Notice2022-20831
Joint Industry Plan; Order Disapproving the Fifty-Second Amendment to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 27, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 186 (Tuesday, September 27, 2022)</title>
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[Federal Register Volume 87, Number 186 (Tuesday, September 27, 2022)]
[Notices]
[Pages 58592-58613]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-20831]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-95849; File No. S7-24-89]
Joint Industry Plan; Order Disapproving the Fifty-Second
Amendment to the Joint Self-Regulatory Organization Plan Governing the
Collection, Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed Securities Traded on
Exchanges on an Unlisted Trading Privileges Basis
September 21, 2022.
I. Introduction
On November 5, 2021,\1\ certain participants in the Joint Self-
Regulatory Organization Plan Governing the Collection, Consolidation
and Dissemination of Quotation and Transaction Information for Nasdaq-
Listed Securities Traded on Exchanges on an Unlisted Trading Privileges
Basis (``Nasdaq/UTP Plan'' or ``Plan'') \2\ filed with the Securities
and Exchange Commission (``SEC'' or ``Commission''), pursuant to
Section 11A of the Securities Exchange Act of 1934 (``Act'') \3\ and
Rule 608 of Regulation National Market System (``NMS'') thereunder,\4\
a proposal (the ``Proposed Amendment'') to amend the Nasdaq/UTP
Plan.\5\ The Proposed Amendment was published for comment in the
Federal Register on November 26, 2021.\6\
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\1\ See Letter from Robert Books, Chair, UTP Operating
Committee, to Vanessa Countryman, Secretary, Commission (Nov. 5,
2021) (``Cover Letter''), available at <a href="https://utpplan.com/DOC/UTP_PlanAmendment52.pdf">https://utpplan.com/DOC/UTP_PlanAmendment52.pdf</a>.
\2\ The Plan governs the collection, processing, and
dissemination on a consolidated basis of quotation information and
transaction reports in Eligible Securities for its Participants. The
Plan serves as the required transaction reporting plan for its
Participants, which is a prerequisite for their trading Eligible
Securities. See Securities Exchange Act Release No. 55647 (Apr. 19,
2007), 72 FR 20891 (Apr. 26, 2007).
\3\ 15 U.S.C 78k-1.
\4\ 17 CFR 242.608.
\5\ The Proposed Amendment was, as required by the Plan,
approved and executed by at least two-thirds of the self-regulatory
organizations (``SROs'') that are participants of the Nasdaq/UTP
Plan. The participants that approved and executed the amendment (the
``Filing Participants'') are: Cboe BYX Exchange, Inc.; Cboe BZX
Exchange, Inc.; Cboe EDGA Exchange, Inc.; Cboe EDGX Exchange, Inc.;
Cboe Exchange, Inc.; Nasdaq ISE, LLC; Nasdaq PHLX LLC.; The Nasdaq
Stock Market LLC; New York Stock Exchange LLC; NYSE American LLC;
NYSE Arca, Inc.; NYSE Chicago, Inc.; and NYSE National, Inc. The
other SROs that are participants in the Nasdaq/UTP Plan and that did
not approve or execute the amendment are (the ``Non-Supporting
Participants''): Financial Industry Regulatory Authority, Inc.;
Investors Exchange LLC; Long-Term Stock Exchange, Inc.; MEMX LLC;
MIAX PEARL, LLC; and Nasdaq BX, Inc.
\6\ See Securities Exchange Act Release No. 93618 (Nov. 19,
2021), 86 FR 67562 (Nov. 26, 2021) (``Notice''). Comments received
in response to the Proposed Amendment are available at <a href="https://www.sec.gov/comments/s7-24-89/s72489.htm">https://www.sec.gov/comments/s7-24-89/s72489.htm</a>.
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On February 24, 2022, the Commission instituted proceedings
pursuant to Rule 608(b)(2)(i) of Regulation NMS,\7\ to determine
whether to disapprove the Proposed Amendment or to approve the Proposed
Amendment with any changes or subject to any conditions the Commission
deems necessary or appropriate after considering public comment.\8\ On
May 19, 2022, the Commission designated a longer period within which to
conclude proceedings regarding the Proposed Amendment.\9\ On July 21,
2022, the Commission again designated a longer period within which to
conclude proceedings regarding the Proposed Amendment.\10\
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\7\ 17 CFR 242.608(b)(2)(i).
\8\ See Securities Exchange Act Release No. 94307 (Feb. 24,
2022), 87 FR 11787 (Mar. 2, 2022).
\9\ See Securities Exchange Act Release No. 94953 (May 19,
2022), 87 FR 31921 (May 25, 2022).
\10\ See Securities Exchange Act Release No. 95348 (July 21,
2022), 87 FR 45137 (July 27, 2022).
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The Proposed Amendment seeks to set fees for the data content
underlying consolidated market data offerings pursuant to the
Commission's Market Data Infrastructure Rules (``MDI Rules''),\11\
which expand the content of consolidated market data and require the
introduction of a competitive decentralized consolidation model. The
Filing Participants propose what they characterize as ``value-based''
fees for top-of-book data, depth-of-book data, auction data,
professional and non-professional users, non-display use, access, and
redistribution. Below, the Commission provides an overview of the MDI
Rules requirement pursuant to which the Proposed Amendment was filed
and then examines the proposed ``value-based'' methodology underlying
the proposed fees and each of the proposed fees in turn, finding that,
in each case, the Filing Participants have not demonstrated that the
proposed fees are fair, reasonable, and not unreasonably
discriminatory.
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\11\ The ``MDI Rules'' as used in this Order, and as relevant to
the Proposed Amendments, are Rules 600, 603, and 614 of Regulation
NMS. 17 CFR 242.600, 603, 614. See also Securities Exchange Act
Release No. 90610 (Dec. 9 2020), 86 FR 18596 (Apr. 9, 2021) (File
No. S7-03-20) (``MDI Rules Release''); Securities Exchange Act
Release No. 90610A (May 24, 2021), 86 FR 29195 (June 1, 2021) (File
No. S7-03-20) (technical correction to MDI Rules Release). Several
exchanges filed petitions for review challenging the MDI Rules
Release in the U.S. Court of Appeals for the District of Columbia
Circuit, which were denied on May 24, 20 22. See The Nasdaq Stock
Market LLC, et al. v. SEC, No. 21-1100 (D.C. Cir. May 24, 2022).
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This order disapproves the Proposed Amendment.\12\
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\12\ The Filing Participants have filed similar amendments to
the Consolidated Tape Association (``CTA'') Plan and Restated
Consolidated Quotation (``CQ'') Plan (collectively ``CTA/CQ
Plans''), which the Commission is also disapproving. See Securities
Exchange Act Release No. 95851 (Sep. 21, 2022) (File No. SR-CTA/CQ-
2021-03). Further the participants of the Nasdaq/UTP Plan and the
CTA/CQ Plans have also filed amendments to implement the non-fee-
related aspects of the Commission's MDI Rules. See Securities
Exchange Act Release Nos. 93620 (Nov. 19, 2021), 86 FR 67541 (Nov.
26, 2021) (File No. S7-24-89); 93615 (Nov. 19, 2021), 86 FR 67800
(Nov. 29, 2021) (File No. SR-CTA/CQ-2021-02) (collectively,
``Proposed Non-Fee Amendments''). The Commission is, by separate
orders, also disapproving the Proposed Non-Fee Amendments. See
Securities Exchange Act Release Nos. 95848 (Sep. 21, 2022) (File No.
S7-24-89); 95850 (Sep. 21, 2022) (File No. SR-CTA/CQ-2021-02).
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II. Overview
Pursuant to Regulation NMS and the Equity Data Plans,\13\ the
national securities exchanges and national securities association
(``self-regulatory organizations'' or ``SROs'') must provide certain
information with respect to quotations for and transactions in for each
NMS stock (``NMS information'') to an exclusive plan securities
information processor (``exclusive SIP''), which consolidates this
information and makes it available to market participants on the
consolidated tapes. The purpose of the Equity Data Plans is to
facilitate the collection and dissemination of SIP data so that the
public has ready access to a ``comprehensive, accurate, and reliable
source of information for the prices and volume of any NMS stock at any
time during the trading day.'' \14\ Because the infrastructure for the
collection, consolidation, and dissemination of this data had not been
significantly updated since its initial implementation in the 1970s,
the Commission adopted amendments to Regulation NMS that increase the
content of NMS information and amend the manner in which such NMS
information is collected, consolidated, and disseminated by the Equity
Data Plans.\15\ In the MDI Rules Release, the
[[Page 58593]]
Commission stated, ``[w]idespread availability of timely market
information promotes fair and efficient markets and facilitates the
ability of brokers and dealers to provide best execution to their
customers.'' \16\
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\13\ The three effective national market system plans that
govern the collection, consolidation, processing, and dissemination
of certain NMS information are: (1) the CTA Plan; (2) the CQ Plan;
and (3) the Nasdaq/UTP Plan (collectively, the ``Equity Data
Plans''). Each of the Equity Data Plans is an effective national
market system plan under 17 CFR 242.608 (Rule 608) of Regulation
NMS. See also Securities Exchange Act Release No. 28146 (June 26,
1990), 55 FR 27917 (July 6, 1990) (order approving the Nasdaq/UTP
Plan).
\14\ Concept Release on Equity Market Structure, Securities
Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3593 (Jan. 21,
2010).
\15\ See MDI Rules Release, supra note 11, 86 FR at 18598-600.
\16\ See id. at 18599.
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The adoption of the MDI Rules increases the content of NMS
information and modifies the manner in which NMS information is
collected, consolidated, and disseminated by the Plans. Significantly,
under the MDI Rules, the Commission required the introduction of a
competitive decentralized consolidation model under which competing
consolidators and self-aggregators will replace the exclusive SIPs that
collect, consolidate, and disseminate equity market data under the
existing NMS plans for equity market data. Although the exclusive SIPs
will no longer disseminate all consolidated information for an
individual NMS stock, the Plans will continue to play an important
role--they will develop and propose fees for the data content
underlying consolidated market data, collect and allocate revenues
collected for this data, develop the monthly performance metrics for
competing consolidators, and provide an annual assessment of the
competing consolidator model.
Rule 614(e)(1) directs the participants of the effective national
market system plan(s) for NMS stocks to file an amendment pursuant to
Rule 608 of Regulation NMS to conform the Plans to reflect the
provision of information with respect to quotations for and
transactions in NMS stocks that is necessary to generate consolidated
market data by the SROs to competing consolidators and self-
aggregators. As the MDI Rules Release states, this means that the
operating committees of the plan(s) will ``need to propose the new fees
that will be charged for the quotation and transaction information that
is necessary to generate consolidated market data that is required to
be made available by the SROs under Rule 603(b) to competing
consolidators and self-aggregators.'' \17\ The Proposed Amendment was
filed by the Filing Participants pursuant to this requirement.\18\
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\17\ See MDI Rules Release, supra note 11, 86 FR at 18682.
\18\ Rule 614(e) requires the participants to ``the effective
national market system plan(s) for NMS stocks'' to file an amendment
to implement the MDI Rules. 17 CFR 242.614(e). The Filing
Participants have filed the required amendment under the existing
CTA/CQ Plans and the Nasdaq/UTP Plan. See supra note 12. While the
Commission issued an order on August 6, 2020, approving, as
modified, a new national market system plan regarding equity market
data--the CT Plan--to replace the existing CTA/CQ Plans and Nasdaq/
UTP Plan, that order was stayed on October 13, 2021, see Nasdaq
Stock Mkt. LLC v. SEC, No. 21-1167 (D.C. Cir. Oct. 13, 2021), which
was before the Filing Participants filed this amendment. The
Commission's order approving the CT Plan was subsequently vacated.
See The Nasdaq Stock Market LLC, et al. v. Securities and Exchange
Commission, Nos. 21-1167, 21-1168, 21-1169 (D.C. Cir., July 5, 2022)
(vacating Securities Exchange Act Release No. 92586 (Aug. 6, 2021),
86 FR 44142 (Aug. 11, 2021) (Order Approving, as Modified, a
National Market System Plan Regarding Consolidated Market Data)).
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As explained below, the Filing Participants have not demonstrated
that the proposed ``value-based'' fee methodology, or the specific
proposed fees themselves, meet the statutory standard of being fair,
reasonable, and not unreasonably discriminatory.\19\ The Commission is
thus disapproving the Proposed Amendment under Rule 608(b)(2) of
Regulation NMS because it cannot find that the proposed fees are
necessary or appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Act.\20\
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\19\ See Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C 78k-
1(c)(1)(C)-(D); see also Rule 603(a) of Regulation NMS, 17 CFR
242.603.
\20\ 17 CFR 242.608(b)(2).
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III. Summary of the Proposed Amendment <SUP>21</SUP>
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\21\ The full text of the Proposed Amendment appears as
Attachment A to the Notice. See Notice, supra note 6, 86 FR 67566-
68.
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Under the Proposed Amendment, the Filing Participants propose to
amend the Plan to adopt fees for the data content underlying
consolidated market data offerings pursuant to the Commission's MDI
Rules. All of the SROs that are participants in the Plan have also
filed a separate amendment to implement the non-fee-related aspects of
the MDI Rules.\22\
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\22\ See Proposed Non-Fee Amendments, supra note 12.
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The Filing Participants propose a fee structure for the following
three categories of data content underlying consolidated market data
offerings, which would collectively constitute the amended definition
of core data, as that term is defined in Rule 600(b)(21) of Regulation
NMS: \23\
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\23\ 17 CFR 242.600(b)(21).
(1) Level 1 Service, which would include Top of Book Quotations,
Last Sale Price Information, and odd-lot information (as defined in
Rule 600(b)(59)).\24\ Currently, Plan fees for Level 1 Service
include the provision of Top of Book Quotations and Last Sale Price
Information, as well as administrative data (as defined in Rule
600(b)(2)),\25\ regulatory data (as defined in Rule 600(b)(78)),\26\
and SRO-specific program data (as defined in Rule 600(b)(85)).\27\
The Filing Participants propose that Level 1 Service would include
all information that subscribers currently receive via the exclusive
SIP and would add odd-lot quotation information to that content;
\28\
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\24\ 17 CFR 242.600(b)(59).
\25\ 17 CFR 242.600(b)(2).
\26\ 17 CFR 242.600(b)(78).
\27\ 17 CFR 242.600(b)(85).
\28\ Transactions in odd-lots are already reported via the
consolidated feeds.
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(2) Depth of book data (as defined in Rule 600(b)(26)); \29\ and
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\29\ 17 CFR 242.600(b)(26).
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(3) Auction information (as defined in Rule 600(b)(5)).\30\
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\30\ The Filing Participants state that they propose to price
the three subsets of data that constitute core data separately so
that data subscribers have flexibility to choose how much
consolidated market data content they wish to purchase. For example,
the Filing Participants state that they understand that certain data
subscribers may not wish to add depth-of-book data or auction
information, or may want to add only depth-of-book information but
not auction information. The Filing Participants state, however,
that they expect that competing consolidators would purchase all
core data. See Notice, supra note 6, 86 FR at 67563 n.10.
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Professional and Nonprofessional Fee Structure
For each of the three categories of data described above, the
Filing Participants propose a Professional Subscriber Charge and a
Nonprofessional Subscriber Charge.\31\
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\31\ The terms Professional Subscriber and Nonprofessional
Subscriber are currently defined in the Plan, and the Filing
Participants do not propose to amend those definitions. See Notice,
supra note 6, 86 FR at 67563.
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With respect to Level 1 Service, the Filing Participants propose to
apply the Professional Subscriber and Nonprofessional Subscriber fees
currently set forth in the Nasdaq/UTP Plan to the data content
underlying Level 1 Service under the distributed consolidation model.
Access to odd-lot information would be made available to Level 1
Service Professional and Nonprofessional Subscribers at no additional
charge.
With respect to depth-of-book data, Professional Subscribers would
pay $99.00 per device per month, and Nonprofessional Subscribers would
pay $4.00 per device per month. The Filing Participants do not propose
to offer per-quote packet charges or enterprise rates for the use of
depth-of-book data by either Professional Subscribers or
Nonprofessional Subscribers.
Finally, with respect to auction information, the Filing
Participants propose that both Professional Subscribers and
Nonprofessional Subscribers would pay $10.00 per device per month.
[[Page 58594]]
Non-Display Use Fees
The Filing Participants propose to apply Non-Display Use Fees
relating to the three categories of data described above: (1) Level 1
Service; (2) depth-of-book data; and (3) auction information.
With respect to Level 1 Service, the Filing Participants propose to
apply the Non-Display Use fees currently set forth in the Nasdaq/UTP
Plan.
With respect to non-display use of depth-of-book data, subscribers
would pay Non-Display Use Fees of $12,477.00 per month for each type of
Non-Display Use.\32\
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\32\ The types of Non-Display Use are as follows: (a) Non-
Display Use for Electronic Trading System; and (b) Non-Display
Enterprise Licenses. With respect to Non-Display Enterprises
Licenses: (i) the Non-Display Use fee for Internal Use applies when
a datafeed recipient's Non-Display Use is on its own behalf, and
(ii) the Non-Display Use fee for Internal Use applies when a
datafeed recipient's Non-Display Use is on behalf of its customers.
See Exhibit 2(i) to the Nasdaq/UTP Plan.
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With respect to non-display auction information, subscribers would
pay Non-Display Use fees of $1,248.00 per month for each category of
Non-Display Use.
Access Fees
Finally, in addition to the charges described above, the Filing
Participants propose to charge Access Fees to all subscribers for the
use of the three categories of data: (1) Level 1 Service; (2) depth-of-
book data; and (3) auction information.
With respect to Level 1 Service, the Filing Participants propose to
apply the Access Fees currently set forth in the Nasdaq/UTP Plan.
With respect to depth-of-book data, subscribers would pay a monthly
Access Fee of $9,850.00.
With respect to auction information, subscribers would pay a
monthly Access Fee of $985.00 per Network.
The Filing Participants also propose to add language to the fee
schedule for UTP services regarding the applicability of various fees
to the expanded market data content required by the MDI Rules.\33\
First, the Filing Participants propose to specify that the Per Query
Fee will not apply to the expanded content of core data and will only
be available for the receipt and use of Level 1 Service. The Filing
Participants state that, under the current Price List, the Per Query
Fee serves as an alternative fee schedule to the normally applied
Professional and Nonprofessional Subscriber Charges and, further, that
the proposed changes to the fee schedule are designed to clarify that
Per Query Fee is only available with respect to the use of Level 1
Service and that the fees for the use of depth-of-book data and auction
information must be determined pursuant to the Professional and
Nonprofessional fees described above.
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\33\ See proposed Exhibit 2 to the Nasdaq/UTP Plan.
