[Federal Register Volume 83, Number 88 (Monday, May 7, 2018)]
[Notices]
[Pages 20126-20129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-09579]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83148; File No. SR-CTA/CQ-2018-01]


Consolidated Tape Association; Order of Summary Abrogation of the 
Twenty-Third Charges Amendment to the Second Restatement of the CTA 
Plan and the Fourteenth Charges Amendment to the Restated CQ Plan

May 1, 2018.

I. Introduction

    Notice is hereby given that the Securities and Exchange Commission 
(``Commission''), pursuant to Section 11A of the Securities Exchange 
Act of 1934 (``Act''),\1\ and Rule 608 thereunder,\2\ is summarily 
abrogating the Twenty-Third Charges Amendment

[[Page 20127]]

to the Second Restatement of the Consolidated Tape Association 
(``CTA'') Plan and the Fourteenth Charges Amendment to the Restated 
Consolidated Quotation (``CQ'') Plan (collectively, ``Plans'').\3\
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    \1\ 15 U.S.C. 78k-1.
    \2\ 17 CFR 242.608.
    \3\ See Securities Exchange Act Release Nos. 10787 (May 10, 
1974), 39 FR 17799 (May 20, 1974) (declaring the CTA Plan 
effective); 15009 (July 28, 1978), 43 FR 34851 (August 7, 1978) 
(temporarily authorizing the CQ Plan); and 16518 (January 22, 1980), 
45 FR 6521 (January 28, 1980) (permanently authorizing the CQ Plan). 
The most recent restatement of both Plans was in 1995. The CTA Plan, 
pursuant to which markets collect and disseminate last sale price 
information for non-NASDAQ listed securities, is a ``transaction 
reporting plan'' under Rule 601 under the Act, 17 CFR 242.601, and a 
``national market system plan'' under Rule 608 under the Act, 17 CFR 
242.608. The CQ Plan, pursuant to which markets collect and 
disseminate bid/ask quotation information for listed securities, is 
a national market system plan.
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    On March 5, 2018 \4\ the participants of the Plans 
(``Participants'') \5\ filed with the Commission a proposal to amend 
the Plans (``Amendment''), pursuant to Section 11A of the Act,\6\ and 
Rule 608 thereunder.\7\ The Amendment, which was effective upon filing 
pursuant to Rule 608(b)(3)(i) of Regulation NMS,\8\ modified the Plans' 
fee schedules to adopt changes to the Broker-Dealer Enterprise Maximum 
Monthly Charge and Per-Quote-Packet Charges.
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    \4\ See Securities Exchange Act Release No. 823937 (March 23, 
2018), 83 FR 13539 (March 29, 2018) (``Notice of Filing'').
    \5\ The Participants are: Cboe BYX Exchange; Inc.; Cboe BZX 
Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.; 
Chicago Board Options Exchange, Incorporated; Chicago Stock 
Exchange, Inc.; Financial Industry Regulatory Authority, Inc.; 
Investors Exchange LLC; Nasdaq BX, Inc.; Nasdaq ISE, LLC; Nasdaq 
PHLX LLC; The Nasdaq Stock Market LLC; New York Stock Exchange LLC; 
NYSE Arca, Inc.; NYSE American LLC; NYSE National, Inc.
    \6\ 15 U.S.C. 78k-1.
    \7\ 17 CFR 242.608.
    \8\ 17 CFR 242.608(b)(3)(i).
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II. Description of the Amendment

