incomplete or inaccurate, such as a 
report that fails to report all data products or a report for which the 
reporting party did not make a good faith effort to assure the accuracy 
of data usage and entitlements.
    The late reporting charges would be assessed for each month in 
which there is a failure to provide a network's required data-usage 
report, commencing with reporting failures lasting more than three 
months from the date on which the report is first due. By way of 
example, if a network's data-usage report is due on May 31, the charge 
would commence to apply as of September 1 and would appear on the 
market data invoice for September. The network administrator would 
assess the charge as of September 1, and would

[[Page 44989]]

continue to assess the charge each month until the network 
administrator receives the firm's complete and accurate data-usage 
report.
    In the Participants' experience, some data recipients fail to 
report data-usage activity in a timely or compliant manner. This leads 
to administrative burdens and late payments. The purpose of the charges 
is to provide incentives to delinquent firms to report properly and to 
place them on a level playing field with compliant firms.
i. Network B Ticker Charge
    As part of the process of simplifying the fee structure, the 
Participants have determined to eliminate the Network B ticker charge. 
This would harmonize Network B rates with those of Network A (which 
phased out its ticker charge many years ago), and with the Nasdaq/UTP 
Plan and the OPRA Plan, neither of which imposes a ticker charge.
3. Changes to the Form of the CTA/CQ Fee Schedule
    The amendments propose to simplify, consolidate, and update the 
market data fee schedules under both Plans to arrive at a single, 
consolidated CTA/CQ Fee Schedule that sets forth the applicable charges 
from time to time in effect under both Plans. The Participants propose 
to set forth the CTA/CQ Fee Schedule in Exhibit E to the CTA Plan. It 
would replace the eight CTA/CQ fee schedules currently in effect: 
Schedules A-1 through A-4 of Exhibit E to the CTA Plan and Schedules A-
1 through A-4 of Exhibit E to the CQ Plan. As a result, Exhibit E to 
the CTA Plan would contain the entire CTA/CQ Fee Schedule and Exhibit E 
to the CQ Plan would be eliminated.
    The simplifications and updates that the consolidated CTA/CQ Fee 
Schedule proposes include the following:
     Adopting changes that make fee-disclosure more 
transparent, such as the addition of descriptions of what constitutes 
internal and external distribution;
     removing the Network B communications facilities and line 
splitter charges, which no longer apply;
     removing outdated footnotes that no longer apply;
     posting the amounts of the broker/dealer enterprise charge 
and the maximum television broadcast charge on the CTA Web site 
(although the amounts would also remain on the CTA/CQ Fee Schedule);
     granting the Participants the authority to waive the 
annual increase for any calendar year for the Network A and Network B 
broker-dealer enterprise charges and the Network A maximum television 
broadcast charge; and
     changing references to the ``high speed line'' to read 
``output feed.''
4. Impact of the Proposed Fee Changes
    As with any reorganization of a fee schedule, these changes may 
result in some data recipients paying higher total market data fees and 
in others paying lower total market data fees. On balance, the 
Participants estimate that the fee changes could increase the market 
data revenue pool for Network A and Network B by no more than 1.7 
percent (or roughly $390,000 per month),\17\ assuming no diminution of 
customer usage. Several customer usage trends, however, have declined 
year-over-year since 2008, particularly declines in professional 
subscribers. (More information on these declines can be found in the 
Participants' Consolidated Data Quarterly Operating Metrics Reports. 
Those reports can be found at http://www.nyxdata.com/CTA). The declines 
in professional subscribers has resulted from a challenging financial 
environment, corporate downsizing and competition from lower-cost 
proprietary data product offerings.
---------------------------------------------------------------------------

    \17\ The estimate of 1.7 percent is based on March 2013 data 
reports. This is a downward revision to the estimate set forth in 
the March Fee Simplification Amendments, which was based on February 
2012 data.
---------------------------------------------------------------------------

    As a result, revenues generated under the Plans have declined 
significantly. Furthermore, the rise in off-exchange trading has meant 
that a smaller portion of those revenues are allocated to exchanges. 
Since 2008, CTA/UTP market data revenue has declined 21 percent from 
approximately $483 million in 2008 to $382 million annualized through 
March of 2013, of which about $321 million was allocated to exchanges 
and $61 million to FINRA. The significant portion of consolidated 
revenue allocated to FINRA ($61 million) reflects the growing share of 
off-exchange trading by brokers, which is largely rebated back to 
broker-dealers and significantly reduces the consolidated market data 
revenue allocated to exchanges. For these reasons, and despite a 
contrary assertion in the STANY Letter, the Participants believe that 
the Fee Changes would not result in a material increase in overall 
revenues under the Plans.