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Second, the Filing Participants propose to add language to the fee
schedule to specify that Level 1 Service would include Top of Book
Quotation Information, Last Sale Price Information, odd-lot
information, administrative data, regulatory data, and SRO program
data. The Filing Participants state that this proposed change would use
terms defined in Rule 600(b) to reflect both data currently made
available to subscribers and the additional odd-lot information that
would be included at no additional charge.
Third, the Filing Participants propose to add language to the fee
schedule to provide that the existing Redistribution Fees would apply
to all three categories of core data (i.e., Level 1, depth-of-book, and
auction information), including any subset thereof. According to the
Filing Participants, Redistribution Fees are currently charged to any
entity that makes last-sale information or quotation information
available to any other entity or to any person other than its
employees, irrespective of the means of transmission or access. The
Filing Participants propose to amend this description to make it
applicable to core data, as that term is defined in Rule 600(b)(21).
The Filing Participants do not propose to change the amount of the
existing Redistribution Fees. The Filing Participants also propose that
the existing Redistribution Fees would be charged to competing
consolidators.
Fourth, the Filing Participants state that the Nasdaq/UTP Plan fee
schedule currently permits the redistribution of UTP Level 1 Service on
a delayed basis for $250.00 per month. The Filing Participants propose
to add a statement to the fee schedule that depth-of-book data and
auction information may not be redistributed on a delayed basis.
Finally, the Filing Participants propose to make non-substantive
changes to language in the fee schedule to take into account the
expanded content of core data. For example, the Filing Participants
propose updating various fee descriptions to either add or remove a
reference to UTP Level 1 Service. Additionally, the Filing Participants
state that, while FINRA OTC Data will not be provided to competing
consolidators, it is still being provided to the UTP Processor for
inclusion in the consolidated market data made available by the UTP
Processor. Accordingly, the Filing Participants propose to add language
to the fee schedule to make clear that UTP Level 1 Service obtained
from the Processor will include FINRA OTC Data but will not include
odd-lot information.
The Filing Participants state that the Proposed Amendment would be
implemented to coincide with the phased implementation of the MDI Rules
as required by the Commission.
With respect to the method used to develop the proposed fees, the
Filing Participants state that in the absence of cost information being
available to the Operating Committee, fees for consolidated market data
are fair and reasonable and not unreasonably discriminatory if they are
related to the value of the data to subscribers. The Filing
Participants state that the value of depth-of-book data and auction
information is well established, as this content has been available to
market participants directly from the exchanges for years, and in some
cases decades, at prices constrained by direct and platform
competition. According to the Filing Participants, exchanges have filed
fees for this data pursuant to the standards specified in Section
6(b)(5) of the Act.
The Filing Participants state that, to determine the value of
depth-of-book data, the Filing Participants considered a number of
methodologies, based on the current fees charged for depth-of-book data
products offered by exchanges, to determine the appropriate level at
which to set fees for the expanded data content. The Filing
Participants state they reviewed (1) an ISO Trade-Based Model; \34\ (2)
a Depth to Top-Of-Book Ratio Model (``Depth-to-TOB Model''); and (3) a
Message-Based Model.\35\ Ultimately, the Filing Participants selected a
Depth-to-TOB Model to determine the appropriate fees for the expanded
data content.
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\34\ According to the Filing Participants, the ISO-Based model
analyzed the number of intermarket sweep orders executing through
the NBBO, looking at the number of intermarket sweep orders executed
in the first five levels of depth as compared to all ISOs executed.
See Notice, supra note 6, 86 FR at 67565 n.18.
\35\ According to the Filing Participants, the Message-based
model looked at the total number of orders displayable in the first
five levels of depth as compared to all displayable orders. See
Notice, supra note 6, 86 FR at 67565 n.19.
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The Filing Participants state that they reviewed the depth to top-
of-book ratios of Professional device rates on Nasdaq (Nasdaq TotalView
compared to Nasdaq Basic), Cboe (Cboe Full Depth compared to Cboe One)
and NYSE (NYSE Integrated compared to NYSE BQT). The Filing
Participants state that they also reviewed the ratio proposed by IEX
between its proposed fees for real-time
[[Page 58595]]
top-of-book and depth feeds (TOPS compared to DEEP). The Filing
Participants state that using the ratios calculated for Nasdaq, NYSE,
and IEX resulted in an average ratio of 3.94x between the prices of
depth-of-book and top-of-book feeds.\36\ The Filing Participants then
applied this 3.94x ratio to the current fees charged for consolidated
market as more specifically described below.
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\36\ The Filing Participants state that they also conducted
alternative calculations by including a broader range of products or
those products offering more robust depth fees. These alternative
calculations resulted in ratios greater than 3.94x and were not
selected by the Filing Participants. The Filing Participants state
that the 3.94x ratio represents the difference in value between top-
of-book and five levels of depth that would be required to be
included in consolidated market data under Rule 603(b). Because the
alternate methodologies, which focused on only the top five levels
of depth, resulted in higher ratios, the Filing Participants state
that the more conservative 3.94x ratio would be a fair and
reasonable ratio between the proposed fees for depth-of-book data
required to be included in the consolidated market data and the
current fees for the existing Top of Book Quotation information. See
Notice, supra note 6, 86 FR at 67565.
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With respect to the fees for auction information, the Filing
Participants state that they looked to the number of trades that occur
during the auction process as compared to the trading day and
determined that roughly 10% of daily trading volume takes place during
auctions. Consequently, the Filing Participants concluded that charging
a fee that was 10% of the fee charged for depth-of-book data was an
appropriate proxy for determining the value of auction information. As
a result, the Filing Participants have proposed a $10.00 fee per
Network for auction information, which the Filing Participants state is
fair and reasonable and not unreasonably discriminatory.
With respect to the fees for Level 1 Service, the Filing
Participants state that it is fair and reasonable and not unreasonably
discriminatory to include access to odd-lot information at no charge in
addition to the current fees, which the Filing Participants state they
are not proposing to change.
Finally, as described above, the Filing Participants propose that
the existing Redistribution Fees would apply to the amended core data
and that Redistribution Fees would also apply to competing
consolidators.
IV. Discussion
A. The Applicable Standard of Review
Under Rule 608(b)(2) of Regulation NMS, the Commission shall
approve a national market system plan or proposed amendment to an
effective national market system plan, with such changes or subject to
such conditions as the Commission may deem necessary or appropriate, if
it finds that such plan or amendment is necessary or appropriate in the
public interest, for the protection of investors and the maintenance of
fair and orderly markets, to remove impediments to, and perfect the
mechanisms of, a national market system, or otherwise in furtherance of
the purposes of the Act.\37\ The Commission shall disapprove a national
market system plan or proposed amendment if it does not make such a
finding.\38\ Furthermore, under Rule 700(b)(3)(ii) of the Commission's
Rules of Practice,
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\37\ 17 CFR 242.608(b)(2).
\38\ Id.
The burden to demonstrate that a NMS plan filing is consistent
with the Exchange Act and the rules and regulations issued
thereunder that are applicable to NMS plans is on the plan
participants that filed the NMS plan filing. Any failure of the plan
participants that filed the NMS plan filing to provide such detail
and specificity may result in the Commission not having a sufficient
basis to make an affirmative finding that an NMS plan filing is
consistent with the Exchange Act and the rules and regulations
issued thereunder that are applicable to NMS plans.\39\
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\39\ 17 CFR 201.700(b)(3)(ii).
In addition, the fees proposed in the Proposed Amendments for data
content underlying consolidated market data offerings must be assessed
against the statutory standard, including Sections 11A(c)(1)(C)-(D) of
the Exchange Act and Rule 603(a) under Regulation NMS.\40\ Such fees
must satisfy the statutory standards of being fair and reasonable and
not unreasonably discriminatory.\41\ In making this assessment, the
Commission must have ``sufficient information before it to satisfy its
statutorily mandated review function'' to determine that the fees meet
the standard.\42\
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\40\ See Sections 11A(c)(1)(C)-(D) of the Exchange Act, 15
U.S.C. 78k-1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR
242.603. See also MDI Rules Release, supra note 11, 86 FR at 18650.
\41\ See Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C. 78k-
1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603. See
also MDI Rules Release, Section III.E.2(c), supra note 11, 86 FR at
18684-87 (discussing the statutory requirements applicable to
consolidated market data and the standards the Commission has
historically applied to assessing compliance with the statutory
requirements).
\42\ See MDI Rules Release, supra note 11, 86 FR at 18685
(citing to In the Matter of the Application of Bloomberg L.P.,
Securities Exchange Act Release No. 83755 (July 31, 2018), 2018 WL
3640780, at *9 (``Bloomberg Order'')).
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For the reasons discussed below, the Commission finds that the
Filing Participants have not demonstrated that the Proposed Amendment
is consistent with the Act.\43\ Accordingly, the Commission cannot find
that the Proposed Amendment is necessary or appropriate in the public
interest, for the protection of investors and the maintenance of fair
and orderly markets, to remove impediments to, and perfect the
mechanisms of, a national market system, or otherwise in furtherance of
the purposes of the Act.\44\
---------------------------------------------------------------------------
\43\ 17 CFR 201.700(b)(3).
\44\ 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
In the discussion that follows, the Commission analyzes the
methodology selected by the Filing Participants to develop the proposed
fees for data content underlying consolidated market data, as well as
the implementation of that methodology, and discusses in turn each of
the proposed fee categories for content underlying consolidated market
data.
B. ``Cost-Based'' vs. ``Value-Based'' Fees for Data Content Underlying
Consolidated Market Data
The ``value-based'' fee methodology proposed by the Filing
Participants, and opposed by certain commenters, would apply to each of
the specific proposed fees,\45\ and the Commission therefore discusses
this issue before addressing each of the proposed fees.
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\45\ See Notice, supra note 6, 86 FR at 67564-66.
---------------------------------------------------------------------------
In the MDI Rules Release, the Commission stated that the Operating
Committee of the Plan ``should continue to have an important role in
the operation, development, and regulation of the national market
system for the collection, consolidation, and dissemination of
consolidated market data.'' \46\ The Commission further stated that
``the fees for data content underlying consolidated market data, as now
defined, are subject to the national market system process that has
been established,'' and that the ``Operating Committee(s) have plenty
of experience in developing fees for SIP data.'' \47\
---------------------------------------------------------------------------
\46\ MDI Rules Release, supra note 11, 86 FR at 18682.
\47\ MDI Rules Release, supra note 11, 86 FR at 18683.
---------------------------------------------------------------------------
The Filing Participants state that the Operating Committee has
brought this experience to bear to determine the fees for the new core
data elements.\48\ In the Cover Letter,\49\ the Filing Participants
also acknowledge that the fees established for consolidated market data
must be fair and reasonable and not unreasonably discriminatory, and
they state that they are proposing fees that are fair and reasonable
and not unreasonably discriminatory.
[[Page 58596]]
Additionally, the Filing Participants argue that, while the Commission
has stated that one way to demonstrate that fees for consolidated
market data are fair and reasonable is to show that they are reasonably
related to costs, the Exchange Act does not require a showing of costs
and historically the Plan has not demonstrated that its fees are fair
and reasonable on the basis of cost data.\50\
---------------------------------------------------------------------------
\48\ See Notice, supra note 6, 86 FR at 67564.
\49\ See Cover Letter, supra note 1, at 6; see also Notice,
supra note 6, 86 FR at 67564.
\50\ See Notice, supra note 6, 86 FR at 67564.
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The Filing Participants further represent that, under the
decentralized competing consolidator model, the Operating Committee has
no knowledge of any of the costs associated with consolidated market
data.\51\ According to the Filing Participants, under the current
exclusive SIP model, the Operating Committee (1) specifies the
technology that each Participant must use to provide the SIPs with
data, and (2) contracts directly with a SIP to collect, consolidate,
and disseminate consolidated market data, and the Operating Committee
therefore has knowledge only of the costs associated with collecting
and consolidating market data, as opposed to the costs associated with
producing the data.\52\ By contrast, the Filing Participants state,
under the decentralized competing consolidator model, the Nasdaq/UTP
Plan will no longer have a role either in specifying the technology
associated with exchanges providing data or in contracting with a SIP.
Rather, the Filing Participants state, each national securities
exchange will be responsible, as specified in Rule 603(b), for
determining the methods of access to and format of data necessary to
generate consolidated market data.\53\ Moreover, the Filing
Participants argue, competing consolidators will be responsible for
connecting to the exchanges to obtain data directly from each exchange,
without any involvement of the Operating Committee, and the Operating
Committee will not have access to information about how each exchange
would generate the data it would be required to disseminate under Rule
603(b).\54\ Accordingly, the Filing Participants argue, the Operating
Committee does not and will not have access to any information about
the cost of providing consolidated market data under the decentralized
competing consolidator model.\55\
---------------------------------------------------------------------------
\51\ See id.
\52\ See id.
\53\ See id.
\54\ See id.
\55\ See id.
---------------------------------------------------------------------------
The Filing Participants state that, in light of the absence of cost
information available to the Operating Committee, fees for consolidated
market data are fair and reasonable and not unreasonably discriminatory
if they are related to the value of the data to subscribers. The Filing
Participants argue that the value of depth-of-book data and auction
information is well-established, as this content has been available to
market participants directly from the exchanges for years, and in some
cases decades, at prices constrained by direct and platform
competition. The Filing Participants further state that exchanges have
filed fees for this data pursuant to the standards specified in Section
6(b)(5) of the Act and that the fees in the Proposed Amendment were
filed using a value-based methodology.
Some commenters oppose the Proposed Amendment, arguing that the
proposed fees are based on a flawed methodology that, inconsistent with
the MDI Rules, fails to provide a cost-based justification.\56\ These
commenters state that the proposed fees should bear a reasonable
relationship to the cost of producing the market data, which, they
argue, is the primary basis the Commission has identified for
justifying the fees for core data.\57\
---------------------------------------------------------------------------
\56\ See Letter from Christopher Solgan, Senior Counsel, MIAX
Exchange Group, to Vanessa Countryman, Secretary, Commission, at 3
(Jan. 12, 2022) (``MIAX Letter'') (comment from a Non-Supporting
Participant); Letter from John Ramsay, Chief Market Policy Officer,
Investors Exchange LLC, to Vanessa Countryman, Secretary,
Commission, at 2-3 (Dec. 17, 2021) (``IEX Letter'') (comment from a
Non-Supporting Participant). See also Letter from Joe Wald, Managing
Director, Co-Head of Electronic Trading, and Ray Ross, Managing
Director, Co-Head of Electronic Trading, BMO Capital Markets Group,
to Vanessa Countryman, Secretary, Commission, at 2-3 (Dec. 17, 2021)
(``BMO Letter''); Letter from Ellen Greene, Managing Director,
Equity & Options Market Structure, and William C. Thum, Managing
Director and Associate General Counsel, Asset Management Group,
Securities Industry and Financial Markets Association, to Vanessa
Countryman, Secretary, Commission, at 4-5 (Dec. 17, 2021) (``SIFMA
Letter I'') (noting that the fees charged by monopolistic providers,
such as exclusive SIPs, need to be tied to some type of cost-based
standard in order to preclude excessive profits if fees are too high
or underfunding or subsidization if fees are too low); Letter from
Patrick Flannery, Chief Executive Officer, MayStreet, to Vanessa
Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (``MayStreet
Letter I''); Letter from Hubert De Jesus, Managing Director, Global
Head of Market Structure and Electronic Trading, and Samantha DeZur,
Director, Global Public Policy, BlackRock, to Vanessa Countryman,
Secretary, Commission, at 2 (Dec. 16, 2021) (``BlackRock Letter'');
Letter from Allison Bishop, President, Proof Services LLC, to
Vanessa Countryman, Secretary, Commission, at 2-3 (Nov. 22, 2021)
(``Proof Services Letter''); Letter from Adrian Griffiths, Head of
Market Structure, MEMX LLC, to Vanessa Countryman, Secretary,
Commission, at 18 (Nov. 8, 2021) (``MEMX Letter''); Letter from
Ellen Greene, Managing Director, Equity & Options Market Structure,
and William C. Thum, Managing Director and Associate General
Counsel, Asset Management Group, Securities Industry and Financial
Markets Association, to Vanessa Countryman, Secretary, Commission,
at 2 (Apr. 27, 2022) (``SIFMA Letter II'').
\57\ See IEX Letter, supra note 56, at 1, 2-3 (stating that the
proposal fails to establish that the fees for the data content
underlying consolidated market data meet the statutory standards of
being fair, reasonable, and not unreasonably discriminatory); MIAX
Letter, supra note 56, at 3. See also BMO Letter, supra note 56, at
2-3; SIFMA Letter I, supra note 56, at 4-5 (stating that the fees
charged by monopolistic providers, such as exclusive SIPs, need to
be tied to some type of cost-based standard in order to preclude
excessive profits if fees are too high or underfunding or
subsidization if fees are too low); MayStreet Letter I, supra note
56, at 6; BlackRock Letter, supra note 56, at 2; Proof Services
Letter, supra note 56, at 2, 3; MEMX Letter, supra note 56, at 18;
Letter from Manisha Kimmel, Chief Policy Officer, MayStreet, Inc.,
to Vanessa Countryman, Secretary, Commission, at 13 (``MayStreet
Letter II'') (stating that fees based on cost are the best approach
to achieve robust competition for consolidated market data and meet
Regulation NMS and other standards under the Exchange Act); SIFMA
Letter II, supra note 56, at 2.
---------------------------------------------------------------------------
Some commenters also state that the methodology used has resulted
in proposed fees that are unreasonably high.\58\ In making this
argument, some commenters object to using the current prices for the
exchanges' proprietary data products as the basis for calculating the
proposed core data fees,\59\ stating that such a method is inconsistent
with the MDI Rules' goal of expanding access to consolidated data \60\
and with statements in the MDI Rules Release that the proposed fees
should bear a reasonable relationship to the cost of producing the
data.\61\ One commenter states that without fair and reasonable pricing
for the underlying content of consolidated market data, implementation
of the MDI Rules cannot proceed, nor can improvements to price
transparency and best execution, because the use of top-of-book
proprietary feeds provided by exchanges--often marketed as SIP
[[Page 58597]]
alternatives and widely used in place of the SIP due to both direct and
administrative costs--deprives retail investors of a complete view of
the NMS marketplace, which is required to fulfill the Congressional
mandate in the 1975 amendments to the Act.\62\
---------------------------------------------------------------------------
\58\ See MIAX Letter, supra note 56, at 3; MayStreet Letter I,
supra note 56, at 6; BlackRock Letter, supra note 56, at 2, 4-5; IEX
Letter, supra note 56, at 4; Proof Services Letter, supra note 56,
at 3; MEMX Letter, supra note 56, at 8, 11-12.
\59\ See MIAX Letter, supra note 56, at 4; SIFMA Letter I, supra
note 56, at 4-5 (stating that the exchanges' ``platform
competition'' argument--that competition for order flow constrains
pricing for market data--does not demonstrate that the fees are
reasonable and that studies the commenter has submitted to the
Commission in the past bolster the commenter's argument); IEX
Letter, supra note 56, at 4; SIFMA Letter II, supra note 56, at 2.