A. Amendments to Enterprise Cap

    The Amendment modified the Plans' fee schedules to increase the 
Broker-Dealer Enterprise Maximum Monthly Charge (``Enterprise Cap'') 
from $686,400 to $1,260,000 for Network A and from $520,000 to $680,000 
for Network B. The Participants stated that as a result of industry 
consolidation, the Nonprofessional Subscriber base for entities subject 
to the Enterprise Cap may suddenly increase, and whereas before two 
entities may have benefited slightly from the Enterprise Cap, a 
combined entity could achieve a substantial decrease in fees by using 
the Enterprise Cap. Consequently, the Participants stated, the increase 
of the Enterprise Cap was designed to maintain the status quo and 
should not have, in conjunction with the Per-Quote-Packet Charges 
described below, resulted in an increase of revenue to the Plans or 
fees for any particular entity.\9\
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    \9\ The Participants noted that very few entities take advantage 
of the Enterprise Cap.
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    In addition, the Amendment modified the Plans to remove a provision 
relating to annual increases of the Enterprise Cap after a two-thirds 
vote of the Participants. In 2013,\10\ the Participants amended the 
mechanism by which the Enterprise Cap would increase, from an automatic 
increase based on volume, to a requirement for an affirmative vote of 
the Participants. The Participants have not used this mechanism to 
increase the Enterprise Cap. The Participants believe that any future 
changes to the Enterprise Cap should be filed with the Commission and 
subject to public comment. Consequently, the Participants proposed to 
delete this provision.
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    \10\ See Securities Exchange Act Release No. 70010 (July 19, 
2013), 78 FR 44984 (July 25, 2013).
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B. Amendments to the Per-Quote-Packet Charges

    The Participants stated that because of the increase in the 
Enterprise Cap, there could have been broker-dealers that used the 
Enterprise Cap that, without a corresponding offset, could have faced 
an increase in fees. To offset the potential fee increase, the 
Amendment modified the text of the Plans' fee schedules to reduce the 
Plans' Per-Quote-Packet Charges for broker-dealers with 500,000 or more 
Nonprofessional Subscribers from $.0075 to $.0025.
    The Participants stated that by implementing a tiered structure for 
Per-Quote-Packet Charges, the proposal was designed to provide an 
offset to those firms most likely affected by the Enterprise Cap 
increase (i.e., those with a large Nonprofessional Subscriber base). 
Additionally, the Participants stated that the proposal would align the 
tiered structures for Networks A and B with those of Network C.
    Pursuant to Rule 608(b)(3)(i) under Regulation NMS,\11\ the 
Participants designated the Amendment as establishing or changing a fee 
or other charge collected on their behalf in connection with access to, 
or use of, the facilities contemplated by the Plans. As a result, the 
Amendment was effective upon filing with the Commission. The Amendment 
was published for comment in the Federal Register on March 29, 
2018.\12\
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    \11\ 17 CFR 242.608(b)(3)(i).
    \12\ See Notice of Filing, supra note 4.
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III. Summary of Comments

    The Commission received two comment letters in response to the 
Notice of Filing,\13\ and a response thereto from the Participants.\14\ 
Healthy Markets \15\ urged the Commission to summarily abrogate the 
Amendment on grounds that it is not appropriately justified, is 
discriminatory, and is contrary to the original purpose of the 
Enterprise Cap. Healthy Markets also stated that the Enterprise Cap 
should be eliminated as part of the broader process of modernizing the 
CTA and CQ fee schedules.
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    \13\ See letters from Tyler Gellasch, Executive Director, 
Healthy Markets Association (``Healthy Markets''), dated April 11, 
2018 (``Healthy Markets Letter''), and Melissa MacGregor, Managing 
Director, Securities Industry and Financial Markets Association 
(``SIFMA''), dated April 19, 2018 (``SIFMA Letter''), to Brent J. 
Fields, Secretary, Commission.
    \14\ See Letter from Emily Kasparov to Brent J. Fields, 
Secretary, Commission, dated April 27, 2018 (``Participants' 
Response'').
    \15\ Healthy Markets also commented on other items that are not 
germane to the instant filing, such, as SR-CTA/CQ-2017-14 and 
broader recommendations for NMS Plans and Securities Information 
Processor Fees.
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    Specifically, Healthy Markets stated that the Participants failed 
to support their representations regarding industry consolidation and 
noted that the Amendment lacks any detailed justification or 
analysis.\16\ In addition, Healthy Markets stated that the 
Participants' representation that the Amendment may be revenue neutral 
does not demonstrate that the Amendment is consistent with the Act 
whose goal is to protect the public interest by, amongst other things, 
promoting competition, the reasonable allocation of fees, and non-
discrimination.\17\ Healthy Markets also argues that the Amendment is 
discriminatory in that it appears to target a very small segment of 
firms, possibly a single firm.\18\ Lastly, Healthy Market stated that 
the Enterprise Cap should be eliminated as part of the broader process 
of modernizing the CTA and CQ fee schedules to simply allow for the 
non-discriminatory, consistent access and pricing of public market 
data.\19\
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    \16\ See Healthy Markets Letter, supra note 13 at 6.
    \17\ See id. at 6-7.
    \18\ See id. at 6.
    \19\ See id. at 8.
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    In its comment letter, SIFMA stated that the information provided 
by the Participants in the Amendment with respect to, among other 
things, cost, revenue, and customer data, is insufficient to permit the 
Commission to determine whether the Amendment is