B. Governing or Constituent Documents

    Not applicable.

C. Implementation of the Amendments

    Pursuant to Rule 608(b)(3)(i) under Regulation NMS, the 
Participants have designated the June Fee Simplification Amendments as 
establishing or changing fees and submitted the June Fee Simplification 
Amendments for immediate effectiveness. The Participants anticipate 
implementing the proposed fee changes on September 1, 2013, after 
giving notice to data recipients and end users of the Fee Changes.
    The STANY Letter comments that the March Fee Simplification 
Amendments ``contemplate significant structural changes in the method 
of calculation of fees which we believe necessitates a notice and 
comment period longer than the 21 days provided.'' \18\ It also states 
that the Fee Changes ``require that the Amendments be refiled in 
accordance with paragraph (a)(1) of Rule 608 and reviewed in accordance 
with paragraph (b)(2) of Rule 608.''
---------------------------------------------------------------------------

    \18\ See STANY Letter at 2.
---------------------------------------------------------------------------

    First, Commission practice does not preclude the submission of 
comment letters after the 21 day period. The Federal Register notice in 
the March Fee Simplification Amendments provides that comments ``should 
be provided on or before'' the date 21 days following publication in 
the Federal Register. [emphasis added.] Regulation NMS Rule 608(b)(i) 
provides that ``The Commission . . . shall provide interested persons 
an opportunity to submit written comments.'' Nowhere does it specify 
that the comment period must be 21 days from the date of publication.
    In practice, the Commission accepts comments received after the 21 
day deadline. In this case, The Participants notified the industry of 
the Fee Changes on February 22, 2013 and first filed the Fee Changes on 
March 11. It appeared in the Federal Register on March 25. The 
Participants submitted the filing that reversed the Fee Changes on May 
10, 2013 and that filing appeared in the Federal Register on May 22, 
2013. As a result, as a practical matter, commenters had two months to 
submit comments.
    Second, Rule 608(b)(3)(i) of Regulation NMS permits the 
Participants to designate a proposed plan amendment as establishing or 
changing fees and other charges, and to place such an amendment into 
effect upon filing with the Commission. As mentioned above, the 
Participants have made that designation. The rule does not put any 
limitations on which particular fee changes qualify for immediate 
effectiveness. Rather, if the Commission believes that a longer comment 
period is appropriate for a particular filing, it may extend the 
comment period or abrogate the filing.

[[Page 44990]]

    Third, ample precedents exist for the filing of multiple or even 
complex fee changes to the CTA and CQ Plans on an immediately effective 
basis over the past thirty years.\19\
---------------------------------------------------------------------------

    \19\ See, e.g., Fifth Charges Amendment to the First Restatement 
of the CTA Plan, File No. S7-433, Release No. 34-19342, 47 Fed Reg 
57369-03 (December, 23, 1982); Fourteenth Charges Amendment to the 
First Restatement of the CTA Plan and Fifth Charges Amendment to the 
original CQ Plan, File No. S7-30-91, Release No. 34-29863, 56 Fed 
Reg 56429-01 (November 4, 1991); Second Charges Amendment to the CTA 
Plan and First Charges Amendment to the CQ Plan, SR-CTA/CQ-97-2, 
Release No. 34-39235, 62 Fed Reg 54886-01 (October 14, 1997); OPRA 
Plan amendment SR-OPRA-2004-01, Release No. 34-49382, 69 Fed Reg 
12377-01 (March 16, 2004); OPRA Plan amendment SR-OPRA-2007-04, 
Release No. 34-56950, 72 Fed Reg 71722-01 (December 18, 2007); OPRA 
Plan amendment SR-OPRA-2012-02, Release No. 34-66564, 77 Fed Reg 
15833-01 (March 16, 2012).
---------------------------------------------------------------------------

