[Federal Register Volume 85, Number 119 (Friday, June 19, 2020)]
[Notices]
[Pages 37123-37129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13201]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89065; File No. SR-NYSENAT-2020-05]
Self-Regulatory Organizations; NYSE National, Inc.; Request for
Information and Additional Comment on a Proposed Rule Change To
Establish Fees for the NYSE National Integrated Feed
June 12, 2020.
I. Introduction
On February 3, 2020, NYSE National, Inc. (``NYSE National'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to establish fees for the NYSE National Integrated
Feed. The proposed rule change was immediately effective upon filing
with the Commission pursuant to Section 19(b)(3)(A) of the Act.\3\ The
proposed rule change was published for comment in the Federal Register
on February 20, 2020.\4\ On April 1, 2020, the Division of Trading and
Markets, for the Commission pursuant to delegated authority,
temporarily suspended the proposed rule change and instituted
proceedings to determine whether to approve or disapprove the proposed
rule change.\5\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ See Securities Exchange Act Release No. 88211 (February 14,
2020), 85 FR 9847 (``Notice''). Comments received on the Notice are
available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2020-05/srnysenat202005.htm. The Commission
notes that, on December 4, 2019, NYSE National filed a proposed rule
change to establish fees for the NYSE National Integrated Feed that
are identical to the fees proposed in this filing. See Securities
Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025
(December 26, 2019) (SR-NYSENAT-2019-31). Comments received on SR-
NYSENAT-2019-31 are available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931.htm. On
January 31, 2020, the Commission temporarily suspended SR-NYSENAT-
2019-31 and instituted proceedings to determine whether to approve
or disapprove that proposed rule change. See Securities Exchange Act
Release No. 88109, 85 FR 6982 (February 6, 2020) (``SR-NYSENAT-2019-
31 OIP''). On February 3, 2020, NYSE National withdrew SR-NYSENAT-
2019-31. See Securities Exchange Act Release No. 88118 (February 4,
2020), 85 FR 7611 (February 10, 2020).
\5\ See Securities Exchange Act Release No. 88538, 85 FR 19541
(April 7, 2020) (``Suspension Order'').
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II. Description of the Proposal and Comment Letters
NYSE National proposes to establish fees for the NYSE National
Integrated Feed.\6\ According to NYSE National, the NYSE National
Integrated Feed is a NYSE National-only market data feed that provides
vendors and subscribers on a real-time basis with a unified view of
events, in sequence, as they appear on the NYSE National matching
engine.\7\ The NYSE National Integrated Feed includes depth-of-book
order data, last sale data, security status updates (e.g., trade
corrections and trading halts), and stock summary messages.\8\ It also
includes information about NYSE
[[Page 37124]]
National's best bid or offer at any given time.\9\ NYSE National
proposes the following fees for the NYSE National Integrated Feed:
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\6\ The fees became effective on February 3, 2020. Prior to
February 3, 2020, NYSE National did not charge any fees for the NYSE
National Integrated Feed. See Notice, supra note 4, at 9847.
\7\ See id.
\8\ See id.
\9\ See id.
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$2,500 per month access fee, which would be charged (once
per firm) to any data recipient that receives a data feed of the NYSE
National Integrated Feed; \10\
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\10\ Data recipients that only use display devices to view NYSE
National Integrated Feed data and do not separately receive a data
feed would not be charged an access fee. See id. at 9848.
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$1,500 per month redistribution fee, which would be
charged (once per redistributor account) to any redistributor \11\ of
the NYSE National Integrated Feed;
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\11\ A redistributor would be a vendor or person that provides a
real-time NYSE National market data product externally to a data
recipient that is not its affiliate or wholly-owned subsidiary, or
to any system that an external data recipient uses, irrespective of
the means of transmission or access. See id.
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$10 per month professional per user fee and $1 per month
non-professional per user fee, which would apply to each display device
that has access to the NYSE National Integrated Feed; \12\
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\12\ See id.
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Non-display use \13\ fees:
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\13\ Non-display use would mean accessing, processing, or
consuming the NYSE National Integrated Feed, delivered directly or
through a redistributor, for a purpose other than in support of a
data recipient's display or further internal or external
redistribution. See id. As proposed, non-display use would include
trading uses such as high frequency or algorithmic trading, as well
as any trading in any asset class, automated order or quote
generation and order pegging, price referencing for algorithmic
trading or smart order routing, operations controls programs,
investment analysis, order verification, surveillance programs, risk
management, compliance, and portfolio management. See id. One, two,
or three categories of non-display use may apply to a data
recipient. See id. Moreover, data recipients that receive the NYSE
National Integrated Feed for non-display use would be required to
complete and submit a non-display use declaration before they would
be authorized to receive the feed. See id. at 9849. In addition, if
a data recipient's use of the NYSE National Integrated Feed data
changes at any time after the data recipient submits a non-display
use declaration, the data recipient must inform NYSE National of the
change by completing and submitting an updated declaration
reflecting the change of use at the time of the change. See id.
