[Federal Register Volume 82, Number 245 (Friday, December 22, 2017)]
[Notices]
[Pages 60784-60787]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27562]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82344; File No. SR-NYSEARCA-2017-142]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Adopt a 
Decommission Extension Fee for Receipt of the NYSE Arca Integrated Feed 
Market Data Product

December 18, 2017.
    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 December 12, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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 adopt a Decommission Extension Fee for 
receipt of the NYSE Arca Integrated Feed market data product. The 
proposed rule change is available on the Exchange's website at 
www.nyse.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 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to adopt a Decommission Extension Fee for 
receipt of the NYSE Arca Integrated Feed market data product,\4\ as set 
forth on the NYSE Arca Equities Proprietary Market Data Fee Schedule 
(``Fee Schedule'').\5\ Recipients of NYSE Arca Integrated Feed would 
continue to be subject to the already existing subscription fees 
currently set forth in the Fee Schedule. The proposed Decommission 
Extension Fee would apply only to subscribers who choose to continue to 
receive the NYSE Arca Integrated Feed in its legacy format for up to 
two months after the previously-announced date for the end of 
distribution in the legacy format, after which the feed will be 
distributed exclusively in the new format as notified to customers 
previously and further explained below. The Exchange has provided 
customers with adequate notice that it intends to discontinue 
dissemination of the data feed in the legacy format, having first 
announced this to customers in June 2017.\6\
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    \4\ See Securities Exchange Act Release No. 65669 (November 2, 
2011), 76 FR 69311 (November 8, 2011) (SR-NYSEArca-2011-78) (notice 
of filing and immediate effectiveness of proposed rule change 
offering the NYSE Arca Integrated Feed). See also Securities 
Exchange Act Release Nos. 66128 (January 10, 2012), 77 FR 2331 
(January 17, 2012) (SR-NYSEArca-2011-96) (establishing fees for NYSE 
Arca Integrated Feed); 69315 (April 5, 2013), 78 FR 21668 (April 11, 
2013) (SR-NYSEArca-2013-37) (establishing non-display usage fees); 
73011 (September 5, 2014), 79 FR 54315 (September 11, 2014) (SR-
NYSEArca-2014-93) (amending non-display usage fees); 76914 (January 
14, 2016), 81 FR 3484 (January 21, 2016) (SR-NYSEArca-2016-03) 
(amending fees for NYSE Arca Integrated Feed); and 82100 (November 
16, 2017), 82 FR 55660 (November 22, 2017) (SR-NYSEArca-2017-130) 
(amending fees for NYSE Arca Integrated Feed).
    \5\ The Exchange originally filed to amend the Fee Schedule on 
November 29, 2017 (SR-NYSEArca-2017-136) and withdrew such filing on 
December 12, 2017.
    \6\ See Trader Update at https://www.nyse.com/trader-update/history#110000065786. See also https://www.nyse.com/trader-update/history#110000078705.
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    As part of the Exchange's efforts to regularly upgrade systems to 
support more modern data distribution formats and protocols as 
technology evolves, beginning August 21, 2017, NYSE Arca Integrated 
Feed began transmitting in a new format, Exchange Data Protocol (XDP). 
Since August 21, 2017, the Exchange has been transmitting NYSE Arca 
Integrated Feed in both the legacy format and in XDP format without any 
additional fee being charged for providing this data feed in both 
formats. The dual dissemination remained in place until November 30, 
2017, the planned decommission date of the legacy format.
    The purpose of the proposed Decommission Extension Fee is to 
provide customers an incentive to fully transition to the XDP format so 
the Exchange does not have to continue to support both the legacy 
format and the XDP format and incur, for example, the costs involved in 
maintaining additional servers and monitoring multiple distribution 
channels and testing environments not needed by the XDP format. 
Therefore, beginning December 1, 2017, recipients of NYSE Arca 
Integrated Feed who wish to continue to receive NYSE Arca Integrated 
Feed in the legacy format will be subject to the proposed Decommission 
Extension Fee of $5,000 per month.\7\ During the

[[Page 60785]]