    Finally, the Fee Changes respond to appeals for the changes from 
industry representatives on the Advisory Committee. The sooner those 
changes become effective, the sooner the industry may enjoy the 
benefits they offer. As a result, the Participants believe that 
immediate effectiveness is warranted.
    The STANY Letter also comments that firms need more notice of the 
Fee Changes than the Participants provided under the March Fee 
Simplification Amendments in order to make the systems changes 
necessary to implement the changes. Aside from the fact that each STANY 
member agreed in its market data contract with the Participants that 30 
days' notice of fee changes would be sufficient, this objection has 
become irrelevant because the industry first learned of the Fee Changes 
on February 22, 2013, and the changes will not become effective until 
September 1. Additionally, because CTA uses a direct bill model, the 
CTA network administrators, rather than CTA's customers, do the 
majority of work needed to implement any fee changes. Therefore, it is 
unlikely that vendors and end users will need more time to change their 
data administration systems to accommodate the Fee Changes.

D. Development and Implementation Phases

    See Item I(C) above.

E. Analysis of Impact on Competition

    The proposed amendments do not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Exchange Act. The proposed fee changes directly respond to the 
suggestions and requests of industry representatives and reflect the 
Participants' own views that it is appropriate to establish a 
simplified pricing structure that is consistent with current 
technology, that reduces administrative burdens and that promotes the 
use of real-time market data.
    The Participants have not significantly revised the CTA and CQ 
market data fee schedules in many years. They adopted the 14-tier 
Network A professional subscriber rate structure in 1986 and that 
structure has changed very little ever since. Numerous technological 
advances, the advent of trading algorithms and automated trading, 
different investment patterns, a plethora of new securities products, 
unprecedented levels of trading, decimalization, internationalization 
and developments in portfolio analysis and securities research warrant 
this revision.
    In general, the proposed fee changes would cause Network A fees to 
sync more closely with Network B fees and would cause Network A and 
Network B fees to sync more closely with fees payable under the Nasdaq/
UTP Plan and the OPRA Plan. The proposed fees would compare favorably 
with the fees payable under those other Plans and with the fees charged 
for their market data by the largest stock exchanges around the world.
    As a result, the Fee Changes promote consistency in price 
structures among the national market system plans, as well as 
consistency with the preponderance of other market data providers. This 
would make market data fees easier to administer. It would enable data 
recipients to compare their charges under the respective national 
market system plans more easily. It also would make for a more 
straightforward and streamlined administrative process for market data 
users, as the reporting rules and fee arrangements under the national 
market system plans become more homogenous.
    In the Participants' view, the proposed fee schedule would allow 
each category of data recipient and data user to contribute an 
appropriate amount for their receipt and use of market data under the 
Plans. The proposed fee schedule would provide for an equitable 
allocation of dues, fees, and other charges among broker-dealers, 
vendors, end users and others receiving and using market data made 
available under the Plans by recalibrating the fees to more closely 
correspond to the different benefits different categories of users 
derive from their different uses of the market data made available 
under the Plans.
    The STANY Letter comments that the continuing decline in trading 
volume makes increases in data fees inappropriate and that the 
increases are part of a growing trend of increasing market data costs 
without any corresponding business benefit or correlation to the rising 
operational cost of delivering services. STANY ignores that the vast 
majority of its members will pay lower market data fees, that its 
members have repeatedly received business benefits as the Participants 
have added more and more types of information to the data feeds and as 
the quantity of quotes and prices has grown, and that ``the rising 
operational cost of delivering services'' applies to the Participants 
as well as to STANY members.
    The STANY Letter also characterizes the Fee Changes as amounting to 
significant increases in amounts payable by larger firms. However, 
STANY's comment ignores the context in which the Fee Changes are being 
introduced. Under the current 14-tier Network A rate structure, the 
biggest firms pay $18.75 per device per month while the one-device 
investor pays 127.25. The Fee Changes reduce that differential by 
charging the big firms $20 and charging the one-device investor $50. 
The Participants predict that the Fee Changes would allow more than 
16,000 firms to pay less for Network A data than they do now, with most 
firms paying saving up to $500 per month. The Participants predict that 
fewer than 1,400 firms would pay more for Network A data, with most 
firms' cost increases amounting to less than $500 per month. The 
Participants also predict that the Fee Changes would cause more than 
12,500 firms to pay less for Network B data, with most firms saving up 
to $500 per month. The Participants predict that approximately 1,000 
firms would pay more for Network B data, with most firms' cost 
increases amounting to less than $500 per month.
    The STANY Letter also asserts that the Fee Changes may drive some 
small firms out of business. As an initial matter, that professed 
concern is speculative: STANY provides no data to suggest that any 
changes effected by the Fee Changes would have such a significant 
effect on any particular firm that they would drive that firm out of 
business. Nor is there any realistic basis to engage in such 
speculation, because of the undisputed fact that there would be a 
significant reduction in rates for professional device fees for firms 
with 29 or fewer devices.
    The Participants propose to apply the revised fee schedule 
uniformly to all constituents (including members of the Participant 
markets and non-members). The Participants do not believe that the

