[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71043-71053]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27726]
[[Page 71043]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87795; File No. SR-NYSEArca-2019-88]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change, as Modified by
Partial Amendment No. 1, To Amend the Fees for NYSE Arca BBO and NYSE
Arca Trades
December 18, 2019.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on December 4, 2019, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. On
December 17, 2019, the Exchange filed Partial Amendment No. 1 to the
proposed rule change.\3\ The Commission is publishing this notice to
solicit comments on the proposed rule change, as modified by Partial
Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Partial Amendment No. 1, the Exchange provided an
additional example in support of the proposed rule change.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (1) amend the fees for NYSE Arca BBO and
NYSE Arca Trades by modifying the application of the Access Fee; (2)
amend the fees for NYSE Arca Trades by adopting a credit applicable to
the Redistribution Fee; and (3) adopt a one-month free trial for all
NYSE Arca market data products. The Exchange also proposes to remove
certain obsolete text. The Exchange proposes to implement the proposed
fee changes on February 3, 2020. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to decrease the fees for certain NYSE Arca
market data products, as set forth on the NYSE Arca Equities
Proprietary Market Data Fee Schedule (``Fee Schedule''). The purpose of
these fee decreases, taken together with fee decreases filed by the
Exchange's affiliated exchanges, New York Stock Exchange LLC (``NYSE'')
and NYSE American, Inc. (``NYSE American''),\4\ will reduce the fees
associated with the NYSE BQT proprietary data product, which competes
directly with similar products offered by both the Nasdaq and Cboe
families of U.S. equity exchanges. Collectively, the proposed fee
decreases are intended to respond to the competition posed by similar
products offered by the other exchange groups.
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\4\ See SR-NYSE-2019-70 and SR-NYSEAmer-2019-55.
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Specifically, the Exchange proposes to (1) reduce the Access Fees
by more than 86% for subscribers of NYSE Arca BBO and NYSE Arca Trades
that receive a data feed and use those market data products in a
display-only format; (2) provide for a credit applicable to the
Redistribution Fee for subscribers of NYSE Arca Trades that use that
market data product for display purposes; and (3) adopt a one-month
free trial for all NYSE Arca market data products. The Exchange also
proposes non-substantive changes to remove certain obsolete text from
the Fee Schedule. All of the proposed changes would decrease fees for
market data on the Exchange.
The Exchange proposes to implement these proposed fee changes on
February 3, 2020.
Background
The Commission has repeatedly expressed its preference for
competition over regulatory intervention in determining prices,
products, and services in the securities markets. In Regulation NMS,
the Commission highlighted the importance of market forces in
determining prices and SRO revenues, and also recognized that current
regulation of the market system ``has been remarkably successful in
promoting market competition in its broader forms that are most
important to investors and listed companies.'' \5\
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\5\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37499 (June 29, 2005) (S7-10-04) (Final Rule)
(``Regulation NMS Adopting Release'').
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As the Commission itself recognized, the market for trading
services in NMS stocks has become ``more fragmented and competitive.''
\6\ Indeed, equity trading is currently dispersed across 13
exchanges,\7\ 31 alternative trading systems,\8\ and numerous broker-
dealer internalizers and wholesalers, all competing for order flow.
Based on publicly-available information, no single exchange currently
has more than 18% market share (whether including or excluding auction
volume).\9\
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\6\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18) (Transaction Fee Pilot
for NMS Stocks Final Rule) (``Transaction Fee Pilot'').
\7\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\8\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\9\ See Cboe Global Markets U.S. Equities Market Volume Summary,
available at http://markets.cboe.com/us/equities/market_share/.
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With the NYSE BQT market data product, NYSE Arca and its affiliates
compete head to head with the Nasdaq Basic \10\ and Cboe One Feed \11\
market data products. Similar to those market data products, NYSE BQT,
which was established in 2014,\12\ consists of certain elements from
NYSE Arca BBO and NYSE Arca Trades as well as from market data products
from the Exchange's affiliates, NYSE, NYSE American, NYSE National,
Inc. (``NYSE
[[Page 71044]]
National'') \13\ and NYSE Chicago (``NYSE Chicago'').\14\ Similar to
both Nasdaq Basic and the Cboe One Feed, NYSE BQT provides investors
with a unified view of comprehensive last sale and BBO data in all Tape
A, B, and C securities that trade on the Exchange, NYSE, NYSE American,
NYSE National and NYSE Chicago. Also, similar to Nasdaq Basic and the
Cboe One Feed, NYSE BQT is not intended to be used for purposes of
making order-routing or trading decisions, but rather, provides
indicative prices for Tape A, B, and C securities.\15\
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\10\ As described on the Nasdaq website, available here: http://www.nasdaqtrader.com/Trader.aspx?id=nasdaqbasic, Nasdaq Basic is a
``low cost alternative'' that provides ``Best Bid and Offer and Last
Sale information for all U.S. exchange-listed securities based on
liquidity within the Nasdaq market center, as well as trades
reported to the FINRA Trade Reporting Facility (``TRF'').''
\11\ As described on the Cboe website, available here: https://markets.cboe.com/us/equities/market_data_services/cboe_one/, the
Cboe One Feed is a ``market data product that provides cost-
effective, high-quality reference quotes and trade data for market
participants looking for comprehensive, real-time market data'' and
provides a ``unified view of the market from all four Cboe equity
exchanges: BZX Exchange, BYX Exchange, EDGX Exchange, and EDGY [sic]
Exchange.''
\12\ See Securities Exchange Act Release Nos. 72750 (August 4,
2014), 79 FR 46494 (August 8, 2014) (notice--NYSE BQT); and 73553
(November 6, 2014), 79 FR 67491 (November 13, 2014) (approval
order--NYSE BQT) (SR-NYSE-2014-40) (``NYSE BQT Filing'').
\13\ In 2018, NYSE BQT was amended to include NYSE National BBO
and NYSE National Trades. See Securities Exchange Act Release No.
83359 (June 1, 2018), 83 FR 26507 (June 7, 2018) (SR-NYSE-2018-22).
\14\ In 2019, NYSE BQT was amended to include NYSE Chicago BBO
and NYSE Chicago Trades. See Securities Exchange Act Release No.
87511 (November 12, 2019), 84 FR 63689 (November 18, 2019) (SR-NYSE-
2019-60).
\15\ See NYSE BQT Filing, supra note 12.
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Currently, to subscribe to NYSE BQT, subscribers are charged an
access fee of $250 per month.\16\ Additionally, subscribers must also
subscribe to, and pay applicable fees for NYSE Arca BBO, NYSE Arca
Trades, NYSE BBO, NYSE Trades, NYSE American BBO, NYSE American Trades,
NYSE National BBO, NYSE National Trades, NYSE Chicago BBO and NYSE
Chicago Trades. Thus, the charges for NYSE BQT are the $250 Access Fee
for NYSE BQT, plus a $1,500 access fee for each of NYSE BBO and NYSE
Trades,\17\ plus a $750 access fee for each of NYSE Arca BBO and NYSE
Arca Trades,\18\ plus a $750 access fee for each of NYSE American BBO
and NYSE American Trades,\17\ for a total of $6,250 ($250 + $3,000 +
$1,500 + $1,500).\18\ In addition, an NYSE BQT subscriber would need to
pay for the applicable Professional or Non-Professional User Fees for
the underlying market data products, as applicable.\19\
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\16\ See NYSE Proprietary Market Data Fees, available here:
https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf.
\17\ See id.
\18\ See Fee Schedule, available here: https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Equities_Fee_Schedule.pdf.
\17\ See NYSE American Equities Proprietary Market Data Fees,
available here: https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Equities_Market_Data_Fee_Schedule.pdf.
\18\ There are currently no fees charged for the NYSE National
BBO, NYSE National Trades, NYSE Chicago BBO, or NYSE Chicago Trades
market data products.
\19\ The Exchange is not proposing any changes to the User Fees.