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[cir] $5,000 per month category 1 non-display fee, which would
apply when a data recipient's non-display use of real-time market data
is on its own behalf;
[cir] $5,000 per month category 2 non-display fee, which would
apply when a data recipient's non-display use of real-time market data
is on behalf of its clients;
[cir] $5,000 per platform per month category 3 non-display fee
(capped at $15,000), which would apply when a data recipient's non-
display use of real-time market data is for the purpose of internally
matching buy and sell orders within an organization, including matching
customer orders on a data recipient's own behalf and on behalf of its
clients; \14\
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\14\ According to NYSE National, category 3 non-display fees
would apply to non-display use in trading platforms, such as, but
not limited to, alternative trading systems (``ATSs''), broker
crossing networks, broker crossing systems not filed as ATSs, dark
pools, multilateral trading facilities, exchanges, and systematic
internalization systems. See id. at 9848-49.
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$1,000 per month non-display use declaration late fee,
which would apply to any data recipient that is paying an access fee
for the NYSE National Integrated Feed and that fails to complete and
submit the annual non-display use declaration by December 31 of the
year, and would apply beginning January 1 and for each month thereafter
until the data recipient has completed and submitted the annual non-
display use declaration; \15\ and
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\15\ See id. at 9849.
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$200 per month multiple data feed fee, which would apply
to any data recipient that takes a data feed for a market data product
in more than two locations, and would apply to each location, beyond
the first two locations, where the data recipient receives a data
feed.\16\
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\16\ See id.
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The access fees, professional user fees, and non-display fees would
not apply to Federal agencies \17\ that subscribe to the products
listed on the proposed fee schedule that includes such fees.\18\
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\17\ The term ``Federal agencies'' as used in the proposed fee
schedule would include all Federal agencies subject to the Federal
Acquisition Regulation (``FAR''), as well as any Federal agency not
subject to FAR that has promulgated its own procurement rules. See
id. All Federal agencies that subscribe to the NYSE National real-
time proprietary market data products would continue to be required
to execute the appropriate subscriber agreement, which includes,
among other things, provisions against the redistribution of data.
See id.
\18\ The proposed fee schedule lists NYSE National BBO, NYSE
National Trades, and NYSE National Integrated Feed, and specifies
that there would be no fees for NYSE National BBO and NYSE National
Trades.
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Finally, first-time subscribers \19\ would be eligible for a free
trial by contacting NYSE National and would not be charged the access
fee, the non-display fee, any applicable professional and non-
professional user fee, and the redistribution fee for one calendar
month for each of the products listed on the proposed fee schedule.\20\
The free trial would be for the first full calendar month following the
date a subscriber is approved to receive trial access to NYSE National
market data.\21\ As proposed, NYSE National would provide the one-month
free trial for a particular product to each subscriber only once.\22\
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\19\ A first-time subscriber would be any firm that has not
previously subscribed to a particular product listed on the proposed
fee schedule. See Notice, supra note 4, at 9849.
\20\ See id.
\21\ See id. at 9849-50.
\22\ See id. at 9850.
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In its proposal, NYSE National makes multiple arguments in support
of the proposed fees. With respect to whether the proposed fees are
reasonable, NYSE National states that exchanges in general function as
platforms between consumers of market data and consumers of trading
services, and that overall competition between exchanges will limit
their overall profitability.\23\ In connection with these arguments,
NYSE National asserts that the introduction of the NYSE Integrated Feed
in 2015 attracted more trading to NYSE by both subscribers and non-
subscribers to the NYSE Integrated Feed,\24\ and concludes that overall
competition between exchanges will limit their overall profitability
(not margins on any particular side of the platform).\25\ According to
NYSE National, exchanges are platforms for market data and transaction
services and competition for order flow on the trading side of the
platform acts to constrain the pricing of market data on the other side
of the platform.\26\
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\23\ See id. at 9852.
\24\ See id. NYSE National provides a report by Marc Rysman to
support these arguments. See Marc Rysman, Stock Exchanges as
Platforms for Data and Trading (December 2, 2019) (``Rysman
Paper''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3b.pdf. NYSE National also states that, since May 2018,
when NYSE National relaunched trading, it has observed a direct
correlation between the steady increase of subscribers to the NYSE
National Integrated Feed and the increase in NYSE National's
transaction market share volume over the same period. See Notice,
supra note 4, at 9850. NYSE National states that, between May 2018
and October 2019, it has grown from 0% to nearly 2% market share of
consolidated trading volume and, between May 2018 and November 2019,
the number of NYSE National Integrated Feed subscribers increased
from 12 to 57. See id. at 9847-48, 9852.
