
[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44941-44950]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18123]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72688; File No. SR-BATS-2014-028]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Establish a New Market Data Product 
Called the BATS One Feed

July 28, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on July 14, 2014, BATS Exchange, Inc. (the ``Exchange'' or ``BATS'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II 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\ 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 a new market data product called 
the BATS One Feed as well as to establish related market data fees. The 
text of the proposed BATS One Feed is attached as Exhibit 5A. The 
proposed changes to the fee schedule are attached as Exhibit 5B. 
Exhibits 5A and 5B are available on the Exchange's Web site at 
www.batstrading.com, at the Exchange's principal office and at the 
Public Reference Room of the Commission.

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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects 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 a new market data product called 
the BATS One Feed. As described more fully below, the BATS One Feed is 
a data feed that will disseminate, on a real-time basis, the aggregate 
best bid and offer (``BBO'') of all displayed orders for securities 
traded on BATS and its affiliated exchanges \3\ (collectively, the 
``BATS Exchanges'') and for which the BATS Exchanges report quotes 
under the Consolidated

[[Page 44942]]

Tape Association (``CTA'') Plan or the Nasdaq/UTP Plan.\4\ The BATS One 
Feed will also contain the individual last sale information for BATS 
and each of its affiliated exchanges. In addition, the BATS One Feed 
will contain optional functionality which will enable recipients to 
elect to receive aggregated two-sided quotations from the BATS 
Exchanges for up to five (5) price levels.
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    \3\ The Exchange's affiliated exchanges are EDGA Exchange, Inc. 
(``EDGA''), EDGX Exchange, Inc. (``EDGX''), and BATS Y-Exchange, 
Inc. (``BYX''). On January 23, 2014, BATS Global Markets, Inc. 
(``BGMI''), the former parent company of the Exchange and BYX, 
completed its business combination with Direct Edge Holdings LLC, 
the parent company of EDGA and EDGX. See Securities Exchange Act 
Release No. 71375 (January 23, 2014), 79 FR 4771 (January 29, 2014) 
(SR-BATS-2013-059; SR-BYX-2013-039). Upon completion of the business 
combination, DE Holdings and BGMI each became intermediate holding 
companies, held under a single new holding company. The new holding 
company, formerly named ``BATS Global Markets Holdings, Inc.,'' 
changed its name to ``BATS Global Markets, Inc.'' and BGMI changed 
its name to ``BATS Global Markets Holdings, Inc.''
    \4\ The Exchange understands that each of the BATS Exchanges 
will separately file substantially similar proposed rule changes 
with the Commission to implement the BATS One Feed and its related 
fees.
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    The BATS One Feed is designed to meet the needs of prospective 
Members that do not need or are unwilling to pay for the individual 
book feeds offered by each of the individual BATS Exchanges. In 
addition, the BATS One Feed offers market data vendors and purchasers a 
suitable alternative to the use of consolidated data where consolidated 
data are not required to be purchased or displayed. Finally, the 
proposed new data feed provides investors with new options for 
receiving market data and competes with similar market data products 
offered by NYSE Technologies, an affiliate of the New York Stock 
Exchange, Inc. (``NYSE'') and the Nasdaq Stock Market LLC 
(``Nasdaq'').\5\ The provision of new options for investors to receive 
market data was a primary goal of the market data amendments adopted by 
Regulation NMS.\6\
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    \5\ See Nasdaq Basic, http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqbasic (last visited May 29, 2014) (data feed 
offering the BBO and Last Sale information for all U.S. exchange-
listed securities based on liquidity within the Nasdaq market 
center, as well as trades reported to the FINRA/Nasdaq Trade 
Reporting Facility (``TRF'')); Nasdaq NLS Plus, http://www.nasdaqtrader.com/Trader.aspx?id=NLSplus (last visited July 8, 
2014) (data feed providing last sale data as well as consolidated 
volume from the following Nasdaq OMX markets for U.S. exchange-
listed securities: Nasdaq, FINRA/Nasdaq TRF, Nasdaq OMX BX, and 
Nasdaq OMX PSX); NYSE Technologies Best Book and Trade (``BQT''), 
http://www.nyxdata.com/Data-Products/NYSE-Best-Quote-and-Trades 
(last visited May 27, 2014) (data feed providing unified view of BBO 
and last sale information for the NYSE, NYSE Arca, and NYSE MKT).
    \6\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS 
Adopting Release).
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Description of the BATS One Feed