Currently, the Professional User Fees for each of NYSE BBO and NYSE
Trades is $4 per month, and the Non-Professional User Fees for each
of NYSE BBO and NYSE Trades is $0.20 per month. See NYSE Proprietary
Market Data Fees, available here: https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf. The Professional User
Fees for each of NYSE Arca BBO and NYSE Arca Trades is $4 per month,
and the Non-Professional User Fees for each of NYSE Arca BBO and
NYSE Arca Trades is $0.25 per month. See Fee Schedule, available
here: https://www.nyse.com/publicdocs/nyse/data/NYSE_Arca_Equities_Fee_Schedule.pdf. The Professional User Fees for
each of NYSE American BBO and NYSE American Trades is $4 per month,
and the Non-Professional User Fees for each of NYSE American BBO and
NYSE American Trades is $0.25 per month. See NYSE American Equities
Proprietary Market Data Fees, available here: https://www.nyse.com/publicdocs/nyse/data/NYSE_American_Equities_Market_Data_Fee_Schedule.pdf.
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Because NYSE BQT is priced based on the fees associated with the
underlying ten market data feeds, the Exchange and its affiliates
propose to compete with the Cboe One Feed and Nasdaq Basic by reducing
fees for the underlying market data products that comprise NYSE BQT.
Together with NYSE and NYSE American, the Exchange similarly proposes
to compete for subscribers to NYSE BQT by designing its fee decreases
to be attractive to subscribers of NYSE Arca BBO and NYSE Arca Trades
that use such products for display-only purposes, which are more likely
to be subscribers that service retail investors.
Access Fee--NYSE Arca BBO and NYSE Arca Trades
NYSE Arca BBO is a NYSE Arca-only market data product that allows a
vendor to redistribute on a real-time basis the same best-bid-and-offer
information that NYSE Arca reports under the Consolidated Quotation
Plan (``CQ Plan'') for inclusion in the CQ Plan's consolidated
quotation information data stream (``NYSE Arca BBO Information'').\19\
NYSE Arca BBO Information includes the best bids and offers for all
securities that are traded on the Exchange and for which NYSE Arca
reports quotes under the CQ Plan. NYSE Arca BBO is available over a
single data feed, regardless of the markets on which the securities are
listed. NYSE Arca BBO is made available to its subscribers no earlier
than the information it contains is made available to the processor
under the CQ Plan.
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\19\ See Securities Exchange Act Release Nos. 61937 (April 16,
2010), 75 FR 21378 (April 23, 2010) (SR-NYSEArca-2010-23) (notice--
NYSE Arca BBO); and 62188 (May 27, 2010), 75 FR 31484 (June 3, 2010)
(SR-NYSEArca-2010-23) (approval order--NYSE Arca BBO).
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NYSE Arca Trades is a NYSE Arca-only market data product that
allows a vendor to redistribute on a real-time basis the same last sale
information that NYSE Arca reports to the Consolidated Tape Association
(``CTA'') for inclusion in the CTA's consolidated data stream and
certain other related data elements (``NYSE Arca Last Sale
Information'').\20\ NYSE Arca Last Sale Information includes last sale
information for all securities that are traded on the Exchange. NYSE
Arca Trades is made available to its subscribers at the same time as
the information it contains is made available to the processor under
the CTA Plan.
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\20\ See Securities Exchange Act Release Nos. 59308 (January 28,
2009), 74 FR 5955 (February 3, 2009) (SR-NYSEArca-2009-05) (notice--
NYSE Arca Trades); 59598 (March 18, 2009), 74 FR 12919 (March 25,
2009) (SR-NYSEArca-2009-05) (approval order--NYSE Arca Trades).
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Currently, subscribers of each of the NYSE Arca BBO and NYSE Arca
Trades products that receive a data feed pay an Access Fee of $750 per
month. The Exchange proposes to reduce the Access Fees for subscribers
of NYSE Arca BBO and NYSE Arca Trades that receive a data feed and use
those products in a display-only format, including for internal use for
Professional Users and external distribution to both Professional and
Non-Professional Users in a display-only format, from $750 per month
(per product) to $100 per month (per product). The Exchange proposes to
designate this access fee as a ``Per User Access Fee.'' A subscriber
that receives a data feed and uses the market data product for any
other purpose (such as non-display use), including if combined with Per
User use, would continue to pay the $750 per month Access Fee.\21\ A
subscriber will be charged only one access fee for each of the NYSE
Arca BBO and NYSE Arca Trades products, depending on the use of that
product.
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\21\ With the proposed adoption of the Per User Access Fee, the
Exchange proposes to rename the Access Fee as the General Access
Fee.
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The proposed rule change would result in lower fees for subscribers
of each of NYSE Arca BBO and NYSE Arca Trades products that receive a
data feed and use such products for display-only purposes. The proposed
Per User Access Fee of $100 per month, lowered from $750 per month,
would result in a reduction of more than 86% for subscribers that
receive a data feed and use the product in a display-only format.
Additionally, the proposed rule change, together with the proposed rule
changes by NYSE and NYSE American to similarly reduce the access fees
to their BBO and Trades products, would also significantly lower access
fees for display-only subscribers of NYSE BQT, from $6,250 per month to
$850 per month ($250 + $200 + $200 +$200), a reduction of more than
86%.
The proposed rule change is intended to encourage greater use of
NYSE BQT by making it more affordable for data recipients that receive
a data feed of
[[Page 71045]]
NYSE Arca Trades and NYSE Arca BBO and use the products in a display-
only format and thereby, allow the Exchange to compete more effectively
with Cboe One Feed and Nasdaq Basic. The Exchange believes the proposed
rule change would allow the Exchange to offer retail investors a
competitively priced alternative to other top-of-book data products
available in the marketplace.
Redistribution Fee--NYSE Arca Trades
The Exchange currently charges a Redistribution Fee of $750 per
month for NYSE Arca Trades. A Redistributor is a vendor or any other
person that provides a NYSE Arca data product to a data recipient or to
any system that a data recipient uses, irrespective of the means of
transmission or access. A Redistributor is required to report to the
Exchange each month the number of Professional and Non-Professional
Users and data feed recipients that receive NYSE Arca Trades. As noted
above, for display use of NYSE Arca Trades, the Exchange currently
charges a Per User Fee of $4 per month for each Professional User and a
Per User Fee of $0.25 per month for each Non-Professional User. These
user fees apply to each display device that has access to NYSE Arca
Trades.
The Exchange proposes to adopt a credit that would be applicable to
Redistributors that provide external distribution of NYSE Arca Trades
to Professional and Non-Professional Users in a display-only format. As
proposed, such Redistributors would receive a credit equal to the
amount of the monthly Professional User and Non-Professional User Fees
for such external distribution, up to a maximum of the Redistribution
Fee for NYSE Arca Trades. For example, a Redistributor that reports
external Professional Users and Non-Professional Users in a month
totaling $750 or more would receive a maximum credit of $750 for that
month, which could effectively reduce its Redistribution Fee to zero.
If that same Redistributor were to report external User quantities in a
month totaling $500 of monthly usage, that Redistributor would receive
a credit of $500. Redistributors would have an incentive to increase
their redistribution of NYSE Arca Trades because the credit they would
be eligible to receive would increase if they report additional
external User quantities.
By targeting this proposed credit to Redistributors that provide
external distribution of NYSE Arca Trades in a display-only product,
the Exchange believes that this proposed fee decrease would provide an
incentive for Redistributors to make the NYSE BQT market data product
available to its customers. Specifically, if a data recipient is
interested in subscribing to NYSE BQT and relies on a Redistributor to
obtain market data products from the Exchange, that data recipient
would need its Redistributor to redistribute NYSE BQT. Currently,
Redistributors that redistribute NYSE Arca market data products do not
necessarily also make NYSE BQT available. Because data recipients that
use NYSE BQT do so for display-only use, and therefore would use the
NYSE Arca Trades market data product for display-only use, the Exchange
believes that this proposed fee decrease for Redistributors of NYSE
Arca Trades would provide an incentive for Redistributors to make NYSE
BQT available to its customers, which will increase the availability of
NYSE BQT to a larger potential population of data recipients.\22\
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\22\ NYSE Arca does not charge a Redistribution Fee for NYSE
Arca BBO.