\25\ See Notice, supra note 4, at 9852 (citing Rysman Paper,
supra note 24).
\26\ See id. at 9853.
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In addition, NYSE National argues that, due to the ready
availability of substitutes and the low cost to move order flow to the
substitute trading venues, an exchange setting market data fees that
are not at competitive levels would expect to quickly lose business to
alternative platforms with more attractive pricing.\27\ NYSE National
argues that subscribing to the NYSE National Integrated Feed is
optional, that its customers may choose to discontinue using the feed
once the proposed fees are effective, and that any customers who choose
to discontinue
[[Page 37125]]
using the feed may choose to shift order flow away from NYSE
National.\28\ Similarly, NYSE National argues that its market data
pricing is constrained by the availability of numerous substitute
platforms offering competing proprietary market data products and
trading services.\29\
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\27\ See id.
\28\ See id. at 9850, 9853.
\29\ See id. at 9853.
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In addition to its platform-based arguments, NYSE National presents
an alternative competition-based argument, asserting that the NYSE
National Integrated Feed is sold in a competitive market.\30\ NYSE
National asserts that exchanges compete with each other in selling
proprietary market data products, as well as with consolidated data
feeds and with data provided by ATSs.\31\ More specifically, NYSE
National states that NYSE National BBO (which includes best bid and
offer information for NYSE National on a real-time basis), NYSE
National Trades (which includes NYSE National last sale information on
a real-time basis), and consolidated data feeds are substitutes for the
NYSE National Integrated Feed and constrain NYSE National's ability to
charge supracompetitive prices for the feed.\32\ In addition, NYSE
National states that, since the date of filing of SR-NYSENAT-2019-31
and before the proposed fees went into effect on February 3, 2020, five
subscribers to the NYSE National Integrated Feed (i.e., nearly nine
percent of the prior subscriber base) have cancelled their
subscriptions due to the imminent imposition of the fees.\33\ Moreover,
NYSE National states that a sixth customer informed NYSE National that
if NYSE National is permitted to impose the fees, the customer would
cancel its subscription to the NYSE National Integrated Feed and
instead subscribe to the NYSE National BBO feed.\34\
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\30\ See id. at 9851.
\31\ See id. NYSE National provides a report by Charles M. Jones
to support these arguments. See Charles M. Jones, Understanding the
Market for U.S. Equity Market Data (August 31, 2018) (``Jones
Paper''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3a.pdf. The Jones Paper also states that the market for
order flow and the market for market data are closely linked, and
that an exchange needs to consider the negative impact on its order
flow if it raises the price of market data. See id.
\32\ See Notice, supra note 4, at 9854.
\33\ See id. at 9848.
\34\ NYSE National states that six lost subscribers constitute
10.5 percent of the prior NYSE National Integrated Feed subscriber
base. See id.
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With respect to the other requirements under the Act, NYSE National
argues that the proposed fees are equitably allocated and are not
unfairly discriminatory because they would apply on an equal basis to
all data recipients that choose to subscribe to the data in a manner
that is subject to an applicable fee and because any differences among
categories of users are justified.\35\ Specifically, NYSE National
argues that the professional and non-professional user fee structure
has long been used by NYSE National to reduce the price of data to non-
professional users and to make it more broadly available, and that the
non-display fee structure results in subscribers with greater uses of
the data paying higher fees and subscribers with fewer uses of the data
paying lower fees.\36\ For similar reasons, and because it claims
numerous substitute market data products are available, NYSE National
argues that the proposed fees do not impose an unnecessary or
inappropriate burden on competition.\37\
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\35\ See id. at 9856-58.
\36\ See id. at 9856-57.
\37\ See id. at 9858-59.
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With respect to the redistribution fee, NYSE National argues that
the proposed fee is reasonable because vendors that would be charged
the proposed fee would profit by re-transmitting NYSE National's market
data to their customers,\38\ and that the proposed fee is equitable and
not unfairly discriminatory because the fees would be charged on an
equal basis to those vendors that choose to redistribute the feed.\39\
Similarly, with respect to category 3 non-display fees, which would be
charged to each trading platform on which the customer uses non-display
data (capped at three platforms), NYSE National argues that the
proposal is reasonable, equitable, and not unfairly discriminatory
because such use of data is directly in competition with NYSE National
and NYSE National should be permitted to recoup some of its lost
trading revenue by charging for the data that makes such competition
possible.\40\
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\38\ See id. at 9854.
