
[Federal Register Volume 79, Number 169 (Tuesday, September 2, 2014)]
[Notices]
[Pages 52079-52086]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-20703]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72923; File No. SR-NYSE-2014-43]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
Amending Its Fees for Non-Display Use of NYSE OpenBook, NYSE Trades, 
and NYSE BBO, and To Establish Fees for Non-Display Use of NYSE Order 
Imbalances

August 26, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 13, 2014, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend its fees for non-display use of NYSE 
OpenBook, NYSE Trades, and NYSE BBO, and to establish fees for non-
display use of NYSE Order Imbalances, operative on September 1, 2014. 
The text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, on the 
Commission's Web site at www.sec.gov, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend its non-display fees for NYSE 
OpenBook, NYSE Trades, and NYSE BBO, to establish such fees for NYSE 
Order Imbalances, and to establish managed non-display services fees 
for NYSE BBO, operative on September 1, 2014.
    The Exchange established the current non-display and managed non-
display services fees for NYSE OpenBook, NYSE Trades, and NYSE BBO in 
April 2013.\4\ The Exchange now proposes to change those fees and to 
establish similar fees for NYSE Order Imbalances.
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    \4\ See Securities Exchange Act Release No. 69278 (April 2, 
2013), 78 FR 20973 (April 8, 2013) (SR-NYSE-2013-25) (``2013 
Release'').
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    Under the proposal, non-display use would continue to mean 
accessing, processing, or consuming an NYSE data product delivered via 
direct and/or Redistributor \5\ data feeds for a purpose other than in 
support of a data recipient's display or further internal or external 
redistribution (``Non-Display Use''). As is the case today, non-display 
and managed non-display services fees would apply to the Non-Display 
Use of the data product as part of automated calculations or algorithms 
to support trading decision-making processes or the operation of 
trading platforms.
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    \5\ ``Redistributor'' means a vendor or any person that provides 
a real-time NYSE data product to a data recipient or to any system 
that a data recipient uses, irrespective of the means of 
transmission or access.
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    The Exchange is proposing to expand the types of uses considered 
Non-Display Use to also include non-trading uses. In addition, the 
proposal would specify that Non-Display Use would include any trading 
use, rather than only certain types of trading, such as high frequency 
or algorithmic trading, as under the current fee structure. Under the 
proposal, examples of Non-Display Use would include any trading in any 
asset class, automated order or quote generation and/or order pegging, 
price referencing for algorithmic trading or smart order routing, 
operations control programs, investment analysis, order verification, 
surveillance programs, risk management, compliance, and portfolio 
management. The Exchange believes that non-trading uses benefit data 
recipients by allowing users to automate functions, achieving greater 
speed and accuracy, and in turn, for example, reducing costs of labor 
to perform the functions manually. This approach would address the 
difficulties

[[Page 52080]]

of monitoring and auditing different types of trading versus non-
trading uses of the data and the burden of counting devices used for 
non-trading purposes under the current fees.

