[Federal Register Volume 82, Number 233 (Wednesday, December 6, 2017)]
[Notices]
[Pages 57627-57632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-26221]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82182; File No. SR-NYSE-2017-60]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend the Fees for NYSE BBO and NYSE Trades To Lower the Enterprise 
Fee, and for NYSE BQT To Lower the Access Fee

November 30, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 57628]]

``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on November 15, 2017, 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.
---------------------------------------------------------------------------

    \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

    The Exchange proposes to amend the fees for NYSE BBO and NYSE 
Trades to lower the Enterprise Fee, and for NYSE BQT to lower the 
Access Fee. The Exchange proposes to make the fee changes effective 
November 15, 2017.\3\ The proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \3\ The Exchange originally filed to amend the Fee Schedule on 
November 3, 2017 (SR-NYSE-2017-59) and withdrew such filing on 
November 15, 2017.
---------------------------------------------------------------------------

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 the fees for NYSE BBO and NYSE 
Trades market data products,\4\ and for NYSE BQT market data 
product,\5\ as set forth on the NYSE Proprietary Market Data Fee 
Schedule (``Fee Schedule''). Specifically, the Exchange proposes to 
lower the Enterprise Fee for NYSE BBO and NYSE Trades, and lower the 
Access Fee for NYSE BQT.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 61914 (Apr. 14, 
2010), 74 FR 21077 (Apr. 22, 2010) (SR-NYSE-2010-30) (notice--NYSE 
BBO); 62181 (May 26, 2010), 75 FR 31488 (June 3, 2010) (SR-NYSE-
2010-30) (approval order--NYSE BBO); 59309 (Jan. 28, 2009), 74 FR 
6073 (Feb. 4, 2009) (SR-NYSE-2009-04) (notice--NYSE Trades); and 
59309 (Mar. 19, 2009), 74 FR 13293 (Mar. 26, 2009) (approval order--
NYSE Trades) (SR-NYSE-2009-04) and 62038 (May 5, 2010), 75 FR 26825 
(May 12, 2010) (SR-NYSE-2010-22).
    \5\ See Securities Exchange Act Release No. 73553 (November 6, 
2014), 79 FR 67491 (November 13, 2014) (SR-NYSE-2014-40) (approval 
order--NYSE BQT). The NYSE BQT data feed consists of certain data 
elements from six market data feeds--NYSE Trades, NYSE BBO, NYSE 
Arca Trades, NYSE Arca BBO, NYSE American Trades, and NYSE American 
BBO.
---------------------------------------------------------------------------

    The Exchange currently charges an enterprise fee of $37,500 per 
month for an unlimited number of professional and non-professional 
users for each of NYSE BBO and NYSE Trades.\6\ A single Enterprise Fee 
applies for clients receiving both NYSE BBO and NYSE Trades.\7\ The 
Exchange proposes to lower the enterprise fee to $25,000 per month.
---------------------------------------------------------------------------

    \6\ See Securities Exchange Act Release No. 79313 (November 15, 
2016), 81 FR 83297 (November 21, 2016) (SR-NYSE-2016-74).
    \7\ See Securities Exchange Act Release No. 70211 (August 15, 
2013), 78 FR 51781 (August 21, 2013) (SR-NYSE-2013-58).
---------------------------------------------------------------------------

    As an example, under the current fee structure for per user fees, 
if a firm had 10,000 professional users who each received NYSE Trades 
at $4 per month and NYSE BBO at $4 per month, without the Enterprise 
Fee, the firm would pay $80,000 per month in professional user fees. 
Under the current pricing structure, this firm would pay a capped fee 
of $37,500 and effective November 3, [sic] 2017 it would pay a capped 
fee of $25,000.
    Under the proposed reduced enterprise fee, the firm would pay a 
flat fee of $25,000 for an unlimited number of professional and non-
professional users for both products. As is the case currently, a data 
recipient that pays the enterprise fee would not have to report the 
number of such users on a monthly basis.\8\ However, upon request, a 
data recipient must provide the Exchange with a count of the total 
number of natural person users of each product, including both 
professional and non-professional users.
---------------------------------------------------------------------------

    \8\ Professional users currently are subject to a per display 
device count. See Securities Act Release No. 73985 (January 5, 
2015), 80 FR 1456 (January 9, 2015) (SR-NYSE-2014-75).
---------------------------------------------------------------------------

    The NYSE BQT data feed provides best bid and offer and last sale 
information for the Exchange and its affiliates, NYSE Arca, Inc. 
(``NYSE Arca'') and NYSE American LLC (``NYSE American'').\9\ The 
Exchange currently charges an access fee of $1,000 per month, provided 
that the market data recipient separately subscribes to and pays for 
the six existing market data products underlying the NYSE BQT data 
feed, consistent with the existing fee structures for those market data 
products. The Exchange proposes to lower the access fee to $250 per 
month.
---------------------------------------------------------------------------