\39\ See id. at 9856-57.
\40\ See id. at 9855-58.
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Finally, with respect to the non-display use declaration late fee
and the multiple data feed fee, NYSE National claims that these fees
are reasonable, equitable, and not unfairly discriminatory because they
would offset NYSE National's administrative burdens and costs
associated with incorrect billing, late payments, and tracking data
usage locations.\41\
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\41\ See id.
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One commenter states that NYSE National fails to provide the
necessary information for the Commission to determine whether the
proposed fees meet the requirements of the Act.\42\ This commenter
argues that the NYSE National Integrated Feed is not subject to
competitive forces because there are no available substitutes to NYSE
National's depth-of-book product.\43\ This commenter also argues that
competition for order flow under the ``platform theory'' does not
constrain the cost of market data, but instead results in supra-
monopoly prices for market data products.\44\ In addition, this
commenter argues that NYSE National makes an unpersuasive attempt to
show an elasticity of demand for the NYSE National Integrated Feed
(i.e., in response to the fee increase, 5 of the 57 subscribers
notified NYSE National of their intent to cancel their subscriptions
before the fees went into effect).\45\ Moreover, this commenter argues
that exchanges have yet to show an increase (or decrease) in trading
volume after reducing (or increasing) a respective exchange's price of
market data, and that NYSE National does not state the anticipated
impact on order flow from losing subscribers to the NYSE National
Integrated Feed.\46\ Finally, the commenter argues that, because it
believes competitive forces have not constrained the cost of market
data, NYSE National should provide additional information on cost.\47\
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\42\ See letter from Ellen Greene, Managing Director, Equities &
Options Market Structure, Securities Industry and Financial Markets
Association (``SIFMA''), to Vanessa Countryman, Secretary,
Commission, dated March 11, 2020 (``SIFMA Letter''). This commenter
also refers to the comment letter it submitted on SR-NYSENAT-2019-31
in stating that the proposal does not meet the requirements of the
Act. See id. at 2. See also SR-NYSENAT-2019-31 OIP, supra note 4, at
6984-85 (describing the commenter's letter on SR-NYSENAT-2019-31);
letter from Robert Toomey, Managing Director and Associate General
Counsel, SIFMA, to Vanessa Countryman, Secretary, Commission, dated
January 21, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6678406-204968.pdf.
\43\ See SIFMA Letter, supra note 42, at 2.
\44\ See id.
\45\ See id.
\46\ See id.
\47\ See id.
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[[Page 37126]]
Another commenter also states that the information provided by NYSE
National is not adequate to establish that the proposed fees are
consistent with the Act and Commission rules.\48\ This commenter
questions whether third parties can compete with NYSE National in
offering data related to activity on NYSE National.\49\ This commenter
also questions NYSE National's assertion that market participants have
a meaningful ability to choose whether or not to connect to the NYSE
National Integrated Feed and believes instead that many market
participants must buy the feed.\50\ This commenter acknowledges that
NYSE National provides the number of customers that discontinued using
the NYSE National Integrated Feed in response to the proposed fees, but
expresses concern that NYSE National has not provided any relevant
information about these customers (e.g., why they subscribed to the
NYSE National Integrated Feed in the first place; whether they were
proprietary trading firms, agency brokers, or data vendors; and whether
and how often they sent orders to NYSE National).\51\ This commenter
also states that NYSE National should update and further elaborate on
information about the remaining subscribers.\52\
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\48\ See letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association, to Vanessa Countryman, Office of the
Secretary, Commission, dated March 12, 2020 (``Healthy Markets
Letter''). See also SR-NYSENAT-2019-31 OIP, supra note 4, at 6984
(describing the commenter's letter on SR-NYSENAT-2019-31); letter
from Tyler Gellasch, Executive Director, The Healthy Markets
Association, to Vanessa Countryman, Office of the Secretary,
Commission, dated January 16, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6663540-203934.pdf.
\49\ See Healthy Markets Letter, supra note 48, at 6-8. This
commenter states that NYSE National controls who, under what terms,
and when anyone other than NYSE National can obtain order-related
information about NYSE National. See id. at 7.
\50\ See id. at 4-5. According to this commenter, if one set of
market participants has access to a faster, richer data set, then
those without that information will not be as competitive and may
not be able to quote or otherwise route orders in a manner that
could effectively achieve best execution. See id. at 8.
\51\ See id. at 5-6.
\52\ See id. at 6.