\60\ See MIAX Letter, supra note 56, at 4.
\61\ See id. at 3 (stating ``the [p]roposals do not provide a
cost based justification to support that the fees are reasonable
despite the Commission directly stating in the MDI Rule[s Release]
that any proposed fees must be reasonably related to cost''); SIFMA
Letter I, supra note 56, at 4, 5 (citing the statement in the MDI
Rules Release that ``a reasonable relation to cost has . . . been
the principal method discussed by the Commission for assessing the
fairness and reasonableness of . . . fees for core data''); IEX
Letter, supra note 56, at 1, 2-3 (arguing that the methodology used
to set fees is faulty and inconsistent with MDI Rules Release).
\62\ See MayStreet Letter II, supra note 57, at 2-4.
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Some commenters also disagree with the Filing Participants'
statements in the Proposed Amendment that a cost-based justification is
not required because the Act does not require a showing of costs and
that cost analysis has not been provided in past equity market data
plan proposals.\63\ These commenters state that the Commission has
stated that a reasonable relation to cost is a primary basis for
justifying core data fees.\64\ One commenter states that specific
information, including quantitative information, should be provided to
support the Filing Participants' claims that the proposed fees are fair
and reasonable because they will permit the recovery of SRO costs or
will not result in excessive pricing or profits.\65\ Additionally, some
commenters disagree with the Filing Participants' statement in the
proposal that the Plan's Operating Committee ``has no knowledge of any
costs associated with consolidated market data,'' stating that the
Filing Participants know how much it costs to collect and disseminate
market data because they already perform this function, including in
connection with proprietary feeds.\66\
---------------------------------------------------------------------------
\63\ See MIAX Letter, supra note 56, at 3; SIFMA Letter I, supra
note 56, at 5.
\64\ See IEX Letter, supra note 56, at 1, 2-3; SIFMA Letter I,
supra note 56, at 5; MIAX Letter, supra note 56, at 3 (stating that
the vast majority of equity market data plan fees were adopted prior
to issuance of the Commission's staff fee guidance and that multiple
SROs have more recently included cost based analysis when proposing
fees for a market data product).
\65\ See MIAX Letter, supra note 56, at 3.
\66\ See SIFMA Letter I, supra note 56, at 5; MIAX Letter, supra
note 56, at 3; MayStreet Letter I, supra note 56, at 6; Letter from
Katie Adams, Chief Product Officer, Polygon.io, Inc., to Vanessa
Countryman, Secretary, Commission, at 1-2 (Mar. 22, 2022)
(``Polygon.io Letter II'').
---------------------------------------------------------------------------
One commenter states that a cost-based approach is best for
achieving robust competition for consolidated market data and reducing
administrative plan costs.\67\ According to the commenter, pricing of
the underlying content for the creation of consolidated market data
should be based on the marginal cost of supporting competing
consolidators, a cost that the commenter states is quantifiable and
fixed for each participant. The commenter states that the lowest cost
approach would be for each Participant to offer competing consolidators
and self-aggregators a depth-of-book feed at their current proprietary
feed prices, with added access fees and redistribution fees but not
usage fees.\68\ The commenter states that a comparison of total annual
revenues that the plans would receive under a cost-based model (using
current depth-of-book proprietary feeds pricing as a proxy for costs of
supplying proprietary feeds to a single entity) to total annual
revenues currently received by the plans would serve to demonstrate
that current fees for consolidated market data are unrelated to
cost.\69\
---------------------------------------------------------------------------
\67\ See MayStreet Letter II, supra note 57, at 10-14.
\68\ The commenter states that depth-of-book feed pricing is an
adequate proxy for the cost of supplying a proprietary feed to a
single entity since it is unlikely that the Filing Participants lose
money on supplying their proprietary depth of book feeds to
subscribers. See id.
\69\ See MayStreet Letter II, supra note 57, at 10-13.
---------------------------------------------------------------------------
One Filing Participant states that a demonstration of costs is not
required because neither the Exchange Act nor Commission rules require
market data fees to be supported by a showing of costs.\70\ This
commenter states that the Commission's standard for evaluating
consolidated market data fees has not required a showing of the
relationship between the proposed fees and the cost of producing the
data, as illustrated by past equity market data plan proposals for
consolidated market data fees that were not justified on the basis of
cost.\71\ This commenter argues that it is not clear how the Plan could
support the fee proposals based on costs, because the Operating
Committee plays no role in the creation or dissemination of core data
under Rule 603(b) and thus has no information about how each exchange
would generate core data under that rule.\72\ The commenter argues that
it remains impossible to separate the costs of producing market data
from other costs of operating an exchange.\73\
---------------------------------------------------------------------------
\70\ See Letter from Hope M. Jarkowski, General Counsel, NYSE
Group, Inc., to Vanessa Countryman, Secretary, Commission, at 3
(Jan. 22, 2022) (``NYSE Letter'') (stating that the legislative
history of the 1975 amendments to the Exchange Act, and particularly
Section 11A, reflects that Congress's principal concern was
promoting competition between exchanges, not regulating market data
pricing, and that economic studies have demonstrated that separating
out the costs of producing market data from the other costs of
operating an SRO is an impossible task that would enmesh the
Commission in a continuous ratemaking process that would produce
arbitrary results).
\71\ See id. at 3-4.
\72\ See id. at 4.
\73\ See id.
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Another Filing Participant also opposes the use of cost as a basis
for setting the proposed fees.\74\ This commenter dismisses other
commenters' suggestions that fees should be based on costs, rather than
value, because, according to the commenter, the Commission has not
offered guidance with respect to such a cost-based ratemaking
system,\75\ and because any cost allocation between joint products
would therefore be unworkable, inherently arbitrary, and inconsistent
with the Congressional mandate that the Commission rely on competition
whenever possible in meeting its regulatory responsibilities.\76\ The
commenter states that the proposed fees have been tested by competition
and that ``Commission staff have indicated that they would look at
factors beyond the competitive environment, such as cost, only if a
`proposal lacks persuasive evidence that the proposed fee is
constrained by significant competitive forces.' '' \77\
---------------------------------------------------------------------------
\74\ See Letter from Erika Moore, Vice President and Corporate
Secretary, Nasdaq Stock Market LLC, to Vanessa Countryman,
Secretary, Commission, at 3 (Dec. 17, 2021) (``Nasdaq Letter I'');
Letter from Erika Moore, Vice President and Corporate Secretary,
Nasdaq Stock Market LLC, to Vanessa Countryman, Secretary,
Commission, at 4 (Mar. 29, 2022) (``Nasdaq Letter II'').
\75\ See Nasdaq Letter I, supra note 74, at 3; Nasdaq Letter II,
supra note 74, at 4.
\76\ See Nasdaq Letter I, supra note 74, at 3; Nasdaq Letter II,
supra note 74, at 4.
\77\ See Nasdaq Letter I, supra note 74, at 5-6 (citing to
``Staff Guidance on SRO Rule Filings Relating to Fees'' (May 19,
2019)). The Staff Guidance on SRO Rule Filings Relating to Fees in
fact states: ``If a Fee Filing proposal lacks persuasive evidence
that the proposed fee is constrained by significant competitive
forces, the SRO must provide a substantial basis, other than
competitive forces, demonstrating that the fee is consistent with
the Exchange Act. One such basis may be the production of related
revenue and cost data, as discussed further below.'' See ``Staff
Guidance on SRO Rule Filings Relating to Fees'' (May 19, 2019),
available at <a href="https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees">https://www.sec.gov/tm/staff-guidance-sro-rule-filings-fees</a>. Staff documents represent the views of Commission staff and
are not a rule, regulation, or statement of the Commission. The
Commission has neither approved nor disapproved the content of this
staff document and, like all staff statements, it has no legal force
or effect, does not alter or amend applicable law, and creates no
new or additional obligations for any person.
---------------------------------------------------------------------------
Some commenters oppose the use of the value-based methodology used
to determine the fees under the Proposed Amendment.\78\ One commenter
states that comments suggesting that a cost-based approach is not
possible or not supported by precedent should take into account that
introducing competition to consolidated market data is also without
precedent and that to rely on past interpretations of the Exchange Act
with respect to what is fair and reasonable will threaten the viability
of establishing a vibrant competing consolidator
[[Page 58598]]
marketplace.\79\ One commenter states that, if the objective is to have
the SIPs provide a service that is more affordable and accessible than
the data products offered by individual exchanges, then the ``value to
subscribers'' should not be sole determinant of SIP fees, because the
current fees for exchange proprietary data products are not a
reasonable gauge of the value of core data offered under the Plan.\80\
---------------------------------------------------------------------------
\78\ See Proof Services Letter, supra note 56; Letter from Emil
Framnes and Simon Emrich, Norges Bank Investment Management, to
Vanessa Countryman, Secretary, Commission (Jan. 5, 2022) (``NBIM
Letter''); MayStreet Letter I, supra note 56; MayStreet Letter II,
supra note 57, at 1; SIFMA Letter II, supra note 56, at 2.
\79\ See MayStreet Letter II, supra note 57, at 14.
\80\ See Proof Services Letter, supra note 56, at 3.
---------------------------------------------------------------------------
Another commenter states that basing the proposed fees on value
instead of cost does not work because the mandate under the Exchange
Act is to price SIP data at levels that maximize its availability.\81\
One commenter states that there can be no fair and reasonable fee
structure with value-based pricing of core data because certain market
participants are required by regulation to display consolidated data,
which requires having core data from all exchanges.\82\ Because those
participants will always be required to obtain this data regardless of
the cost, this commenter argues, a value-based approach will never lead
to fees that are fair, reasonable, and not unreasonably
discriminatory.\83\
---------------------------------------------------------------------------
\81\ See MayStreet Letter I, supra note 56, at 6.
\82\ See Polygon.io Letter II, supra note 66, at 1.
\83\ See id.
---------------------------------------------------------------------------
One commenter states that if value-based pricing is the only
feasible approach, value should be assessed based on the value of the
data to competing consolidators--specifically, the ability of competing
consolidators to compete against comparable proprietary feed
offerings.\84\ The commenter states that a value-based approach to
pricing the underlying content associated with consolidated top-of-book
market data must work backwards and first consider the prices that
competing consolidators will charge for Level 1 data and then the value
of the underlying content to the competing consolidator.\85\
---------------------------------------------------------------------------
\84\ See MayStreet Letter II, supra note 57, at 15-16.
\85\ See id.
---------------------------------------------------------------------------
Two Filing Participants argue that the proposed fees are fair and
reasonable and not unreasonably discriminatory because they are
reasonably related to the value that subscribers gain from the data,
and that the proposed fees achieve the Commission's objective in
Regulation NMS that prices for consolidated market data be set by
market forces.\86\ One Filing Participant argues that the pricing for
exchange proprietary data feeds--including the depth-of-book data, top-
of-book data, and auction information on which the proposed fees are
based--is constrained by competitive forces, in that they have a
history of being constrained by direct competition and by platform
competition among the exchanges.\87\ This commenter states that pricing
for exchange proprietary data feeds is constrained by the highly
competitive markets for exchange trading and exchange market data,\88\
and that the proposed fees meet the Commission's objective for market
forces to determine the overall level of fees.\89\
---------------------------------------------------------------------------
\86\ See NYSE Letter, supra note 70, at 5; Nasdaq Letter I,
supra note 74, at 5.
\87\ See NYSE Letter, supra note 70, at 5.
\88\ See id. The commenter further argues that exchanges compete
against each other as platforms and that, as such, no exchange can
raise its prices to supracompetitive levels on one side of the
platform, such as market data, without losing sales on the other,
such as trading volume. The commenter argues that given this inter-
exchange platform competition, the exchanges' filed prices for
depth-of-book data and auction information are constrained by market
forces. See id. at 6-7.
\89\ See id. at 5. The commenter states that by applying that
established ratio to the current prices for consolidated top-of-book
data, the fee proposals thus reflect the market forces that drive
the pricing of depth-of-book information in relation to top-of book
information and the value that the data has to market participants.
Id. This commenter argues that the ratio between these filed
proprietary depth-of-book fees and proprietary top-of-book data
therefore provides the Commission with a benchmark for evaluating
the proposed fees, which are fair, reasonable, and not unreasonably
discriminatory because they are based on this ratio, which is
reflective of market forces. See id. at 7.
---------------------------------------------------------------------------
Another Filing Participant also argues that basing fees on the
value of the underlying data is the fairest and most economically
efficient method for setting fees, because setting fees according to
the value of the data leads to optimal consumption: fees that are too
low do not allow for producers to remain profitable, while fees that
are too high lead to underutilization.\90\ The commenter states that
NMS Plans have historically used value as a fair and efficient basis
for setting fees.\91\ The commenter argues that the best basis for
determining the value of core data are the fees currently charged for
proprietary data fees, which, according to the commenter, have been
``tested by market competition'' and therefore provide a good starting
point for estimating the value of new core data and for setting fees at
efficient levels.\92\ The commenter states that exchanges cannot
overprice the total price of their services without potentially losing
order flow and damaging their overall ability to compete.\93\ According
to this commenter, exchanges that produce more valuable market data
generally charge higher fees, and those with less valuable data charge
lower fees,\94\ so fees vary according to the underlying value of the
data, as measured by the liquidity available at the exchange.\95\
---------------------------------------------------------------------------
\90\ See Nasdaq Letter I, supra note 74, at 2; Nasdaq Letter II,
supra note 74, at 2.
\91\ See Nasdaq Letter I, supra note 74, at 2; Nasdaq Letter II,
supra note 74, at 2.
\92\ Nasdaq Letter I, supra note 74, at 6.
\93\ See id. at 4.
\94\ See id.
\95\ See id.
---------------------------------------------------------------------------
This commenter also argues that the existence of significant
competition provides a substantial basis for finding that the terms of
an exchange's fee proposal are equitable, fair, reasonable, and not
unreasonably discriminatory.\96\ The commenter argues that, because
they are tested by market competition, proprietary data fees provide a
good and indicative starting point for estimating the value of new core
data and setting fees at their efficient level.\97\ This, according to
the commenter, provides a substantial basis for showing that current
proprietary fees--and, by extension, the proposed fees for new core
data--are equitable, fair, reasonable, and not unreasonably
discriminatory.\98\
---------------------------------------------------------------------------
\96\ See id. at 5-6.
\97\ See id. at 6.
\98\ See id.
---------------------------------------------------------------------------
Under Section 11A of the Act and Rule 603(a) of Regulation NMS, the
Commission must assess whether the fees for content underlying
consolidated data are offered on terms that are ``fair and reasonable''
and ``not unreasonably discriminatory.'' \99\ And a threshold issue
presented by the Proposed Amendment--and debated by many of the
commenters, including Filing Participants, Non-Supporting Participants,
and others--is whether the fees for consolidated data must be cost-
based or whether they may be based on the value of the data to
subscribers.
---------------------------------------------------------------------------
\99\ Sections 11A(c)(1)(C)-(D) of the Act, 15 U.S.C. 78k-
1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR 242.603.
---------------------------------------------------------------------------
Several commenters, including Non-Supporting Participants, have
argued that cost-based pricing must be used with respect to the fees in
the Proposed Amendment.\100\ While the Commission has stated that a
``reasonable relation to costs'' has been the ``principal method
discussed by the Commission for assessing the fairness and
reasonableness'' of fees for core data,\101\ the Commission has also
acknowledged that ``[t]his does not preclude the Commission from
considering in the future the appropriateness of another guideline to
assess the fairness and reasonableness of core data fees in a manner
consistent with the Exchange
[[Page 58599]]
Act.'' \102\ The Commission, therefore, does not believe that a cost-
based methodology is the only acceptable method for setting the fees
for consolidated data under the MDI Rules.
---------------------------------------------------------------------------
\100\ See supra notes 56-69 and accompanying text.
\101\ MDI Rules Release, supra note 11, 86 FR at 18685 (citing
Bloomberg Order, supra note 42, 2018 WL 3640780, at *9).
\102\ MDI Rules Release, supra note 11, 86 FR at 18685 (citing
Bloomberg Order, supra note 42, 2018 WL 3640780, at *9 n.63).
---------------------------------------------------------------------------
It does not follow, however, that cost-based pricing could not be
used here. The Proposed Amendment, supported by comments from Filing
Participants, argues that using cost-based pricing is not required by
statute, has not been used historically for consolidated data, and,
further, is not possible because the Operating Committee of the Plan
has no knowledge of any of the costs associated with consolidated
market data.\103\ Further, a Filing Participant argues that, because
the Commission has not offered guidance for cost-based pricing,
allocating costs would be unworkable, arbitrary, and inconsistent with
relying on competition when possible, and states that, according to
Staff Guidance, cost factors are relevant only in the absence of
persuasive evidence that prices are constrained by significant
competition.\104\
---------------------------------------------------------------------------
\103\ See Notice, supra note 6, 86 FR at 67564-65.
\104\ See supra notes 76-77 and accompanying text.
---------------------------------------------------------------------------
While cost-based pricing is not required by statute, a ``reasonable
relation to costs'' is, as stated above, the principal method discussed
by the Commission for assessing the fairness and reasonableness of fees
for core data.\105\ Moreover, the argument that the Operating Committee
of the Plan cannot use cost-based pricing because it has no knowledge
of relevant costs \106\ rests on the questionable proposition that a
group of exchanges acting jointly lacks information that each of the
exchanges would possess individually. If cost information is
unavailable, that is because the exchanges on the Operating Committee
have not shared it. And while one Filing Participant argues that the
Commission has failed to provide guidance on cost-based pricing,\107\
the Filing Participants have not attempted to show that the proposed
fees are reasonably related to those costs, and they have not
demonstrated that a cost-based approach is infeasible.
---------------------------------------------------------------------------
\105\ See supra note 101 and accompanying text.
\106\ See Notice, supra note 6, 86 FR at 67564.
\107\ See Nasdaq Letter I, supra note 74, at 3.
---------------------------------------------------------------------------
Instead, the Filing Participants have elected to file the proposed
fees for the content underlying consolidated market data using what
they term a ``value-based'' methodology, and in Section IV.C. below the
Commission examines whether the fees proposed by the Filing
Participants through the application of this methodology meet the
requirement of being fair, reasonable, and not unreasonably
discriminatory.\108\ As an initial matter, however, the Filing
Participants have failed to demonstrate that value-based pricing is
appropriate for content underlying consolidated market data offerings.
The Filing Participants argue that the value of the data to subscribers
is a fair and reasonable basis for setting the fees for consolidated
data. They calculate that value by comparison to the prices of certain
proprietary data feeds,\109\ and they argue that the prices for those
proprietary data feeds are constrained by both direct competition and
``platform'' competition (i.e., the theory that the exchanges compete
as unified platforms for both order flow and data revenue).\110\
---------------------------------------------------------------------------
\108\ See Sections 11A(c)(1)(C)-(D) of the Act; Rule 603(a) of
Regulation NMS.
