
[Federal Register Volume 80, Number 204 (Thursday, October 22, 2015)]
[Notices]
[Pages 64033-64037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26805]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76172; File No. SR-ISE Gemini-2015-20]


Self-Regulatory Organizations; ISE Gemini, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees

October 16, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 1, 2015, ISE Gemini, LLC (the ``Exchange'' or ``ISE 
Gemini'') filed with the Securities and Exchange 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE Gemini proposes to amend the Schedule of Fees as described in 
more detail below. The text of the proposed rule change is available on 
the Exchange's Internet Web site at http://www.ise.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

    In its filing with the Commission, the Exchange 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 amend its Schedule of Fees to increase the 
fees charged to subscribers of the ISE Gemini Order Feed. The Order 
Feed provides real-time updates to subscribers every time a new limit 
order that is not immediately executable at the BBO is placed on the 
ISE Gemini order book. The Order Feed also announces the commencement 
of auctions including Flash, Facilitation, Solicitation, Block Order 
and Price Improvement Mechanisms, as well as Directed Orders, but does 
not include Immediate or Cancel (``IOC'') or Fill or Kill (``FOK'') 
orders, quotes, or any non-displayed interest. The information included 
on the Order Feed includes auction type, order side (i.e., buy/sell), 
order price, order size, and a market participant (e.g., priority 
customer) indicator, as well as details for each instrument series, 
including the symbols (series and underlying security), put or call 
indicator, the expiration date, and the strike price of the series. The 
Order Feed provides each individual limit order, not including quote 
traffic, resulting in lower bandwidth usage and less data for 
subscribers to process.
    Currently, the Exchange charges distributors $500 per month for 
subscriptions to the Order Feed and will not charge distributors a 
monthly fee

[[Page 64034]]

per controlled device as long the feed is for internal use only.\3\ For 
subscribers that redistribute the Order Feed externally, or 
redistribute the Order Feed internally and externally, the Exchange 
charges each distributor an additional fee of $5 per month per 
controlled device with a combined maximum fee capped at $625 per month.
---------------------------------------------------------------------------

    \3\ A distributor is any firm that receives one of the market 
data feeds directly from ISE Gemini or indirectly through a 
redistributor and then distributes it either internally or 
externally. A redistributor includes market data vendors and 
connectivity providers such as extranets and private network 
providers.
---------------------------------------------------------------------------

    The Exchange now propose to increase the fee charged to 
distributors to $750 per month. The Exchange will not charge 
distributors a monthly fee per controlled device as long the feed is 
for internal use only. For subscribers that redistribute the Order Feed 
externally, or redistribute the Order Feed internally and externally, 
the Exchange is not changing distributor fee per controlled device,\4\ 
however the Exchange proposes to increase the combined maximum fee cap 
to $1,000 per month. For example, a firm that subscribes to the Order 
Feed and then redistributes it via a controlled device to 50 clients 
pays $1,000 per month ($750 for the feed and $250 for the controlled 
devices ($5 x 50)). If that same firm redistributes the data via a 
controlled device to 150 clients, the fee for that firm is capped at 
$1,000 per month, resulting in a savings of $500.
---------------------------------------------------------------------------

    \4\ The controlled device fee is currently $5 per device.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\5\ in general, and furthers the objectives of Section 
6(b)(4) of the Act,\6\ in particular, in that it provides for an 
equitable allocation of reasonable fees and other charges among 
Exchange members and other persons using its facilities.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is also 
consistent with Section 6(b)(8) of the Act,\7\ in that it does not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed fees are the same 
for all similarly-situated market participants, and therefore do not 
unreasonably discriminate among market participants. Moreover, the 
Exchange notes that the proposed fees are lower than fees currently 
charged by ISE Gemini's sister exchange, the International Securities 
Exchange, LLC (``ISE''), which offers its own market data feeds that 
provide comparable information to that provided by the ISE Gemini order 
feeds.\8\
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(b)(8).
    \8\ See ISE Schedule of Fees, Section VIII, Market Data.
---------------------------------------------------------------------------

    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.
    The Commission concluded that Regulation NMS--by deregulating 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.\9\

    \9\ See Securities Exchange Act Release No. 51808 (June 9, 
2005), 70 FR 37496 (June 29, 2005).