    The BATS One Feed will contain the aggregate BBO of the BATS 
Exchanges for all securities that are traded on the BATS Exchanges and 
for which the BATS Exchanges report quotes under the CTA Plan or the 
Nasdaq/UTP Plan. The aggregate BBO would include the total size of all 
orders at the BBO available on all BATS Exchanges.\7\ The BATS One Feed 
would also disseminate last sale information for each of the individual 
BATS Exchanges (collectively with the aggregate BBO, the ``BATS One 
Summary Feed''). The last sale information will include the price, 
size, time of execution, and individual BATS Exchange on which the 
trade was executed. The last sale message will also include the 
cumulative number of shares executed on all BATS Exchanges for that 
trading day. The Exchange will disseminate the aggregate BBO of the 
BATS Exchanges and last sale information through the BATS One Feed no 
earlier than each individual BATS Exchange provides its BBO and last 
sale information to the processors under the CTA Plan or the Nasdaq/UTP 
Plan.
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    \7\ The Exchange notes that quotations of odd lot size, which is 
generally less than 100 shares, are included in the total size of 
all orders at a particular price level in the BATS One Feed but are 
currently not reported by the BATS Exchanges to the consolidated 
tape.
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    The BATS One Feed would also consist of Symbol Summary, Market 
Status, Retail Liquidity Identifier on behalf of BYX, Trading Status, 
and Trade Break messages. The Symbol Summary message will include the 
total executed volume across all BATS Exchanges. The Market Status 
message is disseminated to reflect a change in the status of one of the 
BATS Exchanges. For example, the Market Status message will indicate 
whether one of the BATS Exchanges is experiencing a systems issue or 
disruption and quotation or trade information from that market is not 
currently being disseminated via the BATS One Feed as part of the 
aggregated BBO. The Market Status message will also indicate where BATS 
Exchange is no longer experiencing a systems issue or disruption to 
properly reflect the status of the aggregated BBO.
    The Retail Liquidity Identifier indicator message will be 
disseminated via the BATS One Feed on behalf of BYX only pursuant to 
BYX's Retail Price Improvement (``RPI'') Program.\8\ The Retail 
Liquidity Identifier indicates when RPI interest priced at least $0.001 
better than BYX's Protected Bid or Protected Offer for a particular 
security is available in the System. The Exchange proposes to 
disseminate the Retail Liquidity Indicator via the BATS One Feed in the 
same manner as it is currently disseminated through consolidated data 
streams (i.e., pursuant to the Consolidated Tape Association Plan/
Consolidated Quotation Plan, or CTA/CQ, for Tape A and Tape B 
securities, and the Nasdaq UTP Plan for Tape C securities) as well as 
through proprietary BATS data feeds. The Retail Liquidity Identifier 
will reflect the symbol and the side (buy or sell) of the RPI interest, 
but does not include the price or size of the RPI interest. In 
particular, like CQ and UTP quoting outputs, the BATS One Feed will 
include a field for codes related to the Retail Price Improvement 
Identifier. The codes indicate RPI interest that is priced better than 
BYX's Protected Bid or Protected Offer by at least the minimum level of 
price improvement as required by the Program.
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    \8\ For a description of BYX's RPI Program, see BYX Rule 11.24. 
See also Securities Exchange Act Release No. 68303 (November 27, 
2012), 77 FR 71652 (December 3, 2012) (SR-BYX-2012-019) (Order 
Granting Approval of Proposed Rule Change, as Modified by Amendment 
No. 2, to Adopt a Retail Price Improvement Program); Securities 
Exchange Act Release No. 67734 (August 27, 2012), 77 FR 53242 
(August 31, 2012) (SR-BYX-2019-019) (Notice of Filing of Proposed 
Rule Change to Adopt a Retail Price Improvement Program).
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    The Trade Break message will indicate when an execution on a BATS 
Exchange is broken in accordance with the individual BATS Exchange's 
rules.\9\ The Trading Status message will indicate the current trading 
status of a security on each individual BATS Exchange. For example, a 
Trading Status message will be sent when a short sale price restriction 
is in effect pursuant to Rule 201 of Regulation SHO (``Short Sale 
Circuit Breaker''),\10\ or the security is subject to a trading halt, 
suspension or pause declared by the listing market. A Trading Status 
message will be sent whenever a security's trading status changes.
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    \9\ See, e.g., Exchange [sic] and EDGA Rule 11.13, Clearly 
Erroneous Executions, and BATS and BYX Rule 11.17, Clearly Erroneous 
Executions.
    \10\ 17 CFR 242.200(g); 17 CFR 242.201
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    Optional Aggregate Depth of Book. The BATS One Feed will also 
contain optional functionality which will enable recipients to receive 
two-sided quotations from the BATS Exchanges for five (5) price levels 
for all securities that are traded on the BATS Exchanges in addition to 
the BATS One Summary Feed (``BATS One Premium Feed''). For each price 
level on one of the BATS Exchanges, the BATS One Premium Feed option of 
the BATS One Feed will include a two-sided quote and the number of 
shares available to buy and sell at that particular price level.\11\
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    \11\ Recipients who do not elect to receive the BATS One Premium 
Feed will receive the aggregate BBO of the BATS Exchanges under the 
BATS Summary Feed, which, unlike the BATS Premium Feed, would not 
delineate the size available at the BBO on each individual BATS 
Exchange.
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BATS One Feed Fees
    The Exchange proposes to amend its fee schedule to incorporate fees 
related to the BATS One Feed. The Exchange

[[Page 44943]]