\109\ As discussed throughout Section IV.C, infra, the
proprietary data feeds differ in material ways from consolidated
depth-of-book data under the MDI Rules.
\110\ See NYSE Letter, supra note 70, at 5-7; Nasdaq Letter I,
supra note 74, at 4-6; Nasdaq Letter II, supra note 74, at 1, 2.
---------------------------------------------------------------------------
In authorizing the Commission to establish a national market system
for the trading of securities, Congress found that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to ensure the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities.\111\ In furtherance of
these purposes, the Commission has sought through its rules and
regulations to ensure that certain core data is widely available for
reasonable fees.\112\ And as the Commission has recognized, core data
differ from proprietary data feeds in a critical way: ``[B]ecause core
data must be purchased, their fees are less sensitive to competitive
forces.'' \113\
---------------------------------------------------------------------------
\111\ 15 U.S.C. 78k-1(a)(1)(C); see also MDI Rules Release,
supra note 11, 86 FR at 18598.
\112\ See MDI Rules Release, supra note 11, 86 FR at 18598; see
also, e.g., Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37496, 37560 (June 29, 2005) (Regulation NMS Adopting
Release) (``In the Proposing Release, the Commission emphasized that
one of its primary goals with respect to market data is to assure
reasonable fees that promote the wide public availability of
consolidated market data.'').
\113\ Securities Exchange Act Release No. 59039 (Dec. 2, 2008),
73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR-NYSEArca-2006-21);
see also MDI Rules Release, supra note 11, 86 FR at 18685.
---------------------------------------------------------------------------
Here, the Filing Participants propose to base prices for the data
content underlying consolidated market data on an estimate of the value
of the data to subscribers, and to estimate that value from the prices
for selected proprietary market data products, which they argue are
constrained by competitive forces. The Filing Participants, however,
have not demonstrated that prices for core data that are based on an
estimated value of the data to subscribers are consistent with the
statutory standard of being fair, reasonable, and not unreasonably
discriminatory.\114\ Additionally, as discussed in detail below, the
proprietary market data products used by the Filing Participants to
derive their ``value based'' pricing are not comparable to consolidated
market data offerings pursuant to the MDI Rules.\115\ And while one
Filing Participant argues that value-based fees are the most
economically efficient,\116\ this argument too does not address whether
basing prices for core data on an estimated value of the data to the
subscribers is consistent with the statutory standard. Moreover, even
if value-based prices were efficient, the Filing Participants have not
established that they would not be unreasonably discriminatory.
---------------------------------------------------------------------------
\114\ See Sections 11A(c)(1)(C)-(D) of the Act; Rule 603(a) of
Regulation NMS.
\115\ See infra Section IV.C.2 (discussing, among other things,
the ways in which the data content of proprietary depth-of-book
feeds differs from the data content underlying consolidated market
data offerings pursuant to the MDI Rules).
\116\ See supra note 90, and accompanying text.
---------------------------------------------------------------------------
With respect to the specific proposed fees for various categories
of data, in Section IV.C. below, this Order discusses how the Filing
Participants have failed to demonstrate that those fees are fair,
reasonable, and not unreasonably discriminatory.
C. The Plan's Proposed Fees for Data Content Underlying Consolidated
Market Data
As described above, the Filing Participants propose to amend the
Plan to adopt fees for the receipt of the expanded content of
consolidated market data pursuant to the Commission's MDI Rules.\117\
Specifically, the Filing Participants propose to charge separately for
each of the three categories of consolidated equity market data that
collectively constitute the amended definition of core data under Rule
600(b)(21) of Regulation NMS: \118\ Level 1 Service (Top-of-book Data),
Depth of Book Service, and Auction Information. In addition to the fees
for the receipt of the three categories of data, the Filing
Participants propose to charge subscribers certain additional fees,
including, as applicable, Professional and Non Professional Charges,
Non-
[[Page 58600]]
Display Use Fees, Access Fees, and Redistribution Fees.\119\
---------------------------------------------------------------------------
\117\ See, e.g., MDI Rules Release, supra note 11, 86 FR at
18680; Rule 614(e) of Regulation NMS, 17 CFR 242.614(e).
\118\ 17 CFR 242.600(b)(26).
\119\ In the Proposed Amendment, the Filing Participants also
propose to make certain other changes to the Plan's fee schedules in
connection with the expanded data content. See Notice, supra note 6,
86 FR at 67563-64. The Commission agrees that these changes are non-
substantive.
---------------------------------------------------------------------------
1. Fees for Top-of-Book Data
As noted above, the Filing Participants propose to apply the
current fees for UTP Level 1 Service to the data content underlying
consolidated market data in the new Level 1 Service offering and to add
odd-lot information (as defined in Rule 600(b)(59)) to the data
provided.\120\ Accordingly the Filing Participants propose to amend the
fee schedule to provide that the new Level 1 Service would include Top
of Book Quotation Information, Last Sale Price Information, odd-lot
information, administrative data, regulatory data, and self-regulatory
organization program data.\121\ The Filing Participants state they are
not proposing to change the following fees for the UTP Level 1 Service
currently set forth in the Nasdaq/UTP Plan: the Professional Subscriber
and Nonprofessional Subscriber fees, the Non-Display Use Fees, and
Access Fees.\122\ The Filing Participants are proposing that the
existing Redistribution Fees \123\ would apply to all three categories
of core data, including the new Level 1 Service, and any subset
thereof. The Filing Participants are also proposing that the existing
Redistribution Fees would apply to competing consolidators.\124\
---------------------------------------------------------------------------
\120\ The Filing Participants state that current Plan fees for
Level 1 Service are for Top of Book Quotations and Last Sale Price
Information, as well as administrative data (as defined in Rule
600(b)(2)), regulatory data (as defined in Rule 600(b)(78)), and
self-regulatory organization-specific program data (as defined in
Rule 600(b)(85)). The Filing Participants propose that the new Level
1 Service under the distributed consolidation model would continue
to include all information that subscribers receive for current fees
and would add odd lot information. See Notice, supra note 6, 86 FR
at 67562-63.
\121\ The Filing Participants state that the Proposed Amendment
would use terms defined in Rule 600(b) to reflect both current data
made available to data subscribers and the additional odd-lot
information that would be included at no additional charge. See
Notice, supra note 6, 86 FR at 67563.
\122\ The Filing Participants propose that access to odd-lot
information would be made available to Level 1 Service Professional
and Nonprofessional Subscribers at no additional charge. See Notice,
supra note 6, 86 FR at 67563.
\123\ See infra Section IV.C.8 discussing the proposed
Redistribution Fees with respect to the proposed Auction Data and
all other categories of data underlying consolidated market data.
\124\ The Filing Participants also propose to add language to
the Plan's fee schedule to specify that (1) while the Nasdaq/UTP
Plan fee schedule currently permits the redistribution of UTP Level
1 Service on a delayed basis for $250.00 per month, depth of book
data and auction information may not be redistributed on a delayed
basis; and (2) UTP Level 1 Service obtained from the Processor will
include FINRA OTC Data but will not include Odd-lot information. See
Notice, supra note 6, 86 FR at 67564.
---------------------------------------------------------------------------
Several commenters, including certain Non-Supporting Participants,
state that the proposed fees for the new Level 1 Service are too
high.\125\ Several commenters also argue that the proposed fees do not
account for the transfer of costs from the SROs to market participants
under the decentralized consolidation model.\126\ With respect to
comments that the proposal should ``back out'' fees for the current
Processors from the proposed fee structure, however, one Filing
Participant states that the MDI Rules require the current Processors to
continue operating for at least several more years and that, therefore,
there are no savings to back out of any proposed fee structure at this
time.\127\
---------------------------------------------------------------------------
\125\ See Letter from Luc Burgun, President and CEO, NovaSparks
S.A.S., to Vanessa Countryman, Secretary, Commission, at 1 (Dec. 17,
2021) (``NovaSparks Letter''); IEX Letter, supra note 56; MayStreet
Letter I, supra note 56; MEMX Letter, supra note 56, at 7; BlackRock
Letter, supra note 56; MIAX Letter, supra note 56; MayStreet Letter
II, supra note 57.
\126\ See MEMX Letter, supra note 56, at 18; MIAX Letter, supra
note 56, at 2; BlackRock Letter, supra note 56, at 2-3; Letter from
Quinton Pike, CEO, Polygon.io, Inc., to Vanessa Countryman,
Secretary, Commission, at 1 (Nov. 30, 2021) (``Polygon.io Letter
I''); MayStreet Letter II, supra note 57, at 1-2, 4-5.
\127\ See NYSE Letter, supra note 70, at 7.
---------------------------------------------------------------------------
One commenter states that the Proposed Amendment conflates the
prices that competing consolidators and self-aggregators pay the SROs
for the underlying NMS information with the prices that competing
consolidators would charge for the consolidated data they
generate.\128\ This commenter states that the proposals do not make
clear that the proposed fees are for the content underlying the
consolidated market data, as opposed to the consolidated market data
itself.\129\ The commenter argues that the Filing Participants confuse
the content of consolidated market data with the consolidated market
data itself,\130\ and states that the Proposed Amendment sets prices at
levels that the SIPs currently charge for consolidated market
data.\131\
---------------------------------------------------------------------------
\128\ See MayStreet Letter I, supra note 56, at 2.
\129\ See id. at 2.
\130\ See id. at 3.
\131\ See id. at 6.
---------------------------------------------------------------------------
One commenter states that the proposed fees for top-of-book data
should be substantially lower to allow competing consolidators to
operate their business.\132\ This commenter states that the proposed
fees should be lower in the new decentralized model because exchanges
will no longer have to pay for the current processors and will not have
the burden of maintaining custom feeds in specific formats.\133\
Another commenter opposes the proposal and asks the Commission to
disapprove it because it represents an overall increase in costs,
including access fees, to end users as well as competing consolidators,
thereby making market data less accessible and putting competing
consolidators at a disadvantage.\134\ One commenter states that any
value-based approach must acknowledge that competing consolidators will
be competing against exchange-provided top-of-book feeds that are
marketed as SIP alternatives.\135\ The commenter states that fees for
competing consolidators would need to be a fraction of the amounts
currently charged to allow for a sustainable profit margin for
competing consolidators.\136\
---------------------------------------------------------------------------
\132\ See NovaSparks Letter, supra note 125, at 1.
\133\ See id.
\134\ See Letter from Jonathan Hill, CEO, Anand Prakash, CTO,
Nader Sharabati, CFO, and Doug Patterson, CCO, Cutler Group, LP, to
Vanessa Countryman, Secretary, Commission, at 1-2 (Dec. 16, 2021)
(``Cutler Group Letter'').
\135\ See MayStreet Letter II, supra note 57, at 15.
\136\ See id. at 16-17.
---------------------------------------------------------------------------
One commenter supports certain aspects of the proposal, including
its a la carte fee structure and the inclusion of odd-lot quotations
free of charge.\137\ Moreover, some commenters, including a Non-
Supporting Participant, express support for the proposed inclusion of
odd-lot information free of charge in the expanded Level 1 core
data,\138\ with one commenter stating that this would result in top-of-
book information that is more comprehensive, which should, in turn,
strengthen best execution and enhance transparency and price
discovery.\139\
---------------------------------------------------------------------------
\137\ See BlackRock Letter, supra note 56, at 1, 3.
\138\ See MIAX Letter, supra note 56, at 2; BlackRock Letter,
supra note 56, at 1, 3; MayStreet Letter I, supra note 56, at 2, 3,
6; Polygon.io Letter II, supra note 66, at 2.
\139\ See BlackRock Letter, supra note 56, at 1, 3.
---------------------------------------------------------------------------
The Commission finds that the Filing Participants have not
demonstrated that the proposed fees for Level 1 core data are fair,
reasonable, and not unreasonably discriminatory. Including in the new
Level 1 Service the odd-lot quotation data that would be of the most
interest to investors and other market participants--namely, odd-lot
quotations that offer pricing at or superior to the NBBO--will help
investors and other market participants to trade in a more informed and
effective manner and to achieve better executions and reduce the
information asymmetries that currently exist between subscribers to SIP
data and
[[Page 58601]]
subscribers to proprietary data,\140\ consistent with the objectives of
the MDI Rules. But the Filing Participants have not demonstrated how
their approach for pricing the new Level 1 Service (which consists of
data content underlying consolidated market data for several elements
of core data under the decentralized consolidator model \141\) based on
fees for the current UTP Level 1 Service (which consists solely of
already consolidated data content \142\) can be reconciled with the new
Level 1 Service the Filing Participants are purporting to price.
---------------------------------------------------------------------------
\140\ See MDI Rules Release, supra note 11, 86 FR at 18612.
\141\ The Filing Participants propose that Level 1 Service would
include Top of Book Quotation Information, Last Sale Price
Information, odd-lot information, administrative data, regulatory
data, and self-regulatory organization program data. See Notice,
supra note 6, 86 FR at 67562.
\142\ For each NMS stock, the Equity Data Plans currently
provide for the dissemination of top-of-book data and transaction
information, generally defining consolidated market information (or
``core data'') as consisting of: (1) the price, size, and exchange
of the last sale; (2) each exchange's current highest bid and lowest
offer and the shares available at those prices; and (3) the national
best bid and national best offer (``NBBO'') (i.e., the highest bid
and lowest offer currently available on any exchange). In addition
to disseminating core data, the exclusive SIPs collect, calculate,
and disseminate certain regulatory data--including information
required by the National Market System Plan to Address Extraordinary
Market Volatility (``LULD Plan''), information relating to
regulatory halts and market-wide circuit breakers, and information
regarding the short-sale price test pursuant to Rule 201 of
Regulation SHO. They also collect and disseminate other NMS
information and disseminate certain administrative messages.
Together with core data, the Commission refers to this broader set
of data for purposes of this release as ``SIP data.'' See MDI Rules
Release, supra note 11, 86 FR at 18599.
---------------------------------------------------------------------------
The fees proposed by the Filing Participants are for a product
independent from, and differing in content and function from, the
current UTP Level 1 Service under the Plan. Unlike the current UTP
Level 1 Service, the new Level 1 Service would include, in addition to
top-of-book information, expanded data elements that form part of the
definition of ``core data,'' such as information about better priced
quotations in higher-priced stocks (implemented through a new
definition of ``round lot'' and the inclusion of certain odd-lot
information). In addition, and unlike the current UTP Level 1 Service,
the data content underlying consolidated data for the new Level 1
Service would not be collected, consolidated, or disseminated by the
exclusive SIP for the Plan, but instead by competing consolidators and
self-aggregators. And unlike current UTP Level 1 Service, which bundles
several consolidated data elements into one product, the core data
elements contained in the new Level 1 Service could have been, in a
manner not inconsistent with the MDI Rules, unbundled and offered as
separate data underlying consolidated data offerings by the Filing
Participants. Moreover, the proposed enhanced data content underlying
consolidated data for the new Level 1 Service would not be implemented
upon approval of the Proposed Amendment, nor would it be implemented
under the current centralized model, but rather would be implemented in
accordance with the phased implementation of the new decentralized
consolidation model, as required by the Commission.\143\ The Filing
Participants do not analyze or otherwise justify the proposed fees for
the new Level 1 Service in a manner that is consistent with these
facts.
---------------------------------------------------------------------------
\143\ See MDI Rules Release, supra note 11, 86 FR at 18698-701.
---------------------------------------------------------------------------
In addition, the Filing Participants have not demonstrated how, if
at all, the proposed fees have taken into account the transfer of costs
for collection, consolidation, and dissemination of data content
underlying consolidated market data in the new Level 1 Service to other
market participants under the decentralized consolidation model.
Similarly, the Filing Participants do not justify or otherwise explain
how the proposed fees have been adjusted so as to exclude other
operating costs or profits of the exclusive SIPs, as some commenters,
including a Non-Supporting Participant, point out.\144\ Though one
Filing Participant argues that, because the MDI Rules require the
current Processors to continue operating for at least several more
years, there are no savings to back out of any proposed fee structure
at this time,\145\ this argument presents a false choice. This
commenter ignores that the Plan could retain one price for the existing
Level 1 service, for as long as the current Processors continue to
operate, and propose new fees that would apply only to the data content
underlying consolidated data in the new Level 1 Service under the
decentralized model.
---------------------------------------------------------------------------
\144\ See BlackRock Letter, supra note 56, at 2, 3-4; MayStreet
Letter II, supra note 57, at 8-9; NovaSparks Letter, supra note 125,
at 1; MEMX Letter, supra note 56, at 15-17.
\145\ See NYSE Letter, supra note 70, at 7.
---------------------------------------------------------------------------
The Filing Participants have not demonstrated that the proposed
fees for the new Level 1 Service are fair, reasonable, and not
unreasonably discriminatory consistent with Rule 603(a) of Regulation
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of
Regulation NMS, the Proposed Amendment is necessary or appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Act.\146\
---------------------------------------------------------------------------
\146\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
2. Fees for Depth-of-Book Data
The Filing Participants propose to set fees for depth-of-book data,
as that term is defined in Rule 600(b)(26) of Regulation NMS.\147\ With
respect to depth-of-book data, the Filing Participants propose that
Professional Subscribers would pay $99.00 per device per month and that
Nonprofessional Subscribers would pay $4.00 per device per month.\148\
The Filing Participants are also proposing a monthly charge for Non-
Display Use of depth-of-book data of $12,477 for each of three types of
Non-Display Use,\149\ as well as an Access Fee of $9,850.00 per
month.\150\ The Filing Participants
[[Page 58602]]
further propose to add language to the Plan's fee schedule in
connection with the expanded content, including: (1) that the existing
Redistribution Fees \151\ would apply to all three categories of core
data, including Depth-of-Book Data, and any subset thereof, (2) that
the existing Redistribution Fees would apply to competing
consolidators; and (3) that while the Nasdaq/UTP Plan fee schedule
currently permits the redistribution of UTP Level 1 Service on a
delayed basis for $250.00 per month, depth-of-book data and auction
information may not be redistributed on a delayed basis.\152\
---------------------------------------------------------------------------
\147\ See 17 CFR 242.600(b)(26) (``Depth of book data means all
quotation sizes at each national securities exchange and on a
facility of a national securities association at each of the next
five prices at which there is a bid that is lower than the national
best bid and offer that is higher than the national best offer. For
these five prices, the aggregate size available at each price, if
any, at each national securities exchange and national securities
association shall be attributed to such exchange or association.'').