    \9\ See supra, note 6.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of Section 6 of the Act,\10\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\11\ 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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f(b).
    \11\ 15 U.S.C. 78f(b)(4), (5).
---------------------------------------------------------------------------

    The proposed fee change to lower the Enterprise Fee is equitable 
and not unfairly discriminatory because it would apply to all data 
recipients that choose to subscribe to NYSE BBO and NYSE Trades.
    The proposed reduced enterprise fees for NYSE BBO and NYSE Trades 
are reasonable because they will result in a fee reduction for data 
recipients with a sufficiently large number of professional and 
nonprofessional users, as described in the example above. If a data 
recipient has a smaller number of professional users of NYSE BBO and/or 
NYSE Trades, then it may continue to use the per user fee structure and 
the fees it pays will not change. By reducing prices for data recipient 
with a large number of professional and non-professional users, the 
Exchange believes that more data recipients may choose to offer NYSE 
BBO and NYSE Trades, thereby expanding the distribution of this market 
data for the benefit of investors. The Exchange also believes that 
offering a reduced enterprise fee expands the range of options for 
offering NYSE BBO and NYSE Trades and allows data recipients greater 
choice in selecting the most appropriate level of data and fees for the 
professional and non-professional users they are servicing.
    The Exchange also believes the proposed fee change to lower the 
Access Fee is equitable and not unfairly discriminatory because all 
market data recipients that would subscribe to NYSE BQT would be 
charged the same access fee. The Exchange believes that the proposed 
access fee for NYSE BQT is reasonable because, while the proposed fee 
is lower than the current fee, it continues to represent the value for 
the data aggregation and consolidation function that the Exchange 
performs. The Exchange further believes that the

[[Page 57629]]

proposed monthly access fee for NYSE BQT would be pro-competitive 
because another market data recipient could perform a similar 
aggregating and consolidating function and similarly charge for such 
service. The Exchange notes that a competing vendor seeking to 
distribute a competing product might engage in a different analysis of 
assessing the cost of a competing product, which may incorporate 
passing through the fees associated with co-location at the Mahwah, New 
Jersey data center. However, the incremental co-location costs to a 
particular vendor may be inconsequential if such vendor is already co-
located and is able to allocate its co-location costs over numerous 
product and customer relationships. The Exchange therefore believes 
that a competing vendor could create and offer a product similar to 
NYSE BQT on a cost-competitive basis.
    The Exchange notes that NYSE BBO, NYSE Trades and NYSE BQT are 
entirely optional. The Exchange is not required to make NYSE BBO, NYSE 
Trades and NYSE BQT available or to offer any specific pricing 
alternatives to any customers, nor is any firm required to purchase 
NYSE BBO, NYSE Trades and NYSE BQT. Firms that do purchase NYSE BBO, 
NYSE Trades and NYSE BQT do so for the primary goals of using them to 
increase revenues, reduce expenses, and in some instances compete 
directly with the Exchange (including for order flow); those firms are 
able to determine for themselves whether NYSE BBO, NYSE Trades and NYSE 
BQT or any other similar products are attractively priced or not.\12\
---------------------------------------------------------------------------

    \12\ See, e.g., Proposing Release on Regulation of NMS Stock 
Alternative Trading Systems, Securities Exchange Act Release No. 
76474 (Nov. 18, 2015) (File No. S7-23-15). See also, ``Brokers 
Warned Not to Steer Clients' Stock Trades Into Slow Lane,'' 
Bloomberg Business, December 14, 2015 (Sigma X dark pool to use 
direct exchange feeds as the primary source of price data).
---------------------------------------------------------------------------

    Firms that do not wish to purchase NYSE BBO, NYSE Trades and NYSE 
BQT have a variety of alternative market data products from which to 
choose,\13\ or if NYSE BBO, NYSE Trades and NYSE BQT do not provide 
sufficient value to firms as offered based on the uses those firms have 
or planned to make of it, such firms may simply choose to conduct their 
business operations in ways that do not use NYSE BBO, NYSE Trades and 
NYSE BQT or use them at different levels or in different 
configurations. The Exchange notes that broker-dealers are not required 
to purchase proprietary market data to comply with their best execution 
obligations.\14\
---------------------------------------------------------------------------

    \13\ See Nasdaq Rule 7047 (Nasdaq Basic) and Rule 7039 (Nasdaq 
Last Sale). See also BZX Equities Rule 11.22 (Top and Last Sale).
    \14\ See FINRA Regulatory Notice 15-46, ``Best Execution,'' 
November 2015.
---------------------------------------------------------------------------

    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.' '' \15\
---------------------------------------------------------------------------

    \15\ NetCoalition, 615 F.3d at 535.
---------------------------------------------------------------------------

    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 
reduced 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 proprietary market data would be so complicated 
that it could not be done practically or offer any significant 
benefits.\16\
---------------------------------------------------------------------------