proposes to charge different fees to vendors depending on whether the 
vendor elects to receive: (i) BATS One Summary Feed; or (ii) the 
optional BATS One Premium Feed. These fees include the following, each 
of which are described in detail below: (i) Distributor Fees; \12\ (ii) 
Usage Fees for both Professional and Non-Professional Users; \13\ and 
(iii) Enterprise Fees.\14\ The amount of each fee may differ depending 
on whether they use the BATS One Feed data for internal or external 
distribution. Vendors that distribute the BATS One Feed data both 
internally and externally will be subject to the higher of the two 
Distribution Fees.
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    \12\ The Exchange notes that distribution fees as well as the 
distinctions based on external versus internal distribution have 
been previously filed with the Commission by Nasdaq, Nasdaq OMX BX, 
and Nasdaq OMX PSX. See Nasdaq Rule 7019(b); see also Securities 
Exchange Act Release No. 62876 (September 9, 2010), 75 FR 56624 
(September 16, 2010) (SR-PHLX-2010-120); Securities Exchange Act 
Release Nos. 62907 (September 14, 2010), 75 FR 57314 (September 20, 
2010) (SR-NASDAQ-2010-110); 59582 (March 16, 2009), 74 FR 12423 
(March 24, 2009) (Order approving SR-NASDAQ-2008-102); Securities 
Exchange Act Release No. 63442 (December 6, 2010), 75 FR 77029 
(December 10, 2010) (SR-BX-2010-081).
    \13\ The Exchange notes that usage fees as well as the 
distinctions based on professional and non-professional subscribers 
have been previously filed with or approved by the Commission by 
Nasdaq and the NYSE. See Securities Exchange Act Release Nos. 59582 
(March 16, 2009), 74 FR 12423 (March 24, 2009) (Order approving SR-
NASDAQ-2008-102).
    \14\ The Exchange notes that enterprise fees have been 
previously filed with or approved by the Commission by Nasdaq, NYSE 
and the CTA/CQ Plans. See Nasdaq Rule 7047. Securities Exchange Act 
Release Nos. 71507 (February 7, 2014), 79 FR 8763 (February 13, 
2014) (SR-NASDAQ-20140011); 70211 (August 15, 2013), 78 FR 51781 
(August 21, 2013) (SR-NYSE-2013-58); 70010 (July 19, 2013) (File No. 
SR-CTA/CQ-2013-04).
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    Definitions. The Exchange also proposes to include in its fee 
schedule the following defined terms that relate to the BATS One Feed 
fees.
     ``Distributor'' will be defined as ``any entity that 
receives the BATS One Feed directly from BATS or indirectly through 
another entity and then distributes it internally or externally to a 
third party.'' \15\
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    \15\ The proposed definition of ``Distributor'' is similar to 
Nasdaq Rule 7047(d)(1).
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     ``Internal Distributor'' will be defined as a 
``Distributor that receives the BATS One Feed and then distributes that 
data to one or more Users within the Distributor's own entity.'' \16\
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    \16\ The proposed definition of ``Internal Distributor'' is 
similar to Nasdaq Rule 7047(d)(1)(A).
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     ``External Distributor'' will be defined as a 
``Distributor that receives the BATS One Feed and then distributes that 
data to one or more Users outside the Distributor's own entity.'' \17\
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    \17\ The proposed definition of ``External Distributor'' is 
similar to Nasdaq Rule 7047(d)(1)(B).
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     ``User'' will be defined as a ``natural person, a 
proprietorship, corporation, partnership, or entity, or device 
(computer or other automated service), that is entitled to receive 
Exchange data.''
     ``Non-Professional User'' will be defined as ``a natural 
person who is not: (i) Registered or qualified in any capacity with the 
Commission, the Commodity Futures Trading Commission, any state 
securities agency, any securities exchange or association; any 
commodities or futures contract market or association; (ii) engaged as 
an ``investment adviser'' as that term is defined in Section 201(11) of 
the Investment Advisers Act of 1940 (whether or not registered or 
qualified under that Act); or (iii) employed by a bank or other 
organization exempt from registration under federal or state securities 
laws to perform functions that will require registration or 
qualification if such functions were performed for an organization not 
so exempt.'' \18\
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    \18\ The proposed definition of ``Professional User'' is similar 
to Nasdaq Rule 7047(d)(3)(A).
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     ``Professional User'' will be defined as ``any User other 
than a Non-Professional User.'' \19\
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    \19\ The proposed definition of ``Non-Professional User'' is 
similar to Nasdaq Rule 7047(d)(3)(B).
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    Internal Distribution Fees. Each Internal Distributor that receives 
only the BATS One Summary Feed shall pay an Internal Distributor Fee of 
$10,000.00 per month. Each Internal Distributor shall pay an Internal 
Distributor Fee of $15,000.00 per month where they elect to also 
receive the BATS One Premium Feed. The Exchange will charge no usage 
fees for BATS One Feed where the data is received and subsequently 
internally distributed to Professional or Non-Professional Users.
    External Distribution Fees. The Exchange proposes to charge those 
firms that distribute the BATS One Feed externally an External 
Distributor Fee of $2,500.00 per month for the BATS One Summary Feed. 
Each External Distributor shall pay an External Distributor Fee of 
$5,000.00 per month where they elect to also receive the BATS One 
Premium Feed. The Exchange also proposes to establish a New External 
Distributor Credit under which new External Distributors will not be 
charged a Distributor Fee for their first three (3) months in order to 
allow them to enlist new Users to receive the BATS One Feed.
    In addition to Internal and External Distribution Fees, the 
Exchange also proposes to charge recipient firms who receive the BATS 
One Feed from External Distributors different fees for both their 
Professional Users and Non-Professional Users. The Exchange will assess 
a monthly fee for Professional Users of $10.00 per user for receipt of 
the BATS One Summary Feed or $15.00 per user who elect to also receive 
the BATS One Premium Feed. Non-Professional Users will be assessed a 
monthly fee of $0.25 per user for the BATS One Summary Feed or $0.50 
per user where they elects to also receive the BATS One Premium Feed.
    External Distributors must count every Professional User and Non-
Professional User to which they provide BATS One Feed data. Thus, the 
Distributor's count will include every person and device that accesses 
the data regardless of the purpose for which the individual or device 
uses the data.\20\ Distributors must report all Professional and Non-
Professional Users in accordance with the following:
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    \20\ Requiring that every person or device to which they provide 
the data is counted by the Distributor receiving the BATS One Feed 
is similar to the NYSE Unit-of-Count Policy. The only difference is 
that the NYSE Unit-of-Count Policy requires the counting of users 
receiving a market data product through both internal and external 
distribution. Because the Exchange proposes to charge Usage Fees 
solely to recipient firms whose Users receive data from an external 
distributor and not through internal distribution, it only requires 
the counting of Users by Distributors that disseminate the BATS One 
Feed externally.
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     In connection with an External Distributor's distribution 
of the BATS One Feed, the Distributor should count as one User each 
unique User that the Distributor has entitled to have access to the 
BATS One Feed. However, where a device is dedicated specifically to a 
single individual, the Distributor should count only the individual and 
need not count the device.
     The External Distributor should identify and report each 
unique User. If a User uses the same unique method to gain access to 
the BATS One Feed, the Distributor should count that as one User. 
However, if a unique User uses multiple methods to gain access to the 
BATS One Feed (e.g., a single User has multiple passwords and user 
identifications), the External Distributor should report all of those 
methods as an individual User.
     External Distributors should report each unique individual 
person who receives access through multiple devices as one User so long 
as each device is dedicated specifically to that individual.
     If an External Distributor entitles one or more 
individuals to use the same device, the External Distributor should