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One-Month Free Trial--All NYSE Arca Market Data Products
The Exchange proposes a one-month free trial for any firm that
subscribes to a particular NYSE Arca market data product for the first
time. As proposed, a first-time subscriber would be any firm that has
not previously subscribed to a particular NYSE Arca market data product
listed on the Fee Schedule. As proposed, a first-time subscriber of a
particular NYSE Arca market data product would not be charged the
Access Fee, Non-Display Fee, any applicable Professional and Non-
Professional User Fee, and Redistribution Fee for that product for one
calendar month. For example, a firm that currently subscribes to NYSE
Arca BBO would be eligible to receive a free one-month trial of NYSE
Arca Trades, whether in a display-only format or for non-display use.
On the other hand, a firm that currently pays an Access Fee and
receives NYSE Arca BBO for non-display use would not be eligible to
receive a free one-month trial of NYSE Arca BBO in a display-only
format. The proposed free trial would be for the first full calendar
month following the date a subscriber is approved to receive trial
access to the particular NYSE Arca market data product. The Exchange
would provide the one-month free trial for each particular product to
each subscriber once.
The Exchange believes that providing a one-month free trial to NYSE
Arca market data products listed on the Fee Schedule would enable
potential subscribers to determine whether a particular NYSE Arca
market data product provides value to their business models before
fully committing to expend development and implementation costs related
to the receipt of that product, and is intended to encourage increased
use of the Exchange's market data products by defraying some of the
development and implementation costs subscribers would ordinarily have
to expend before using a product.
Non-Substantive Changes
In December 2017, the Exchange amended the Fee Schedule to adopt
footnote 6 regarding a Decommission Extension Fee for receipt of the
NYSE Arca Integrated Feed market data product.\23\ The Decommission
Extension Fee was adopted to allow existing subscribers at the time to
receive these market data products in their legacy format as the
Exchange was transitioning to a newer distribution protocol. The
Decommission Extension Fee for NYSE Arca Integrated Feed expired on
January 30, 2018. The Exchange proposes to remove rule text regarding
the Decommission Extension Fee for NYSE Integrated Feed from footnote 6
of the Fee Schedule, as that rule text is now obsolete because the
period of time during which the Decommission Extension Fee for NYSE
Integrated Feed was applicable has passed. The Exchange proposes to
replace the text in footnote 6 with rule text regarding the proposed
fee change related to the Redistribution Fee for NYSE Arca Trades
described above.
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\23\ See Securities Exchange Act Release No. 82344 (December 18,
2017), 82 FR 60784 (December 22, 2017) (SR-NYSEArca-2017-142).
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The Exchange also proposes a non-substantive amendment to move the
text describing the Enterprise Fee on the Fee Schedule to appear below
the Non-Professional User Fee. The Exchange is not making any
substantive changes to this fee. The Exchange believes that this
proposed non-substantive change will make the Fee Schedule easier to
navigate, as the Enterprise Fee is related to Per User fees.
The Exchange also proposes two non-substantive, clarifying
amendments to footnote 4. First, the Exchange proposes to delete the
term ``clients'' and replace it with the term ``Professional Users and
Non-Professional Users.'' This proposed change is consistent with the
operation of the Enterprise Fee, which relates only to the Professional
User and Non-Professional Per User fees. Second, the Exchange proposes
to insert ``Arca'' in front of BBO and Trades to correctly
[[Page 71046]]
note that the Enterprise Fee applies to the NYSE Arca BBO and NYSE Arca
Trades market data products. The Exchange believes that these proposed
changes would promote clarity and transparency of the Fee Schedule,
without making any substantive changes.
Applicability of Proposed Rule Change
As noted above, the proposed rule change is designed to reduce the
overall cost of NYSE BQT by reducing specified fees applicable to the
underlying market data products that comprise NYSE BQT. There is
currently only one subscriber to NYSE BQT (a vendor), and the Exchange
believes that the proposed rule change would provide an incentive both
for data subscribers to subscribe to NYSE BQT and for Redistributors to
subscribe to the product for purposes of providing external
distribution of NYSE BQT.
Because the proposed rule change is targeted to potential customers
of NYSE BQT, which is designed to be a product for display-only data
subscribers, the proposed changes to the NYSE Arca BBO and NYSE Arca
Trades Access Fee are narrowly construed with that purpose in mind.
Accordingly, these proposed fee changes are not designed for data
subscribers that use NYSE Arca BBO or NYSE Arca Trades for non-display
use, or for Redistributors that redistribute NYSE Arca Trades to data
subscribers that use that market data product for non-display uses.
This proposed rule change would not result in any changes to the market
data fees for NYSE Arca BBO and NYSE Arca Trades for such data
subscribers.
The Exchange believes that five current subscribers to the NYSE
Arca BBO and NYSE Arca Trades would meet the qualifications to be
eligible for these proposed fee changes. The Exchange further believes
that this proposed rule change has the potential to attract new
Redistributors for NYSE BQT, as well as new NYSE BQT subscribers that
would be subscribing to NYSE Arca BBO and NYSE Arca Trades for the
first time.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\24\ in general, and
Sections 6(b)(4) and 6(b)(5) of the Act,\25\ 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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\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(4), (5).
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The Proposed Rule Change Is Reasonable
In adopting Regulation NMS, the Commission granted SROs and broker-
dealers increased authority and flexibility to offer new and unique
market data to the public. The Commission has repeatedly expressed its
preference for competition over regulatory intervention in determining
prices, products, and services in the securities markets. Specifically,
in Regulation NMS, the Commission highlighted the importance of market
forces in determining prices and SRO revenues, and also recognized that
current regulation of the market system ``has been remarkably
successful in promoting market competition in its broader forms that
are most important to investors and listed companies.'' \26\
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\26\ See Regulation NMS Adopting Release, 70 FR 37495, at 37499.
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With respect to market data, the decision of the United States
Court of Appeals for the District of Columbia Circuit in NetCoalition
v. SEC upheld the Commission's reliance on the existence of competitive
market mechanisms to evaluate the reasonableness and fairness of 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.'' \27\
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\27\ NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (quoting H.R. Rep. No. 94-229 at 92 (1975), as
reprinted in 1975 U.S.C.C.A.N. 323).
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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.' '' \28\
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\28\ Id. at 535.
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1. The Proposed Fees Are Constrained by Significant Competitive Forces
a. Exchange Market Data Is Sold in a Competitive Market
In 2018, Charles M. Jones, the Robert W. Lear of Professor of
Finance and Economics of the Columbia University School of Business,
conducted an analysis of the market for equity market data in the
United States. He canvassed the demand for both consolidated and
exchange proprietary market data products and the uses to which those
products were put by market participants, and reported his conclusions
in a paper annexed hereto.\29\ Among other things, Professor Jones
concluded that:
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\29\ See Exhibit 3A, Charles M. Jones, Understanding the Market
for U.S. Equity Market Data, August 31, 2018 (hereinafter ``Jones
Paper'').
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``The market [for exchange market data] is characterized
by robust competition: Exchanges compete with each other in selling
proprietary market data products. They also compete with consolidated
data feeds and with data provided by alternative trading systems
(`ATSs'). Barriers to entry are very low, so existing exchanges must
also take into account competition from new entrants, who generally try
to build market share by offering their proprietary market data
products for free for some period of time.'' \30\
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\30\ Jones Paper at 2.
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``Although there are regulatory requirements for some
market participants to use consolidated data products, there is no
requirement for market participants to purchase any proprietary market
data product for regulatory purposes.'' \31\
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\31\ Id.
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``There are a variety of data products, and consumers of
equity market data choose among them based on their needs. Like most
producers, exchanges offer a variety of market data products at
different price levels. Advanced proprietary market data products
provide greater value to those who subscribe. As in any other market,
each potential subscriber takes the features and prices of available
products into account in choosing what market data products to buy
based on its business model.'' \32\
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\32\ Id.
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``Exchange equity market data fees are a small cost for
the industry overall: The data demonstrates that total exchange market
data revenues are orders of magnitude smaller than (i) broker-dealer
commissions, (ii) investment bank earnings from equity trading, and
(iii) revenues earned by third-party vendors.'' \33\
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\33\ Id.