\148\ The Filing Participants state they applied the 3.94x ratio
described in the Proposed Amendment to the current fees charged to
Professional Subscribers taking all three Networks ($75.00). This
resulted in the total fee level for depth of book data for
Professional Subscribers equaling $296.00 (i.e., $75.00 x 3.94 =
$295.50, rounded to $296.00). This fee was then split evenly among
the three Networks, resulting in a proposed Professional Subscriber
fee of $99.00 per Network. The Filing Participants applied the 3.94x
ratio to the current fees charged for Nonprofessional Subscribers
taking all three Networks ($3.00). This resulted in the total fee
level for depth of book data for Nonprofessional Subscribers
equaling $12.00 (i.e., $3.00 x 3.94 = $11.82, rounded to $12.00).
This fee was then split evenly among the three Networks, resulting
in a proposed Nonprofessional Subscriber fee of $4.00 per Network.
See Notice, supra note 6, 86 FR at 67565.
\149\ See supra note 32 (describing the three types of Non-
Display Use recognized under Exhibit 2(i) to the Nasdaq/UTP Plan).
The Filing Participants applied the 3.94x ratio described in the
Proposed Amendment to the current fees charged for Non-Display Use
for all three Networks ($9,500.00). This resulted in the total fee
level for depth-of-book data for Non-Display Use equaling $37,430.00
(i.e., $9,500.00 x 3.94 = $37,430.00). This fee was then split
evenly among the three Networks, resulting in a proposed Non-Display
Use Fee of $12,477.00 per Network (including rounding). See Notice,
supra note 6, 86 FR at 67565.
\150\ The Filing Participants applied the 3.94x ratio described
in the Proposed Amendment to the current fees charged for direct
Data Access for all three Networks ($7,500.00). This resulted in the
total fee level for depth of book data for Data Access Fees equaling
$29,550.00 (i.e., $7,500.00 x 3.94 = $29,550.00). This fee was then
split evenly among the three Networks, resulting in a proposed Data
Access Fees of $9,850.00 per Network. See Exhibit A to the Notice,
supra note 6, 86 FR at 67567.
\151\ See infra Section IV.C.7 discussing the proposed
Redistribution Fees with respect to the proposed Auction Data and
all other categories of data underlying consolidated market data.
\152\ See Notice, supra note 6, 86 FR at 67564. The Filing
Participants further propose to clarify that the Per Query Fee is
not applicable to the expanded content, and applies only to the
receipt of Level 1. See id.
---------------------------------------------------------------------------
While one commenter supports the methodology selected by the Filing
Participants, arguing that pricing for proprietary data feeds is a
reasonable gauge of value because those fees are constrained by
competition,\153\ another commenter disagrees with that view,\154\ and
several commenters, including Non-Supporting Participants, have
expressed concern about the use of prices for exchange proprietary data
products as the basis for setting the proposed fees on several
grounds.\155\ Commenters state that the method used presupposes that
fees for proprietary data products are fair and reasonable and not
unreasonably discriminatory,\156\ and they state that Filing
Participants have not shown that pricing for proprietary data feeds are
a reasonable gauge of value or that proprietary data feeds are
appropriate proxies for data content underlying consolidated market
data \157\
---------------------------------------------------------------------------
\153\ See Nasdaq Letter I, supra note 74, at 2.
\154\ See SIFMA Letter I, supra note 56, at 6.
\155\ See MIAX Letter, supra note 56, at 4; SIFMA Letter I,
supra note 56, at 4, 5; IEX Letter, supra note 56, at 4; SIFMA
Letter II, supra note 56, at 2; NBIM Letter, supra note 78, at 1-2.
\156\ See SIFMA Letter I, supra note 56, at 5.
\157\ See IEX Letter, supra note 56, at 3-4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5; Letter
from Marcia E. Asquith, Executive Vice President, Board and External
Relations, Financial Industry Regulatory Authority, Inc., to Vanessa
Countryman, Secretary, Commission, at 6 (Dec. 17, 2021) (``FINRA
Letter''); MayStreet Letter II, supra note 57, at 17; Proof Services
Letter, supra note 56, at 3.
---------------------------------------------------------------------------
Some commenters, including Non-Supporting Participants, argue that
the calculation used by the Filing Participants to determine the
proposed depth-of-book fees is flawed and inconsistent with the MDI
Rules Release because the proprietary data feeds used by the Filing
Participants were inappropriate references for the calculation.\158\
These commenters point out that while the proprietary market data
depth-of-book feeds used to calculate fees for the depth-of-book
information include top-of-book data as part of those offerings, the
depth-of-book data product under the Proposed Amendment does not
include top-of-book data.\159\ Consequently, some of these commenters
argue, subscribers to the new core data would need to pay an additional
fee to receive top-of-book data at current rates to obtain the same
data content that is available today through proprietary feeds.\160\
---------------------------------------------------------------------------
\158\ See IEX Letter, supra note 56, at 3-4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5; FINRA
Letter, supra note 157, at 6; MayStreet Letter II, supra note 57, at
17.
\159\ See IEX Letter, supra note 56, at 3-4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5; FINRA
Letter, supra note 157, at 6; MayStreet Letter II, supra note 57, at
17.
\160\ See IEX Letter, supra note 56, at 4; MEMX Letter, supra
note 56, at 6, 11-12; BlackRock Letter, supra note 56, at 4-5.
---------------------------------------------------------------------------
Some commenters, including Non-Supporting Participants, state that
an additional problem with the proposed approach is that the
proprietary depth-of-book products used in the calculation are
primarily structured as comprehensive order-by-order feeds, which do
not aggregate orders at each price level.\161\ According to these
commenters, the depth-of-book elements prescribed by the MDI Rules
warrant a lower price because they would contain only the aggregated
quotes available at the next five price levels away from the NBBO and
would thus include less content than the proprietary feeds.\162\ One
commenter states that complete, disaggregated order-by-order depth-of-
book feeds, such as those used in the calculation, are likely to be
associated with ``additional operational costs because of increased
message traffic with order by order data at all price levels.'' \163\
Accordingly, the commenter argues that an aggregated feed with only
five levels of depth should have been priced at a discount relative to
the corresponding exchange offerings to compensate for differences in
both information content and costs.\164\
---------------------------------------------------------------------------
\161\ See IEX Letter, supra note 56, at 4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5; FINRA
Letter, supra note 157, at 6.
\162\ See IEX Letter, supra note 56, at 4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5.
\163\ See BlackRock Letter, supra note 56, at 4-5.
\164\ See BlackRock Letter, supra note 56, at 4-5. See also IEX
Letter, supra note 56, at 4; MEMX Letter, supra note 56, at 11-12.
---------------------------------------------------------------------------
A Non-Supporting Participant argues that the proposal fails to
consider pricing for other proprietary depth-of-book feeds that are
aggregated by price level and would therefore serve as a more logical
proxy for setting core data fees.\165\ Another commenter states that
while the Proposed Amendment compared the aggregated depth-of-book data
set with order-by-order data, the more appropriate comparison would be
with Cboe One Premium, which offers top-of-book, last sale, and five
levels of depth.\166\ This commenter states that the proposed user fees
for underlying market data content are not in line either with Cboe One
Premium on its own or with a scaled charge based on Cboe's market
share, even though the Cboe charges are for a product sold to end
users, whereas the proposed Plan fees are only for underlying
content.\167\ One Non-Supporting Participant states that the proposal
fails to acknowledge or account for the fact that the proposed
methodology relies on this commenter's equity market data fees as one
of the comparison points, notwithstanding that, unlike the other
exchanges' market data prices, the commenter's proprietary data fees do
not include individual per user fees but apply only on a per firm basis
for firms subscribing to ``real time data.'' \168\
---------------------------------------------------------------------------
\165\ See IEX Letter, supra note 56, at 4.
\166\ See MayStreet Letter II, supra note 57, at 17.
\167\ See id. at 18.
\168\ See IEX Letter, supra note 56, at 4. The commenter also
points out that its proprietary market data fees do not vary
depending on the type of use made by those firms, do not apply to
data that is redistributed with a delay of as little as 15
milliseconds (whereas other exchanges typically require a 15-minute
delay to avoid charges for real-time data), and were determined and
justified based on costs. The commenter further states that, to the
extent the commenter's fees are relevant at all, a more consistent
approach would have been to reflect the commenter's fees as zero,
since the commenter does not charge any fees on an individual per
user basis for either of its two proprietary market data products.
According to the commenter, the latter approach would substantially
reduce the average ratio and multiplier, and thus substantially
reduce the fees proposed to be charged for core data. See id.
---------------------------------------------------------------------------
Some commenters, including Non-Supporting Participants, question
the determination of the ratio (or multiplier) used by the Filing
Participants to set the depth-of-book feeds.\169\ Several commenters
state that the ratio used by the Filing Participants to determine the
fees for accessing depth-of-book data is
[[Page 58603]]
too high.\170\ One commenter states that fees for depth-of-book
information ``should be adjusted to use a multiplier of 2.94x to
eliminate the overcharging from double counting top-of-book data'';
otherwise, those who subscribe to both the new Level 1 Service and
depth-of-book data offering ``would be paying twice for top of book
content.'' \171\ Another commenter states that the Filing Participants
have created a completely unreasonable standard to justify the proposed
fees and that the ratio used to calculate the proposed fees, ``is
completely arbitrary and in no way shows that the proposed fees are
fair, reasonable, and not unreasonably discriminatory as required under
the Exchange Act.'' \172\
---------------------------------------------------------------------------
\169\ See IEX Letter, supra note 56; MEMX Letter, supra note 56;
MIAX Letter, supra note 56; BlackRock Letter, supra note 56; FINRA
Letter, supra note 157; Letter from James Angel, Ph.D., CFP, CFA,
Associate Professor of Finance, Georgetown University, to Vanessa
Countryman, Secretary, Commission, at 9-10 (Dec. 21, 2021) (``Angel
Letter''); NovaSparks Letter, supra note 125; SIFMA Letter I, supra
note 56; SIFMA Letter II, supra note 56.
\170\ See NovaSparks Letter, supra note 125, at 1; BlackRock
Letter, supra note 56, at 4-5; FINRA Letter, supra note 157, at 5-6;
MayStreet Letter II, supra note 57, at 3, 19.
\171\ BlackRock Letter, supra note 56, at 4-5. See also IEX
Letter, supra note 56, at 4; MEMX Letter, supra note 56, at 6, 11-
12.
\172\ SIFMA Letter II, supra note 56, at 5.
---------------------------------------------------------------------------
Several commenters state that, while the Filing Participants sought
to demonstrate that the proposed fees were related to the value of the
data, the method employed by the Filing Participants does not align the
proposed fees for the new depth-of-book data to the value of that data
to subscribers.\173\ One Non-Supporting Participant states that
calculating the proposed fee levels based on prices charged by the
exchanges for their existing market data product is not the right
starting point for setting the proposed fees and is inconsistent with
the MDI Rules' goal of expanding access to consolidated data.\174\
---------------------------------------------------------------------------
\173\ See BlackRock Letter, supra note 56, at 4. See also IEX
Letter, supra note 56, at 4; MEMX Letter, supra note 56, at 6, 11-
12; BlackRock Letter, supra note 56, at 4-5.
\174\ See MIAX Letter, supra note 56, at 4.
---------------------------------------------------------------------------
Two Filing Participants state that the proposed fees are fair and
reasonable and not unreasonably discriminatory because they are
reasonably related to the value that subscribers gain from the data and
because they achieve the Commission's objective in Regulation NMS that
prices for consolidated market data be set by market forces.\175\ One
Filing Participant argues that the pricing for exchange proprietary
data feeds--including the depth-of-book data, top-of-book data, and
auction information on which the proposed fees are based--is
constrained by competitive forces, in that they have a history of being
constrained by direct competition and by platform competition among the
exchanges.\176\ This commenter argues that, because they are tested by
market competition, proprietary data fees provide a good and indicative
starting point for estimating the value of new core data and for
setting fees at their efficient level.\177\ This, according to the
commenter, provides a substantial basis for showing that current
proprietary fees--and, by extension, the proposed fees for new core
data--are equitable, fair, reasonable, and not unreasonably
discriminatory.\178\
---------------------------------------------------------------------------
\175\ See NYSE Letter, supra note 70, at 5; Nasdaq Letter I,
supra note 74, at 5.
\176\ See NYSE Letter, supra note 70, at 5.
\177\ See id. at 6.
\178\ See id.
---------------------------------------------------------------------------
The Filing Participants' methodology to justify the proposed fees
is flawed, and the Commission concludes that, as a result, the Filing
Participants have failed to demonstrate that the proposed fees are
fair, reasonable, and not unreasonably discriminatory. The Filing
Participants have chosen to justify the proposed fees by multiplying
the existing fees for SIP data (which is top-of-book data) by a number
derived from the ratio of the fees of several exchanges' proprietary
depth-of-book feeds to the fees for the exchanges' proprietary top-of-
book feeds. As a number of commenters, including Non-Supporting
Participants, point out,\179\ however, the proprietary depth-of-book
products used as part of this methodology are materially different
products from the new data content underlying consolidated data
offerings, making the proprietary products an inappropriate simple
benchmark for pricing. Unlike the new data content underlying
consolidated data offerings, the proprietary depth-of-book data
products typically include: (1) top-of-book data, for which the Filing
Participants propose to charge separately; (2) auction data, for which
the Filing Participants also propose to charge separately; (3)
comprehensive order-by-order depth information, rather than just
aggregated orders at each price level; \180\ and (4) full depth
information at all price levels, rather than just the five price levels
outside the NBBO as prescribed under the MDI Rules. Notably, the
Commission considered but declined to expand the definition of depth-
of-book data to include complete, order-by-order depth of book
information at all price levels, noting that the objectives of
providing useful additional information to a broad cross-section of
market participants and reducing informational asymmetries between
users of proprietary data and SIP data must be balanced against the
risk of, among other things, ``additional operational costs and latency
because of increased message traffic with order by order data at all
price levels.'' \181\
---------------------------------------------------------------------------
\179\ See IEX Letter, supra note 56, at 3-4; MEMX Letter, supra
note 56, at 11-12; BlackRock Letter, supra note 56, at 4-5; FINRA
Letter, supra note 157, at 6; MayStreet Letter II, supra note 57, at
17.
\180\ See supra notes 161-164 and accompanying text.
\181\ See MDI Rules Release, supra note 11, 86 FR at 18627.
---------------------------------------------------------------------------
While the Filing Participants have described the methodology used
to set the proposed fees and have made certain arguments about their
consistency with statutory standards for assessing fees for NMS Plans,
they have not adequately explained: (1) how setting the proposed fees
based on the ratio of fees for depth-of-book and top-of-book
proprietary data is an appropriate method for setting the proposed
fees; (2) how the ratio used in the calculation adequately represents
the difference in value between top-of-book data and the five levels of
additional depth that would be required under the MDI Rules; (3) how
calculating the ratio based on proprietary depth-of-book data products
that include content that would not be part of the consolidated depth-
of-book product prescribed under the MDI Rules did not result in a
ratio that is excessively high; or (4) how the fees generated by
applying that ratio to the fees for current consolidated market data
resulted in proposed depth-of-book fees that are fair, reasonable, and
not unreasonably discriminatory. And while the Filing Participants
state that alternative methodologies resulted in ratios greater than
3.94x and were thus not selected by the Filing Participants, the Filing
Participants do not specify which other data feeds were considered in
those methodologies or how feeds other than those considered--such as a
proprietary feed with aggregated, rather than the more comprehensive
order-by-order depth-of-book information--might have served as better
proxies for the data content required under the MDI Rules.
Several commenters, including Non-Supporting Participants, state
that the proposed fees, including the proposed fees for depth-of-book
data, are too high.\182\ One commenter states that retail investors
should get free or very-low-cost depth-of-book data because it is in
the best interest of retail investors,
[[Page 58604]]
the industry, and the Commission.\183\ This commenter states that
displaying depth-of-book data can give investors a better understanding
of how prices are formed.\184\ The commenter states that the ability
for an investor to see buying and selling interest at various price
levels makes it easier for the investor to understand what determines
the price of a particular security by seeing the interaction of market
and limit orders.\185\ The commenter argues that making depth-of-book
data ``cheap'' would allow brokers to give the data to retail clients
for no or low cost and that this, in turn, would increase retail
participation in the securities markets because investors will not only
understand markets better, but they will participate more in the
markets.\186\ According to this commenter, if depth-of-book data is
expensive, it will not help most retail investors because they will not
be able to afford to see it.\187\ One commenter states that depth-of-
book data should be priced higher than top-of-book data, but adds that
charges for depth-of-book data from the Plans should be much lower than
charges for consuming the market data directly from the exchanges,
because the information provided under the Plan would still be a subset
of what is provided by the proprietary data feeds.\188\
---------------------------------------------------------------------------
\182\ See FINRA Letter, supra note 157, at 5-6; BlackRock
Letter, supra note 56, at 1-5; MIAX Letter, supra note 56, at 2;
Angel Letter, supra note 169, at 9; NovaSparks Letter, supra note
125, at 1; BMO Letter, supra note 56, at 2-3; IEX Letter, supra note
56, at 1, 5; SIFMA Letter I, supra note 56, at 1, 4-5; IEX Letter,
supra note 56, at 4; MEMX Letter, supra note 56, at 11-12. See also
MayStreet Letter II, supra note 57, at 18.
\183\ See Angel Letter, supra note 169, at 3.
\184\ See id. at 7.
\185\ See id.
\186\ See id. at 8.
\187\ See id.
\188\ See NovaSparks Letter, supra note 125, at 1.
---------------------------------------------------------------------------
One commenter opposes the proposed depth-of book data fees, because
they, as well as the other proposed fees, represent an overall increase
in costs to end users, making market data less accessible, contrary to
``the core precept of the'' MDI Rules.\189\ Another commenter states
that the value of the depth-of-book data should focus on greater access
and availability of this kind of data, and that the Operating Committee
should thus consider what price point would increase availability of
depth-of-book information, rather than charging a multiple of
proprietary data feeds.\190\ One commenter expresses support for the
proposed and ``moderately priced'' non-professional rate for depth-of-
book information, because, in the commenter's view, this aspect of the
proposal ``levels the playing field'' for retail investors by providing
them with access to the same information that is available to
professionals traders at an affordable price, which will help broaden
adoption of this new category of data.\191\ One commenter states that
it is concerning that the Proposed Amendment, without explanation,
precludes the redistribution of delayed depth-of-book data, adding that
it sees no reason for prohibiting the redistribution of depth-of-book
data on a delayed basis and that it does not object to offering
snapshot pricing.\192\
---------------------------------------------------------------------------
\189\ See Cutler Group Letter, supra note 134, at 1. This
commenter further states that the level of the proposed fees would
make it difficult for competing consolidators to offer products at
prices competitive to those of proprietary feeds thereby placing
competing consolidators at a disadvantage. See id.
\190\ See MayStreet Letter I, supra note 56, at 7.
\191\ See BlackRock Letter, supra note 56, at 3, 5.
\192\ See MayStreet Letter II, supra note 57, at 3, 19.