[[Page 44991]]

proposed fee changes introduce terms that are unreasonably 
discriminatory.

F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    Not applicable.

G. Approval by Sponsors in Accordance With Plan

    In accordance with Section XII(b)(iii) of the CTA Plan and Section 
IX(b)(iii) of the CQ Plan, each of the Participants has approved the 
Fee Changes.

H. Description of Operation of Facility Contemplated by the Proposed 
Amendments

    Not applicable.

I. Terms and Conditions of Access

    See Item I(A) above.

J. Method of Determination and Imposition, and Amount of, Fees and 
Charges

1. In General
    The Participants took a number of factors into account in deciding 
to propose the amendments.
    To begin, the Participants' market data staffs communicate on an 
on-going basis with all sectors of their constituencies and assess and 
analyze the different broker/dealer and investor business models. They 
have expertise in the information needs of the Participants' 
constituents and used their experience and judgment to form 
recommendations regarding the Fee Changes, vetted those recommendations 
with constituents and revised those recommendations based on the 
vetting process.
    Most significantly, the Participants listened to the 
recommendations of their Advisory Committee. The CTA and CQ Plans 
require the Advisory Committee to include, at a minimum, a broker-
dealer with a substantial retail investor customer base, a broker-
dealer with a substantial institutional investor customer base, an 
alternative trading system, a data vendor, and an investor.
    Advisory Committee members attend and participate in meetings of 
the Participants and receive meeting materials. Members of the Advisory 
Committee gave valuable input that the Participants used in crafting 
the proposed fee changes. At several meetings of CTA and the CQ Plan's 
Operating Committee, Advisory Committee members voiced strong support 
for the Fee Changes.
    In reassessing and rebalancing market data fees as proposed in the 
amendments, the Participants took a number of factors into account in 
addition to the views of its constituents, including:
    (A) crafting fee changes that will not have a significant impact on 
total revenues generated under the Plans;
    (B) setting fees that compare favorably with fees that the biggest 
exchanges around the globe and the Nasdaq/UTP Plan and the OPRA Plan 
charge for similar services;
    (C) setting fees that allow each category of market data recipient 
and user to contribute market data revenues that the Participants 
believe is appropriate for that category;
    (D) crafting fee changes that appropriately differentiate between 
constituents in today's environment (e.g., large firms vs. small firms; 
redistributors vs. end users);
    (E) crafting fees that reduce the administrative burdens of data 
recipients; and
    (F) crafting a fee schedule that is easy to read and use and 
minimizes administrative burdens.
2. An Overview of the Fairness and Reasonableness of Market Data Fees 
and Revenues Under the Plans
a. The Fee Changes Will Have No Impact on Most Individual Investors
    The vast majority of nonprofessional subscribers (i.e., individual 
investors) receive market data from their brokers and vendors. Network 
A and Network B impose their nonprofessional subscriber fees on the 
brokers and vendors (rather than the investors) and set those fees so 
low that most brokers and vendors absorb the fees, meaning that the 
vast majority of individual investors do not pay for market data. The 
Fee Changes will thus have no impact on most individual investors.
b. The Fee Changes Respond to Customer Wishes
    The Fee Changes are fair and reasonable because they offer a 
resolution to the call by industry participants for a simplified, 
updated fee schedule that reduces administrative burdens, a resolution 
that industry representatives on the Plans' Advisory Committee have 
warmly embraced. And, the Fee Changes do so in a manner that is 
approximately revenue neutral. Failure of the Fee Changes to take 
effect would be to the detriment of many data product customers.
c. Long-Term Trend of Rate Reduction
    The existing constraints on fees for core market data under the 
Plans have generally succeeded in reducing market data rates over time. 
For example, when the effects of inflation are taken into account, the 
average monthly rate payable for a Network A professional subscriber 
device has consistently and dramatically fallen in real terms over the 
past 25 years. When inflation is taken into account, the average 
monthly cost of a Network A professional device was:
     $25.00 in 1987.
     $21.73 in 1990.
     $18.63 in 1995.
     $16.89 in 2000.
     $14.54 in 2005.
     $13.02 in 2010.
     $12.37 in 2013.
    Also of interest is that NYSE charged approximately $25 per month 
for the NYSE ticker service in the 1880's.
d. Explosion of Data
    Although the device fees have fallen after taking inflation into 
account, the amount of data message traffic that data users receive by 
subscribing has skyrocketed, as has the speed at which the data is 
transmitted.
i. New Data Added to Consolidated Feeds
    The Participants have continually enhanced the consolidated feeds. 
The enhancements provide significant value. They are critical to the 
industry in that they permit data users to do such things as view new 
markets and implement new regulation. Below is a list of the more 
significant recent enhancements, including the addition of new 
Participants, new indicators, new sales conditions, new reason codes 
and dedicated test symbols.
    CTS/CQS New/Reactivated Participants:

 NASDAQ OMX--Reactivation February 2007
 BATS--Activation April 2008
 NASDAQ OMX BX (formerly the Boston Stock Exchange)--
Reactivation January 2009
 BATS Y--Activation October 2010
 Direct Edge A--Activation July 2010
 Direct Edge X--Activation July 2010
 NASDAQ OMX PSX (formerly the Philadelphia Stock Exchange)--
Reactivation October 2010

    CTS/CQS New Indicators:

 New CTS/CQS indicator to identify Primary Listing Market--
January 2007
 New CTS Trade-Through Exempt indicator--January 2007
 New CTS/CQS Trade Reporting Facility indicator--February 2007
 New CTS Negative Index Value indicator--September 2007
 New CTS Consolidated High/Low/Last Price indicator `H'--High/
Low--July 2007
 New CTS Participant Open/High/Low/Last Price Indicator codes--
July 2007

[[Page 44992]]

    [cir] `L'--Open/Last
    [cir] `M'--Open/High/Low
    [cir] `N'--Open/High/Last
    [cir] `O'--Open/Low/Last
    [cir] `P'--High/Low
    [cir] `Q'--High/Low/Last
 New CTS/CQS Short Sale restriction indicator--February 2011
 New CQS SIP-generated message identifier indicator--February 
2013 (denote that CQS was the originator of the Quote message, e.g., 
republished quotes, closing quote, price bands)
 New CTS/CQS Limit Up/Limit Down indicator fields and codes--
February 2013 (Dedicated Test Symbols), April 2013 (Phase I production 
symbol rollout commencement). The processor calculates and distributes 
the Limit Up/Limit Down price bands.
 New CQS ``Retail Interest Indicator'' field--March 2012
 New CTS/CQS ``Market-Wide Circuit Breaker'' messages--April 
2013
    CTS Sale Conditions:
 New CTS Sale Condition `V'--Stock-Option Trade indicator--
January 2008
 New CTS Sale Condition `4'--Derivatively Priced Trade 
indicator--April 2008
 New CTS Sale Condition `O'--Market Center Opening Trade--
September 2007
 New CTS Sale Condition `Q'--Market Center Official Open 
Trade--September 2007
 New CTS Sale Condition `M'--Market Center Official Close 
Trade--September 2007
 Redefined CTS Sale Condition `H' from Intraday Trade Detail to 
Price Variation Trade--September 2007
 New CTS Sale Condition `X'--Cross Trade--September 2007
 Redefined CTS Sale Condition `I'--Odd Lot Trade--scheduled for 
implementation in August 2013
 New CTS Sale Condition `9'--Official Consolidated Last as per 
Listing Market--scheduled for implementation in August 2013

    Regulatory/Non-Regulatory Halts Reasons:

 ``Non-Regulatory'' Trading Halt Reasons
 CTS/CQS indicator `Y' to denote `Sub-Penny Trading'--August 
2007
 ``Regulatory'' Trading Halt Reasons
 CTS/CQS indicator `M' to denote `Volatility Trading Pause'--
June 2010
    Other:
 CTS/CQS Dedicated ``Test'' symbols--October 2010
ii. Significant Improvements in Latency
    The Participants have made numerous investments to improve system 
speed and capacity, investments that are often overlooked by the 
industry. The Participants regularly monitor and review the performance 
of their securities information processor (``SIP'') and make 
performance statistics available publicly on a quarterly basis. They 
make investments to upgrade technology, upgrades that enable the SIP to 
collect and disseminate the data ever more quickly, even as the number 
of quotes and trades continues to rise. The Participants will make 
future investments to handle the expected continued rise in message 
traffic, and at even faster data dissemination speeds.
    The information below shows that customers are getting the quote 
and trade data feeds faster, as the latency of consolidated tape quote 
and trade feeds has improved significantly in recent years. Average 
quote feed latency declined from 800 milliseconds at the end of 2006 to 
0.6 milliseconds in April 2013 and average trade feed latency declined 
from about one second at the end of 2006 to 0.4 milliseconds in April 
2013, as shown below. Latency is measured from the time a message 
received from a Participant is time-stamped by the system, to the time 
that processing the message is completed.
    Average Quote Latency for Network A/B:
     About 800 milliseconds at the end of 2006.
     About 20 milliseconds at the end of 2008.
     About 2.5 milliseconds at the end of 2010.
     Under 1 millisecond at the end of 2011.
     Under 1 millisecond at the end of 2012.
     About 0.6 millisecond in April 2013.
    Average Trade Latency for Network A/B:
     About 1 second at the end of 2006.
     About 50 milliseconds at the end of 2008.
     About 2.7 milliseconds at the end of 2010.
     Under 1 millisecond at the end of 2011.
     Under 1 millisecond at the end of 2012.
     About 0.4 millisecond in April 2013.
iii. Significant Improvements in System Throughput, Measured by 
Messages Per Second
    Investments in hardware and software have increased processing 
power and enabled the systems to handle increasing throughput levels. 
This is measured by peak capacity messages per second and is monitored 
by looking at actual peak messages per second. SIP throughput continues 
to increase in order to push out the increasing amounts of real-time 
quote and trade data.
    Given the constant rise in peak messages, the SIP significantly 
increased system capacity. As shown below, the system could handle peak 
quotes per second of 11,250 in 2006 and 2.5 million in 2012, an 
increase of more than 20,000 percent. The Participants have a target of 
handling 3 million peak quotes per second by October 2013.
    The capacity for trades per second increased from 2,500 in 2006 to 
500,000 in 2012, an increase of more than 20,000 percent. The 
Participants have a target of handling 600,000 trades per second by 
October 2013.\20\
---------------------------------------------------------------------------

    \20\ To better manage the rise in message traffic, the 
Participants anticipate that capacity planning will move from 
measuring messages per second to measuring messages per millisecond.
---------------------------------------------------------------------------

    Supported Quotes per Second Capacity for Network A/B:
     11,250 in 2006.
     120,000 in 2008.
     500,000 in 2010.
     1,500,000 in 2011.
     2,500,000 in 2012.
     2013 Capacity Targets: 2,750,000 in July, 3,000,000 in 
October.
    Actual Peak Quotes per Second for Network A/B:
     8,673 in 2006.
     88,249 in 2008.
     308,705 in 2010.
     580,870 in 2011.
     567,321 in 2012.
     574,891 year-to-date through April 2013.
    Supported Trades per Second Capacity:
     2,500 in 2006.
     20,000 in 2008.
     100,000 in 2010.
     300,000 in 2011.
     500,000 in 2012.
     2013 Capacity Targets: 550,000 in July, 600,000 in 
October.
    Actual Peak Trades per Second for Network A/B:
     2,240 in 2006.
     15,058 in 2008.
     49,570 in 2010.
     77,841 in 2011.
     80,747 in 2012.
     67,660 year-to-date through April 2013.
e. Vendor Fees
    Fees imposed by data vendors, whom the Commission does not 
regulate, account for a vast majority of the global market data fees 
incurred by the financial industry, according to Burton Taylor 
Associates and a research study by Atradia. In addition to charging