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``For proprietary exchange data feeds, the main question
is whether there is a competitive market for proprietary market data.
More than 40 active exchanges and alternative trading systems compete
vigorously in both the market for order flow and in the market for
market data. The two are closely linked: An exchange needs to consider
the negative impact on its order flow if
[[Page 71047]]
it raises the price of its market data. Furthermore, new entrants have
been frequent over the past 10 years or so, and these venues often give
market data away for free, serving as a check on pricing by more
established exchanges. These are all the standard hallmarks of a
competitive market.'' \34\
---------------------------------------------------------------------------
\34\ Id. at 39-40.
---------------------------------------------------------------------------
Professor Jones' conclusions are consistent with the demonstration
of the competitive constraints on the pricing of market data
demonstrated by analysis of exchanges as platforms for market data and
trading services, as shown below.
b. Exchanges That Offer Market Data and Trading Services Function as
Two-Sided Platforms
An exchange may demonstrate that its fees are constrained by
competitive forces by showing that the platform theory of competition
applies.
As the United States Supreme Court recognized in Ohio v. American
Express, platforms are firms that act as intermediaries between two or
more sets of agents, and typically the choices made on one side of the
platform affect the results on the other side of the platform via
externalities, or ``indirect network effects.'' \35\ Externalities are
linkages between the different ``sides'' of a platform such that one
cannot understand pricing and competition for goods or services on one
side of the platform in isolation; one must also account for the
influence of the other side. As the Supreme Court explained:
---------------------------------------------------------------------------
\35\ Ohio v. American Express, 138 S. Ct. 2274, 2280-81 (2018).
To ensure sufficient participation, two-sided platforms must be
sensitive to the prices that they charge each side. . . . Raising
the price on side A risks losing participation on that side, which
decreases the value of the platform to side B. If the participants
on side B leave due to this loss in value, then the platform has
even less value to side A--risking a feedback loop of declining
demand. . . . Two-sided platforms therefore must take these indirect
network effects into account before making a change in price on
---------------------------------------------------------------------------
either side. \36\
\36\ Id. at 2281.
---------------------------------------------------------------------------
The Exchange and its affiliated exchanges have long maintained that
they function as platforms between consumers of market data and
consumers of trading services. Proving the existence of linkages
between the two sides of this platform requires an in-depth economic
analysis of both public data and confidential Exchange data about
particular customers' trading activities and market data purchases.
Exchanges, however, are prohibited from sharing details about these
specific customer activities and purchases. For example, pursuant to
Exchange Rule 7.41, transactions executed on the Exchange are processed
anonymously.
The Exchange and its affiliated exchanges have retained a third
party expert, Marc Rysman, Professor of Economics Boston University, to
analyze how platform economics applies to stock exchanges' sale of
market data products and trading services, and to explain how this
affects the assessment of competitive forces affecting the exchanges'
data fees.\37\ Professor Rysman was able to analyze exchange data that
is not otherwise publicly available in a manner that is consistent with
the exchanges' confidentiality obligations to customers. As shown in
his paper, Professor Rysman surveyed the existing economic literature
analyzing stock exchanges as platforms between market data and trading
activities, and explained the types of linkages between market data
access and trading activities that must be present for an exchange to
function as a platform. In addition, Professor Rysman undertook an
empirical analysis of customers' trading activities within the NYSE
group of exchanges in reaction to NYSE's introduction in 2015 of the
NYSE Integrated Feed, a full order-by-order depth of book data
product.\38\
---------------------------------------------------------------------------
\37\ See Exhibit 3B, Marc Rysman, Stock Exchanges as Platforms
for Data and Trading, December 2, 2019 (hereinafter ``Rysman
Paper''), ] 7.
\38\ See Securities Exchange Act Release Nos. 74128 (January 23,
2015), 80 FR 4951 (January 29, 2015) (SR-NYSE-2015-03) (Notice of
filing and immediate effectiveness of proposed rule change to
establish NYSE Integrated Feed) and 76485 (November 20, 2015), 80 FR
74158 (November 27, 2015) (SR-NYSE-2015-57) (Notice of filing and
immediate effectiveness of proposed rule change to establish fees
for the NYSE Integrated Feed).
---------------------------------------------------------------------------
Professor Rysman's analysis of this confidential firm-level data
shows that firms that purchased the NYSE Integrated Feed market data
product after its introduction were more likely to route orders to NYSE
as opposed to one of the other NYSE-affiliated exchanges, such as NYSE
Arca or NYSE American.\39\ Moreover, Professor Rysman shows that the
same is true for firms that did not subscribe to the NYSE Integrated
Feed: The introduction of the NYSE Integrated Feed led to more trading
on NYSE (as opposed to other NYSE-affiliated exchanges) by firms that
did not subscribe to the NYSE Integrated Feed.\40\ This is the sort of
externality that is a key characteristic of a platform market.\41\
---------------------------------------------------------------------------
\39\ Rysman Paper ]] 79-89.
\40\ Id. ]] 90-91.
\41\ Id. ] 90.
---------------------------------------------------------------------------
From this empirical evidence, Professor Rysman concludes:
``[D]ata is more valuable when it reflects more trading
activity and more liquidity-providing orders. These linkages alone are
enough to make platform economics necessary for understanding the
pricing of market data.'' \42\
---------------------------------------------------------------------------
\42\ Id. ] 95.
---------------------------------------------------------------------------
``[L]inkages running in the opposite direction, from data
to trading, are also very likely to exist. This is because market data
from an exchange reduces uncertainty about the likelihood, price, or
timing of execution for an order on that exchange. This reduction in
uncertainty makes trading on that exchange more attractive for traders
that subscribe to that exchange's market data. Increased trading by
data subscribers, in turn, makes trading on the exchange in question
more attractive for traders that do not subscribe to the exchange's
market data.'' \43\
---------------------------------------------------------------------------
\43\ Id. ] 96.
---------------------------------------------------------------------------
The ``mechanisms by which market data makes trading on an
exchange more attractive for subscribers to market data . . . apply to
a wide assortment of market data products, including BBO, order book,
and full order-by-order depth of book data products at all exchanges.''
\44\
---------------------------------------------------------------------------
\44\ Id.
---------------------------------------------------------------------------
``[E]mpirical evidence confirms that stock exchanges are
platforms for data and trading.'' \45\
---------------------------------------------------------------------------
\45\ Id. ] 97.
---------------------------------------------------------------------------
``The platform nature of stock exchanges means that data
fees cannot be analyzed in isolation, without accounting for the
competitive dynamics in trading services.'' \46\
---------------------------------------------------------------------------
\46\ Id. ] 98.
---------------------------------------------------------------------------
``Competition is properly understood as being between
platforms (i.e., stock exchanges) that balance the needs of consumers
of data and traders.'' \47\
---------------------------------------------------------------------------
\47\ Id.
---------------------------------------------------------------------------
``Data fees, data use, trading fees, and order flow are
all interrelated.'' \48\
---------------------------------------------------------------------------
\48\ Id.
---------------------------------------------------------------------------
``Competition for order flow can discipline the pricing of
market data, and vice-versa.'' \49\
---------------------------------------------------------------------------
\49\ Id.
---------------------------------------------------------------------------
``As with platforms generally, overall competition between
exchanges will limit their overall profitability, not margins on any
particular side of the platform.'' \50\
---------------------------------------------------------------------------
\50\ Id. ] 100.
---------------------------------------------------------------------------
c. Exchange Market Data Fees Are Constrained by the Availability of
Substitute Platforms
Professor Rysman's conclusions that exchanges function as platforms
for market data and transaction services mean that exchanges do not set
fees for
[[Page 71048]]
market data products without considering, and being constrained by, the
effect the fees will have on the order-flow side of the platform. And
as the D.C. Circuit recognized in NetCoalition I, ``[n]o one disputes
that competition for order flow is fierce.'' \51\ The court further
noted that ``no exchange possesses a monopoly, regulatory or otherwise,
in the execution of order flow from broker dealers,'' and that an
exchange ``must compete vigorously for order flow to maintain its share
of trading volume.'' \52\
---------------------------------------------------------------------------
\51\ NetCoalition I, 615 F.3d at 544 (internal quotation
omitted).