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Moreover, this commenter argues that NYSE National's discussions
regarding the reasonableness of the proposed fees (i.e., the comparison
to similar fees charged by affiliated exchanges, the nature of the
market for order flow, the availability of other data options, and the
lack of a relation between the proposed fees and the costs of
production) do not support a finding that the proposed fees are
reasonable.\53\ This commenter also states that NYSE National does not
provide any information about the costs of production for the NYSE
National Integrated Feed, the expected revenue NYSE National projects
to generate from the proposed fees, the impact of the proposed fees on
subscribers, the competition between subscribers and non-subscribers,
and whether the proposed fees would be equitably allocated and would
not impose any undue burden on competition.\54\ In addition, the
commenter states that NYSE National does not provide any information
about the latency difference between the NYSE National Integrated Feed
and the consolidated data feed or other methods of transmitting
data.\55\ Finally, this commenter objects to NYSE National's platform-
based arguments, stating that the supply and demand functions for order
flow and market data are separate.\56\
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\53\ See id. at 8-9.
\54\ See id. at 9.
\55\ See id.
\56\ See id. at 9-10.
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III. Request for Information and Additional Comment
The Commission must determine on a factual record whether NYSE
National has established by a preponderance of the record that its
proposed fees: (1) Provide for the equitable allocation of reasonable
fees among members, issuers, and other persons using the exchange's
facilities; \57\ (2) perfect the mechanism of a free and open market
and a national market system, protect investors and the public
interest, and are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers; \58\ and (3) do not impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.\59\
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\57\ 15 U.S.C. 78f(b)(4).
\58\ 15 U.S.C. 78f(b)(5).
\59\ 15 U.S.C. 78f(b)(8).
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The Commission believes that there are significant unresolved
questions about whether NYSE National has produced sufficient factual
support to satisfy its burden to demonstrate that its proposed fees
meet the standards set forth in the Act. Under Commission Rule of
Practice 700(b)(3), NYSE National has the ``burden to demonstrate that
a proposed rule change is consistent with the [Act] and the rules and
regulations issued thereunder.'' \60\ The description of a proposed
rule change, its purpose and operation, its effect, and a legal
analysis of its consistency with applicable requirements must all be
sufficiently detailed and specific to support an affirmative Commission
finding,\61\ and any failure of an SRO to provide this level of
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\62\
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\60\ 17 CFR 201.700(b)(3).
\61\ See id.
\62\ See id. Moreover, as is the case with a proposed rule
change under Section 19(b)(2) of the Act, the Commission must make
an affirmative finding to approve any fee filing for which it has
instituted proceedings to determine whether the proposed rule change
is consistent with the Act.
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In seeking additional information and comment, the Commission
intends to further consider whether NYSE National has met its burden to
establish that the proposed fees for the NYSE National Integrated Feed
are consistent with the regulatory requirements applicable to a
national securities exchange.
1. Are the proposed fees constrained by competition?
As noted above, in support of the proposed fees, NYSE National
asserts that exchanges function as platforms between consumers of
market data and consumers of trading services, and that competition
among exchanges will limit their overall profitability (not margins on
any particular side of the platform).\63\ According to NYSE National,
exchanges are platforms for market data and transaction services, and
competition for order flow on the trading side of the platform acts to
constrain the pricing of market data on the other side of the
platform.\64\ In connection with this platform theory-based argument,
the Commission believes that it does not have sufficient information to
make an affirmative finding that the rule change is consistent with the
Act and the rules and regulations thereunder. The Commission believes
that additional information from NYSE National would assist the
Commission's analysis of whether NYSE National has met its burden under
the Act. The Commission recognizes that there are various combinations
of factual information and analysis that NYSE National could provide to
establish the presence of sufficient competitive forces or otherwise to
meet its burden under the Act.
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\63\ See Notice, supra note 4, at 9852 (citing Rysman Paper,
supra note 24).
\64\ See id. at 9853.
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The Commission further believes that with regard to NYSE National's
platform theory-based arguments, some or all of the following
information, including in combination with other information,
[[Page 37127]]
would assist its analysis of whether NYSE National has met its burden:
An explanation of NYSE National's characterization that
market data and transaction services are the two sides of the exchange
platform, including whether there are any other sides of the exchange
platform (e.g., connectivity; listings, for an exchange that lists
securities) and, if so, whether the other sides of the exchange
platform should also be considered in analyzing the proposed fees.