[[Page 44993]]

monthly subscription fees for terminal use, market data vendors may 
apply significant administration mark-up fees on top of exchange market 
data fees. These mark-ups are not regulated and there is limited 
transparency into how the rates are applied. These mark-ups do not 
result in any additional revenues for the Participants; the vendors 
alone profit from them.
f. Declining Unit Purchase Costs for Customers
    Despite consolidated tape investments in new data items, additional 
capacity demands and latency improvements, data users' unit purchase 
costs for trade and quote data has declined significantly, increasing 
the value of the data they receive from their subscriptions. The amount 
of quote and trade data messages has increased significantly while fees 
have remained unchanged, as shown below for the 2006 to 2012 timeframe.
i. Average Purchase Cost of Network A Quotes
    The average number of quotes per day increased over 580 percent 
during this timeframe, rising from 44.2 million in 2006 to 301.8 
million in 2012. As a result, the average unit purchase cost of a quote 
for a customer incurring a monthly Network A indirect access fee of 
$700 declined approximately 85 percent during this period, falling from 
$0.000000754 in 2006 to $0.000000110 in 2012.
ii. Average Purchase Cost of Network B Quotes
    The average number of quotes per day increased over 2100 percent, 
rising from 7.0 million in 2006 to 155.8 million in 2012. As a result, 
the average unit purchase cost of a trade for a customer incurring a 
monthly Network A indirect access fee of $250 declined an estimated 96 
percent during this period, falling from $0.000001700 in 2006 to 
$0.000000076 in 2012.
iii. Average Purchase Cost of Network A Trades
    The average number of trades per day increased over 80 percent, 
rising from 8.1 million in 2006 to 14.7 million in 2012. As a result, 
the average unit purchase cost of a quote for a customer incurring a 
monthly Network B indirect access fee of $500 declined an estimated 45 
percent during this period, falling from $0.000002939 in 2006 to 
$0.000001619 in 2012.
iv. Average Purchase Cost of Network B Trades
    The average number of trades per day increased 290 percent, rising 
from 659,337 in 2006 to 2.57 million in 2012. As a result, the average 
unit purchase cost of a trade for a customer incurring a monthly 
Network B indirect access fee of $200 declined an estimated 74 percent 
during this period, falling from $0.000014444 in 2006 to $0.000003705 
in 2012.
3. Increase in Costs
    The direct costs that the Plans incur for the services of the 
securities information processor and network administrators to process 
the data and administer the networks, as well as the cumulative total 
of the indirect costs that each Participant incurs in producing and 
collecting its data, have increased substantially since the 
Participants last restructured their fees in 1986.
    Since 1987, the first full year for which the current 14-tier fee 
structure was in effect, the direct costs of the securities information 
processor and the network administrators have increased 89 percent, or 
2.48 percent per year when compounded on an annual basis. When taken 
over 25 years, this annual increase in direct costs easily exceeds the 
1.7 percent increase in revenues that the Participants estimate the Fee 
Changes will produce (exclusive of decreased customer usage as a result 
of the Fee Changes), both as a percentage and as a dollar amount.
    With respect to indirect costs, the Commission has previously noted 
that ``any attempt to calculate the precise cost of market information 
presents severe practical difficulties.'' \21\ In commenting on the 
1999 Concept Release, NYSE summarized many of the ``severe practical 
difficulties'' attendant to each Participant's calculation of its data 
production and collection costs and we incorporate that discussion 
here.\22\ In 1987, the indirect costs of the Participants would have 
included the data production and collection costs of seven national 
securities exchanges \23\ and one national securities association.\24\ 
In 2013, that calculation would have to include the data production and 
collection costs of the 15 Participants, including 14 national 
securities exchanges and the Alternative Display Facility and two Trade 
Reporting Facilities that FINRA, the lone national securities 
association, maintains.
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    \21\ See SEC 1999 Concept Release on ``Regulation of Market 
Information Fees and Revenues'' (the ``1999 Concept Release'') 
located at http://www.sec.gov/rules/concept/34-42208.htm.
    \22\ See footnote 11 of letter from James E. Buck, Senior Vice 
President and Secretary, NYSE, April 10, 2000, located at http://www.sec.gov/rules/concept/s72899/buck1.htm.
    \23\ American Stock Exchange, Inc., Boston Stock Exchange, Inc., 
Cincinnati Stock Exchange, Inc., Midwest Stock Exchange, Inc., New 
York Stock Exchange, Inc., Pacific Stock Exchange, Inc., and 
Philadelphia Stock Exchange, Inc.
    \24\ National Association of Securities Dealers, Inc.
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4. Adequate Constraints on Fees
    Constituent boards, customer control and regulatory mechanisms 
constrain fees for core market data now just as they have since 
Congress established the fair-and-reasonable standard in 1975.
    With respect to Network A and Network B, NYSE typically takes the 
lead on pricing proposals, vetting new proposals with the other 
Participants, various users, and trade and industry groups, and making 
modifications which improve or reevaluate the original concept. 
Proposals are then taken to each Participant for approval. But there 
are significant market data user and regulatory constraints on NYSE's 
ability to simply impose price changes.
    The governing body of each Participant consists of representatives 
of constituent firms and a large quotient of independent directors. The 
Participants' constituent board members have the ultimate say on 
whether CTA and the CQ Plan Operating Committee should submit fee 
proposals to the Commission and whether the costs of operating the 
markets and the costs of the market data function are fairly allocated 
among market data users. That is, the users of market data and non-
industry representatives who sit on Participant boards get to determine 
whether to support market data fee proposals. They also get to 
determine how the various types of data users should pay their fair 
share and they make decisions about funding technical infrastructure 
investments needed to receive, process and safe-store the orders, 
quotations and trade reports that give rise to the data. This cost 
allocation by consensus is buttressed by Commission review and is 
superior to cost-based rate-making.
    Constituent Board members are the Participants' market data 
customers. When a critical mass of them voices a point of view, they 
can direct the Participants how to act. This is exactly what motivated 
the Participants to propose the Fee Changes.
    The Commission's process, including public comment as appropriate 
and when permitted by the statutory language, then acts as an 
additional constraint on pricing. This, in turn, is