[[Page 44944]]

include only the individuals, and not the device, in the count.
    Each External Distributor will receive a credit against its monthly 
Distributor Fee for the BATS One Feed equal to the amount of its 
monthly Usage Fees up to a maximum of the Distributor Fee for the BATS 
One Feed. For example, an External Distributor will be subject to a 
$5,000.00 monthly Distributor Fee where they elect to receive the BATS 
One Premium Feed. If that External Distributor reports User quantities 
totaling $5,000.00 or more of monthly usage of the BATS One Premium 
Feed, it will pay no net Distributor Fee, whereas if that same External 
Distributor were to report User quantities totaling $4,000.00 of 
monthly usage, it will pay a net of $1,000 for the Distributor Fee.
    Enterprise Fee. The Exchange also proposes to establish a 
$50,000.00 per month Enterprise Fee that will permit a recipient firm 
who receives the BATS Summary Feed portion of the BATS One Feed from an 
external distributor to receive the data for an unlimited number of 
Professional and Non-Professional Users and $100,000.00 per month for 
recipient firms who elect to also receive the BATS One Premium Feed. 
For example, if a recipient firm had 15,000 Professional Subscribers 
who each receive the BATS One Summary Feed portion of the BATS One Feed 
at $10.00 per month, then that recipient firm will pay $150,000.00 per 
month in Professional Subscriber fees. Under the proposed Enterprise 
Fee, the recipient firm will pay a flat fee of $50,000.00 for an 
unlimited number of Professional and Non-Professional Users for the 
BATS Summary Feed portion of the BATS One Feed. A recipient firm must 
pay a separate Enterprise Fee for each External Distributor that 
controls display of the BATS One Feed if it wishes such Subscriber to 
be covered by an Enterprise Fee rather than by per-Subscriber fees. A 
Subscriber that pays the Enterprise Fee will not have to report the 
number of such Subscribers on a monthly basis. However, every six 
months, a Subscriber must provide the Exchange with a count of the 
total number of natural person users of each product, including both 
Professional and Non-Professional Users.
Implementation Date
    The Exchange will announce the effective date of the proposed rule 
change in a Trading Notice to be published as soon as practicable 
following approval of the proposed rule change by the Commission. The 
Exchange anticipates making available the BATS One Feed for evaluation 
as soon as practicable after approval of the proposed rule change by 
the Commission.
2. Statutory Basis
The BATS One Feed
    The Exchange believes that the proposed BATS One Feed is consistent 
with Section 6(b) of the Act,\21\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\22\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and to protect investors and the public 
interest, and that it is not designed to permit unfair discrimination 
among customers, brokers, or dealers. This proposal is in keeping with 
those principles in that it promotes increased transparency through the 
dissemination of the BATS One Feed. The Exchange also believes this 
proposal is consistent with Section 6(b)(5) of the Act because it 
protects investors and the public interest and promotes just and 
equitable principles of trade by providing investors with new options 
for receiving market data as requested by market data vendors and 
purchasers that expressed an interest in exchange-only data for 
instances where consolidated data is no longer required to be purchased 
and displayed. The proposed rule change would benefit investors by 
facilitating their prompt access to real-time last sale information and 
best-bid-and-offer information contained in the BATS One Feed.
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    \21\ 15 U.S.C. 78f.
    \22\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes that the proposed rule change is 
consistent with Section 11(A) of the Act \23\ in that it supports (i) 
fair competition among brokers and dealers, among exchange markets, and 
between exchange markets and markets other than exchange markets and 
(ii) the availability to brokers, dealers, and investors of information 
with respect to quotations for and transactions in securities. 
Furthermore, the proposed rule change is consistent with Rule 603 of 
Regulation NMS,\24\ which provides that any national securities 
exchange that distributes information with respect to quotations for or 
transactions in an NMS stock do so on terms that are not unreasonably 
discriminatory.
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    \23\ 15 U.S.C. 78k-1.
    \24\ See 17 CFR 242.603.
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    In adopting Regulation NMS, the Commission granted self-regulatory 
organizations and broker-dealers increased authority and flexibility to 
offer new and unique market data to consumers of such data. It was 
believed that this authority would expand the amount of data available 
to users and consumers of such data and also spur innovation and 
competition for the provision of market data. The Exchange believes 
that the data products proposed herein are precisely the sort of market 
data products that the Commission envisioned when it adopted Regulation 
NMS. The Commission concluded that Regulation NMS--by lessening 
regulation of the market in proprietary data--would itself further the 
Act's goals of facilitating efficiency and competition:

    [E]fficiency is promoted when broker-dealers who do not need the 
data beyond the prices, sizes, market center identifications of the 
NBBO and consolidated last sale information are not required to 
receive (and pay for) such data. The Commission also believes that 
efficiency is promoted when broker-dealers may choose to receive 
(and pay for) additional market data based on their own internal 
analysis of the need for such data.\25\x
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    \25\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005) (File No. S7-10-04).

    By removing ``unnecessary regulatory restrictions'' on the ability 
of exchanges to sell their own data, Regulation NMS advanced the goals 
of the Act and the principles reflected in its legislative history.
    If the free market should determine whether proprietary data is 
sold to broker-dealers at all, it follows that the price at which such 
data is sold should be set by the market as well. The BATS One Feed is 
precisely the sort of market data product that the Commission 
envisioned when it adopted Regulation NMS.
    The BATS One Feed would be distributed and purchased on a voluntary 
basis, in that neither the BATS Exchanges nor market data distributors 
are required by any rule or regulation to make this data available. 
Accordingly, distributors and users can discontinue use at any time and 
for any reason, including due to an assessment of the reasonableness of 
fees charged.
BATS One Feed Fees
    The Exchange also believes that the proposed fees for the BATS One 
Feed are consistent with Section 6(b) of the Act,\26\ in general, and 
Section 6(b)(4) of the Act,\27\ in particular, in that it [sic] they 
provide for an equitable allocation of reasonable fees among users and 
recipients of the data and are not