extension period, recipients of NYSE Arca Integrated Feed would 
continue to be subject to the subscription fees currently noted in the 
Fee Schedule. The extension period for receiving this data feed in the 
legacy format will expire on January 30, 2018, on which date 
distribution of NYSE Arca Integrated Feed in the legacy format will be 
permanently discontinued as previously announced to customers.
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    \7\ The concept of a Decommission Extension Fee is not novel. 
The Exchange's affiliates, NYSE and NYSE American, have both 
previously adopted a Decommission Extension Fee for receipt of 
multiple market data products when those products migrated to the 
XDP format. See Securities Exchange Act Release Nos. 79286 (November 
10, 2016), 81 FR 81186 (November 17, 2016) (SR-NYSE-2016-73); 79287 
(November 10, 2016), 81 FR 81216 (November 17, 2016) (SR-NYSEMKT-
2016-100); 77388 (March 17, 2016), 81 FR 15363 (March 22, 2016) (SR-
NYSE-2016-21); and 77389 (March 17, 2016), 81 FR 15375 [sic] (March 
22, 2016) (SR-NYSEMKT-2016-37).
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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,\8\ in general, and 
Sections 6(b)(4) and 6(b)(5) of the Act,\9\ 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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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(4), (5).
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    The Exchange believes that adopting an extension fee for 
subscribers of NYSE Arca Integrated Feed who wish to receive this data 
feed in the legacy format for a period of time beyond the built-in 
overlap period is reasonable, equitable and not unfairly discriminatory 
because the proposed fee would apply equally to all data recipients 
that subscribe to NYSE Arca Integrated Feed. The Exchange believes that 
it is reasonable to require data recipients to pay the proposed 
Decommission Extension fee during the extension period for taking the 
data feed in the legacy format beyond the period of time specifically 
allotted by the Exchange for data feed customers to adapt to the new 
XDP format at no extra cost. To that end, the extension fee is designed 
to encourage data recipients to migrate to the XDP format in order to 
continue to receive NYSE Arca Integrated in XDP as the legacy format 
would no longer be available after close of trading on January 30, 
2018. The Exchange does not intend to support the legacy format at all 
after January 30, 2018.
    The Exchange notes that NYSE Arca Integrated Feed is entirely 
optional. Firms are not required to purchase NYSE Arca Integrated Feed, 
nor is the Exchange required to offer any feed (NYSE Arca Integrated 
Feed, or otherwise) in a particular format, and it is a benefit to the 
markets generally that NYSE Arca update its distribution technology to 
make it more efficient (and at the same time eliminate less efficient 
forms of dissemination). Firms that do purchase NYSE Arca Integrated 
Feed 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 Arca Integrated Feed or any other similar 
products are attractively priced or not.\10\
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    \10\ 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).
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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 (DC 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.' '' \11\
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    \11\ 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 the legacy format, such as converting to XDP as soon as 
possible, 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.\12\
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    \12\ 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, 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 website at http://www.sec.gov/rules/concept/s72899/buck1.htm. Finally, the prices set 
herein are prices for continuing to support distribution formats the 
Exchange has elected to retire in favor of new and more efficient 
distribution formats, making cost-based analyses even less relevant.
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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,\13\ and the existence 
of alternatives to the Exchange's proprietary data (and in this 
instance, the ability of any firm to switch to the new distribution 
format in a time frame

[[Page 60786]]

that eliminates the need to pay these fees entirely).
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    \13\ 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).
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    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.'' \14\
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    \14\ 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 (DC Dist.) ] 24 (``NYSE and Direct Edge compete head-
to-head . . . in the provision of real-time proprietary equity data 
products.'').
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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.'' \15\ 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.\16\ And as the Commission's own Chief Administrative Law Judge 
found after considering extensive fact and expert testimony and 
documentary evidence on the subject, ``there is fierce competition for 
trading services (or `order flow')'' among exchanges, and ``the record 
evidence shows that competition plays a significant role in restraining 
exchange pricing of depth-of-book products.'' In the Matter of the 
Application of Securities Industry And Financial Markets Association 
For Review of Actions Taken By Self-Regulatory Organizations, Initial 
Decision Release No. 1015, Administrative Proceeding File No. 3-15350 
(June 1, 2016), at pp. 8 and 33.
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    \15\ 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. 
According to NYSE Internal Database and Consolidated Tape 
Statistics, in aggregate, from January 1, 2016 to October 31, 2017, 
no exchange traded more than 14% of the volume of listed stocks by 
either trade or dollar volume, further evidencing the continued 
dispersal of and fierce competition for trading activity.
    \16\ 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 website), 
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 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 Arca Integrated 
Feed in the legacy format unless their customers request it, and 
customers will not elect to pay the proposed fees unless NYSE Arca 
Integrated Feed in the legacy format can provide value by sufficiently 
increasing revenues or reducing costs in the customer's business in a 
manner that will offset the fees. And as noted above, the Exchange has 
provided customers with adequate notice that it intends to discontinue 
dissemination of the data feed in the legacy format.\17\ Therefore, the 
proposed Decommission Extension Fee would only be applicable to those 
customers who have a need or desire to continue to take the data feed 
in the legacy format beyond the period provided for migration to the 
XDP format. Customers who timely migrate to the XDP format to receive 
the data feed would not need to receive the data feed in the legacy 
format and therefore would not be subject to the Decommission Extension 
Fee at all. All of these factors operate as constraints on pricing 
proprietary data products.
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    \17\ See supra note 6.
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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) \18\ of the Act and subparagraph (f)(2) of Rule 
19b-4 \19\ thereunder, because it establishes a due, fee, or other 
charge imposed by the Exchange.
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 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 under 
Section 19(b)(2)(B) \20\ of the Act to

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determine whether the proposed rule change should be approved or 
disapproved.
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    \20\ 15 U.S.C. 78s(b)(2)(B).
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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-NYSEARCA-2017-142 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-NYSEARCA-2017-142. 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 website (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 website 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-NYSEARCA-2017-142 and should be 
submitted on or before January 12, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27562 Filed 12-21-17; 8:45 am]
 BILLING CODE 8011-01-P


