
[Federal Register Volume 80, Number 228 (Friday, November 27, 2015)]
[Notices]
[Pages 74179-74181]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-30089]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76500; File No. SR-ISEGemini-2015-26]


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

November 20, 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 November 6, 2015, ISE Gemini, LLC (the ``Exchange'' or ``ISE 
Gemini'') filed with the Securities and Exchange Commission 
(``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\ 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

    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 currently offers three real-time market data feed 
offerings.\3\ In order to encourage subscriptions to multiple market 
data feeds, ISE Gemini adopted a multi-product subscription discount, 
which offers a ten percent (10%) discount for customers who subscribe 
to two data feeds.\4\ The Exchange now proposes to remove this multi-
product subscription discount from its Schedule of Fees.
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    \3\ The market data feeds are: the ISE Gemini Order Feed, the 
ISE Gemini Top Quote Feed, and the ISE Gemini Real-Time Depth of 
Market Raw Data Feed.
    \4\ See Securities Exchange Act Release No. 34-71614 (February 
25, 2014), 79 FR 11840 (March 3, 2014) (SR-ISE Gemini-2014-10).
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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,\5\ in general, and Section 
6(b)(4) of the Act,\6\ in particular, in that it is designed to provide 
for the equitable allocation of reasonable dues, fees, and other 
charges among its members and other persons using its facilities.
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    \5\ 15 U.S.C. 78f.
    \6\ 15 U.S.C. 78f(b)(4).
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    In particular, the Exchange believes the removal of the 
subscription discount is reasonable and equitable because the discount 
is no longer necessary to encourage subscriptions to multiple data 
feeds. Further, the Exchange believes that the proposed removal of the 
discount is not unfairly discriminatory because it applies to all 
similarly situated market participations who subscribe to the feeds.

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

    In accordance with Section 6(b)(8) of the Act,\7\ 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. The removal of 
the multi-product, market data

[[Page 74180]]

discount reflects the intense competition among exchanges and the cost 
of producing market data as further described below.
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    \7\ 15 U.S.C. 78f(b)(8).
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    Notwithstanding its determination that the Commission may rely upon 
competition to establish fair and equitably allocated fees for market 
data, the NetCoaltion [sic] 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.
    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 exchanges 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 exchange to post an order will depend on the 
attributes of the exchange 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 exchange, 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 an 
exchange 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 
decreases, 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'.'' \8\ 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.
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    \8\ NetCoalition, at 24.
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    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 exchange earns reflects the 
revenues it receives from the joint products and the total costs of the 
joint products.
    Competition among exchanges can be expected to constrain the 
aggregate return each exchange earns from the sale of its joint 
products, but different exchanges may choose from a range of possible, 
and equally reasonable, pricing strategies as the means of recovering 
total costs. For example, some exchanges 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 exchanges 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.
    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.

[[Page 74181]]

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,\9\ and subparagraph (f)(2) of Rule 19b-4 
thereunder,\10\ because it establishes a due, fee, or other charge 
imposed by ISE Gemini.
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    \9\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \10\ 17 CFR 240.19b-4(f)(2).
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    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 Number SR-ISEGemini-2015-26 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISEGemini-2015-26. 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 available publicly. All 
submissions should refer to File Number SR-ISEGemini-2015-26, and 
should be submitted on or before December 18, 2015.
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    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-30089 Filed 11-25-15; 8:45 am]
 BILLING CODE 8011-01-P