---------------------------------------------------------------------------
The Commission acknowledges the concerns raised by some commenters
that the proposed fees for depth-of-book data are too high and thus do
not serve the goals of Section 11A of the Exchange Act or help to
ensure broad availability to brokers, dealers, and investors of
information with respect to quotations for and transactions in NMS
stocks that is prompt, accurate, reliable, and fair. Here, however, as
discussed above, the Commission has concluded that the Filing
Participants have not demonstrated that the proposed fees for depth-of-
book data are fair, reasonable, and not unreasonably discriminatory.
Because the Filing Participants have not justified either the proposed
fees or the methodology behind them, the Commission does not have a
basis to make a finding in this Order as to what fair, reasonable, and
not unreasonably discriminatory level of fees would be.
The Filing Participants have not demonstrated that the proposed
fees for the content underlying consolidated depth-of-book data provide
for the distribution of information with respect to quotations for and
transactions in NMS stocks on terms that are fair, reasonable, and not
unreasonably discriminatory consistent with Rule 603(a) of Regulation
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of
Regulation NMS, the Proposed Amendment is necessary or appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Act.\193\
---------------------------------------------------------------------------
\193\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
3. Fees for Auction Data
The Filing Participants have proposed fees for Auction information
(as defined in Rule 600(b)(5)).\194\ The Filing Participants propose
that, with respect to auction information, both Professional
Subscribers and Nonprofessional Subscribers would pay $10.00 per device
per month.\195\
---------------------------------------------------------------------------
\194\ The Filing Participants state that they propose to price
subsets of data that constitute core data separately so that data
subscribers have flexibility in how much consolidated market data
content they wish to purchase. For example, the Filing Participants
state that they understand that certain data subscribers may not
wish to add depth-of-book data or auction information, or may want
to add only depth-of-book information, but not auction information.
Accordingly, the Filing Participants are proposing to price subsets
of data to provide flexibility to data subscribers. However, the
Filing Participants state that they expect that competing
consolidators would purchase all core data. See Notice, supra note
6, 86 FR at 67563 n.10.
\195\ See id. at 67563.
---------------------------------------------------------------------------
The Filing Participants state that, with respect to the fees for
auction information, the Filing Participants looked to the number of
trades that occur during the auction process as compared to the trading
day and determined that roughly 10% of daily trading volume is
concentrated in auctions.\196\ The Filing Participants state that,
consequently, a fee that is 10% of the fee charged for depth-of-book
data is an appropriate proxy for determining the value of auction
information. As a result, the Filing Participants have proposed a
$10.00 fee per Network for auction information, which the Filing
Participants state is fair and reasonable and not unreasonably
discriminatory.\197\
---------------------------------------------------------------------------
\196\ See id. at 67565.
\197\ See id.
---------------------------------------------------------------------------
Three commenters, including a Non-Supporting Participant, state
that information about auction order imbalances is included with the
proprietary depth-of-book data products that the Filing Participants
used to calculate the consolidated depth-of-book fees. Therefore, these
commenters argue, the proposed consolidated depth-of-book fees already
incorporate the fees for auction imbalance data, and the proposed
auction information fees would result in double charging consumers who
purchase both auction information and depth-of-book products from
competing consolidators.\198\ One commenter states that proprietary
depth-of-book product pricing is also inappropriately used to derive
the value of auction data, because auction information is more closely
aligned with top-of-book content, which provides only high-level
information about aggregate order imbalances and does not include the
order-by-order details or the data about multiple price levels that
proprietary depth-of-book feeds include.\199\ One commenter states
that,
[[Page 58605]]
while the pricing rationale in the proposal uses the ratio of auction
volume to total trading volume to price the auction information feed,
the Filing Participants incorrectly apply this ratio to the fees for
the depth-of-book feed, which conveys information about displayed
liquidity, not trading activity. According to this commenter, (1) it
would have been more congruent with the Filing Participants'
proposition to use Level 1 core data as the basis for pricing auction
content, as this feed is more closely associated with trade volume, and
(2) the fees for auction information should be set to 10% of Level 1
core data prices.\200\
---------------------------------------------------------------------------
\198\ See BlackRock Letter, supra note 56, at 4-5; MEMX Letter,
supra note 56, at 11-13; FINRA Letter, supra note 157, at 6.
\199\ See BlackRock Letter, supra note 56, at 5.
\200\ See id.
---------------------------------------------------------------------------
One commenter states that the best proxy for the value of auction
data is the NYSE Order Imbalance feed, given that NYSE has the biggest
auction market share.\201\ The commenter recommends eliminating auction
usage fees from the proposal because the most valuable auction data
available today does not have such usage charges.\202\ The commenter
also states that it sees no reason for prohibiting the redistribution
of auction data on a historical basis.\203\
---------------------------------------------------------------------------
\201\ See MayStreet Letter II, supra note 57, at19.
\202\ See id. at 4, 19.
\203\ See id. at 19.
---------------------------------------------------------------------------
The Filing Participants have not shown that the proposed fees for
auction data meet the statutory standard that fees for consolidated
market data must be fair, reasonable, and not unreasonably
discriminatory. The Filing Participants state that, to determine the
proposed fees for auction data, they looked to the number of trades
that occur during the auction process as compared to the trading day
and determined that roughly 10% of the trading volume is concentrated
in auctions. The Filing Participants then applied the 10% figure to the
fees charged for depth-of-book data to determine the value of auction
information. However, as several commenters, including Non-Supporting
Participants, have pointed out, because information about auction order
imbalances is included with the proprietary depth-of-book data products
used as a benchmark for both the proposed depth-of-book fees and the
proposed auction information fees,\204\ the proposed auction
information fee would essentially result in double charging subscribers
who purchase both auction and depth-of-book information. Moreover, the
Filing Participants have failed to respond to criticisms raised by a
commenter that proprietary depth-of-book pricing was inappropriately
used as a benchmark to derive the value of auction data because auction
information is more closely aligned with top-of-book content, which
only provides high-level information about aggregate order imbalances
and does not include the order-by-order details or data about multiple
price levels typically included in proprietary depth-of-book
information products.\205\ The Filing Participants, who have argued
that their proposed fees are based on the value of the data products to
subscribers, have failed to justify the assumption that the relative
value of two materially different data products is based on the
relative volume of trades during different periods of the day, without
reference to the content of the two feeds. Because the rationale
offered by the Filing Participants to support their methodology with
respect to auction information fees is arbitrary, and because the
methodology uses as a benchmark proprietary depth-of-book products that
contain auction data along with a significant amount of other data, the
Commission cannot find that the proposed fees are fair, reasonable, and
not unreasonably discriminatory.
---------------------------------------------------------------------------
\204\ See MEMX Letter, supra note 56, at 11-12. BlackRock
Letter, supra note 56, at 4-5; FINRA Letter, supra note 157, at 6.
\205\ See BlackRock Letter, supra note 56, at 5 (arguing that it
would have been more congruent to use Level 1 core data fees as the
benchmark). One commenter also argues that certain proprietary
auction imbalance feeds, rather that the proprietary depth-of-book
products selected, are a better proxy for the value of auction data.
See MayStreet Letter II, supra note 57, at 19.
---------------------------------------------------------------------------
Some commenters argue that the fees for auction information under
the Proposed Amendment should be lower.\206\ One commenter states that
retail investors should get free or moderately priced auction data
because it is in the interest of retail investors, the industry, and
the Commission.\207\ The commenter states that opening and closing
auction data is important in the securities markets and that providing
auction data to retail investors will increase retail investor
participation in the market.\208\ Another commenter states that the
filing should not be approved because the price levels do not
contribute to a level playing field between competing consolidators and
the current plan administrators, such that competing consolidators will
be at a disadvantage because they will not be able to offer products at
prices competitive with those of proprietary feeds.\209\
---------------------------------------------------------------------------
\206\ See Angel Letter, supra note 169; Cutler Group Letter,
supra note 134; BlackRock Letter, supra note 56.
\207\ See Angel Letter, supra note 169, at 3.
\208\ See id. at 9.
\209\ See Cutler Group Letter, supra note 134, at 1-2.
---------------------------------------------------------------------------
As noted above, the Commission has found that the Filing
Participants have not justified the rationale they have used to set the
proposed fees for auction information, and therefore it is not
necessary for the Commission to make a finding about the absolute level
of the proposed fees.
The Filing Participants have not demonstrated that the proposed
fees for Auction Data provide for the distribution of information with
respect to quotations for and transactions in NMS stocks on terms that
are fair, reasonable, and not unreasonably discriminatory consistent
with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find
that, consistent with Rule 608 of Regulation NMS, the Proposed
Amendment is necessary or appropriate in the public interest, for the
protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Act.\210\
---------------------------------------------------------------------------
\210\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
4. Fees for Professional and Non-Professional Users
For each of the three categories of data described above, the
Filing Participants propose a Professional Subscriber Charge and a
Nonprofessional Subscriber Charge. With respect to Level 1 Service, the
Filing Participants propose to charge the same Professional Subscriber
and Nonprofessional Subscriber fees for the new Level 1 Service product
under the distributed consolidation model as are charged for the
existing UTP Level 1 Service SIP data product that the Nasdaq/UTP Plan
generates and disseminates. With respect to depth-of-book data,
Professional Subscribers would pay $99.00 per device per month,\211\
and Nonprofessional Subscribers would pay $4.00 per device per
month.\212\ With respect to auction information, both Professional
Subscribers and Nonprofessional Subscribers would pay $10.00 per device
per month.\213\
---------------------------------------------------------------------------
\211\ See Notice, supra note 6, 86 FR at 67563.
\212\ See id. The Filing Participants applied the 3.94x ratio to
the current fees charged for Nonprofessional Subscribers taking all
three Networks ($3.00). This resulted in the total fee level for
depth-of-book data for Nonprofessional Subscribers equaling $12.00
(i.e., $3.00 x 3.94 = $11.82, rounded to $12.00). This fee was then
split evenly among the three Networks, resulting in a proposed
Nonprofessional Subscriber fee of $4.00 per Network. See id. at
67565.
\213\ See id. at 67563.
---------------------------------------------------------------------------
Some commenters, including a Non-Supporting Participant, question
the classification of fees by professional or non-professional user
type under the
[[Page 58606]]
Proposed Amendment.\214\ One commenter states that it is unreasonably
discriminatory to charge non-professional users the same fees as
professional users for auction data because professionals make far more
use of the data,\215\ and that the filing contains no justification as
to why the Filing Participants propose to charge professionals the same
as non-professionals for auction data.\216\ One commenter opposes non-
professional and professional user classifications on the grounds that
they prevent competing consolidators from being able to offer products
at competitive prices compared to the proprietary data feeds.\217\ One
commenter states that the inclusion of multiple tiers, user types with
bespoke definitions, and high compliance costs does not amount to fair
and reasonable terms and in fact unreasonably discriminates against
competing consolidators who seek to bring competition, innovation, and
broader access to consolidated market data.\218\ According to the
commenter, simplifying the pricing structure to allow for enterprise
caps at multiple tiers should be considered, along with easier-to-track
proxies for usage based on data already reported by firms or other
existing regulatory reporting.\219\ Another commenter suggests slowing
down the data feeds by 15 milliseconds to mitigate the risk of
professionals ``masquerading'' as non-professionals utilizing the
cheaper data.\220\
---------------------------------------------------------------------------
\214\ See Angel Letter, supra note 169; BlackRock Letter, supra
note 56; MIAX Letter, supra note 56; Polygon.io Letter I, supra note
126, at 2-3; MayStreet Letter I, supra note 56.
\215\ See Angel Letter, supra note 169, at 9-10.
\216\ See id. at 10.
\217\ See Polygon.io Letter I, supra note 126, at 2-3.
\218\ See MayStreet Letter I, supra note 56, at 8.
\219\ See id.
\220\ See Angel Letter, supra note 169, at 11.
---------------------------------------------------------------------------
Some commenters support moderately priced or free non-professional
user fees. Two Non-Supporting Participants support the proposed low
fees for non-professional users.\221\ One commenter supports the
proposed ``moderately priced'' non-professional rate for depth-of-book
information because this aspect of the proposal ``levels the playing
field'' for retail investors by providing them with access to the same
information that is available to professionals traders at an affordable
price, which will help broaden adoption of this new category of
data.\222\ Another commenter states that free or moderately priced non-
professional data, including depth-of-book and auction data, is in the
best interest of brokers and exchanges because it may increase retail
order flow and thus profits into the industry.\223\ The commenter
further states that free or moderately priced non-professional data is
in the best interest of the Commission as well, because providing
``better data to retail investors at low cost will reduce the amount of
SEC resources devoted to dealing with complaints based on
misunderstandings of market function.'' \224\
---------------------------------------------------------------------------
\221\ See MIAX Letter, supra note 56, at 2; MEMX Letter, supra
note 56, at 3.
\222\ BlackRock Letter, supra note 56, at 1, 3.
\223\ See Angel Letter, supra note 169, at 11.
\224\ Id.
---------------------------------------------------------------------------
One Filing Participant states that distinguishing between
professional and non-professional subscribers is fair, as well as
efficient.\225\ According to this commenter, professional fees are
higher than those for non-professionals because professionals realize
greater value from the data than non-professionals.\226\ The commenter
states that applying the same fees to both categories would result
either in low-value users subsidizing high-value users, or in fees that
are not economically sustainable for producers.\227\ According to the
commenter, setting professional and non-professional fees based on the
value of the data is efficient, fair, and well established by the
industry, and setting those fees based on cost is likely to be
unworkable.\228\ Another Filing Participant states that it is fair,
reasonable, and not unreasonable discriminatory for ``Wall Street to
pay higher fees than Main Street.'' \229\
---------------------------------------------------------------------------
\225\ See Nasdaq Letter II, supra note 74, at 3.
\226\ See id. The commenter further states that Non-
Professionals are provided a discount to encourage their use of the
data. See id.
\227\ See Nasdaq Letter II, supra note 74 at 3.
\228\ See id.
\229\ NYSE Letter, supra note 70, at 8.
---------------------------------------------------------------------------
With respect to the specific fees proposed, one Non-Supporting
Participant states that the proposed professional user fees are based
on a flawed methodology that results in excessive fee levels that would
discourage firms from registering as competing consolidators and would
hinder the formation of the decentralized consolidation model that the
MDI Rules seeks to create.\230\ Another Non-Supporting Participant
states that the proposed fees are ``plagued by double counting and
other significant issues'' that raise questions about the process used
to design the Proposed Amendments.\231\ For example, this commenter
states that, as proposed, the $70 Professional User fee for depth-of-
book information comes with access only to aggregated depth-of-book
information and does not include top-of-book information, even though
the calculation of that fee is based on a depth-of book product that
includes top-of-book information.\232\ This, the commenter states, ``is
straightforward double counting, plain and simple.'' \233\ The
commenter also states that while auction information is included in the
depth-of-book feed used to calculate the proposed fees, the proposal
also charges additional fees, including Professional and Non-
Professional Fees, for auction information.\234\ The commenter states
that even exchanges that offer separate feeds for auction information
generally do not charge Professional user fees.\235\
---------------------------------------------------------------------------
\230\ See MIAX Letter, supra note 56, at 4.
\231\ See MEMX Letter, supra note 56, at 10.
\232\ See id. at 12. According to the commenter, the value of
top-of-book information is therefore already embedded in the cost
proposed for depth-of-book information. See id.
\233\ See id.
\234\ See id. at 13-14.
\235\ See id.
---------------------------------------------------------------------------
One Non-Supporting Participant states that the proposed non-
professional user fees were a step in the right direction, but points
out that, while the proposed fees would be lower for the limited subset
of Non-Professional users that consume depth-of-book quotation
information, the proposed fees are higher than the fees currently
charged for proprietary data products that offer similar
information.\236\ This commenter adds that, even where the proposed
fees are lower than the fees charged for comparable proprietary data--
as is the case for Non-Professional users--the fact that the other fees
are higher than proprietary offerings is likely to reduce incentives
for competing consolidators to actually offer that data content to
their customers.\237\ According to the commenter, there is unlikely to
be any demand for the new data elements included in consolidated market
data at prices that exceed the fees charged for proprietary data feeds
today.\238\ In response to this commenter, a Filing Participant argues
that this analysis does not account for the fact that purchasers of the
new data would be receiving a consolidated data product that aggregates
all exchanges' data together to determine an NBBO and the five best
levels of depth among all the exchanges and that the analysis
disregards that the Proposed
[[Page 58607]]
Amendment includes much lower fees for non-professionals.\239\
---------------------------------------------------------------------------
\236\ See id. at 7.
\237\ See id. at 9.
\238\ See id. at 17. The commenter further states that the
Operating Committees should analyze whether it is fair and
reasonable to continue to charge professional and non-professional
user fees that exceed the fees charges for similar proprietary
market data. See id.
\239\ See NYSE Letter, supra note 70, at 8.
---------------------------------------------------------------------------
The Commission finds that the Filing Participants have not
demonstrated that the proposed fees for professional and non-
professional subscribers are fair, reasonable, and not unreasonably
discriminatory. With respect to Level 1 Service, the Filing
Participants state they are not proposing to change the Professional
Subscriber and Nonprofessional Subscriber fees currently set forth in
the Nasdaq/UTP Plan. But, as discussed above,\240\ in the context of
the MDI Rules, the Proposed Amendment is in fact proposing fees
applicable to a new data product--the data content underlying the top-
of-book data product to be collected, consolidated, and disseminated by
competing consolidators--that differs both with respect to content and
administrative expense from the existing top-of-book product generated
and disseminated by the exclusive SIP. In taking the position that they
are not proposing to do more than add content to the existing UTP Level
1 Service product offered by the exclusive SIP, however, the Filing
Participants have not even attempted to explain or justify how the
proposed Professional and Non Professional Fees for the new Level 1
Service satisfy the statutory standard of being fair, reasonable and
not unreasonably discriminatory.'' \241\ Significantly, the Filing
Participants have not taken into account that the current
consolidation, processing, and dissemination expenses incurred by the
Equity Data Plans would be inapplicable to the data content underlying
consolidated data offered through the new Level 1 Service product to be
collected, consolidated, and disseminated by competing
consolidators.\242\
---------------------------------------------------------------------------
\240\ See supra Section IV.C.1.
\241\ See MDI Rules Release, supra note 11, 86 FR at 18684.
\242\ See id. at 18682 (stating that ``the proposed new fees
[filed pursuant to Rule 614(e)] will need to reflect . . . that the
effective national market system plan(s) is no longer operating the
exclusive SIPs and is no longer performing collection,
consolidation, and dissemination functions'').