[[Page 44945]]

designed to permit unfair discrimination among customers, brokers, or 
dealers. In adopting Regulation NMS, the Commission granted self-
regulatory organizations and broker-dealers increased authority and 
flexibility to offer new and unique market data to the public. It was 
believed that this authority would expand the amount of data available 
to consumers, and also spur innovation and competition for the 
provision of market data.
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    \26\ 15 U.S.C. 78f.
    \27\ 15 U.S.C. 78f(b)(4).
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    The Exchange also notes that products described herein are entirely 
optional. Firms are not required to purchase the BATS One Feed. Firms 
have a wide variety of alternative market data products from which to 
choose. Moreover, the Exchange is not required to make these 
proprietary data products available or to offer any specific pricing 
alternatives to any customers. 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 market 
forces 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.' \28\
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    \28\ 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.' '' \29\
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    \29\ Id.
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    The 2010 Dodd-Frank amendments to the Exchange Act reinforce the 
court's conclusions about congressional intent. On July 21, 2010, 
President Barack Obama signed into law H.R. 4173, the Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010 (``Dodd-Frank Act''), 
which amended Section 19 of the Act. Among other things, Section 916 of 
the Dodd-Frank Act amended paragraph (A) of Section 19(b)(3) of the Act 
by inserting the phrase ``on any person, whether or not the person is a 
member of the self-regulatory organization'' after ``due, fee or other 
charge imposed by the self-regulatory organization.'' As a result, all 
SRO rule proposals establishing or changing dues, fees, or other 
charges are immediately effective upon filing regardless of whether 
such dues, fees, or other charges are imposed on members of the SRO, 
non-members, or both. Section 916 further amended paragraph (C) of 
Section 19(b)(3) of the Exchange Act to read, in pertinent part, ``At 
any time within the 60-day period beginning on the date of filing of 
such a proposed rule change in accordance with the provisions of 
paragraph (1) [of Section 19(b)], the Commission summarily may 
temporarily suspend the change in the rules of the self-regulatory 
organization made thereby, 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 
this title. If the Commission takes such action, the Commission shall 
institute proceedings under paragraph (2)(B) [of Section 19(b)] to 
determine whether the proposed rule should be approved or 
disapproved.'' The court's conclusions about Congressional intent are 
therefore reinforced by the Dodd-Frank Act amendments, which create a 
presumption that exchange fees, including market data fees, may take 
effect immediately, without prior Commission approval, and that the 
Commission should take action to suspend a fee change and institute a 
proceeding to determine whether the fee change should be approved or 
disapproved only where the Commission has concerns that the change may 
not be consistent with the Act. 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.\30\ 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. As the NetCoalition decision noted, the 
Commission is not required to undertake a cost-of-service or ratemaking 
approach.
---------------------------------------------------------------------------

    \30\ 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.
---------------------------------------------------------------------------

    User Fees. The Exchange believes that implementing the Professional 
and Non-Professional User fees for the BATS One Feed is reasonable 
because it will make the product more affordable and result in their 
greater availability to Professional and Non-Professional Users. 
Moreover, introducing a Non-Professional User fee for the BATS One Feed 
is reasonable because it provides an additional method for retail 
investors to access the BATS One Feed data and provides the same data 
that is available to Professional Users.
    In addition, the proposed fees are reasonable when compared to fees 
for comparable products offered by the NYSE, Nasdaq, and under the CTA 
and CQ Plans. Specifically, Nasdaq offers Nasdaq Basic, which includes 
best bid and offer and last sale data for Nasdaq and the FINRA/Nasdaq 
TRF, for a monthly fee of $26 per professional subscriber and $1 per 
non-professional subscriber; alternatively, a broker-dealer may 
purchase an enterprise license at a rate of $100,000 per month for 
distribution to an unlimited number of non-professional users or 
$365,000 per month for up to 16,000 professional users, plus $2 for 
each additional professional user over 16,000.\31\ The Exchange notes 
that Nasdaq Basic also offers data for Nasdaq OMX BX and Nasdaq OMX 
PSX, as described below. The NYSE offers BQT, which provides BBO and 
last sale information for the NYSE, NYSE Arca, and NYSE MKT, for a 
monthly fee of $18 per professional subscriber and $1 per non-
professional subscriber; alternatively, a broker-dealer may purchase an 
enterprise license at a rate of $365,000 per month for an unlimited 
number of professional users. The NYSE does not offer an enterprise 
license for non-professional users. BATS's proposed per-user fees are 
lower than the NYSE's and Nasdaq's fees. In addition, the Exchange is 
proposing Professional and Non-Professional User fees and Enterprise 
Fees that are less than the fees currently charged by the CTA and CQ 
Plans. Under the CTA and CQ Plans, Tape A consolidated last sale and 
bid-ask data are offered together for a monthly fee of $20-$50 per 
device, depending on the number of professional subscribers, and $1.00 
per non-professional subscriber, depending on the number of non-
professional subscribers.\32\ A monthly enterprise fee of $686,400 is 
available under which a

[[Page 44946]]

U.S. registered broker-dealer may distribute data to an unlimited 
number of its own employees and its nonprofessional subscriber 
brokerage account customers. Finally, in contrast to Nasdaq UTP and the 
CTA and CQ Plans, the Exchange also will permit enterprise distribution 
by a non-broker-dealer.
---------------------------------------------------------------------------

    \31\ See Nasdaq Rule 7047.
    \32\ See CTA Plan dated September 9, 2013 and CQ Plan dated 
September 9, 2013, available at https://cta.nyxdata.com/CTA.
---------------------------------------------------------------------------