[[Page 44994]]

buttressed by the Commission rules that provide procedures for data 
recipients to seek redress of their grievances if he or she believes 
his or her access to data has been limited.
    Also, developments in technology make possible another important 
constraint on market data prices for core data: There is nothing to 
prevent one or more vendors, broker-dealers or other entities from 
gathering prices and quotes across all Participants and creating a 
consolidated data stream that would compete with the Plans' data 
streams. The technology to consolidate multiple, disparate data streams 
is readily available, and other markets have already begun introducing 
products that compete with core data (such as Nasdaq Basic).\25\
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    \25\ In a context in which a trading or order-routing decision 
can be implemented, Regulation NMS Rule 603(c)(1) prevents a broker, 
dealer or securities information processor from providing a display 
of market data unless it also provides a consolidated display, such 
as the consolidated displays made available under the Plans. Yet, 
despite this rule, the Participants have seen reductions of customer 
activity at the same time that competing non-consolidated products 
have seen increases.
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K. Method and Frequency of Processor Evaluation

    Not applicable.

L. Dispute Resolution

    Not applicable.

II. Rule 601(a) (Solely in Its Application to the Amendments to the CTA 
Plan)

A. Equity Securities for Which Transaction Reports Shall Be Required by 
the Plan

    Not applicable.

B. Reporting Requirements

    Not applicable.

C. Manner of Collecting, Processing, Sequencing, Making Available and 
Disseminating Last Sale Information

    Not applicable.

D. Manner of Consolidation

    Not applicable.

E. Standards and Methods Ensuring Promptness, Accuracy and Completeness 
of Transaction Reports

    Not applicable.

F. Rules and Procedures Addressed to Fraudulent or Manipulative 
Dissemination

    Not applicable.

G. Terms of Access to Transaction Reports

    See Item I(A).

H. Identification of Marketplace of Execution

    Not applicable.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed 
amendments are 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-CTA/CQ-2013-04 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-CTA/CQ-2013-04. 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 Amendments that are filed with 
the Commission, and all written communications relating to the 
Amendments 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, 100 F Street NE., Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the Amendments also will be available for 
inspection and copying at the principal office of the CTA.
    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-CTA/CQ-2013-04 
and should be submitted on or before August 15, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(27).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-17860 Filed 7-24-13; 8:45 am]
BILLING CODE 8011-01-P