---------------------------------------------------------------------------
With respect to depth-of-book data, the Filing Participants have
not demonstrated that the proposed Professional and Non Professional
depth-of-book fees are fair, reasonable, and not unreasonably
discriminatory. The Filing Participants have attempted to justify the
proposed Professional and Non-Professional fees for depth-of-book data
by using the same multiplier (i.e., 3.94x) employed to calculate the
proposed fees for data content underlying consolidated depth-of-book
offerings,\243\ but, as explained in detail above, the Filing
Participants have not demonstrated that the use of this multiplier is
appropriate in the first place because, among other things, the
proprietary depth-of-book feeds contain top-of-book data and auction
information, which the data content underlying consolidated depth-of-
book feed would lack, leading to ``double-counting,'' as several
commenters have pointed out.\244\ In addition, with respect to auction
information, other than describing the proposal, explaining the
methodology used to generate the proposed fees,\245\ and arguing that
the resulting fees are fair, reasonable, and not unreasonably
discriminatory, the Filing Participants have not attempted to explain
or otherwise justify why it is fair, reasonable, and not unreasonably
discriminatory to set both the Professional Subscribers and
Nonprofessional Subscribers fee at the same rate of $10.00 per device
per month.
---------------------------------------------------------------------------
\243\ See supra note 213.
\244\ See supra Section IV.C.2 for a discussion on issues
associated with the application of the multiplier used by the Filing
Participants to generate certain proposed fees.
\245\ See Notice, supra note 6, 86 FR at 67563-65.
---------------------------------------------------------------------------
The Filing Participants have not demonstrated that the proposed
fees for professional and non-professional users provide for the
distribution of information with respect to quotations for and
transactions in NMS stocks on terms that are fair, reasonable, and not
unreasonably discriminatory consistent with Rule 603(a) of Regulation
NMS. Thus, the Commission cannot find that, consistent with Rule 608 of
Regulation NMS, the Proposed Amendment is necessary or appropriate in
the public interest, for the protection of investors and the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Act.\246\
---------------------------------------------------------------------------
\246\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
5. Fees for Non-Display Use
The Filing Participants propose Non-Display Use fees relating to
the three categories of data described above: (1) Level 1 Service; (2)
depth-of-book data; and (3) auction information. With respect to Level
1 Service, the Filing Participants propose to apply the Non-Display Use
fees currently set forth in the Nasdaq/UTP Plan to the data content
underlying consolidated market data in the new Level 1 Service data
product to be offered by the competing consolidators, namely $3,500 per
month,\247\ for each of the three types of Non-Display Use.\248\ With
respect to depth-of-book data, Subscribers would pay Non-Display Use
Fees of $12,477.00 per month for each type of Non-Display Use.\249\
With respect to auction information, Subscribers would pay Non-Display
Use fees of $1,248.00 per month for each type of Non-Display Use.\250\
---------------------------------------------------------------------------
\247\ See Exhibit 2(i) to the Nasdaq/UTP Plan.
\248\ The Filing Participants propose that access to odd-lot
information would be made available to Level 1 Service subscribers
for the same fees currently charged for Level 1 Service provided by
the exclusive SIP. See Notice, supra note 6, 86 FR at 67563. See
also supra note 32 (describing the three types of Non-Display Use
recognized under Exhibit 2(i) to the Nasdaq/UTP Plan).
\249\ See Notice, supra note 6, 86 FR at 67563.
\250\ The Filing Participants state that, as is the case today,
Subscribers would be charged for each category of use of depth-of-
book data and auction information. See Notice, supra note 6, 86 FR
at 67563.
---------------------------------------------------------------------------
Some commenters, including a Non-Supporting Participant, state that
the proposed Non-Display Use fees result in excessive fee levels that
would discourage firms from registering as competing consolidators,
thereby hindering the formation of the decentralized consolidation
model that the MDI Rules seeks to create.\251\ One commenter states
that the fees in the Proposed Amendment, including the non-display
fees, would place competing consolidators at a disadvantage because
they will not be able to offer products at prices competitive with
those of proprietary feeds.\252\ One commenter asks that the Commission
reject the Proposed Amendment and any future proposal that maintains
display/non-display classifications.\253\ The commenter states that, if
the Proposed Amendment is not rejected, competing consolidators will
not be able to offer products at competitive prices to proprietary data
feeds.\254\
---------------------------------------------------------------------------
\251\ See MIAX Letter, supra note 56, at 3; Polygon.io Letter I,
supra note 126, at 2-3.
\252\ See Cutler Group Letter, supra note 134, at 1-2.
\253\ See Polygon.io Letter I, supra note 126, at 2.
\254\ See id.
---------------------------------------------------------------------------
One Filing Participant states that distinguishing between Display
and Non-Display use is fair, as well as efficient.\255\ According to
this commenter, algorithms, dark pools, and electronic traders pay
higher fees than human professionals because they realize greater value
from the data.\256\ The commenter argues that, because Non-Display
users realize greater value from the use of market data than Display
users, applying the same fees to both
[[Page 58608]]
categories would result either in low-value users subsidizing high-
value users or fees that are not economically sustainable for
producers.\257\ The commenter states that the Proposed Amendment thus
sets the Display Fee and Non-Display Fee according to the value of the
data, which is efficient, fair, and well-established in the industry
both nationally and globally.\258\ According to the commenter, any
alternative based solely on cost is likely to be unworkable.\259\
---------------------------------------------------------------------------
\255\ See Nasdaq Letter II, supra note 74, at 3.
\256\ See id.
\257\ See id.
\258\ See id. at 2.
\259\ See id.
---------------------------------------------------------------------------
The Filing Participants have not explained or justified how the
proposed Non-Display Fees are fair, reasonable, and not unreasonably
discriminatory. With respect to the new Level 1 Service, the Filing
Participants state they are proposing to charge the same fees for Non-
Display Use of Level 1 data that are currently set forth in the Nasdaq/
UTP Plan with respect to data disseminated by the exclusive SIP. But,
as discussed above,\260\ in the context of the MDI Rules the Proposed
Amendment is in fact proposing fees applicable to a new data product--
the top-of-book data product to be collected, consolidated, and
disseminated by competing consolidators--that differs both with respect
to content and administrative expense from the existing top-of-book
product generated and disseminated by the exclusive SIP. In taking the
position that they have not proposed to do more than add content to the
existing Level 1 product offered by the exclusive SIP, however, the
Filing Participants have not even attempted to explain how the proposed
Non-Display Use fees for Level 1 Service satisfy the statutory standard
of being fair, reasonable, and not unreasonably discriminatory.\261\
Significantly, the Filing Participants have not taken into account that
the current consolidation, processing, and dissemination expenses
incurred by the Equity Data Plans would be inapplicable to the data
content underlying the new Level 1 products to be offered by competing
consolidators.\262\
---------------------------------------------------------------------------
\260\ See supra Section IV.C.1.
\261\ See MDI Rules Release, supra note 11, 86 FR at 18684.
\262\ See supra note 243 and accompanying text.
---------------------------------------------------------------------------
With respect to the content underlying depth-of-book data, the
Filing Participants state that they applied the 3.94x multiplier to the
current fees charged for Non-Display Use for all three Networks,
resulting in a proposed Non-Display Use fee of $12.477.00 per
network.\263\ With respect to depth-of-book data, the Filing
Participants have not demonstrated that the proposed Non-Display Use
fees are fair, reasonable, and not unreasonably discriminatory. The
Filing Participants have attempted to justify the proposed Non-Display
Use fees for depth-of-book data by using the same multiplier (i.e.,
3.94x) employed to calculate the proposed fees for the data underlying
the consolidated depth-of-book feed, but, as explained in detail above,
the Filing Participants have not demonstrated that the use of this
multiplier is appropriate in the first place because, among other
things, the proprietary depth-of-book feeds contain top-of-book data
and auction information, which the consolidated depth-of-book feed
would lack, leading to ``double-counting,'' as several commenters have
pointed out.\264\
---------------------------------------------------------------------------
\263\ See Notice, supra note 6, 86 FR at 67565.
\264\ See supra Section IV.C.2.
---------------------------------------------------------------------------
With respect to auction information, Filing Participants propose
that Subscribers would pay Non-Display Use fees of $1,248.00 per month
for each category of Non-Display Use.\265\ The Filing Participants
state that, as is the case today, Subscribers would be charged for each
type of non-display use of auction information.\266\ The Filing
Participants, however, have not explained the basis for the proposed
Non-Display Use fees for auction information, and the Commission
therefore has no basis on which it can find that the proposed fees are
fair, reasonable, and not unreasonably discriminatory. And even if the
unstated rationale is that the proposed fees are 10% of the proposed
Non-Display Use fees for depth-of-book data--consistent with the
derivation of auction information fees from the fees for the content
underlying depth-of-book data--that rationale would suffer from the
same weaknesses as the rationale underlying the proposed fees for Non-
Display Use of depth-of-book data and for the content underlying depth-
of-book data. The Filing Participants have not demonstrated that is
fair, reasonable, and not unreasonably discriminatory to calculate the
fees by comparison to the current charges for proprietary depth-of-book
products, which are substantially different products than those at
issue in the Proposed Amendment.\267\
---------------------------------------------------------------------------
\265\ The Filing Participants state that, as is the case today,
Subscribers would be charged for each category of use of depth-of-
book data and auction information. See Notice, supra note 6, 86 FR
at 67563.
\266\ See supra note 32 (describing the types of Non-Display
Uses recognized under Exhibit 2(i) to the Nasdaq/UTP Plan).
\267\ See supra Section IV.C.2 for a discussion on issues
associated with the application of the multiplier used by the Filing
Participants to generate certain proposed fees.
---------------------------------------------------------------------------
The Filing Participants have not demonstrated that the proposed
fees for Non-Display Use provide for the distribution of information
with respect to quotations for and transactions in NMS stocks on terms
that are fair, reasonable, and not unreasonably discriminatory
consistent with Rule 603(a) of Regulation NMS. Thus, the Commission
cannot find that, consistent with Rule 608 of Regulation NMS, the
Proposed Amendment is necessary or appropriate in the public interest,
for the protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Act.\268\
---------------------------------------------------------------------------
\268\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
6. Access Fees
The Filing Participants propose to charge Access Fees to all
subscribers for the use of the three categories of data: (1) Level 1
Service; (2) depth-of-book data; and (3) auction information. With
respect to Level 1 Service, the Filing Participants to apply the same
Access Fees that currently set forth in the Nasdaq/UTP Plan with
respect to data disseminated by the exclusive SIP. With respect to
depth-of-book data, the Filing Participants propose to charge
Subscribers a monthly Access Fee of $9,850.00 per Network. With respect
to auction information, the Filing Participants propose to charge
Subscribers a monthly Access Fee of $985.00 per Network.
Some commenters oppose the access fees in the proposed fee
schedule. One Non-Supporting Participant states that the proposed
access fees result in excessive fee levels that would discourage firms
from registering as competing consolidators and would hinder the
formation of the decentralized consolidation model that the MDI Rules
seeks to create.\269\ Another Non-Supporting Participant states that
the proposed access fees are not fair and reasonable because they are
more expensive than those charged by exchanges for their proprietary
products.\270\
---------------------------------------------------------------------------
\269\ See MIAX Letter, supra note 56, at 3.
\270\ See MEMX Letter, supra note 56, at 6, 8. See also Cutler
Group Letter, supra note 134, at 1-2 (noting that it supports the
comment letter written by MEMX and that the Proposed Amendment makes
market data less accessible).
---------------------------------------------------------------------------
The Filing Participants have not demonstrated that the proposed
access fees for depth-of-book information are fair, reasonable, and not
unreasonably discriminatory. With respect to Level 1
[[Page 58609]]
Service, the Filing Participants are proposing to charge the same
Access Fees for Non-Display Use of Level 1 data that are currently set
forth in the Nasdaq/UTP Plan with respect to data disseminated by the
exclusive SIP. But, as discussed above,\271\ in the context of the MDI
Rules, the Proposed Amendment is in fact proposing fees applicable to a
new data product--the top-of-book data product to be generated and
disseminated by competing consolidators--that differs both with respect
to content and administrative expense from the existing top-of-book
product generated and disseminated by the exclusive SIP. In taking the
position that they have not proposed to do more than add content to the
existing Level 1 product offered by the exclusive SIP, however, the
Filing Participants have not even attempted to explain or justify how
the proposed Access Fees for Level 1 Service satisfy the statutory
standard of being fair, reasonable and not unreasonably
discriminatory.'' \272\ Significantly, the Filing Participants have not
taken into account that the current consolidation, processing, and
dissemination expenses incurred by the Equity Data Plans would be
inapplicable to the data content underlying the new Level 1 products to
be offered by competing consolidators.
---------------------------------------------------------------------------
\271\ See supra Section IV.C.1.
\272\ See MDI Rules Release, supra note 11, 86 FR at 18684.
---------------------------------------------------------------------------
With respect to Access Fees for the content underlying depth-of-
book data, the Filing Participants have attempted to justify the
proposed Access Fees by using the same multiplier (i.e., 3.94x) to the
Access Fees charged for all three Networks, resulting in a proposed
Access Fee of $9,850.00 per Network.\273\ But, as explained in detail
above, the Filing Participants have not demonstrated that the use of
this multiplier is appropriate in the first place because, among other
things, the proprietary depth-of-book feeds contain top-of-book data
and auction information, which the consolidated depth-of-book feed
would lack, leading to ``double-counting,'' as several commenters have
pointed out.\274\
---------------------------------------------------------------------------
\273\ See Notice, supra note 6, 86 FR at 67565.
\274\ See supra Section IV.C.2 (discussing issues associated
with the application of the multiplier used by the Filing
Participants to generate certain proposed fees).
---------------------------------------------------------------------------
Finally, with respect to auction information, the Filing
Participants have not explained the basis for the proposed Access Fees
for auction information, and the Commission therefore has no basis on
which it can find that the proposed fees are fair, reasonable, and not
unreasonably discriminatory. And even if the unstated rationale is that
the proposed fees are 10% of the proposed Access Fees for depth-of-book
data, consistent with the derivation of auction information fees from
the fees for the content underlying depth-of-book data, that rationale
would suffer from the same weaknesses as the rationale for Non-Display
Use of depth-of-book data and for the content underlying depth-of-book
data. The Filing Participants have not demonstrated that is fair,
reasonable, and not unreasonably discriminatory to calculate the fees
by comparison to the current charges for proprietary depth-of-book
products, which are substantially different products than those at
issue in the Proposed Amendment.\275\
---------------------------------------------------------------------------
\275\ See id.
---------------------------------------------------------------------------
The Filing Participants have not demonstrated that the proposed
Access Fees provide for the distribution of information with respect to
quotations for and transactions in NMS stocks on terms that are fair,
reasonable, and not unreasonably discriminatory consistent with Rule
603(a) of Regulation NMS. Thus, the Commission cannot find that,
consistent with Rule 608 of Regulation NMS, the Proposed Amendment is
necessary or appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Act.\276\
---------------------------------------------------------------------------
\276\ See 17 CFR 242.608(b)(2).
---------------------------------------------------------------------------
7. Redistribution Fees
The Filing Participants propose that the existing Redistribution
Fees would apply to all three categories of core data (i.e., Level 1,
depth-of-book, and auction information), including any subset
thereof.\277\ The Filing Participants are not proposing to change the
amount of the Redistribution Fees. The Filing Participants also specify
that Redistribution Fees would be charged to competing consolidators.
---------------------------------------------------------------------------
\277\ The Filing Participants state that, currently,
Redistribution Fees are charged to any entity that makes last sale
information or quotation information available to any other entity
or to any person other than its employees, irrespective of the means
of transmission or access. The Filing Participants propose to amend
this description to make it applicable to core data, as that term is
defined in Rule 600(b)(21). See Notice, supra note 6, 86 FR at
67566.
---------------------------------------------------------------------------
In support of their proposal to charge Redistribution Fees to
competing consolidators, the Filing Participants argue: (1) that the
comparison the Commission made in the MDI Rules Release between self-
aggregators (which would not pay Redistribution Fees) and competing
consolidators is not appropriate in determining whether a
redistribution fee is not unreasonably discriminatory; and (2) that the
Commission's comparison is not consistent with the current long-
standing practice of the Plan that redistribution fees are charged to
any entity that distributes data externally.\278\ The Filing
Participants state that a self-aggregator, by definition, would not be
distributing data externally and would therefore not be subject to such
fees, which, according to the Filing Participants, is consistent with
current Plan practice that a subscriber to consolidated data that only
uses data for internal use is not charged a Redistribution Fee.
---------------------------------------------------------------------------
\278\ See, e.g., Cover Letter, supra note 1, at 4; Notice, supra
note 6, 86 FR at 67563. The Filing Participants state that the
current exclusive SIP is not charged a Redistribution Fee. The
Filing Participants state, however, that unlike competing
consolidators, the processor has been retained by the Nasdaq/UTP
Plan to serve as an exclusive SIP, is subject to oversight by both
the Nasdaq/UTP Plan and the Commission, and neither pays for the
data nor engages with data subscriber customers. The Filing
Participants state that, by contrast, under the competing
consolidator model: The Nasdaq/UTP Plan would have no role in either
overseeing or determining which entities choose to be a competing
consolidator; a competing consolidator would need to purchase
consolidated market data just as any other vendor would; and
competing consolidators would be responsible for competing for data
subscriber clients. Accordingly, the Filing Participants argue,
competing consolidators would be more akin to vendors than to the
current exclusive SIPs. The Filing Participants state that if any
entity that is currently an exclusive SIP chooses to register as a
competing consolidator, that entity would be subject to the
Redistribution Fee. See Cover Letter, supra note 1, at 4 n.7;
Notice, supra note 6, 86 FR at 67563 n.12.
---------------------------------------------------------------------------
The Filing Participants argue that the more appropriate comparison
would be between competing consolidators and downstream vendors, both
of which would be selling consolidated market data directly to market
data subscribers. The Filing Participants state that vendors are and
would still be subject to Redistribution Fees when redistributing data
to market data subscribers and argue that it would be unreasonably
discriminatory and would impose a burden on competition if competing
consolidators--which would be competing with downstream market data
vendors for the same data subscriber customers--are not charged a
Redistribution Fee for exactly the same activity.
One commenter states that the Proposed Amendment should treat
competing consolidators as replacements to the exclusive SIPs, not as
data vendors.\279\ The commenter states that subjecting competing
consolidators to the same fees as data
[[Page 58610]]
vendors and subscribers that receive consolidated market data from the
exclusive SIP fails to recognize that competing consolidators are SIPs
and are not similarly situated to today's data vendors.\280\ This
commenter further states that competing consolidators should not be
charged redistribution fees because they are not redistributing
consolidated market data, but are instead generating and distributing
consolidated data for the first time.\281\ According to this commenter,
redistribution fees should not be charged by the Plan because the Plan
would no longer govern the distribution of consolidated market
data.\282\ The commenter states that not recognizing competing
consolidators as SIPs places competing consolidators at a competitive
disadvantage relative to data vendors, given that they take on expenses
and risks that data vendors do not, such as the costs for generating
consolidated market data, disclosing operational and performance
metrics, registering with the Commission, and complying with Rule 614
of Regulation NMS.\283\
---------------------------------------------------------------------------
\279\ See MayStreet Letter I, supra note 56, at 3.