    Enterprise Fee. The proposed Enterprise Fee for the BATS One Feed 
is reasonable as the fee proposed is less than the enterprise fees 
currently charged for NYSE BQT, Nasdaq Basic, and consolidated data 
distributed under the Nasdaq UTP and the CTA and CQ Plans. In addition, 
the Enterprise Fee could result in a fee reduction for recipient firms 
with a large number of Professional and Non-Professional Users. If a 
recipient firm has a smaller number of Professional Users of the BATS 
One Feed, then it may continue using the per user structure and benefit 
from the per user fee reductions. By reducing prices for recipient 
firms with a large number of Professional and Non-Professional Users, 
the Exchange believes that more firms may choose to receive and to 
distribute the BATS One Feed, thereby expanding the distribution of 
this market data for the benefit of investors.
    The Exchange further believes that the proposed Enterprise Fee is 
reasonable because it will simplify reporting for certain recipients 
that have large numbers of Professional and Non-Professional Users. 
Firms that pay the proposed Enterprise Fee will not have to report the 
number of Users on a monthly basis as they currently do, but rather 
will only have to count natural person users every six months, which is 
a significant reduction in administrative burden.
    The Exchange believes that the proposed fees are equitable and not 
unfairly discriminatory because they will be charged uniformly to 
recipient firms and Users that select these products. The fee structure 
of differentiated professional and non-professional fees has long been 
used by other exchanges for their proprietary data products, and by the 
Nasdaq UTP and the CTA and CQ Plans in order to reduce the price of 
data to retail investors and make it more broadly available.\33\ 
Offering the BATS One Feed to Non-Professional Users with the same data 
available to Professional Users results in greater equity among data 
recipients. Finally, the Exchange believes that it is equitable and not 
unfairly discriminatory to establish an Enterprise Fee because it 
reduces the Exchange's costs and the Distributor's administrative 
burdens in tracking and auditing large numbers of users.
---------------------------------------------------------------------------

    \33\ See, e.g., Securities Exchange Act Release No. 20002, File 
No. S7-433 (July 22, 1983) (establishing nonprofessional fees for 
CTA data); NASDAQ Rules 7023(b), 7047.
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    Distribution Fee. The Exchange believes that the proposed 
Distribution Fees are also reasonable, equitably allocated, and not 
unreasonably discriminatory. The fees for Members and non-Members are 
uniform except with respect to reasonable distinctions with respect to 
internal and external distribution.\34\ The Exchange believes that the 
Distribution Fees for the BATS One Feed are reasonable and fair in 
light of alternatives offered by other market centers. First, although 
the Internal Distribution fee is higher than those of competitor 
products, there are no usage fees assessed for Users that receive the 
BATS One Feed data through Internal Distribution, which results in a 
net cost that is lower than competitor products for many data 
recipients and will be easier to administer. In addition, for External 
Distribution, the Distribution Fees are similar to or lower than 
similar products. For example, under the Nasdaq UTP and CTA and CQ 
Plans, consolidated last sale and bid-ask data are offered for a 
combined monthly fee of $3,000 for redistribution.\35\ The Exchange is 
proposing Distribution Fees that are less than the fees currently 
charged by the Nasdaq UTP and CTA and CQ Plans.
---------------------------------------------------------------------------

    \34\ The Exchange notes that distinctions based on external 
versus internal distribution have been previously filed with the 
Commission by Nasdaq, Nasdaq OMX BX, and Nasdaq OMX PSX. See Nasdaq 
Rule 019(b); see also Securities Exchange Act Release No. 62876 
(September 9, 2010), 75 FR 56624 (September 16, 2010) (SR-PHLX-2010-
120); Securities Exchange Act Release No. 62907 (September 14, 
2010), 75 FR 57314 (September 20, 2010) (SR-NASDAQ-2010-110); 
Securities Exchange Act Release No. 63442 (December 6, 2010), 75 FR 
77029 (December 10, 2010) (SR-BX-2010-081).
    \35\ See CTA Plan dated September 9, 2013 and CQ Plan dated 
September 9, 2013, available at https://cta.nyxdata.com/CTA, Nasdaq 
UTP fees available at http://www.nasdaqtrader.com/Trader.aspx?id=DPPriceListUTP#uf.
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act, as amended. 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. 
Because other exchanges already offer similar products,\36\ the 
Exchange's proposed BATS One Feed will enhance competition. 
Specifically, the BATS One Feed was developed to compete with similar 
market data products offered by Nasdaq and NYSE Technologies, an 
affiliate of the NYSE.\37\ The BATS One Feed will foster competition by 
providing an alternative market data product to those offered by Nasdaq 
and the NYSE for less cost, as described in more detail in Section 3(b) 
above. This proposed new data feed provides investors with new options 
for receiving market data, which was a primary goal of the market data 
amendments adopted by Regulation NMS.\38\
---------------------------------------------------------------------------

    \36\ See supra note 5.
    \37\ Id.
    \38\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS 
Adopting Release).
---------------------------------------------------------------------------

    The proposed BATS One Feed would enhance competition by offering a 
market data product that is designed to compete directly with similar 
products offered by the NYSE and Nasdaq. Nasdaq Basic is a product that 
includes two feeds, QBBO, which provides BBO information for all U.S. 
exchange-listed securities on Nasdaq and NLS Plus, which provides last 
sale data as well as consolidated volume from the following Nasdaq OMX 
markets for U.S. exchange-listed securities: Nasdaq, FINRA/Nasdaq 
TRF,\39\ Nasdaq OMX BX, and Nasdaq OMX PSX.\40\ Likewise, NYSE BQT 
includes BBO and last sale information for the NYSE, NYSE Arca, and 
NYSE MKT.\41\ As a result, Nasdaq Basic and NYSE BQT comprise a 
significant view of the market on any given day and both include data 
from multiple trading venues. As the BATS Exchanges are consistently 
one of the top exchange operators by market share for U.S. equities 
trading, excluding opening and closing auction volume, the data 
included within the BATS One Feed

[[Page 44947]]

will provide investors with an alternative to Nasdaq Basic and NYSE BQT 
and a new option for obtaining a broad market view, consistent with the 
primary goal of the market data amendments adopted by Regulation 
NMS.\42\
---------------------------------------------------------------------------