Information sufficient to assess whether aggregate profit
margins, returns on assets, or other metrics indicate the presence of
competition. In discussing these metrics, it may be relevant to discuss
whether and, if so, to what extent some of NYSE National's business
lines would cross-subsidize its other business lines with the proposed
fees in place. For example, NYSE National could compute operating
profit margins and returns on assets for the entirety of NYSE National
and for each of its business lines (including proprietary market data
products, consolidated market data products, market connectivity
services, and transaction services) for a period when the proposed fees
were in place (e.g., for the period from February 3, 2020 to the date
of the Suspension Order). NYSE National could also estimate projected
operating profit margins and returns on assets for the entirety of NYSE
National and for each of its business lines (including proprietary
market data products, consolidated market data products, market
connectivity services, and transaction services) for a period in the
second half of 2020 (e.g., for the third calendar quarter of 2020),
with the assumption that the proposed fees are in place during that
period.\65\ Accordingly, explaining the methodology for computing
profit margins, returns on assets, or any other metrics provided
(including the methodology for allocating expenses and assets to
business lines and among the affiliated exchanges under the NYSE Group
\66\) and supporting any assumptions that it may need to make (such as
assumptions underlying its treatment of costs of revenues and
assumptions needed to project financials) may be necessary for the
metrics to be meaningful.
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\65\ NYSE National may seek confidential treatment for such
projected financial information, or other information requested in
this order. The Commission anticipates that such information will
remain non-public subject to federal law.
\66\ The Commission notes that NYSE National, New York Stock
Exchange LLC (``NYSE''), NYSE Arca, Inc., NYSE American LLC, and
NYSE Chicago, Inc. are all, directly or indirectly, wholly-owned
subsidiaries of NYSE Group, Inc. (``NYSE Group''). The methodology
for allocating expenses across affiliated exchanges under the NYSE
Group would enable the Commission to assess how an analysis of NYSE
National may be different from its affiliated exchanges because it
is a smaller exchange that is part of a larger exchange group. In
this context, infrastructure and other NYSE National expenses may be
cross-subsidized from investments and services provided by the other
NYSE Group exchanges. To the extent that this is the case, NYSE
National should explain how this potentially affects the analysis
and computation of its expenses, profit margins, and returns-on-
assets.
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Any other information to support the argument that
competition between exchanges will limit the overall profitability of
NYSE National and meaningfully constrain NYSE National's ability to
price its proprietary market data products at supracompetitive prices.
In particular, NYSE National should consider providing empirical
support substantiating its claims. For example, because NYSE National
supported its arguments with information relating to NYSE and the NYSE
Integrated Feed,\67\ such empirical support could include the financial
information specified above for NYSE before and after specific
increases or decreases in the NYSE Integrated Feed fees. To the extent
that NYSE National argues that competition from other exchanges on the
trading side meaningfully constrains the pricing on the market data
side (or other applicable sides) of the platform, it could produce
disaggregated (i.e., by business line) profit-margin and return-on-
assets information in order to establish that it has met its burden
under the Act.
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\67\ See Rysman Paper, supra note 24.
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An explanation of whether platform-based competition
functions differently for an exchange with a smaller market share
(e.g., NYSE National) as compared to an exchange with a larger market
share (e.g., NYSE) and if so, an explanation of any differences.
NYSE National may provide other data to substantiate its
platform theory-based argument, including the claims that competition
among exchanges will limit the overall profitability of NYSE National's
platform and competition for order flow on the trading side of the
platform acts to constrain the pricing of market data on the other side
of the platform.
As noted above, in addition to its platform theory-based arguments,
NYSE National argues that an exchange setting market data fees that are
not at competitive levels would expect to quickly lose business to
alternative platforms with more attractive pricing.\68\ NYSE National
argues that subscribing to the NYSE National Integrated Feed is
optional, that its customers may choose to discontinue using the feed
once the proposed fees are effective, and that any customer who chooses
to discontinue using the feed may choose to shift order flow away from
NYSE National.\69\ The Commission believes that some or all of the
following information (including in combination with other information)
would inform the Commission's analysis of these arguments:
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\68\ See Notice, supra note 4, at 9853.
\69\ See id. at 9850, 9853.
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For periods that would provide meaningful comparisons
(e.g., each completed calendar quarter of 2019 and 2020, and for each
full month from November 2019 to date): (1) The number of NYSE National
Integrated Feed customers and the market participant type of each
customer (e.g., ATS, broker-dealer, market data vendor, any other
specified type of market participant); (2) the total number of unique
clients, and the average number of unique clients per customer, under
each of the proposed fees (i.e., each product code as used by NYSE
National) (calculated separately for the group of customers that
discontinued using the NYSE National Integrated Feed after the proposed
fees became effective (``discontinued NYSE National customers''), the
group of customers that continued using the NYSE National Integrated
Feed after the proposed fees became effective (``continued NYSE
National customers''), and others (e.g., customers that discontinued
using the NYSE National Integrated Feed before the proposed fees became
effective, customers that started using the NYSE National Integrated
Feed after the proposed fees became effective)); and (3) the aggregate
dollar trading volume for customers and firms on NYSE National and the
average dollar trading volume per customer or firm on NYSE National
(calculated separately for discontinued NYSE National customers,
continued NYSE National customers, and others (e.g., customers that
discontinued using the NYSE National Integrated Feed before the
proposed fees became effective, customers that started using the NYSE
National Integrated Feed after the proposed fees became effective,
firms that have not used the NYSE National Integrated Feed)). The
Commission believes that this type of information would inform the
Commission's analysis of NYSE National's argument that customers who
choose to discontinue using the NYSE National Integrated Feed may
choose to shift order flow away from NYSE National.