Proposed Changes to Non-Display Fees

    The Exchange proposes to amend the fee structure applicable to Non-
Display Use of NYSE OpenBook, NYSE BBO, and NYSE Trades and to 
establish such fees for NYSE Order Imbalance. Specifically, the 
Exchange proposes certain changes to the three categories of, and fees 
applicable to, data recipients.
    Under the proposal, Category 1 Fees would apply when a data 
recipient's Non-Display Use of real-time market data is on its own 
behalf as opposed to use on behalf of its clients. This proposal 
represents an expansion of the application of Category 1 Fees, which 
currently apply solely to the Non-Display Use of real time market data 
for the purpose of principal trading, to usage of such data for non-
trading purposes.
    Under the proposal, Category 2 Fees would apply to data recipients' 
Non-Display Use of real-time market data is [sic] on behalf of its 
clients as opposed to use on its own behalf. This proposal also 
represents an expansion of the application of Category 2 Fees, which 
currently apply solely to trading activities to facilitate a customer 
business, to usage of such data for non-trading purposes. As under the 
current fee, if a data recipient's use of NYSE market data is covered 
by Category 1 and Category 2, then the data recipient must pay both 
categories of fees.\6\
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    \6\ See 2013 Release, supra note 4, at 20976.
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    The Exchange believes its proposal to apply Category 1 Fees and 
Category 2 Fees to Non-Display Use of market data for non-trading 
purposes would address the difficulties of monitoring and auditing 
trading versus non-trading uses of the data and the burden of counting 
devices used for purposes of applying the per-device fees. As discussed 
in more detail in the 2013 Release,\7\ the ability to accurately count 
devices and audit such counts creates administrative challenges for 
vendors, data recipients, and the Exchange.
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    \7\ See 2013 Release, supra note 4, at 20975.
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    Under the proposal, Category 3 Fees would apply to data recipients' 
Non-Display Use of real-time market data for the purpose of internally 
matching buy and sell orders within an organization, including matching 
customer orders for data recipient's own behalf and/or on behalf of its 
clients. This category would apply to Non-Display Use in trading 
platform(s), such as, but not restricted to, alternative trading 
systems (``ATSs''), broker crossing networks, broker crossing systems 
not filed as ATSs, dark pools, multilateral trading facilities, 
exchanges and systematic internalization systems. Currently, Category 3 
Fees apply where a data recipient's non-display use of market data is, 
in whole or in part, for the purpose of providing reference prices in 
the operation of one or more trading platforms. The Exchange believes 
its proposed revision to its description of the data recipients to whom 
Category 3 Fees apply is more precise because it focuses on the 
functions of internally matching orders.
    In addition, the Exchange is proposing to change the application of 
Category 3 Fees to data recipients that also use data for purposes that 
give rise to Category 1 and/or Category 2 Fees. Currently, a data 
recipient is not liable for Category 3 Fees for those market data 
products for which it is also paying Category 1 and/or Category 2 
Fees.\8\ Under the proposal, a data recipient's Non-Display Use of 
real-time market data for Category 3 purposes would require such data 
recipient to pay Category 3 Fees in addition to any Category 1 Fees or 
Category 2 Fees it is required to pay for Non-Display Use of market 
data.
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    \8\ See 2013 Release, supra note 4, at 20976.
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    There will continue to be no monthly or other reporting 
requirements for data recipients' Non-Display Use. However, the 
Exchange continues to reserve the right to audit data recipients' Non-
Display Use of NYSE market data products in accordance with NYSE's 
vendor and subscriber agreements.
    Data recipient that receive real-time NYSE market data for Non-
Display Use would be required to complete and submit a Non-Display Use 
Declaration before September 1, 2014. The Non-Display Use Declaration 
would replace the current declaration on NYSE Euronext Non-Display 
Usage Declaration.\9\ A firm subject to Category 3 Fees would be 
required to identify each platform that uses data on a Non-Display Use 
basis, such as ATSs and broker crossing systems not registered as ATSs, 
as part of the Non-Display Use Declaration. Beginning in 2016, data 
recipients would be required to submit, by January 31 of each year, a 
Non-Display Use Declaration. In addition, if a data recipient's use of 
real-time NYSE market data changes at any time after the data recipient 
submits a Non-Display Use Declaration, the data recipient would be 
required to update it at the time of the change to reflect the change 
of use.
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    \9\ As described in more detail in the Statutory Basis section, 
in order to modulate the overall fee increase that could apply, if a 
firm subject to Category 3 Fees has more than three platforms, it 
would only be required to declare three platforms. If a data 
recipient only subscribes to products for which there are no non-
display usage fees, e.g., NYSE Realtime Reference Prices, then no 
declaration is required.
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Proposed Changes to Fees for Managed Non-Display Services
    The Exchange also proposes to change the fees for managed non-
display services for NYSE OpenBook and NYSE Trades and establish 
managed non-display service fees for NYSE BBO and NYSE Order 
Imbalances. Managed non-display services fees would apply, as they do 
currently, where data recipients' non-display applications are hosted 
by an approved third party.\10\ To be an approved third party, the 
third party must manage and control the access to real-time NYSE market 
data for the data recipients' non-display applications and not allow 
for further internal distribution or external redistribution of the 
information.
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    \10\ See 2013 Release, supra note 4, at 20976.
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    The managed non-display services fee would only apply if a data 
recipient is receiving real-time NYSE market data for Non-Display Use 
from a third party Redistributor \11\ that is approved by the Exchange. 
As for the current managed non-display services fees, this 
Redistributor must manage and control the access to NYSE OpenBook, NYSE 
Trades, NYSE BBO, and NYSE Order Imbalances for these applications and 
may not allow for further internal distribution or external 
redistribution of these market data products. The Redistributor of the 
managed non-display services and the data recipient must be approved 
under the NYSE Global Data Products Unit-of-Count Policy.\12\ If a data 
recipient receives NYSE OpenBook, NYSE Trades, NYSE BBO, and NYSE Order 
Imbalances from a Redistributor that is not approved by the Exchange, 
then the non-display fees would apply, and data recipients would not be 
liable for managed non-display fees for those market data products for 
which they pay non-display fees.
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    \11\ See supra note 5.
    \12\ The Unit-of-Count Policy is described in the 2013 Release, 
supra note 4, at note 10 and accompanying text.
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    A data recipient of real-time NYSE market data through an approved 
Redistributor would continue to have no reporting requirements. 
However, a Redistributor would be required to report to NYSE on a 
monthly basis the data recipients that are receiving real-

[[Page 52081]]

time NYSE market data through the Redistributor's managed non-display 
service and the real-time NYSE market data that such data recipients 
are receiving through such service. This monthly reporting requirement 
would be new, though the Exchange currently has the right to audit data 
recipients' non-display use of NYSE market data products in accordance 
with NYSE's vendor and subscriber agreements.
Comparison of Current Fees to Proposed Fees
    The chart below compares the proposed changes to current monthly 
fees:

------------------------------------------------------------------------
            Data feed                 Current fee        Proposed fee
------------------------------------------------------------------------
NYSE OpenBook Non-Display         $5,000............  $6,000.
 Category 1.
NYSE OpenBook Non-Display         $5,000............  $6,000.
 Category 2.
NYSE OpenBook Non-Display         $5,000, or $0 if    $6,000, capped at
 Category 3.                       Category 1 or 2     $18,000.
                                   fees paid.
NYSE OpenBook Managed Non-        $2,000............  $2,400.
 Display.
NYSE BBO Non-Display Category 3.  $1,500, or $0 if    $1,500, capped at
                                   Category 1 or 2     $4,500.
                                   fees paid.
NYSE BBO Managed Non-Display....  n/a...............  $300.
NYSE Trades Non-Display Category  $2,000............  $3,000.
 1.
NYSE Trades Non-Display Category  $2,000............  $3,000.
 2.
NYSE Trades Non-Display Category  $2,000, or $0 if    $3,000, capped at
 3.                                Category 1 or 2     $9,000.
                                   fees paid.
NYSE Trades Managed Non-Display.  $700..............  $1,000.
NYSE Order Imbalances Category 1  n/a...............  $2,000.
NYSE Order Imbalances Category 2  n/a...............  $2,000.
NYSE Order Imbalances Category 3  n/a...............  $2,000, capped at
                                                       $6,000.
NYSE Order Imbalances Managed     n/a...............  $200.
 Non-Display.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\13\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\14\ in particular, in that it 
provides an equitable allocation of reasonable fees among users and 
recipients of the data and is not designed to permit unfair 
discrimination among customers, issuers, and brokers.
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    \13\ 15 U.S.C. 78f(b).
    \14\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that charging for non-trading uses is 
reasonable because data recipients can derive substantial value from 
such uses, for example, by automating tasks so that they can be 
performed more quickly and accurately and less expensively than if they 
were performed manually. The Exchange also notes that The NASDAQ Stock 
Market (``NASDAQ'') and NASDAQ OMX PHLX (``Phlx'') do not make any 
distinction in their non-display use fees between trading or non-
trading uses, and as such, the proposed change will harmonize the 
Exchange's approach with those exchanges. Finally, the Exchange notes 
that eliminating the trading versus non-trading distinction would 
substantially simplify fee calculations and ease administrative burdens 
for the Exchange.
    After further experience, the Exchange also believes that it is 
more equitable and not unfairly discriminatory to eliminate the 
distinction for non-trading versus trading uses in light of the 
significant value of both types of uses. The Exchange notes that 
because non-display fees are flat fees, the expansion to cover non-
trading uses could only result in a fee increase for a data recipient 
that is using the data solely for non-trading purposes and is only 
subject to per-device fees; at this time, the Exchange has not 
identified such a data recipient. Based on data available to the 
Exchange, all data recipients use the data for at least one trading 
purpose, and therefore the changes to the fees that they will pay under 
the proposal would not be due to the elimination of the distinction 
between trading and non-trading uses. The Exchange further notes that 
based on Proposed Declarations submitted to date, some users have 
declared no non-display use, and as such the proposed changes would 
have no impact on them.
    The Exchange believes that it is reasonable to require annual 
submissions of the Proposed Declaration so that the Exchange will have 
current and accurate information about the use of its market data 
products and can correctly assess fees for the uses of those products. 
The annual submission requirement is equitable and not unfairly 
discriminatory because it will apply to all users.
    The Exchange believes that requiring Redistributors to provide 
monthly reports of data recipients that are receiving the Managed Non-
Display service is reasonable because as a matter of practice, the 
Exchange already has been requiring such reporting pursuant to the 
Exchange's right under the vendor and subscriber agreements to request 
such information, and there is no indication that this has been 
burdensome for Redistributors. The reporting requirement is equitable 
and not unfairly discriminatory because it will apply to all 
Redistributors and help to ensure that ultimate data recipients are 
receiving data in accordance with the Exchange's rules.
    The Exchange believes that the proposed fee increases of $1,000 per 
month for each of Categories 1, 2, and 3 for NYSE OpenBook and NYSE 
Trades are reasonable. In establishing the non-display fees in April 
2013, the Exchange set its fees substantially below comparable fees 
charged by certain of its competitors.\15\ After gaining further 
experience with its new display/non-display fee structure, the Exchange 
believes that the proposed fees better reflect the significant value of 
the non-display data to data recipients, which purchase such data on an 
entirely voluntary basis. Non-display data can be used by data 
recipients for a wide variety of profit-generating purposes, including 
proprietary and agency trading and smart order routing, as well as by 
data recipients that operate order matching and execution platforms 
that compete directly with the Exchange for order flow. The data also 
can be used for a variety of non-trading purposes that indirectly 
support trading, such as risk management and compliance. While some of 
these non-trading uses do not directly generate revenues, they can 
nonetheless substantially reduce the recipient's costs by automating 
such functions so that they can be carried out in a more efficient and 
accurate manner and reduce errors and labor costs, thereby benefiting 
end users. The Exchange believes that the proposed fees directly and 
appropriately reflect the significant value of using non-display data 
in a wide range of computer-automated functions relating