    \39\ See Nasdaq Basic, http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqbasic (last visited May 29, 2014) (data feed 
offering the BBO and Last Sale information for all U.S. exchange-
listed securities based on liquidity within the Nasdaq market 
center, as well as trades reported to the FINRA/Nasdaq TRF).
    \40\ See Nasdaq NLS Plus, http://www.nasdaqtrader.com/Trader.aspx?id=NLSplus (last visited July 8, 2014) (data feed 
providing last sale data as well as consolidated volume from the 
following Nasdaq OMX markets for U.S. exchange-listed securities: 
Nasdaq, FINRA/Nasdaq TRF, Nasdaq OMX BX, and Nasdaq OMX PSX).
    \41\ See NYSE Technologies BQT, http://www.nyxdata.com/Data-Products/NYSE-Best-Quote-and-Trades (last visited May 27, 2014) 
(data feed providing unified view of BBO and last sale information 
for the NYSE, NYSE Arca, and NYSE MKT).
    \42\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496, at 37503 (June 29, 2005) (Regulation NMS 
Adopting Release).
---------------------------------------------------------------------------

    The BATS One Feed will not only provide content that is competitive 
with the similar products offered by other exchanges, but will provide 
pricing that is competitive as well. As previously stated, the fees for 
the BATS One Feed are significantly lower than alternative exchange 
products. The BATS One Feed is 60% less expensive per professional user 
and more than 85% less expensive for an enterprise license for 
professional users (50% less for non-professional users) when compared 
to a similar competitor exchange product, offering firms a lower cost 
alternative for similar content.
    As the Exchange considers the integration of the BATS One Feed into 
External Distributor products an important ingredient to the product's 
success, the Exchange has designed pricing that enables External 
Distributors to spend three months integrating BATS One Feed data into 
their products and to enlist new Users to receive the BATS One Feed 
data for free with no External Distribution charges. In addition, the 
Exchange is providing External Distributors a credit against their 
monthly External Distribution Fee equal to the amount of its monthly 
Usage Fees up to the amount of the External Distribution Fee, which 
could result in the External Distributor paying a discounted or no 
External Distribution Fee once the free three months period has ended. 
With the fee incentives in place, External Distributors may freely 
choose to include the BATS One Feed data into their product thereby 
increasing competition with External Distributors offering similar 
products, replace alternative data provided by Nasdaq Basic or NYSE BQT 
with the BATS One Feed data or enhance their product to include BATS 
One Feed data along with data offered by competitors to create a 
distributor product that may be more valuable than the BATS One Feed or 
any competitor product alone. As with any product, the recipients of 
the data will determine the value of the data provided by the exchange 
directly or through an External Distributor. Potential subscribers may 
opt to disfavor the BATS One Feed based on the content provided or the 
pricing and may believe that alternatives offer them better value. 
Accordingly, the Exchange does not believe that the proposed BATS One 
Feed will impair the ability of External Distributors or competing 
venues to maintain their competitive standing in the financial markets.
    The Exchange believes the BATS One Feed will further enhance 
competition by providing External Distributors with a data feed that 
allows them to more quickly and efficiently integrate into their 
existing products. Today, Distributors subscribe to various market data 
products offered by single exchanges and resell that data, either 
separately or in the aggregate, to their subscribers as part of the 
their own market data offerings. Distributors may incur administrative 
costs when consolidating and augmenting the data to meet their 
subscriber's need. Consequently, many External Distributors will simply 
choose to not take the data because of the effort and cost required to 
aggregate data from separate feeds into their existing products. Those 
same Distributors have expressed interest in the BATS One Feed so that 
they may easily incorporate aggregated or summarized BATS Exchange data 
into their own products without themselves incurring the costs of the 
repackaging and aggregating the data it would receive by subscribing to 
each market data product offered by the individual BATS Exchanges. The 
Exchange, therefore, believes that by providing market data that 
encompasses combined data from affiliated exchanges, the Exchange 
enables certain External Distributors with the ability to compete in 
the provision of similar content with other External Distributors, 
where they may not have done so previously if they were required to 
subscribe to the depth-of-book feeds from each individual BATS 
Exchange.
    Although the Exchange considers the acceptance of the BATS One Feed 
by External Distributors as important to the success of the product, 
depending on their needs, External Distributors may choose not to 
subscribe to the BATS One Feed and may rather receive the BATS Exchange 
individual market data products and incorporate them into their 
specific market data products. For example, the BATS Premium Feed 
provides depth-of-book information for up to five price levels while 
each of the BATS Exchange's individual data feeds offer complete depth-
of-book and are not limited to five price levels.\43\ Those subscribers 
who wish to view the complete depth-of-book from each individual BATS 
Exchange may prefer to subscribe to one or all of individual BATS 
Exchange depth-of-book data feeds instead of the BATS One Feed. The 
BATS One Feed simply provides another option for Distributors to choose 
from when selecting a product that meets their market data needs. 
Subscribers who seek a broader market view but do not need complete 
depth-of-book may select the BATS One Feed while subscribers that seek 
the complete depth-of-book information may subscribe to the depth-of-
book feeds of each individual BATS Exchanges.
---------------------------------------------------------------------------

    \43\ See EDGA Rule 13.8, EDGX Rule 13.8, BZX Rule 11.22(a) and 
(c), and BATS Rule 11.22 (a) and (c) for a description of the depth 
of book feeds offered by each of the BATS Exchanges.
---------------------------------------------------------------------------

    Latency. The BATS One Feed is not intended to compete with similar 
products offered by External Distributors. Rather, it is intended to 
assist External Distributors in incorporating aggregated and summarized 
data from the BATS Exchanges into their own market data products that 
are provided to the end user. Therefore, Distributors will receive the 
data, who will, in turn, make available BATS One Feed to their end 
users, either separately or as incorporated into the various market 
data products they provide. As stated above, Distributors have 
expressed a desire for a product like the BATS One Feed so that they 
may easily incorporate aggregated or summarized BATS Exchange data into 
their own products without themselves incurring the administrative 
costs of repackaging and aggregating the data it would receive by 
subscribing to each market data product offered by the individual BATS 
Exchanges.
    Notwithstanding the above, the Exchange believes that External 
Distributors may create a product similar to BATS One Feed based on the 
market data products offered by the individual BATS Exchanges with 
minimal latency difference. In order to create the BATS One Feed, the 
Exchange will receive the individual data feeds from each BATS Exchange 
and, in turn, aggregate and summarize that data to create the BATS One 
Feed. This is the same process an External Distributor would undergo 
should it create a market data product similar to the BATS One Feed to 
distribute to its end users. In addition, the servers of most External 
Distributors are likely located in the same facilities as the Exchange, 
and, therefore, should receive the individual data feed from each BATS 
Exchange on or about the same time the Exchange would for it to create 
the BATS One Feed. Therefore, the Exchange believes that it will not 
incur any potential latency advantage that