Other specific, factual information that demonstrates that
customers may choose to discontinue using an
[[Page 37128]]
exchange proprietary depth-of-book market data feed in response to a
new fee or fee increase, and that the customers who choose to
discontinue using the market data feed also shift order flow away from
such exchange. For example, because NYSE National supported its
arguments with information relating to the NYSE Integrated Feed,\70\
NYSE National could provide the following information, calculated
before and after specific increases in the NYSE Integrated Feed fees:
(1) The number of NYSE Integrated Feed customers and the market
participant type of each customer; (2) the total number of unique
clients, and the average number of unique clients per customer, under
each fee (i.e., each product code as used by NYSE) (calculated
separately for the group of customers that discontinued using the NYSE
Integrated Feed after the fee was initially imposed or after the fee
increase (``discontinued NYSE customers''), the group of customers that
continued using the NYSE Integrated Feed after the fee was initially
imposed or after the fee increase (``continued NYSE customers''), and
others); and (3) the aggregate dollar trading volume for customers and
firms on NYSE and the average dollar trading volume per customer or
firm on NYSE (calculated separately for discontinued NYSE customers,
continued NYSE customers, and others). This type of information would
inform the Commission's analysis of whether NYSE National has met its
burden to demonstrate that customers who choose to discontinue using a
depth-of-book market data feed also shift order flow away from the
exchange offering the feed.
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\70\ See Rysman Paper, supra note 24.
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NYSE National may provide other data to substantiate its
claim that customers may choose to discontinue using the NYSE National
Integrated Feed once the proposed fees are effective, and that
customers who choose to discontinue using the feed may choose to shift
order flow away from NYSE National.
2. Are there substitutes for the NYSE National Integrated Feed?
The Commission also believes that additional information regarding
NYSE National's substitution-based arguments would assist the
Commission in its analysis of whether NYSE National has met its burden
under the Act. The Commission believes that some or all of the
following information (including in combination with other information)
would further inform the Commission's analysis of NYSE National's
substitution-based arguments:
Information regarding how many of the five original
subscribers that cancelled their NYSE National Integrated Feed
subscription subsequently started using the NYSE National BBO or NYSE
National Trades feed, or any other proprietary market data feed, and
the market participant type of each of these five subscribers.
Information regarding how many additional customers
discontinued (or notified NYSE National of their intention to
discontinue) using the NYSE National Integrated Feed after the proposed
fees were implemented on February 3, 2020, how many of these customers
subsequently started (or notified NYSE National of their intention to
start) using the NYSE National BBO or NYSE National Trades feed, or any
other proprietary market data feed, and the market participant type of
each of these customers.
NYSE National may provide other data to substantiate its
substitution-based arguments.
The Commission believes that responses to some or all of these
requests would inform the Commission's analysis of NYSE National's
argument that the NYSE National Integrated Feed is sold in a
competitive market and that other market data feeds are substitutes for
the NYSE National Integrated Feed.
3. Are the fees reasonable, equitable, and not unfairly discriminatory?
The Commission believes that additional information from NYSE
National could inform the Commission's analysis of the allocation of
the proposed fees to different types of market participants (e.g.,
whether most of the fees are borne by a particular type of customer and
whether such an outcome would result in an inequitable allocation of
the fees or render the fees unfairly discriminatory). For example, some
or all of the following information (including in combination with
other information) could meaningfully inform the Commission's analysis:
In addition to the customer, unique client, and dollar
trading volume information discussed in Item 1 above,\71\ NYSE National
could provide projections of the same customer and unique client
information (with the assumption that the proposed fees are in place,
and including the methodology for and assumptions underlying such
projections) for the uncompleted calendar quarters of 2020 up to the
third calendar quarter of 2020. The Commission believes that this type
of information would inform the Commission's analysis of the impact of
the proposed fees on different groups of market participants, including
because this type of information would allow the Commission to compare:
(1) The number of discontinued NYSE National customers against the
number of continued NYSE National customers and the number of other
customers; and (2) the total and average number of unique clients and
the aggregate and average dollar trading volume across these three
groups of customers.