[[Page 20128]]

consistent with the Act.\20\ SIFMA stated that only the Participants, 
and not SIFMA or other market participants, possess the information 
necessary to evaluate the Amendment.\21\ SIFMA also stated that, costs, 
and not revenue neutrality as the Participants suggest, is the relevant 
factor in assessing whether the Amendment is consistent with the 
Act.\22\
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    \20\ See SIFMA Letter, supra note 13 at 1-3. SIFMA also stated 
that absent data demonstrating a reasonable relationship between 
core data revenues and the costs of collecting and disseminating 
data, it is doubtful that maintaining the status quo with respect to 
market data fees is consistent with the Act. According to SIFMA, the 
governance structure for NMS plans is broken and market data fees 
are not restrained by competitive forces, thus maintaining the 
status quo with respect to market data fees could impose a burden on 
competition. See id. at 3.
    \21\ See id. at 1-3.
    \22\ See id. at 2.
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    In response, the Participants stated that the comments received are 
misguided or incorrect, and require no further response from the 
Participants.\23\ In addition, the Participants stated that market 
participants have access to the information necessary to assess the 
impact of the Amendments on revenue,\24\ asserting that data 
subscribers can readily apply the new fee schedule to their historical 
usage to project future usage and thereby determine whether the 
Participants' representations concerning the effect on revenue hold 
true.\25\ The Participants also noted that only industry associations 
commented on the Amendments, and that individual market data 
subscribers could have commented on the Amendments had the 
Participants'analysis been incorrect.\26\
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    \23\ See Participants' Response, supra note 14 at 1-2.
    \24\ See Participants' Response, supra note 14 at 1.
    \25\ See id.
    \26\ See id.
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IV. Discussion