[[Page 44948]]

will result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.
    The Existence of Actual Competition. The market for proprietary 
data products is currently competitive and inherently contestable 
because there is fierce competition for the inputs necessary to the 
creation of proprietary data and strict pricing discipline for the 
proprietary products themselves. Numerous exchanges compete with each 
other for listings and order flow and sales of market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to compete in any or all of those areas, including by 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 
Intercontinental Exchange 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.'' \44\
---------------------------------------------------------------------------

    \44\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
Nasdaq OMX Group Inc. and Intercontinental Exchange 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.'' \45\
---------------------------------------------------------------------------

    \45\ 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 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 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.
    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.\46\ 
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.\47\
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    \46\ 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); 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.
    \47\ 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 invariable 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.'').
---------------------------------------------------------------------------

    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

[[Page 44949]]

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 eleven 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. As stated above, broker-dealers 
currently have numerous alternative venues for their order flow, 
including eleven SRO markets, as well as internalizing BDs and various 
forms of ATSs, including dark pools and ECNs. Each SRO market competes 
to produce transaction reports via trade executions, and two FINRA-
regulated Trade Reporting Facilities (``TRFs'') compete to attract 
internalized transaction reports. Competitive markets for order flow, 
executions, and transaction reports provide pricing discipline for the 
inputs of proprietary data products.
    The large number of SROs, TRFs, 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, TRF, ATS, and BD is currently permitted to produce proprietary 
data products, and many currently do so or have announced plans to do 
so, including NASDAQ, NYSE, NYSE Amex, and NYSEArca.
    Any ATS or BD can combine with any other ATS, BD, or multiple ATSs 
or BDs to produce joint proprietary data products. Additionally, order 
routers and market data vendors can facilitate single or multiple 
broker-dealers' production of proprietary data products. The potential 
sources of proprietary products are virtually limitless. The fact that 
proprietary data from ATSs, BDs, and vendors can by-pass SROs is 
significant in two respects. First, non-SROs can compete directly with 
SROs for the production and sale of proprietary data products, as BATS 
and Arca did before registering as exchanges by publishing proprietary 
book data on the Internet. Second, because a single order or 
transaction report can appear in an SRO proprietary product, a non-SRO 
proprietary product, or both, the data available in proprietary 
products is exponentially greater than the actual number of orders and 
transaction reports that exist in the marketplace.
    Retail broker-dealers, such as Schwab and Fidelity, offer their 
customers proprietary data only if it promotes trading and generates 
sufficient commission revenue. Although the business models may differ, 
these vendors' pricing discipline is the same: they can simply refuse 
to purchase any proprietary data product that fails to provide 
sufficient value. The Exchange and other producers of proprietary data 
products must understand and respond to these varying business models 
and pricing disciplines in order to market proprietary data products 
successfully.
    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, and TracECN. A proliferation of dark pools and other 
ATSs operate profitably with fragmentary shares of consolidated market 
volume.
    Regulation NMS, by deregulating the market for proprietary data, 
has increased the contestability of that market. While broker-dealers 
have previously published their proprietary data individually, 
Regulation NMS encourages market data vendors and broker-dealers to 
produce proprietary products cooperatively in a manner never before 
possible. Multiple market data vendors already have the capability to 
aggregate data and disseminate it on a profitable scale, including 
Bloomberg and Thomson-Reuters.
    Competitive forces constrain the prices that platforms can charge 
for non-core market information. A trading platform cannot generate 
market information unless it receives trade orders. For this reason, a 
platform can be expected to use its market data product as a tool for 
attracting liquidity and trading to its exchange.
    While, by definition, information that is proprietary to an 
exchange cannot be obtained elsewhere, this does not enable the owner 
of such information to exercise monopoly power over that information 
vis-[agrave]-vis firms with the need for such information. Even though 
market information from one platform may not be a perfect substitute 
for market information from one or more other platforms, the existence 
of alternative sources of information can be expected to constrain the 
prices platforms charge for market data.
    Besides the fact that similar information can be obtained 
elsewhere, the feasibility of supra-competitive pricing is constrained 
by the traders' ability to shift their trades elsewhere, which lowers 
the activity on the exchange and thus, in the long run, reduces the 
quality of the information generated by the exchange.
    Competition among platforms has driven the Exchange to improve its 
platform data offerings and to cater to customers' data needs by 
proposing the BATS One Feed. The vigor of competition for non-core data 
information is significant and the Exchange believes that this proposal 
clearly evidences such competition. The Exchange proposes the BATS One 
Feed and pricing model in order to keep pace with changes in the 
industry and evolving customer needs. It is entirely optional and is 
geared towards attracting new customers, as well as retaining existing 
customers.
    The Exchange has witnessed competitors creating new products and 
innovative pricing in this space over the course of the past year. In 
all cases, firms make decisions on how much and what types of data to 
consume on the basis of the total cost of interacting with the Exchange 
or other exchanges. The explicit data fees are but one factor in a 
total platform analysis. Some competitors have lower transactions fees 
and higher data fees, and others are vice versa. The market for this 
non-core data

[[Page 44950]]

information is highly competitive and continually evolves as products 
develop and change.
    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, because vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if its cost is not justified by the returns that 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

    The Exchange has not solicited, and does not intend to solicit, 
comments on this proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days of such 
date (i) as the Commission may designate if it finds such longer period 
to be appropriate and publishes its reasons for so finding or (ii) as 
to which the Exchange consents, the Commission shall:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-BATS-2014-028 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BATS-2014-028. 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, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of BATS. 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-BATS-2014-028 and should be 
submitted on or before August 22, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18123 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P