\52\ Id.
---------------------------------------------------------------------------
Similarly, the Commission itself has recognized that the market for
trading services in NMS stocks has become ``more fragmented and
competitive.'' \53\ The Commission's Division of Trading and Markets
has also recognized that with so many ``operating equities exchanges
and dozens of ATSs, there is vigorous price competition among the U.S.
equity markets and, as a result, [transaction] fees are tailored and
frequently modified to attract particular types of order flow, some of
which is highly fluid and price sensitive.'' \54\ Indeed, today, equity
trading is currently dispersed across 13 exchanges,\55\ 31 alternative
trading systems,\56\ and numerous broker-dealer internalizers and
wholesalers, all competing for order flow. Based on publicly-available
information, no single exchange currently has more than 18% market
share.\57\
---------------------------------------------------------------------------
\53\ See Securities Exchange Act Release No. 51808, 84 FR 5202,
5253 (February 20, 2019) (File No. S7-05-18).
\54\ Commission Division of Trading and Markets, Memorandum to
EMSAC, dated October 20, 2015, available here: https://www.sec.gov/spotlight/emsac/memo-maker-taker-fees-on-equities-exchanges.pdf.
\55\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at http://markets.cboe.com/us/equities/market_share/. See generally https://www.sec.gov/fast-answers/divisionsmarketregmrexchangesshtml.html.
\56\ See FINRA ATS Transparency Data, available at https://otctransparency.finra.org/otctransparency/AtsIssueData. A list of
alternative trading systems registered with the Commission is
available at https://www.sec.gov/foia/docs/atslist.htm.
\57\ See Cboe Global Markets U.S. Equities Market Volume
Summary, available at http://markets.cboe.com/us/equities/market_share/.
---------------------------------------------------------------------------
Further, low barriers to entry mean that new exchanges may rapidly
and inexpensively enter the market and offer additional substitute
platforms to compete with the Exchange.\58\ In addition to the 13
presently-existing exchanges, three new ones are expected to enter the
market in 2020: Long Term Stock Exchange (LTSE), which has been
approved as an equities exchange but is not yet operational; \59\
Members Exchange (MEMX), which has recently filed its application to be
approved as a registered equities exchange; \60\ and Miami
International Holdings (MIAX), which has announced its plan to
introduce equities trading on an existing registered options
exchange.\61\
---------------------------------------------------------------------------
\58\ See Jones Paper at 10-11.
\59\ See Securities Exchange Act Release No. 85828 (May 10,
2019) (File No. 10-234) (Findings, Opinion, and Order of the
Commission in the Matter of the Application of Long Term Stock
Exchange, Inc. for Registration as a National Securities Exchange).
\60\ See Securities Exchange Act Release No. 87436 (October 31,
2019) (File No. 10-237) (Notice of filing of application of MEMX LLC
for registration as a national securities exchange under Section 6
of the Act).
\61\ See Press Release of Miami International Holdings Inc.,
dated May 17, 2019, available here: https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_05172019.pdf.
---------------------------------------------------------------------------
Given Professor Rysman's conclusion that exchanges are platforms
for market data and trading, this fierce competition for order flow on
the trading side of the platform acts to constrain, or ``discipline,''
the pricing of market data on the other side of the platform.\62\ And
due to the ready availability of substitutes and the low cost to move
order flow to those 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.\63\ Although the various exchanges may differ in their
strategies for pricing their market data products and their transaction
fees for trades--with some offering market data for free along with
higher trading costs, and others charging more for market data and
comparatively less for trading--the fact that exchanges are platforms
ensures that no exchange makes pricing decisions for one side of its
platform without considering, and being constrained by, the effects
that price will have on the other side of the platform.
---------------------------------------------------------------------------
\62\ Rysman Paper ] 98.
\63\ See Jones Paper at 11.
---------------------------------------------------------------------------
In sum, the fierce competition for order flow thus constrains any
exchange from pricing its market data at a supracompetitive price, and
constrains the Exchange in setting its fees at issue here.
The proposed fees are therefore reasonable because in setting them,
the Exchange is constrained by the availability of numerous substitute
platforms offering market data products and trading. Such substitutes
need not be identical, but only substantially similar to the product at
hand.
More specifically, in reducing specified fees for the NYSE Arca BBO
and NYSE Arca Trades market data products, the Exchange is constrained
by the fact that, if its pricing across the platform is unattractive to
customers, customers have their pick of an increasing number of
alternative platforms to use instead of the Exchange. The Exchange
believes that it has considered all relevant factors and has not
considered irrelevant factors in order to establish reasonable fees.
The existence of numerous alternative platforms to the Exchange's
platform ensures that the Exchange cannot set unreasonable market data
fees without suffering the negative effects of that decision in the
fiercely competitive market for trading order flow.
d. The Availability of Substitute Market Data Products Constrains Fees
for NYSE Arca BBO, NYSE Arca Trades, and NYSE BQT
Even putting aside the facts that exchanges are platforms and that
pricing decisions on the two sides of the platform are intertwined, the
Exchange is constrained in setting the proposed market data fees by the
availability of numerous substitute market data products.
The NYSE BQT market data product is subject to significant
competitive forces that constrain its pricing. Specifically, as
described above, NYSE BQT competes head-to-head with the Nasdaq Basic
product and the Cboe One Feed. These products each serve as reasonable
substitutes for one another as they are each designed to provide
investors with a unified view of real-time quotes and last-sale prices
in all Tape A, B, and C securities. Each product provides subscribers
with consolidated top-of-book quotes and trades from multiple U.S.
equities markets. In the case of NYSE BQT, this product provides top-
of-book quotes and trades data from five NYSE-affiliated U.S. equities
exchanges, which together account for approximately 24% of consolidated
U.S. equities trading volume as of October 2019.\64\ Cboe One Feed
similarly provides top-of-book quotes and trades data from Cboe's four
U.S. equities exchanges. NYSE BQT, Nasdaq Basic, and Cboe One Feed are
all intended to provide indicative pricing and are not intended to be
used for order routing or trading decisions.
---------------------------------------------------------------------------
\64\ See Cboe Global Markets, U.S. Equities Market Volume
Summary, available at https://markets.cboe.com/us/equities/market_share/market/2019-10-31/.
---------------------------------------------------------------------------
In addition to competing with proprietary data products from Nasdaq
[[Page 71049]]
and Cboe, NYSE BQT also competes with the consolidated data feed.
However, the Exchange does not claim that NYSE BQT is a substitute for
consolidated data with respect to requirements under the Vendor Display
Rule, which is Regulation NMS Rule 603(c).
The fact that this filing is proposing reductions in certain fees,
fee credits, and free trial periods is itself confirmation of the
inherently competitive nature of the market for the sale of proprietary
market data. For example, Cboe recently filed proposed rule changes to
reduce certain of its Cboe One Feed fees and noted that it attracted
two additional customers because of the reduced fees.\65\
---------------------------------------------------------------------------
\65\ See Securities Exchange Act Release Nos.86667 (August 14,
2019) (SR-CboeBZX-2019-069); 86670 (August 14, 2019) (SR-CboeBYX-
2019-012); 86676 (August 14, 2019) (SR-CboeEDGA-2019-013); and 86678
(August 14, 2019) (SR-CboeEDGX-2019-048) (Notices of filing and
Immediate effectiveness of proposed rule change to reduce fees for
the Cboe One Feed) (collectively ``Cboe One Fee Filings''). The Cboe
One Fee Filings were in effect from August 1, 2019 until September
30, 2019, when the Commission suspended them and instituted
proceedings to determine whether to approve or disapprove those
proposals. See, e.g., Securities Exchange Act Release No. 87164
(September 30, 2019), 84 FR 53208 (October 4, 2019) (SR-CboeBZX-
2019-069). On October 1, 2019, the Cboe equities exchanges refiled
the Cboe One Fee Filings on the basis that they had new customers
subscribe as a result of the Cboe One Fee Filings, and therefore its
fee proposal had increased competition for top-of-book market data.