[[Page 52082]]

to both trading and non-trading activities and that the number and 
range of these functions continue to grow through innovation and 
technology developments.\16\
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    \15\ See 2013 Release, supra note 4, at 20977.
    \16\ See also Exchange Act Release No. 69157, March 18, 2013, 78 
FR 17946, 17949 (March 25, 2013) (SR-CTA/CQ-2013-01) (``[D]ata 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.'').
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    The fee increases are also reasonable in that they support the 
Exchange's efforts to regularly upgrade systems to support more modern 
data distribution formats and protocols as technology evolves. For 
example, the Exchange will begin to make its proprietary data products 
available over both its existing distribution channel as well as the 
XDP protocol later this year.
    Charging a separate fee for Category 3 data recipients that already 
pay a fee under Category 1 or 2 is reasonable because it eliminates 
what is effectively a discount for such data recipients under the 
current Fee Schedule and results in a more equitable allocation of fees 
to users that derive a benefit from a Category 3 use, and as such is 
not unfairly discriminatory. The current fee can be viewed as having an 
effective non-display fee cap of $10,000 for NYSE OpenBook, $4,000 for 
NYSE Trades, and $3,000 for NYSE BBO while the proposed fee would have 
an effective non-display fee cap of $30,000 for NYSE OpenBook, $15,000 
for NYSE Trades, and $7,500 for NYSE BBO. The Exchange believes that 
the proposed fees (and their associated caps) more closely correspond 
to the value that Category 3 recipients derive from the various uses of 
the data, some of which are operating various types of alternative 
trading venues that directly compete for order flow with the Exchange. 
Limiting the fees in Category 3 to no more than three trading platforms 
is reasonable because it modulates the size of the fee increase for 
certain recipients as compared to what they pay under the current fee 
structure, in much the same manner as the current fee does by limiting 
the non-display fees to a maximum of two categories. The Exchange does 
not believe that it will be burdensome for Category 3 recipients to 
determine, or the Exchange to audit, whether a recipient has one, two, 
or three or more separate platforms.
    The proposed non-display fees for NYSE Order Imbalance are 
reasonable because they reflect the valuable non-display uses of this 
data feed for recipients and will be easier for the Exchange to 
administer than counting devices, as is required under the current Fee 
Schedule. The fees are equitable and not unfairly discriminatory 
because they will apply to all data recipients that choose to subscribe 
to the NYSE Order Imbalances feed.
    The proposed monthly fees of $300 for NYSE BBO Managed Non-Display 
data and $200 for NYSE Order Imbalances Managed Non-Display data are 
reasonable because they are less than other managed non-display fees 
charged by the Exchange for other managed non-display products as well 
as by other exchanges for comparable products.\17\ The fees are also 
equitable and not unfairly discriminatory because they will apply to 
all data recipients that choose to subscribe to the feeds.
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    \17\ NASDAQ offers a Managed Data Solution that assesses a 
monthly Managed Data Solution Administration fee of $1,500 and 
monthly Subscriber fees of $60 for non-professionals to $300 for 
professionals. See NASDAQ Rule 7026(b). Phlx charges a monthly 
Managed Data Solution Administration fee of $2,000 and a monthly 
Subscriber fee of $500. The monthly License fee is in addition to 
the monthly Distributor fee of $3,500 (for external usage), and the 
$500 monthly Subscriber fee is assessed for each Subscriber of a 
Managed Data Solution. See Securities Exchange Act Release No. 70748 
(October 23, 2013), 78 FR 64569 (October 29, 2013) (SR-Phlx-2013-
105).
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    The proposed increase in the NYSE Trades Managed Non-Display fee 
from $700 to $1,000 per month is reasonable because it remains less 
than the comparable fee for other exchanges' similar products.\18\ The 
fee also is equitable and not unfairly discriminatory because it will 
apply to all data recipients that choose to subscribe to the feed.
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    \18\ See id.
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    The fees are also competitive with offerings by other exchanges, 
which structure and set their fees in a variety of ways. For example, 
NASDAQ professional subscribers pay monthly fees for non-display usage 
based upon direct access to NASDAQ Level 2, NASDAQ TotalView,\19\ or 
NASDAQ OpenView, which range from $300 per month for customers with one 
to 10 subscribers to $75,000 for customers with 250 or more 
subscribers.\20\ NASDAQ also offers an enterprise license for its last 
sale data at $50,000 per month.\21\ In addition, Phlx offers an 
alternative $10,000 per month ``Non-Display Enterprise License'' fee 
that permits distribution to an unlimited number of internal non-
display subscribers without incurring additional fees for each internal 
subscriber.\22\ The Non-Display Enterprise License covers non-display 
subscriber fees for all Phlx proprietary direct data feed products and 
is in addition to any other associated distributor fees for Phlx 
proprietary direct data feed products. NASDAQ OMX BX, Inc. (``BX'') 
also offers an alternative non-display usage fee of $16,000 per month 
for its BX TotalView data feed.\23\ NASDAQ and Phlx also both offer 
managed non-display data solutions at higher overall fees than the 
Exchange proposes to charge.\24\
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    \19\ NASDAQ disseminates its Net Order Imbalance Indicator for 
the NASDAQ Opening and Closing Crosses and NASDAQ IPO/Halt Cross as 
part of the TotalView product.
    \20\ See NASDAQ Rule 7023(b)(4).
    \21\ See NASDAQ Rule 7039(b).
    \22\ Alternatively, Phlx charges each professional subscriber 
$40 per month. See Section IX of the Phlx Pricing Schedule.
    \23\ See NASDAQ OMX BX Rule 7023(a)(2). Alternatively, BX 
charges each professional subscriber $40 per month.
    \24\ See supra note 18.
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    The Exchange also notes that all of the products described herein 
are entirely optional. The Exchange is not required to make these 
proprietary data products available or to offer any specific pricing 
alternatives to any customers, nor is any firm required to purchase any 
of the products. Firms that do purchase non-display products do so for 
the primary goals of using them to increase revenues, reduce expenses, 
and in some instances compete directly with the Exchange for order 
flow; those firms are able to determine for themselves whether any 
specific product such as these are attractively priced or not.
    Firms that do not wish to purchase the data at the new prices have 
a wide variety of alternative market data products from which to 
choose,\25\ or if the non-display data products do not provide 
sufficient value to firms as offered based on the uses those firms have 
or planned to make of them, such firms may simply choose to conduct 
their business operations in ways that do not require those data 
products. The Exchange notes that broker-dealers are not required to 
purchase proprietary market data to comply with their best execution 
obligations.\26\ Similarly, there is no requirement in Regulation NMS 
or any other rule that proprietary data be utilized for order routing 
decisions, and