    Pursuant to Section 11A of the Act \27\ and Rule 608(b)(3)(iii) of 
Regulation NMS thereunder,\28\ at any time within 60 days of the filing 
of any such amendment, the Commission may summarily abrogate the 
amendment and require that the amendment be re-filed in accordance with 
paragraph (a)(1) of Rule 608 \29\ and reviewed in accordance with 
paragraph (b)(2) of Rule 608,\30\ if it appears to the Commission that 
such action is necessary or appropriate in the public interest, for the 
protection of investors, or the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system or otherwise in furtherance of the purposes of 
the Act. The Commission is concerned that the information and 
justifications provided by the Participants are not sufficient for the 
Commission to determine whether the Amendment is consistent with the 
Act. Accordingly, the Commission believes that the procedures set forth 
in Rule 608(b)(2) \31\ will provide a more appropriate mechanism for 
determining whether the Amendment is consistent with the Act.
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    \27\ 15 U.S.C. 78k-1.
    \28\ 17 CFR 242.608.
    \29\ 17 CFR 242.608(a)(1).
    \30\ 17 CFR 242.608(b)(2).
    \31\ Id.
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    The Commission believes that the Amendment raises questions as to 
whether the changes will result in fees that are fair and reasonable, 
not unreasonably discriminatory,\32\ and that will not impose an undue 
or inappropriate burden on competition under Section 11A of the 
Act.\33\
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    \32\ 17 CFR 242.603(a)(1)-(2), 17 CFR 242.608, and 15 U.S.C. 
78k-1(a)(1)(C).
    \33\ 15 U.S.C. 78k-1
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    The Commission does not believe that the Participants have provided 
sufficient information regarding, or adequate justification for, the 
changes described in the Amendment. While the Participants represent 
that they used certain data to calibrate the fee changes to achieve a 
revenue neutral outcome \34\ none of that data is provided in the 
Amendment, nor do the Participants provide any such information in 
their response.\35\ The Commission is also concerned that the 
Participants provided little information concerning the basis for, the 
anticipated revenue effects of, and the effects on market participants 
from, the Amendment. The Participants have not provided sufficient 
information for the changes to be closely scrutinized for fairness and 
reasonableness and the Amendment lacks support for the basis of, as 
well as the application and likely effect of, the fees to determine 
that the Amendment is not unreasonably discriminatory.
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    \34\ See Notice of Filing, supra note 4 at 13541.
    \35\ See Participants' Response, supra note 14.
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    In addition, the Enterprise Cap is approximately doubled for 
Network A, while it is being raised by substantially less than half 
from $520,000 to $680,000 for Network B. The Participants have provided 
no justification for this difference. Similarly, the Participants did 
not provide information to support their assertion that the increase of 
the Enterprise Cap is designed to maintain the status quo and should 
not, in conjunction with the Per-Quote Packet fee changes, result in an 
increase of revenue to the Plans or of fees to any particular 
entity.\36\ The Participants lowered the Per-Quote Packet fee for firms 
with at least 500,000 non-professional accounts. However, the filing 
does not indicate why the Participants chose to limit the lower fee to 
firms that have 500,000 non-professional subscribers. The Participants 
state that the Amendment does not impose any burden on competition that 
is not necessary or appropriate because the fees are revenue neutral 
and maintain the status quo. Because the Participants did not provide 
the Commission with sufficient data to support their assertion that the 
fee change should not result in an increase of revenue to the Plans or 
to fees for any particular entity, the Commission is unable to evaluate 
the Participants' assertions that the Amendment does not impose any 
burden on competition that is not necessary or appropriate.
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    \36\ Id. at 13540.
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V. Conclusion

    For the reasons stated above, the Commission believes it necessary 
or appropriate to summarily abrogate the Amendment and terminate its 
status as immediately effective. The Commission believes that the 
procedures set forth in Rule 608(b)(2) of Regulation NMS \37\ will 
provide a more appropriate mechanism for determining whether the 
Amendment is consistent with the Act. Therefore, the Commission 
believes that it is necessary or appropriate in the public interest, 
for the protection of investors, or the maintenance of fair and orderly 
markets, to remove impediments to, and perfect the mechanisms of, a 
national market system or otherwise in furtherance of the purposes of 
the Act, to summarily abrogate the Amendment.
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    \37\ 17 CFR 242.608(b)(2).
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    It is therefore ordered, pursuant to Section 11A of the Act,\38\ 
and Rule 608 thereunder,\39\ that the Twenty-Third Charges Amendment to 
the CTA Plan and the Fourteenth Charges Amendment to the Restated CQ 
Plan (SR-CTA/CQ-2018-01) be, and hereby is, summarily abrogated. If the 
Participants choose to re-file the Amendment, they must do so pursuant 
to Section 11A of the Act and the Amendment must be re-filed in 
accordance with paragraph (a)(1) of Rule 608 of Regulation NMS \40\ for 
review in accordance with paragraph (b)(2) of Rule 608 of Regulation 
NMS.\41\
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    \38\ 15 U.S.C. 78k-1.
    \39\ 17 CFR 242.608.
    \40\ 17 CFR 242.608(a)(1).
    \41\ 17 CFR 242.608(b)(2).


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    By the Commission.
Brent J. Fields,
Secretary.
[FR Doc. 2018-09579 Filed 5-4-18; 8:45 am]
 BILLING CODE 8011-01-P