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\71\ NYSE National states that, based on usage at the time of
the filing of SR-NYSENAT-2019-31, at least 34 firms would be subject
to category 1 non-display fees, at least 14 firms would be subject
to category 2 non-display fees, and at least 10 firms would be
subject to category 3 non-display fees. See Notice, supra note 4, at
9850. However, NYSE National does not provide the same usage
information for each of the other proposed fees (e.g., the number of
professional users and non-professional users).
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NYSE National may provide other data to substantiate its
claims that the proposed fees are equitably allocated, are not unfairly
discriminatory, and do not impose an unnecessary or inappropriate
burden on competition.
With respect to the redistribution fee, as noted above, NYSE
National argues that the proposed fee is reasonable because vendors
that would be charged the proposed fee would profit by re-transmitting
NYSE National's market data to their customers,\72\ and that the
proposed fee is equitable and not unfairly discriminatory because the
fee would be charged on an equal basis to those vendors that choose to
redistribute the feed.\73\ Similarly, with respect to category 3 non-
display fees, which would be charged to each trading platform on which
the customer uses non-display data (capped at three platforms), NYSE
National argues that the proposal is reasonable, equitable, and not
unfairly discriminatory because such use of data is directly in
competition with NYSE National and NYSE National should be permitted to
recoup some of its lost trading revenue by charging for the data that
makes such competition possible.\74\ The Commission believes its
analysis of the proposed redistribution fee and category 3 non-display
fees would benefit from a fuller explanation, with supporting facts, of
why these fees, which are applied specifically to NYSE National's
competitors, would not be unfairly discriminatory toward those
competitors or impose an unnecessary or inappropriate burden on
competition.
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\72\ See id. at 9854.
\73\ See id. at 9856-57.
\74\ See id. at 9855-58.
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[[Page 37129]]
Finally, as noted above, with respect to the non-display use
declaration late fee and the multiple data feed fee, NYSE National
claims that these fees are reasonable, equitable, and not unfairly
discriminatory because they would offset NYSE National's administrative
burdens and costs associated with incorrect billing, late payments, and
tracking data usage locations.\75\ The Commission again believes that
its analysis would benefit from a fuller explanation, with supporting
facts, of NYSE National's ``administrative burdens'' and
``administrative costs'' associated with these activities. The
Commission believes that such information would inform the Commission's
analysis of the non-display use declaration late fee and the multiple
data feed fee.
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\75\ See id.
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4. General Request for Comment
The Commission asks that commenters address the sufficiency and
merit of NYSE National's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change. For example, the Commission believes that its
analysis may benefit from comment, including, where relevant, any
specific data, statistics, or studies, on the following:
Do the proposed fees represent an equitable allocation of
reasonable fees, not permit unfair discrimination, and not impose any
unnecessary or inappropriate burden on competition? Please explain and
provide supporting information.
Are the proposed fees constrained by robust competition?
Please explain and provide supporting information.
Are NYSE National's characterization of platform
competition and characterization of market data and transaction
services as two sides of an exchange platform correct? Are there any
other sides of an exchange platform (e.g., connectivity, listing) and
should these other sides be considered in analyzing the proposed fees?
Should the question of whether the NYSE National
Integrated Feed fees are constrained by competitive forces be analyzed
using any separate methodology not discussed in the proposal (i.e.,
other than substitution and platform competition)? If so, please
explain such methodology.
Does an analysis of the total market data revenue from
NYSE National's parent company demonstrate or support NYSE National's
assertion that the market for proprietary market data products is
characterized by robust competition? \76\ Why or why not? Should other
data, such as operating profit margins and returns on assets for the
entirety of NYSE National and for each of its business lines (including
proprietary market data products, consolidated market data products,
market connectivity services, and transaction services), also be
analyzed in order to evaluate NYSE National's assertion? Why or why
not?
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\76\ See Jones Paper, supra note 31.
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Does an analysis of the effect of the introduction of the
NYSE Integrated Feed on trading volume on NYSE demonstrate or support
NYSE National's assertions that platform economics applies to
exchanges' sale of proprietary market data products and trading
services and that platform competition effectively constrains the
pricing of those data products? \77\ Why or why not?
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\77\ See Rysman Paper, supra note 24.
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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 No. SR-NYSENAT-2020-05 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 No. SR-NYSENAT-2020-05. The 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 such filing also will be available for inspection
and copying at the principal office of NYSE National. 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 publicly available. All submissions
should refer to File No. SR-NYSENAT-2020-05 and should be submitted on
or before July 10, 2020.
By the Commission.
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-13201 Filed 6-18-20; 8:45 am]
BILLING CODE 8011-01-P