[[Page 52083]]

some broker-dealers and ATSs have chosen not to do so.\27\
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    \25\ See supra notes 18-24. Because NYSE BBO and NYSE Trades are 
subsets of the consolidated core data offered by the CTA and CQS, 
customers may choose to purchase those consolidated data products or 
free delayed data instead.
    \26\ See In the Matter of the Application of Securities Industry 
And Financial Markets Association For Review of Actions Taken by 
Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-15350; 
AP-3-15351 (May 16, 2014).
    \27\ For example, Goldman Sachs Execution and Clearing, L.P. has 
disclosed that it does not use proprietary market data in connection 
with Sigma X, its ATS. See response to Question E3, available at 
http://www.goldmansachs.com/media-relations/in-the-news/current/pdf-media/gsec-order-handling-practices-ats-specific.pdf. By way of 
comparison, IEX has disclosed that it uses proprietary market data 
feeds from all registered stock exchanges and LavaFlow ECN. See 
http://www.iextrading.com/about/.
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    The decision of the United States Court of Appeals for the District 
of Columbia Circuit in NetCoalition v. SEC, 615 F.3d 525 (D.C. Cir. 
2010), upheld reliance by the Securities and Exchange Commission 
(``Commission'') upon the existence of competitive market mechanisms to 
set reasonable and equitably allocated fees for proprietary market 
data:

    In fact, the legislative history indicates that the Congress 
intended that the market system `evolve through the interplay of 
competitive forces as unnecessary regulatory restrictions are 
removed' and that the SEC wield its regulatory power `in those 
situations where competition may not be sufficient,' such as in the 
creation of a `consolidated transactional reporting system.'