    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.
    On July 21, 2010, President Barak 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 
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 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), although reviewing a Commission decision made prior to the 
effective date of the Dodd-Frank Act, upheld the Commission's reliance 
upon competitive markets to set reasonable and equitably allocated fees 
for 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.' '' \10\
---------------------------------------------------------------------------

    \10\ NetCoalition, at 535 (quoting H.R. Rep. No. 94-229, at 92 
(1975), as reprinted in 1975 U.S.C.C.A.N. 321, 323).
---------------------------------------------------------------------------

    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.
    The Exchange believes that the proposed fees for the ISE Gemini 
market data offering is consistent with the requirements of the Act 
because competition provides an effective constraint on the market data 
fees that the Exchange has the ability and the incentive to charge. ISE 
Gemini has a compelling need to attract order flow from market 
participants in order to

[[Page 64035]]

maintain its share of trading volume. This compelling need to attract 
order flow imposes significant pressure on the Exchange to act 
reasonably in setting the fees for its market data offerings, 
particularly given that the market participants that will pay such fees 
often will be the same market participants from whom the Exchange must 
attract order flow. These market participants include broker-dealers 
that control the handling of a large volume of customer and proprietary 
order flow. Given the portability of order flow from one exchange to 
another, any exchange that sought to charge unreasonably high market 
data fees would risk alienating many of the same customers on whose 
orders it depends for competitive survival. ISE Gemini currently 
competes with 11 other options exchanges for order flow.
    The Exchange is constrained in pricing its market data offerings by 
the availability to market participants of alternatives to purchasing 
these products. The Exchange must consider the extent to which market 
participants would choose one or more alternatives instead of 
purchasing the Exchange's data.
    For the reasons cited above, the Exchange believes that the 
proposed fees for the ISE Gemini data feed are equitable, fair, 
reasonable and not unreasonably discriminatory. The Exchange further 
believes that the continued availability of each of the ISE Gemini data 
feeds enhances transparency, fosters competition among orders and 
markets, and enables buyers and sellers to obtain better prices. In 
addition, the Exchange believes that no substantial countervailing 
basis exists to support a finding that the proposed terms and fees for 
these products fail to meet the requirements of the Act.

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

    In accordance with Section 6(b)(8) of the Act,\11\ the Exchange 
does not believe that the proposed rule change will impose any burden 
on intermarket or intramarket competition that is not necessary or 
appropriate in furtherance of the purposes of the Act. Notwithstanding 
its determination that the Commission may rely upon competition to 
establish fair and equitably allocated fees for market data, the 
NetCoaltion court found that the Commission had not, in that case, 
compiled a record that adequately supported its conclusion that the 
market for the data at issue in the case was competitive. The Exchange 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