See Securities Exchange Act Release Nos. 87312 (October 15, 2019),
84 FR 56235 (October 21, 2019) (SR-CboeBZX-2019-086); 87305 (October
14, 2019), 84 FR 56210 (October 21, 2019) (SR-CboeBYX-2019-015);
87295 (October 11, 2019), 84 FR 55624 (October 17, 2019) (SR-
CboeEDGX-2019-059); and 87294 (October 11, 2019), 84 FR 55638
(October 17, 2019) (SR-CboeEDGZ-2019-015) (Notices of filing and
immediate effectiveness of proposed rule changes to re-file the
Small Retail Broker Distribution Program) (``Cboe One Fee Re-
Filings''). On November 26, 2019, the Commission suspended the Cboe
One Fee Re-Filings and instituted proceedings to determine whether
to approve or disapprove those proposals. See, e.g., Securities
Exchange Act Release No. 87629 (November 26, 2019) (SR-CboeBZX-2019-
086) (Federal Register publication pending).
---------------------------------------------------------------------------
The Exchange notes that NYSE Arca BBO, NYSE Arca Trades, and NYSE
BQT are entirely optional. The Exchange and its affiliates are not
required to make the proprietary data products that are the subject of
this proposed rule change available or to offer any specific pricing
alternatives to any customers, nor is any firm or investor required to
purchase these data products. Unlike some other data products (e.g.,
the consolidated quotation and last-sale information feeds) that firms
are required to purchase in order to fulfil regulatory obligations,\66\
a customer's decision whether to purchase any of the Exchange's
proprietary market data feeds is entirely discretionary. Most firms
that choose to subscribe to proprietary market data products from the
Exchange and its affiliates do so for the primary goals of using them
to increase their revenues, reduce their expenses, and in some
instances compete directly with the Exchange's trading services. Such
firms are able to determine for themselves whether or not the products
in question or any other similar products are attractively priced. If
market data products from the Exchange and its affiliates do not
provide sufficient value to firms based on the uses those firms may
have for it, such firms may simply choose to conduct their business
operations in ways that do not use the products.\67\ A clear
illustration of this point is the fact that today, NYSE BQT has just
one subscriber.
---------------------------------------------------------------------------
\66\ The Exchange notes that broker-dealers are not required to
purchase proprietary market data to comply with their best execution
obligations. See In the Matter of the Application of Securities
Industry and Financial Markets Association for Review of Actions
Taken by Self-Regulatory Organizations, Release Nos. 34-72182; AP-3-
15350; AP-3-15351 (May 16, 2014). Similarly, there is no requirement
in Regulation NMS or any other rule that proprietary data be
utilized for order routing decisions, and some broker-dealers and
ATSs have chosen not to do so.
\67\ See generally Jones Paper at 8, 10-11.
---------------------------------------------------------------------------
In addition, in the case of products that are also redistributed
through market data vendors, such as Bloomberg and Refinitiv, 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.
Currently, only one vendor subscribes to NYSE BQT, and that vendor has
limited redistribution of NYSE BQT. No other vendors currently
subscribe to NYSE BQT and likely will not unless their customers
request it, and customers will not elect to pay the proposed fees
unless such product can provide value by sufficiently increasing
revenues or reducing costs in the customer's business in a manner that
will offset the fees. All of these factors operate as constraints on
pricing proprietary data products.
Because of the availability of substitutes, an exchange that
overprices its market data products stands a high risk that users may
substitute another source of market data information for its own. Those
competitive pressures imposed by available alternatives are evident in
the Exchange's proposed pricing.
In setting the proposed fees, the Exchange considered the
competitiveness of the market for proprietary data and all of the
implications of that competition. The Exchange believes that it has
considered all relevant factors and has not considered irrelevant
factors in order to establish reasonable fees. The existence of
numerous alternatives to the Exchange's platform and, more
specifically, alternatives to the market data products, including
proprietary data from other sources, ensures that the Exchange cannot
set unreasonable fees when vendors and subscribers can elect these
alternatives or choose not to purchase a specific proprietary data
product if the attendant fees are not justified by the returns that any
particular vendor or data recipient would achieve through the purchase.
2. The Proposed Fees Are Reasonable
The specific fees that the Exchange proposes for NYSE Arca Trades
and NYSE Arca BBO are reasonable, for the following additional reasons.
Overall. This proposed fee change is a result of the competitive
environment, as the Exchange seeks to decrease certain of its fees to
attract subscribers that do not currently use the NYSE BQT market data
product. The Exchange is proposing the fee reductions at issue to make
the Exchange's fees more competitive for a specific segment of market
participants, thereby increasing the availability of the Exchange's
data products, and expanding the options available to firms making data
purchasing decisions based on their business needs. The Exchange
believes that this is consistent with the principles contained in
Regulation NMS to ``promote the wide availability of market data and to
allocate revenues to SROs that produce the most useful data for
investors.'' \68\
---------------------------------------------------------------------------
\68\ See Regulation NMS Adopting Release, 70 FR 37495, at 37503.
---------------------------------------------------------------------------
Access Fee. By adopting a reduced access fee to access U.S. equity
market data that is used in display-only format and that serves as the
foundation of NYSE BQT, the Exchange believes that more data recipients
may choose to subscribe to these products, thereby expanding the
distribution of this market data for the benefit of investors that
participate in the national market system and increasing competition
generally. In addition, the proposed reduced access fee is reasonable
when compared to similar fees for comparable products offered by other
markets. For
[[Page 71050]]
example, NYSE Arca Trades provides investors with alternative market
data and is similar to the Nasdaq Last Sale Data Feed; Nasdaq charges
redistributors a monthly fee of $1,500 per month, which is higher than
the current access fee for NYSE Arca Trades, and higher than the
proposed access fee for display-only users.\69\ The Exchange also
believes that offering a reduced access fee for display-only use
expands the range of options for offering the Exchange's market data
products and would allow data recipients greater choice in selecting
the most appropriate level of data and fees for the Professional and
Non-Professional Users they service.
---------------------------------------------------------------------------
\69\ See Section 139(d) of the Nasdaq Equity 7 Pricing Schedule.
---------------------------------------------------------------------------
The Exchange determined to charge the $100 access fee for its
proposed Per User Access Fee because it constitutes a substantial
reduction of the current fee, with the intended purpose of increasing
use of NYSE BQT. NYSE BQT has been in place since 2014 but has only one
subscriber, which itself has limited distribution of the product. The
Exchange believes that in order to compete with other indicative
pricing products such as Nasdaq Basic and Cboe One Feed, it needs to
provide a meaningful financial incentive for data recipients to
subscribe to NYSE BQT. Accordingly, the proposed reduction to the
Access Fees for NYSE Arca Trades and NYSE Arca BBO, together with the
proposed reduction to the Access Fees for NYSE BBO, NYSE Trades, NYSE
American BBO, and NYSE American Trades, is reasonable because the
reductions will make NYSE BQT a more attractive offering for data
recipients and make it more competitive with Nasdaq Basic and Cboe One
Feed. For example, the External Distribution Fee for Cboe One Feed is
currently $5,000 (which is the sum of the External Distribution fees
for the four exchange data products that are included in Cboe One Feed)
plus a Data Consolidation Fee of $1,000, for a total of $6,000.
Evidence of the competition among exchange groups for these products
has previously been demonstrated via fee changes. For example,
following the introduction of the Cboe One Feed, Nasdaq responded by
reducing its fees for the Nasdaq Basic product.\70\ With the proposed
changes by the Exchange, NYSE American, and NYSE, the Exchange is
similarly seeking to compete by decreasing the total access fees for
NYSE BQT from $6,250 to $850. This proposed rule change therefore
demonstrates the existence of an effective, competitive market because
this proposal resulted from a need to generate innovative approaches in
response to competition from other exchanges that offer market data for
a specific segment of market participants.