    Id. at 535 (quoting H.R. Rep. No. 94-229 at 92 (1975), as reprinted 
in 1975 U.S.C.C.A.N. 323). The court agreed with the Commission's 
conclusion that ``Congress intended that `competitive forces should 
dictate the services and practices that constitute the U.S. national 
market system for trading equity securities.' '' \28\
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    \28\ NetCoalition, 615 F.3d at 535.
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    As explained below in the Exchange's Statement on Burden on 
Competition, the Exchange believes that there is substantial evidence 
of competition in the marketplace for proprietary market 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. In addition, the existence of 
alternatives to these data products, such as consolidated data and 
proprietary 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 
select such alternatives.
    As the NetCoalition decision noted, the Commission is not required 
to undertake a cost-of-service or ratemaking approach. The Exchange 
believes that, even if it were possible as a matter of economic theory, 
cost-based pricing for non-core market data would be so complicated 
that it could not be done practically or offer any significant 
benefits.\29\
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    \29\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties, including the Commission, to cost-regulate a large 
number of participants and standardize and analyze extraordinary 
amounts of information, accounts, and reports. In addition, and as 
described below, it is impossible to regulate market data prices in 
isolation from prices charged by markets for other services that are 
joint products. Cost-based rate regulation would also lead to 
litigation and may distort incentives, including those to minimize 
costs and to innovate, leading to further waste. Under cost-based 
pricing, the Commission would be burdened with determining a fair 
rate of return, and the industry could experience frequent rate 
increases based on escalating expense levels. Even in industries 
historically subject to utility regulation, cost-based ratemaking 
has been discredited. As such, the Exchange believes that cost-based 
ratemaking would be inappropriate for proprietary market data and 
inconsistent with Congress's direction that the Commission use its 
authority to foster the development of the national market system, 
and that market forces will continue to provide appropriate pricing 
discipline. See Appendix C to NYSE's comments to the Commission's 
2000 Concept Release on the Regulation of Market Information Fees 
and Revenues, which can be found on the Commission's Web site at 
http://www.sec.gov/rules/concept/s72899/buck1.htm.
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    For these reasons, the Exchange believes that the proposed fees are 
reasonable, equitable, and not unfairly discriminatory.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. An exchange's ability to 
price its proprietary market 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 data.
The Existence of Actual Competition.
    The market for proprietary data products is currently competitive 
and inherently contestable because there is fierce competition for the 
inputs necessary for the creation of proprietary data and strict 
pricing discipline for the proprietary products themselves. Numerous 
exchanges compete with one another for listings and order flow and 
sales of market data itself, providing ample opportunities for 
entrepreneurs who wish to compete in any or all of those areas, 
including producing and distributing their own market data. Proprietary 
data products are produced and distributed by each individual exchange, 
as well as other entities, in a vigorously competitive market. Indeed, 
the U.S. Department of Justice (``DOJ'') (the primary antitrust 
regulator) has expressly acknowledged the aggressive actual competition 
among exchanges, including for the sale of proprietary market data. In 
2011, the DOJ stated that exchanges ``compete head to head to offer 
real-time equity data products. These data products include the best 
bid and offer of every exchange and information on each equity trade, 
including the last sale.'' \30\
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    \30\ Press Release, U.S. Department of Justice, Assistant 
Attorney General Christine Varney Holds Conference Call Regarding 
NASDAQ OMX Group Inc. and IntercontinentalExchange Inc. Abandoning 
Their Bid for NYSE Euronext (May 16, 2011), available at http://www.justice.gov/iso/opa/atr/speeches/2011/at-speech-110516.html.
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    Moreover, 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. Broker-dealers send their order 
flow and transaction reports to multiple venues, rather than providing 
them all to a single venue, which in turn reinforces this competitive 
constraint. As a 2010 Commission Concept Release noted, the ``current 
market structure can be described as dispersed and complex'' with 
``trading volume . . . dispersed among many highly automated trading 
centers that compete for order flow in the same stocks'' and ``trading 
centers offer[ing] a wide range of services that are designed to 
attract different types of market participants with varying trading 
needs.'' \31\ More recently, SEC Chair Mary Jo White has noted that 
competition for order flow in exchange-listed equities is ``intense'' 
and divided among many trading venues, including exchanges, more than 
40 alternative trading systems, and more than 250 broker-dealers.\32\
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    \31\ Concept Release on Equity Market Structure, Securities 
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 
2010) (File No. S7-02-10). This Concept Release included data from 
the third quarter of 2009 showing that no market center traded more 
than 20% of the volume of listed stocks, further evidencing the 
dispersal of and competition for trading activity. Id. at 3598. Data 
available on ArcaVision show that from June 30, 2013 to June 30, 
2014, no exchange traded more than 12% of the volume of listed 
stocks by either trade or dollar volume, further evidencing the 
continued dispersal of and fierce competition for trading activity. 
See https://www.arcavision.com/Arcavision/arcalogin.jsp.
    \32\ Mary Jo White, Enhancing Our Equity Market Structure, 
Sandler O'Neill & Partners, L.P. Global Exchange and Brokerage 
Conference (June 5, 2014) (available on the Commission Web site), 
citing Tuttle, Laura, 2014, ``OTC Trading: Description of Non-ATS 
OTC Trading in National Market System Stocks,'' at 7-8.
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    If an exchange succeeds in its competition for quotations, order 
flow, and trade executions, then it earns