    For the reasons discussed above, the Exchange believes that the 
Dodd-Frank Act amendments to Section 19 materially alter the scope of 
the Commission's review of future market data filings, by creating a 
presumption that all fees may take effect immediately, without prior 
analysis by the Commission of the competitive environment. Even in the 
absence of this important statutory change, however, the Exchange 
believes that a record may readily be established to demonstrate the 
competitive nature of the market in question.
    There is intense competition between trading platforms that provide 
transaction execution and routing services and proprietary data 
products. 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 execution 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 platform where the order can be posted, including the 
execution fees, data quality and price and distribution of its data 
products. Without the prospect of a taking order seeing and reacting to 
a posted order on a particular platform, the posting of the order would 
accomplish little. Without trade executions, exchange data products 
cannot exist. Data products are valuable to many end users only insofar 
as they provide information that end users expect will assist them or 
their customers in making trading decisions.
    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 
customers view the costs of transaction executions and of data as a 
unified cost of doing business with the exchange. A broker-dealer will 
direct orders to a particular exchange only if the expected revenues 
from executing trades on the exchange exceed net transaction execution 
costs and the cost of data that the broker-dealer chooses to buy to 
support its trading decisions (or those of its customers). The choice 
of data products is, in turn, a product of the value of the products in 
making profitable trading decisions. If the cost of the product exceeds 
its expected value, the broker-dealer will choose not to buy it.
    Moreover, as a broker-dealer chooses to direct fewer orders to a 
particular exchange, the value of the product to that broker-dealer 
decrease, for two reasons. First, the product will contain less 
information, because executions of the broker-dealer's orders will not 
be reflected in it. Second, and perhaps more important, the product 
will be less valuable to that broker-dealer because it does not provide 
information about the venue to which it is directing its orders. Data 
from the competing venue to which the broker-dealer is directing orders 
will become correspondingly more valuable. Thus, a super-competitive 
increase in the fees charged for either transactions or data has the 
potential to impair revenues from both products. ``No one disputes that 
competition for order flow is `fierce'.'' \12\ However, the existence 
of fierce competition for order flow implies a high degree of price 
sensitivity on the part of broker-dealers with order flow, since they 
may readily reduce costs by directing orders toward the lowest-cost 
trading venues. A broker-dealer that shifted its order flow from one 
platform to another in response to order execution price differentials 
would both reduce the value of that platform's market data and reduce 
its own need to consume data from the disfavored platform. Similarly, 
if a platform increases its market data fees, the change will affect 
the overall cost of doing business with the platform, and affected 
broker-dealers will assess whether they can lower their trading costs 
by directing orders elsewhere and thereby lessening the need for the 
more expensive data.
---------------------------------------------------------------------------

    \12\ NetCoalition, at 24.
---------------------------------------------------------------------------

    Analyzing the cost of market data distribution in isolation from 
the cost of all of the inputs supporting the creation of market data 
will inevitably underestimate the cost of the data. Thus, because it is 
impossible to create data without a fast, technologically robust, and 
well-regulated execution system, system costs and regulatory costs 
affect the price of market data. It would be equally misleading, 
however, to attribute all of the exchange's costs to the market data 
portion of an exchange's joint product. Rather, 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

[[Page 64036]]

exchange earns reflects the revenues it receives from the joint 
products and the total costs of the joint products.
    Competition among trading platforms can be expected to constrain 
the aggregate return 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 platform may choose to pay rebates to 
attract orders, charge relatively low prices for market information (or 
provide information 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 information, 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.
    The market for market data products is 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, trades, and market data itself, 
providing virtually limitless opportunities for entrepreneurs who wish 
to produce and distribute their own market data. This proprietary data 
is produced by each individual exchange, as well as other entities, in 
a vigorously competitive market.
    Broker-dealers currently have numerous alternative venues for their 
order flow, including numerous 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''). 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.
    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. Market 
data vendors provide another form of price discipline for proprietary 
data products because they control the primary means of access to end 
users. Vendors impose price restraints based upon their business 
models. For example, vendors such as Bloomberg and Reuters that assess 
a surcharge on data they sell may refuse to offer proprietary products 
that end users will not purchase in sufficient numbers. Internet 
portals, such as Google, impose a discipline by providing only data 
that will enable them to attract ``eyeballs'' that contribute to their 
advertising revenue. 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.

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. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act,\13\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\14\ because it establishes a due, fee, or other charge 
imposed by ISE Gemini.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \14\ 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 to 
determine whether the proposed rule should be approved or 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 No. SR-ISE Gemini-2015-20 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-ISE Gemini-2015-20. 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

[[Page 64037]]

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 available publicly. All submissions should refer to 
File Number SR-ISE Gemini-2015-20 and should be submitted by November 
12, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-26805 Filed 10-21-15; 8:45 am]
BILLING CODE 8011-01-P