---------------------------------------------------------------------------
\70\ See e.g. Securities Exchange Act Release No. 83751 (July
31, 2018), 83 FR 38428 (August 6, 2018) (SR-NASDAQ-2018-058) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change To
Lower Fees and Administrative Costs for Distributors of Nasdaq
Basic, Nasdaq Last Sale, NLS Plus and the Nasdaq Depth-of-Book
Products Through a Consolidated Enterprise License). Nasdaq filed
the proposed fee change to lower the Enterprise Fee for Nasdaq Basic
and other market data products in response to the Enterprise Fee for
the Cboe One Feed adopted by Cboe family of exchanges.
---------------------------------------------------------------------------
Redistribution Fees. Similarly, the proposed reduction to the NYSE
Arca Trades Redistribution Fee is reasonable because it is designed to
provide an incentive for Redistributors to make NYSE BQT available so
that data recipients can subscribe to NYSE BQT. The Exchange further
believes that the proposed reduction to the NYSE Arca Trades
Redistribution Fee is reasonable because it is designed to compete with
a similar credit offered by the Cboe family of equity exchanges.\71\
---------------------------------------------------------------------------
\71\ See, e.g., BZX Price List--U.S. Equities available at
http://www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#db [sic]. BZX
charges $500 per month for internal distribution, and $2,500 per
month for external distribution, of BZX Last Sale. BZX also charges
$500 per month for internal distribution, and $2,500 per month for
external distribution, of BZX Top. Each external distributor is
eligible to receive a credit against its monthly Distributor Fee for
BZX Las [sic] Sale equal to the amount of its monthly User Fees up
to a maximum of the Distributor Fee for BZX Las [sic] Sale. See Cboe
BZX U.S. Equities Exchange Fee Schedule at http://markets.cboe.com/us/equities/membership/fee_schedule/bzx/.
---------------------------------------------------------------------------
One-Month Free Trial. The Exchange believes that the proposed rule
change to provide the NYSE Arca market data products to new customers
free-of-charge for their first subscription month is reasonable because
it would allow vendors and subscribers to become familiar with the
feeds and determine whether they suit their needs without incurring
fees. Making a new market data product available for free for a trial
period is consistent with offerings of other exchanges. For example,
Nasdaq offers new subscribers its market data products a 30-day waiver
of user fees.\72\
---------------------------------------------------------------------------
\72\ See Section 112(b)(1) of Nasdaq's Equity 7 Pricing
Schedule.
---------------------------------------------------------------------------
Deletion of Obsolete Text. The Exchange believes that it is
reasonable to delete references to obsolete rule text and dates from
the Fee Schedule and to make non-substantive clarifying amendments. The
Exchange believes that the proposed changes are reasonable because they
would result in greater specificity and precision within the Fee
Schedule, which would contribute to reasonably ensuring that the fees
described there are clear and accurate. Specifically, the proposed
changes are reasonable because they would remove obsolete rule text and
dates from the Fee Schedule related to a Decommission Extension Fee
that is no longer charged by the Exchange and provide greater
specificity regarding the application of the Enterprise Fee.
For all of the foregoing reasons, the Exchange believes that the
proposed fees are reasonable.
The Proposed Fees Are Equitably Allocated
The Exchange believes the proposed fees for NYSE Arca Trades and
NYSE Arca BBO are allocated fairly and equitably among the various
categories of users of the feed, and any differences among categories
of users are justified.
Overall. As noted above, this proposed fee change is a result of
the competitive environment for market data products that provide
indicative pricing information across a family of exchanges. To respond
to this competitive environment, the Exchange seeks to amend its fees
to access NYSE Arca Trades and NYSE Arca BBO in a display-only format,
which the Exchange hopes will attract additional subscribers for its
NYSE BQT market data product. The Exchange is proposing the fee
reductions to make the Exchange's fees more competitive for a specific
segment of market participants, thereby increasing the availability of
the Exchange's data products, expanding the options available to firms
making data purchasing decisions based on their business needs, and
generally increasing competition.
Access Fee. The Exchange believes that the proposed Per User Access
Fee is equitable as it would apply equally to all data recipients that
choose to subscribe to NYSE Arca Trades or NYSE Arca BBO in a display-
only format. Because NYSE Arca Trades and NYSE Arca BBO are optional
products, any data recipient could choose to subscribe to NYSE Arca
Trades or NYSE Arca BBO for display-only use and be eligible for the
proposed reduced fee. The Exchange does not believe that it is
inequitable that this proposed fee reduction would be available only to
data recipients that use NYSE Arca Trades or NYSE Arca BBO in a
display-only format. Non-display data represents a different set of use
cases than display-only usage; non-display data can be used by data
recipients for a wide variety of profit-generating purposes, including
proprietary and agency trading and smart order routing,
[[Page 71051]]
as well as by data recipients that operate order matching and execution
platforms that compete directly with the Exchange for order flow. The
data also can be used for a variety of non-trading purposes that
indirectly support trading, such as risk management and compliance.
Although some of these non-trading uses do not directly generate
revenues, they can nonetheless substantially reduce the recipient's
costs by automating such functions so that they can be carried out in a
more efficient and accurate manner and reduce errors and labor costs,
thereby benefiting end users. The Exchange believes that charging a
different access fee for non-display use is equitable because data
recipients can derive substantial value from such uses, for example, by
automating tasks so that can be performed more quickly and accurately
and less expensively than if they were performed manually.
Redistribution Fees. The Exchange believes the proposed change to
provide a credit to a Redistributor that externally redistributes NYSE
Arca Trades to Professional and Non-Professional Users in a display-
only format in an amount equal to the monthly Professional User and
Non-Professional User fees for such external distribution, up to a
maximum of the Redistribution Fee, is equitably allocated. The proposed
change would apply equally to all Redistributors that choose to
externally redistribute the NYSE Arca Trades product, and would serve
as an incentive for Redistributors to make NYSE Arca Trades more
broadly available for use by both Professional and Non-Professional
Users. This, in turn, could provide an incentive for Redistributors to
make NYSE BQT available to their customers.
One-Month Free Trial. The Exchange believes the proposal to provide
the NYSE Arca market data products to new customers free-of-charge for
their first subscription month is equitable because it applies to any
first-time subscriber, regardless of the use they plan to make of the
feed. As proposed, any first-time subscriber would not be charged the
Access Fee, Non-Display Fee, any applicable Professional and Non-
Professional User Fee, or Redistribution Fee for any of the NYSE Arca
market data products for one calendar month. The Exchange believes it
is equitable to restrict the availability of this one-month free trial
to customers that have not previously subscribed to any NYSE Arca
market data product, since customers who are current or previous
subscribers are already familiar with the products and whether they
would suits their needs.
Deletion of Obsolete Text. The Exchange believes that deleting
obsolete rule text and dates from the Fee Schedule and make non-
substantive clarifying amendments is equitably allocated because these
proposed changes do not change fees, but rather, result in greater
specificity and precision within the Fee Schedule, which would
contribute to reasonably ensuring that the fees described there are
clear and accurate. The Exchange also believes that the proposed
changes are equitable because all readers of the Fee Schedule would
benefit from the increased specificity and clarity that this proposed
rule change would provide.
For all of the foregoing reasons, the Exchange believes that the
proposed fees for the NYSE Arca market data products are equitably
allocated.
The Proposed Fees Are Not Unfairly Discriminatory
The Exchange believes the proposed fees are not unfairly
discriminatory because any differences in the application of the fees
are based on meaningful distinctions between customers, and those
meaningful distinctions are not unfairly discriminatory between
customers.
Overall. As noted above, this proposed fee change is a result of
the competitive environment for market data products that provide
indicative pricing information across a family of exchanges. To respond
to this competitive environment, the Exchange seeks to amend its fees
to access NYSE Arca Trades and NYSE Arca BBO in a display-only format,
which the Exchange hopes will attract more subscribers for its NYSE BQT
market data product. The Exchange is proposing the fee reductions to
make the Exchange's fees more competitive for a specific segment of
market participants, thereby increasing the availability of the
Exchange's data products, expanding the options available to firms
making data purchasing decisions based on their business needs, and
generally increasing competition.