[[Page 52084]]

trading revenues and increases the value of its proprietary market data 
products because they will contain greater quote and trade information. 
Conversely, if an exchange is less successful in attracting quotes, 
order flow, and trade executions, then its market data products may be 
less desirable to customers using them in support of order routing and 
trading decisions in light of the diminished content; data products 
offered by competing venues may become correspondingly more attractive. 
Thus, competition for quotations, order flow, and trade executions puts 
significant pressure on an exchange to maintain both execution and data 
fees at reasonable levels.
    In addition, in the case of products that are distributed through 
market data vendors, such as Bloomberg and Thompson Reuters, 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. 
Vendors will not elect to make available the NYSE products described 
herein unless their customers request them, and customers will not 
elect to pay the proposed increased fees for non-display uses unless 
the non-display uses of these data products can provide value by 
sufficiently increasing revenues or reducing costs in the customer's 
business in a manner that will offset the fees. All of these factors 
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, proprietary market data and trade 
executions are a paradigmatic example of joint products with joint 
costs. The decision of 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 availability and quality, 
and price and distribution of their data products. Without a platform 
to post quotations, receive orders, and execute trades, exchange data 
products would not exist.
    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 platform for posting quotes, 
accepting orders, and executing transactions 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 generally view the 
costs of transaction executions and market data as a unified cost of 
doing business with the exchange. A broker-dealer will only choose to 
direct orders to an exchange if the revenue from the transaction 
exceeds its cost, including the cost of any market data that the 
broker-dealer chooses to buy in support of its order routing and 
trading decisions. If the costs of the transaction are not offset by 
its value, then the broker-dealer may choose instead not to purchase 
the product and trade away from that exchange. There is substantial 
evidence of the strong correlation between order flow and market data 
purchases. For example, in May 2014 more than 80% of the transaction 
volume on each of NYSE, NYSE Arca, and NYSE MKT was executed by market 
participants that purchased one or more proprietary market data 
products (the 20 firms were not the same for each market). A super-
competitive increase in the fees for either executions or market data 
would create a risk of reducing an exchange's revenues from both 
products.
    Other market participants have noted that proprietary market data 
and trade executions are joint products of a joint platform and have 
common costs.\33\ 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.\34\
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    \33\ See Securities Exchange Act Release No. 72153 (May 12, 
2014), 79 FR 28575, 28578 n.15 (May 16, 2014) (SR-NASDAQ-2014-045) 
(``[A]ll 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 Securities Exchange Act Release No. 62907 (Sept. 14, 2010), 
75 FR 57314, 57317 (Sept. 20, 2010) (SR-NASDAQ-2010-110), and 
Securities Exchange Act Release No. 62908 (Sept. 14, 2010), 75 FR 
57321, 57324 (Sept. 20, 2010) (SR-NASDAQ-2010-111).
    \34\ See generally Mark Hirschey, Fundamentals of Managerial 
Economics, at 600 (2009) (``It is important to note, however, that 
although it is possible to determine the separate marginal costs of 
goods produced in variable proportions, it is impossible to 
determine their individual average costs. This is because common 
costs are expenses necessary for manufacture of a joint product. 
Common costs of production--raw material and equipment costs, 
management expenses, and other overhead--cannot be allocated to each 
individual by-product on any economically sound basis. . . . Any 
allocation of common costs is wrong and arbitrary.''). This is not 
new economic theory. See, e.g., F. W. Taussig, ``A Contribution to 
the Theory of Railway Rates,'' Quarterly Journal of Economics V(4) 
438, 465 (July 1891) (``Yet, surely, the division is purely 
arbitrary. These items of cost, in fact, are jointly incurred for 
both sorts of traffic; and I cannot share the hope entertained by 
the statistician of the Commission, Professor Henry C. Adams, that 
we shall ever reach a mode of apportionment that will lead to 
trustworthy results.'').
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    Analyzing the cost of market data product production and 
distribution in isolation from the cost of all of the inputs supporting 
the creation of market data and market data products will inevitably 
underestimate the cost of the data and data products because it is 
impossible to obtain the data inputs to create market data products 
without a fast, technologically robust, and well-regulated execution 
system, and system and regulatory costs affect the price of both 
obtaining the market data itself and creating and distributing market 
data products. It would be equally misleading, however, to attribute 
all of an exchange's costs to the market data portion of an exchange's 
joint products. Rather, all of an exchange's costs are incurred for the 
unified purposes of attracting order flow, executing and/or routing 
orders, and generating and selling data about market activity. The 
total return that an exchange earns reflects the revenues it receives 
from the joint products and the total costs of the joint products.
    As noted above, the level of competition and contestability in the 
market is evident in the numerous alternative venues that compete for 
order flow, including 12 equities self-regulatory organization 
(``SRO'') markets, as well as various forms of ATSs, including dark 
pools and electronic communication networks (``ECNs''), and 
internalizing broker-dealers. SRO markets compete to attract order flow 
and produce transaction reports via trade executions, and two FINRA-
regulated Trade Reporting Facilities compete to attract transaction 
reports from the non-SRO venues.\35\
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    \35\ FINRA's Alternative Display Facility also receives over-
the-counter trade reports that it sends to CTA.
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    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 trading platforms may choose from a range 
of possible, and equally reasonable, pricing strategies as

[[Page 52085]]