    \16\ The Exchange believes that cost-based pricing would be 
impractical because it would create enormous administrative burdens 
for all parties and 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.
---------------------------------------------------------------------------

    In addition, the Exchange believes that the proposed fees are 
reasonable when compared to fees for comparable products offered by at 
least one other exchange. For example, Cboe BZX Exchange (``BZX'') 
charges an enterprise fee of $15,000 per month for each of BZX Top and 
BZX Last Sale, which includes best bid and offer and last sale data, 
respectively.\17\ While the Exchange is proposing reduced enterprise 
fees that would still be higher than the fees currently charged by BZX, 
the Exchange believes the proposed fees, which would be lower than 
current fees but closer to those charged by BZX, are appropriate and 
would be beneficial to firms with a large number of users. Further, BZX 
charges a data consolidation fee of $1,000 per month for the Cboe 
Equities One market data feed, which provides aggregated quote and 
trade updates for all four Bats equity exchanges.\18\
---------------------------------------------------------------------------

    \17\ See Market Data Fees at https://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
    \18\ See Cboe Equities One Feed at https://markets.cboe.com/us/equities/market_data_products/bats_one/.
---------------------------------------------------------------------------

    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

[[Page 57630]]

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.'' \19\
---------------------------------------------------------------------------

    \19\ 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; see 
also Complaint in U.S. v. Deutsche Borse AG and NYSE Euronext, Case 
No. 11-cv-2280 (D.C. Dist.) ] 24 (``NYSE and Direct Edge compete 
head-to-head . . . in the provision of real-time proprietary equity 
data products.'').
---------------------------------------------------------------------------

    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.'' \20\ More recently, former 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.\21\
---------------------------------------------------------------------------

    \20\ 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.
    \21\ 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.
---------------------------------------------------------------------------

    If an exchange succeeds in competing for quotations, order flow, 
and trade executions, then it earns 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 in light of 
the diminished content and data products offered by competing venues 
may become 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 also redistributed 
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 NYSE BBO, NYSE Trades 
or NYSE BQT unless their customers request it, and customers will not 
elect to pay the proposed fees unless NYSE BBO, NYSE Trades and NYSE 
BQT 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.\22\ 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 data products. Without a 
platform to post quotations, receive orders, and execute trades, 
exchange data products would not exist.
---------------------------------------------------------------------------

    \22\ See generally Pricing of Market Data Services, An Economic 
Analysis at vi (``Given the general structure of electronic order 
books and electronic order matching, it is not possible to provide 
transaction services without generating market data, and it is not 
possible to generate trade transaction--or market depth--data 
without also supplying a trade execution service. In economic terms, 
trade execution and market data are joint products.'') (Oxera 2014).
---------------------------------------------------------------------------

    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.
    Other market participants have noted that proprietary market data 
and trade executions are joint products of a joint platform and have 
common costs.\23\ The

[[Page 57631]]

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.\24\
---------------------------------------------------------------------------

    \23\ 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).
    \24\ 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.'').
---------------------------------------------------------------------------

    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 alternative trading 
systems (``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.
    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 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, BZX, Cboe BYX Exchange, Inc., (``BYX'') Cboe 
EDGA Exchange, Inc. (``EDGA'') and Cboe EDGX Exchange, Inc. (``EDGX''), 
which previously operated as ATSs and obtained exchange status in 2008 
and 2010, respectively, provided certain market data at no charge on 
their Web sites in order to attract more order flow, and used revenue 
rebates from resulting additional executions to maintain low execution 
charges for their users.\25\ 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.
---------------------------------------------------------------------------

    \25\ 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.
---------------------------------------------------------------------------

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, 
including but not limited to the Exchange, NYSE Arca, NYSE American, 
NASDAQ, BZX, BYX, EDGA, and EDGX.
    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, BZX 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. Indeed, in the case of NYSE BBO, NYSE Trades 
and NYSE BQT, the data provided through these products appears both in 
(i) real-time core data products offered by the Securities Information 
Processors (SIPs) for a fee, and (ii) free SIP data products with a 15-
minute time delay, and finds a close substitute in similar products of 
competing venues.\26\ 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.
---------------------------------------------------------------------------

    \26\ See supra note 14.
---------------------------------------------------------------------------

    Those competitive pressures imposed by available alternatives are 
evident in the Exchange's proposed pricing.
    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, BZX, BYX, EDGA, and EDGX. A proliferation 
of dark pools and other ATSs operate profitably with fragmentary share 
of consolidated market volume.
    In determining the proposed changes to the fees for the NYSE BBO, 
NYSE Trades and NYSE BQT, 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

[[Page 57632]]

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) \27\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \28\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 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) \29\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \29\ 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:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSE-2017-60 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-2017-60. 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. Persons submitting 
comments are cautioned that we do not redact or edit personal 
identifying information from comment submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2017-60 and should be 
submitted on or before December 27, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

    \30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-26221 Filed 12-5-17; 8:45 am]
BILLING CODE 8011-01-P