Access Fee. The Exchange believes that the proposed Per User Access
Fee is not unfairly discriminatory as it would apply equally to all
data recipients that choose to subscribe to NYSE Arca Trades or NYSE
Arca BBO in a display-only format. Because NYSE Arca Trades and NYSE
Arca BBO are optional products, any data recipient could choose to
subscribe to NYSE Arca Trades or NYSE Arca BBO for display-only use and
be eligible for the proposed reduced fee. The Exchange does not believe
that it is unfairly discriminatory that this proposed fee reduction
would be available only to data recipients that use NYSE Arca Trades or
NYSE Arca BBO in a display-only format. Non-display data can be used by
data recipients for a wide variety of profit-generating purposes,
including proprietary and agency trading and smart order routing, as
well as by data recipients that operate order matching and execution
platforms that compete directly with the Exchange for order flow. The
data also can be used for a variety of non-trading purposes that
indirectly support trading, such as risk management and compliance.
While some of these non-trading uses do not directly generate revenues,
they can nonetheless substantially reduce the recipient's costs by
automating such functions so that they can be carried out in a more
efficient and accurate manner and reduce errors and labor costs,
thereby benefiting end users. The Exchange therefore believes that
there is a meaningful distinction between display and non-display users
of market data and that charging a different access fee for non-display
use is not unfairly discriminatory because data recipients can derive
substantial value from such non-display uses, for example, by
automating tasks so that can be performed more quickly and accurately
and less expensively than if they were performed manually.
Redistribution Fees. The Exchange believes the proposed change to
provide a credit to a Redistributor that externally redistributes NYSE
Arca Trades to Professional and Non-Professional Users in a display-
only format in an amount equal to the monthly Professional User and
Non-Professional User fees for such external distribution, up to a
maximum of the Redistribution Fee, is not unfairly discriminatory. The
proposed credit would apply equally to all Redistributors that choose
to externally redistribute the NYSE Arca Trades product for display
use, and would serve as an incentive for Redistributors to make NYSE
Arca Trades more broadly available for use by both Professional and
Non-Professional Users. This, in turn, could provide an incentive for
Redistributors to make NYSE BQT available to their customers.
The Exchange believes that there is a meaningful distinction
between vendors that distribute market data in a display-only format,
as such vendors are more likely to service the non-professional
community, and vendors that distribute market data for non-display use
only, as users of non-display data are more likely to be professionals
that derive substantial value from such non-display
[[Page 71052]]
uses. While this credit is not available to vendors that redistribute
NYSE Arca Trades for non-display use only, such vendors would be
eligible for this credit if they choose to expand their distribution of
NYSE Arca Trades for display use. NYSE BQT is targeted for display use
and the Exchange believes that the proposed credit would increase the
number of Redistributors--whether current vendors that redistribute on
a non-display only basis or new vendors--that would make NYSE BQT
available to their customers.
One-Month Free Trial. The Exchange believes that the proposed rule
change providing for a one-month free trial period to test is not
unfairly discriminatory because the financial benefit of the fee waiver
would be available to all firms subscribing to a NYSE Arca market data
product for the first time on a free-trial basis. The Exchange believes
there is a meaningful distinction between customers that are
subscribing to a market data for the first time, who may benefit from a
period within which to set up and test use of the product before it
becomes fee liable, and users that are already receiving the Exchange's
market data products and are deriving value from such use. The Exchange
believes that the limited period of the free trial would not be
unfairly discriminatory to other users of the Exchange's market data
products because it is designed to provide a reasonable period of time
to set up and test a new market data product. The Exchange further
believes that providing a free trial for a calendar month would ease
administrative burdens for data recipients to subscribe to a new data
product and eliminate fees for a period before such users are able to
derive any benefit from the data.
Deletion of Obsolete Text. The Exchange believes that deleting
obsolete rule text and dates from the Fee Schedule and make non-
substantive clarifying amendments is not unfairly discriminatory
because these proposed changes do not change fees, but rather, result
in greater specificity and precision within the Fee Schedule, which
would contribute to reasonably ensuring that the fees described there
are clear and accurate. The Exchange also believes that the proposed
changes are not unfairly discriminatory because all readers of the Fee
Schedule would benefit from the increased specificity and clarity that
this proposed rule change would provide.
For all of the foregoing reasons, the Exchange believes that the
proposed fees are 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.
Intramarket Competition. The Exchange believes that the proposed
fees do not put any market participants at a relative disadvantage
compared to other market participants. As noted above, the proposed fee
schedule would apply to all subscribers of NYSE Arca market data
products, and customers may not only choose whether to subscribe to the
products at all, but also may tailor their subscriptions to include
only the products and uses that they deem suitable for their business
needs.
The Exchange also believes that the proposed fees neither favor nor
penalize one or more categories of market participants in a manner that
would impose an undue market on competition. As shown above, to the
extent that particular proposed fees apply to only a subset of
subscribers, those distinctions are not unfairly discriminatory and do
unfairly burden one set of customers over another. To the contrary, by
tailoring the proposed fees in this manner, the Exchange believes that
it has eliminated the potential burden on competition that might
result, for instance, from unfairly asking vendors that distribute
market data in a display-only format to pay the same fees as vendors
that distribute market data for non-display use to professionals that
derive substantial value from such non-display uses.
Intermarket Competition. The Exchange believes that the proposed
fees do not impose a burden on competition or on other exchanges that
is not necessary or appropriate; indeed, the Exchange believes the
proposed fee changes would have the effect of increasing competition.
As demonstrated above and in Professor Rysman's attached [sic] paper,
exchanges are platforms for market data and trading. In setting the
proposed fees, the Exchange is constrained by the availability of
substitute platforms also offering market data products and trading,
and low barriers to entry mean new exchange platforms are frequently
introduced. The fact that exchanges are platforms ensures that no
exchange can make pricing decisions for one side of its platform
without considering, and being constrained by, the effects that price
will have on the other side of the platform. In setting fees at issue
here, the Exchange is constrained by the fact that, if its pricing
across the platform is unattractive to customers, customers will have
its pick of an increasing number of alternative platforms to use
instead of the Exchange. Given this intense competition between
platforms, no one exchange's market data fees can impose an unnecessary
burden on competition, and the Exchange's proposed fees do not do so
here.
In addition, the Exchange believes that the proposed fees do not
impose a burden on competition or on other exchanges that is not
necessary or appropriate because of the availability of numerous
substitute market data products. Specifically, as described above, NYSE
BQT competes head-to-head with the Nasdaq Basic product and the Cboe
One Feed. These products each serve as reasonable substitutes for one
another as they are each designed to provide investors with a unified
view of real-time quotes and last-sale prices in all Tape A, B, and C
securities. Each product provides subscribers with consolidated top-of-
book quotes and trades from multiple U.S. equities markets. NYSE BQT
provides top-of-book quotes and trades data from five NYSE-affiliated
U.S. equities exchanges, while Cboe One Feed similarly provides top-of-
book quotes and trades data from Cboe's four U.S. equities exchanges.
NYSE BQT, Nasdaq Basic, and Cboe One Feed are all intended to provide
indicative pricing and therefore, are reasonable substitutes for one
another. Additionally, market data vendors are also able to offer close
substitutes to NYSE BQT. Because market data users can find suitable
substitute feeds, an exchange that overprices its market data products
stands a high risk that users may substitute another source of market
data information for its own. These competitive pressures ensure that
no one exchange's market data fees can impose an unnecessary burden on
competition, and the Exchange's proposed fees do not do so here.
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) \73\ of the Act and subparagraph (f)(2) of Rule
19b-4 \74\
[[Page 71053]]
thereunder, because it establishes a due, fee, or other charge imposed
by the Exchange.
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\73\ 15 U.S.C. 78s(b)(3)(A).
\74\ 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) \75\ of the Act to determine whether the proposed
rule change should be approved or disapproved.
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\75\ 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-2019-88 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-88. 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-2019-88, and should be
submitted on or before January 16, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
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\76\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27726 Filed 12-23-19; 8:45 am]
BILLING CODE 8011-01-P