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. For example, BATS and Direct Edge, which 
previously operated as ATSs and obtained exchange status in 2008 and 
2010, respectively, have provided certain market data at no charge on 
their Web sites in order to attract more order flow, and use revenue 
rebates from resulting additional executions to maintain low execution 
charges for their users.\36\ Similarly, LavaFlow ECN provides market 
data to its subscribers at no charge.\37\ 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.\38\
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    \36\ This is simply a securities market-specific example of the 
well-established principle that in certain circumstances more sales 
at lower margins can be more profitable than fewer sales at higher 
margins; this example is additional evidence that market data is an 
inherent part of a market's joint platform.
    \37\ See ``LavaFlow--ADF Migration,'' available at https://
www.lavatrading.com/news/pdf/
LavaFlowADFMigration.pdf.
    \38\ The Exchange notes that a small number Category 3 non-
display data recipients could be using the market data strictly for 
competitive purposes (e.g., other exchanges and ATSs) or for 
business purposes unrelated to trading or investment (e.g., Internet 
portals that wish to attract ``eyeballs'' to their pages primarily 
generate advertising revenue for themselves). The Exchange does not 
believe that the proposed fees will impose any unnecessary burden on 
these competitors or other businesses.
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Existence of Alternatives
    The large number of SROs, ATSs, and internalizing broker-dealers 
that currently produce proprietary data or are currently capable of 
producing it provides further pricing discipline for proprietary data 
products. Each SRO, ATS, and broker-dealer is currently permitted to 
produce and sell proprietary data products, and many currently do or 
have announced plans to do so, including but not limited to the 
Exchange, NYSE MKT, NYSE Arca, NASDAQ OMX, BATS, and Direct Edge.
    The fact that proprietary data from ATSs, internalizing broker-
dealers, and vendors can bypass SROs is significant in two respects. 
First, non-SROs can compete directly with SROs for the production and 
sale of proprietary data products. By way of example, BATS and NYSE 
Arca both published proprietary data on the Internet before registering 
as exchanges. Second, because a single order or transaction report can 
appear in an SRO proprietary product, a non-SRO proprietary product, or 
both, the amount of data available via proprietary products is greater 
in size than the actual number of orders and transaction reports that 
exist in the marketplace. For example, with respect to NYSE Trades and 
NYSE BBO, the data appears in both the real-time core data offered by 
the SIPs for a fee and free SIP data that is offered on a 15-minute 
time delay. With respect to NYSE Trades, NYSE BBO, NYSE OpenBook, and 
NYSE Order Imbalances, a close substitute product is offered by several 
competitors.\39\ Because market data users can find suitable 
substitutes for most proprietary market data products, a market that 
overprices its market data products stands a high risk that users may 
substitute another source of market data information for its own.
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    \39\ See supra notes 18-24. With respect to order imbalances, 
the Exchange further notes that other venues trade NYSE listed 
securities before the Exchange's opening cross at 9:30 a.m., and 
therefore indicative price information is available through these 
venues.
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    Those competitive pressures imposed by available alternatives are 
evident in the Exchange's proposed pricing. As noted above, the 
proposed non-display fees are generally lower than the maximum non-
display fees charged by other exchanges such as NASDAQ, Phlx, and BX 
for comparable products.\40\
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    \40\ Id.
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    In addition to the competition and price discipline described 
above, the market for proprietary data products is also highly 
contestable because market entry is rapid and inexpensive. The history 
of electronic trading is replete with examples of entrants that swiftly 
grew into some of the largest electronic trading platforms and 
proprietary data producers: Archipelago, Bloomberg Tradebook, Island, 
RediBook, Attain, TrackECN, BATS Trading and Direct Edge. As noted 
above, BATS launched as an ATS in 2006 and became an exchange in 2008, 
while Direct Edge began operations in 2007 and obtained exchange status 
in 2010. As noted above, LavaFlow ECN provides market data to its 
subscribers at no charge.\41\
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    \41\ See supra note 38.
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    In establishing the proposed fees, the Exchange considered the 
competitiveness of the market for proprietary data and all of the 
implications of that competition. The Exchange believes that it has 
considered all relevant factors and has not considered irrelevant 
factors in order to establish fair, reasonable, and not unreasonably 
discriminatory fees and an equitable allocation of fees among all 
users. The existence of numerous alternatives to the Exchange's 
products, including proprietary data from other sources, ensures that 
the Exchange cannot set unreasonable fees, or fees that are 
unreasonably discriminatory, when vendors and subscribers can elect 
these alternatives or choose not to purchase a specific proprietary 
data product if the attendant fees are not justified by the returns 
that any particular vendor or data recipient would achieve through the 
purchase.

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

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

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

    The foregoing rule change is effective upon filing pursuant to 
Section 19(b)(3)(A) \42\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \43\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \42\ 15 U.S.C. 78s(b)(3)(A).
    \43\ 17 CFR 240.19b-4(f)(2).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \44\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \44\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

[[Page 52086]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2014-43 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-NYSE-2014-43. 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 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. 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 publicly available. All 
submissions should refer to File Number SR-NYSE-2014-43 and should be 
submitted on or before September 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority. \45\
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    \45\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-20703 Filed 8-29-14; 8:45 am]
BILLING CODE 8011-01-P