\280\ See id. at 3-4.
\281\ See id.
\282\ See id. at 5.
\283\ See id.
---------------------------------------------------------------------------
One Non-Supporting Participant states that the redistribution fee
for competing consolidators is inconsistent with the MDI Rules, is not
fair and reasonable, and is unreasonably discriminatory.\284\ This
commenter states that the proposal's attempt to justify the
redistribution fee based on the current centralized model that charges
fees to downstream vendors is unsound because, under the decentralized
MDI Rules, competing consolidators would be ``stepping into the role
that the SIPs hold today as the primary sources of consolidated market
data.'' \285\ According to this commenter, to charge a redistribution
fee on top of the other proposed fees would ``unquestionably put
competing consolidators at a further competitive disadvantage as
compared to aggregated proprietary data products offered by
exchanges,'' thus targeting them in an unfair and unreasonable
manner.\286\
---------------------------------------------------------------------------
\284\ See MIAX Letter, supra note 56, at 2 (citing the MDI Rules
Release statements that ``imposing redistribution fees on data
content underlying consolidated market data that will be
disseminated by competing consolidators would be difficult to
reconcile with the standards of being fair and reasonable and not
unreasonably discriminatory in the new decentralized model,'' and
that ``fees proposed by the SROs should not contain redistribution
fees for competing consolidators because this would hinder their
ability to compete.'').
\285\ Id.
\286\ Id.
---------------------------------------------------------------------------
One commenter states the Proposed Amendment directly contradicts
the Commission's directive in the MDI Rules that competing
consolidators not be treated the same as market data vendors.\287\ The
commenter states that the Filing Participants are ``engaged in a
strategy to undermine the Commission's authority over market data as
enumerated in the CT Plan and MDI Rule[s] in order to preserve their
current revenues from proprietary and SIP data.'' \288\ The commenter
further states that the Filing Participants' position that the
competing consolidators should be charged redistribution fees just like
any market data vendor undermines the efforts of the MDI Rules.\289\
The commenter cites the Commission's statement in the MDI Rules Release
that the fees for the data content underlying consolidated market data
should not include redistribution fees for competing consolidators.''
\290\ The commenter argues that by treating competing consolidators
differently than the exclusive SIPs, the Filing Participants are acting
in an unreasonably discriminatory manner, effectively disregarding the
Exchange Act mandates in addition to the Commission's directive in the
MDI Rules.\291\ The commenter argues that imposing redistribution fees
on competing consolidators imposes an undue burden on competition.\292\
---------------------------------------------------------------------------
\287\ See SIFMA Letter I, supra note 56, at 4-5.
\288\ Id. at 6; see also SIFMA Letter II, supra note 56, at 3.
\289\ See SIFMA Letter I, supra note 56, at 7; SIFMA Letter II,
supra note 56, at 2.
\290\ See SIFMA Letter I, supra note 56, at 7; SIFMA Letter II,
supra note 56, at 2.
\291\ See SIFMA Letter I, supra note 56, at 7; SIFMA Letter II,
supra note 56, at 2.
\292\ See SIFMA Letter I, supra note 56, at 7; SIFMA Letter II,
supra note 56, at 2.
---------------------------------------------------------------------------
Other commenters also suggest that the imposition of redistribution
fees on competing consolidators would place competing consolidators at
a competitive disadvantage.\293\ One commenter states that by charging
redistribution fees to competing consolidators, the Proposed Amendment
creates a barrier to entry to technology solution vendors becoming
competing consolidators.\294\ Two other commenters, including a Non-
Supporting Participant, also argue that the redistribution fees charged
to competing consolidators are in contravention of the Commission's
express direction in the MDI Rules.\295\ Another Non-Supporting
Participant states that the proposed redistribution fee that would be
charged to competing consolidators is inconsistent with the purposes
and structure of the MDI Rules, and that this aspect of the proposal
represents a ``further indication that the intent of the majority [of
the exchanges] was to subvert the purpose of the Commission's order.''
\296\
---------------------------------------------------------------------------
\293\ See NBIM Letter, supra note 78, at 2; Cutler Group Letter,
supra note 134, at 1-2.
\294\ See NovaSparks Letter, supra note 125, at 1.
\295\ See FINRA Letter, supra note 157, at 5; MEMX Letter, supra
note 56, at 21.
\296\ IEX Letter, supra note 56, at 5.
---------------------------------------------------------------------------
One Filing Participant states that, although the Commission in the
MDI Rules Release compared competing consolidators to self-aggregators,
a more appropriate comparison would be between competing consolidators
and downstream vendors.\297\ According to this commenter, because these
vendors would be subject to redistribution fees when redistributing
data to their subscribers, it would impose a burden on competition and
be unfair to vendors not to charge a redistribution fee for exactly the
same activity by competing consolidators.\298\
---------------------------------------------------------------------------
\297\ See NYSE Letter, supra note 70, at 7.
\298\ See id.
---------------------------------------------------------------------------
As the Commission stated in the MDI Rules Release, ``the fees for
the data content underlying consolidated data should not include
redistribution fees for competing consolidators,'' \299\ and imposing
redistribution fees on competing consolidators ``would be difficult to
reconcile with statutory standards of being fair and reasonable and not
unreasonably discriminatory in the new decentralized model.'' \300\ The
Filing Participants' attempt to justify the Redistribution Fee--basing
it on the long-standing practice within a centralized model that
charges fees to ``any entity that distributes data''--is misplaced.
Unlike current vendors that take consolidated data generated by the
exclusive SIP, distribute it, and pay redistribution fees, the
competing consolidators will ``take the place of the exclusive SIP,
which is not charged a redistribution fee.'' \301\ The competing
consolidators will take underlying data content from the exchanges and
will themselves generate the consolidated data. Thus, there is no
``redistribution'' when a competing consolidator sells consolidated
data--at fees set forth in the Plan--to a subscriber. Moreover, like
the exclusive SIPs, competing consolidators will take on expenses,
risks, and obligations that data vendors do not, such as the costs for
collecting, consolidating, generating, and disseminating consolidated
equity
[[Page 58611]]
market data.\302\ Additionally, like the exclusive SIPs and unlike
vendors, competing consolidators will be subject to the registration,
disclosure, and other regulatory requirements under Rule 614 and Form
CC of Regulation NMS,\303\ as well as to the requirements of Regulation
SCI.\304\
---------------------------------------------------------------------------
\299\ MDI Rules Release, supra note 11, 86 FR at 18685.
\300\ Id.
\301\ Id.
\302\ See id. at 18603-04, 18662-76 (discussing registration and
responsibilities of competing consolidators).
\303\ See id. at 18603-04, 18662-76 (discussing registration and
responsibilities competing consolidators).
\304\ In the MDI Rules Release, the Commission amended
Regulation SCI to expand the definition of ``SCI entities'' to
include ``SCI competing consolidators'' that are subject to the
requirements of Regulation SCI after an initial transition period if
they meet a threshold based on certain share of gross consolidated
market data revenues. See id. at 18604-05.
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Thus, the Filing Participants have not adequately explained or
justified how the proposal to impose Redistribution Fees reflects,
consistent with the MDI Rules, that ``that the effective national
market system plan(s) is no longer operating the exclusive SIPs and is
no longer performing collection, consolidation, and dissemination
functions.'' \305\ The Filing Participants have not explained how
keeping the proposed Redistribution Fees unchanged from the current
fees under the Nasdaq/UTP Plan is an appropriate means of establishing
the proposed fees, or how the resulting fee levels are fair and
reasonable and not unreasonably discriminatory. Additionally, the
Filing Participants have not explained how charging Redistribution
Fees--layered atop the other fees described above--to competing
consolidators (thus subjecting them to the same fees as vendors and
subscribers) is necessary or appropriate in the public interest, for
the protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Act.\306\
---------------------------------------------------------------------------
\305\ Id. at 18682.
\306\ See 17 CFR 242.608(b)(2).
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The Filing Participants have not demonstrated that the proposed
Redistribution Fees provide for the distribution of information with
respect to quotations for and transactions in NMS stocks on terms that
are fair, reasonable, and not unreasonably discriminatory consistent
with Rule 603(a) of Regulation NMS. Thus, the Commission cannot find
that, consistent with Rule 608 of Regulation NMS, the Proposed
Amendment is necessary or appropriate in the public interest, for the
protection of investors and the maintenance of fair and orderly
markets, to remove impediments to, and perfect the mechanisms of, a
national market system, or otherwise in furtherance of the purposes of
the Act.\307\
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\307\ See 17 CFR 242.608(b)(2).
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8. Other Comments Regarding the Proposed Fees \308\
---------------------------------------------------------------------------
\308\ In addition to the other comments discussed in this Order,
the Commission also received a letter in the comment file that is
not germane to the Proposed Amendment. See Letter from Charles L.
Groothoff (Apr. 13, 2022).
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One commenter states that the proposed fees for the content
underlying consolidated market data would be too high whether a cost-
basis or value-basis were used as a justification by the Filing
Participants.\309\ A Non-Supporting Participant states that any
analysis of current SIP fees should include a discussion of what
structural changes could be made to SIP fees to eliminate or reduce the
incentives that firms have today to avoid providing SIP data to their
customers.\310\ One commenter favors expanding the broker-dealer
enterprise cap that is part of the current fee schedule of the Plan,
stating that the Proposed Amendment provides no depth-of-book
enterprise cap and that the Level 1 enterprise caps are out of reach
for most market participants.\311\ Another commenter states that it
supports the proposed a la carte fee structure for the expanded
elements of consolidated data because, in the commenter's view, market
participants should be able to select from a variety of market data
products and pay only for the content they consume.\312\
---------------------------------------------------------------------------
\309\ See MayStreet Letter I, supra note 56, at 6.
\310\ See MEMX Letter, supra note 56, at 20.
\311\ See MayStreet Letter I, supra note 56, at 8.
\312\ See BlackRock Letter, supra note 56, at 2-3.
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One Non-Supporting Participant compares the proposed fees for
content underlying consolidated data to fees currently charged for
proprietary data fees and argues that at any given price a subscriber
would be better off subscribing to the proprietary data fees listed
instead of purchasing data from the Plan, given the additional
information included on those feeds.\313\ This commenter states that,
because the proposed fees are generally more expensive than current
proprietary data offerings, the Proposed Amendments clearly fail the
``fair and reasonable'' test required by the Exchange Act.\314\ This
commenter further argues that it is unlikely that there will be any
demand for the new data elements included in consolidated market data
at prices that exceed the fees charged for proprietary data feeds
today.\315\
---------------------------------------------------------------------------
\313\ See MEMX Letter, supra note 56, at 7.
\314\ See id. at 8.
\315\ See id. at 17.
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The Commission in this Order is not taking a position on what
structure or level of fees--either on an absolute basis or in
comparison to existing proprietary data products--would be appropriate,
but finds that the Filing Participants have failed to demonstrate that
the proposed fees provide for the distribution of information with
respect to quotations for and transactions in NMS stocks on terms that
are fair and reasonable and not unreasonably discriminatory.\316\
---------------------------------------------------------------------------
\316\ See Sections 11A(c)(1)(C)-(D) of the Exchange Act, 15
U.S.C 78k-1(c)(1)(C)-(D); Rule 603(a) of Regulation NMS, 17 CFR
242.603.
---------------------------------------------------------------------------
Some commenters, including Non-Supporting Participants, also argue
that the proposed fees would have an adverse impact on competition, and
on competing consolidators in particular.\317\ One Non-Supporting
Participant states that, even where the proposed fees are lower than
the fees charged for comparable proprietary data, the fact that other
fees are higher than proprietary offerings is likely to reduce
incentives for competing consolidators to actually offer that data
content to their customers and would limit the potential customer base
for competing consolidators and inappropriately impede the viability of
competing consolidators under the infrastructure rule.\318\ Another
commenter expresses concern that if the Proposed Amendment were
approved, the exchanges would entrench a high cost for market data that
has no relation to underlying expenses, is not subject to effective
competitive forces, and serves as a formidable barrier to entry for
newer firms.\319\ One commenter states that the current proposal will
favor current market data vendors who already pay for these fees and
have large customer bases, but will not necessarily use the most
efficient data consolidation solutions.\320\ This commenter states that
all of the equity market data plans should have a unified feed and
price list because most end users today consume all of the plans'
feeds.\321\
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\317\ See MIAX Letter, supra note 56, at 1, 3; MEMX Letter,
supra note 56, at 2, 9, 10-17, 21-22, 25; NBIM Letter, supra note
78, at 2; NovaSparks Letter, supra note 125, at 1; IEX Letter, supra
note 56, at 5; SIFMA Letter I, supra note 56, at 8; FINRA Letter,
supra note 157, at 5; MayStreet Letter I, supra note 56, at 5;
BlackRock Letter, supra note 56, at 1-4; Polygon.io Letter I, supra
note 126, at 3; Proof Services Letter, supra note 56, at 3; Cutler
Group Letter, supra note 134, at 1.
\318\ See MEMX Letter, supra note 56, at 9, 17.
\319\ See Proof Services Letter, supra note 56, at 1.
\320\ See NovaSparks Letter, supra note 125, at 1.
\321\ See id. at 1-2.
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The Commission has considered these comments regarding the
competitive challenges of the current market
[[Page 58612]]
environment and the role the Plan and these proposed fees would play
under the competing consolidator regime. As discussed above, the
Commission has found that the Filing Participants have not demonstrated
that the proposed fees for content underlying consolidated market data
are fair, reasonable and not unreasonably discriminatory. The
Commission agrees that unfair, unreasonable, or unreasonably
discriminatory fees for this data content would decrease the likelihood
that it would be economically feasible for firms to become competing
consolidators. That in turn would undermine the Commission's goals in
``fostering a competitive environment for the provision and
dissemination of critical market data to investors and other market
participants'' that will ``better achieve the goals of Section 11A of
the Exchange Act and help to ensure broad availability to brokers,
dealers, and investors of information with respect to quotations for
and transactions in NMS stocks that is prompt, accurate, reliable, and
fair.'' \322\
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\322\ MDI Rules Release, supra note 11, 86 FR at 18605-06.
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D. NMS Plan Governance
Some commenters, including Non-Supporting Participants, state that
the MDI Rules should be implemented through the new CT Plan,\323\
rather than through the existing equity market data plans (i.e., the
CTA/CQ Plans and the Nasdaq/UTP Plan).\324\ One commenter reiterated
its continued support for the provisions of the CT Plan overall.\325\
The commenter states that the real and potential conflicts of interest
that currently exist relating to the provision of market data directly
relate to the decision-making problems at the Plan's Operating
Committee.\326\ One commenter states that the conflicts of interest
that led to the creation of the Proposed Amendment are apparent from
the resounding lack of support it has received from anyone but the
exchange groups that stand to benefit from creating a system where
competing consolidators are not viable.\327\ According to this
commenter, the exchange groups are disincentivized to create a fair and
reasonable fee structure, so additional attempts under the same system
are unlikely to create better results.\328\
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\323\ See supra note 18 (describing CT Plan).
\324\ See BMO Letter, supra note 56; MEMX Letter, supra note 56;
MIAX Letter, supra note 56; IEX Letter, supra note 56; and
Polygon.io Letter I, supra note 126; Polygon.io Letter II, supra
note 66.
\325\ See BMO Letter, supra note 56, at 1.
\326\ See id. at 2.
\327\ See id.
\328\ See Polygon.io Letter II, supra note 66, at 2.
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Another commenter supports expanding the voting representation
under the CT Plan to non-SROs and having them participate as full
voting members of the Operating Committee.\329\ The commenter states
that the Commission cannot approve the Proposed Amendment given the
inherent conflicts of interests of the Filing Participants that
developed the proposals.\330\ The commenter states that, if the
Commission approves the Proposed Amendment, it would be giving tacit
approval to the shortcomings in the governance structure of the current
Plans.\331\ This commenter also states that the proposed fee amendments
are explicitly stated by the Filing Participants to be unrelated to the
cost of providing the data, but instead related to subscriber
value.\332\ The commenter states that this is a clear example of the
Plan's Operating Committee failing to ensure that the public service
mandates of the SIPs are achieved and is a failure in governance
through the unmitigated conflicts of interest by voting members who
just want to maximize profits.\333\ The commenter states that further
evidence of the failure of the governance structure of the Operating
Committee is that the fee proposals have been proposed while the
remaining reforms of the CT Plan are stayed pending resolution of
challenges in federal court.\334\ The commenter states that it is
``somewhat shocking'' that the Proposed Amendment was filed
notwithstanding that other members of the Operating Committee ``have
stated publicly that the proposals contradict the Exchange Act
standards for consolidated data, which require that the fees be fair,
reasonable, and not unreasonably discriminatory.'' \335\
---------------------------------------------------------------------------
\329\ See BMO Letter, supra note 56, at 2.
\330\ See id.
\331\ See id.
\332\ See id.
\333\ See id. at 2-3.
\334\ See id. at 3.
\335\ Id.
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A Non-Supporting Participant also encourages the Commission to
consider whether the CT Plan is a more appropriate body for setting
fees for consolidated market data.\336\ This commenter states that
placing the responsibility for setting fees in the hands of the CT Plan
would allow SIP fees to be set by an operating committee that better
reflects the constituencies affected by the Proposed Amendment,
including non-SRO representatives.\337\ Another Non-Supporting
Participant states that the fee proposals are ``the result of a
conflicted and unbalanced voting process,'' adding that it agrees with
the recommendation that the responsibility for setting the proposed
fees should be placed on the CT Plan.\338\ Another Non-Supporting
Participant recommends that the Commission disapprove the proposal and
reassign responsibility for the filing to the operating committee for
the CT Plan, which the commenter states would have a ``broader set of
voting stakeholders and a fairer and less conflicted governance
structure,'' and argues that the Proposed Amendment shows that this
change is ``badly'' needed.\339\
---------------------------------------------------------------------------
\336\ See MEMX Letter, supra note 56, at 23-24.
\337\ See id.
\338\ MIAX Letter, supra note 56, at 5.
\339\ IEX Letter, supra note 56, at 5.
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One commenter asks the Commission to reevaluate the process that
led to the creation of the Proposed Amendment and to make substantive
changes to avoid the amendment process being used to derail timely
implementation of the MDI Rules.\340\
---------------------------------------------------------------------------
\340\ See Polygon.io Letter I, supra note 126, at 3.
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While some commenters suggest that the CT Plan is the appropriate
mechanism for implementing the changes required by the MDI Rules, that
mechanism is not available at this time because the D.C. Circuit has
vacated the Commission order approving the CT Plan.\341\ And additional
discussion on this topic in this Order is unnecessary, as it does not
bear on the basis for the Commission's decision to disapprove the
Proposed Amendment. On the record before us, for the independently
sufficient reasons discussed in more detail above, we have concluded
that the Filing Participants have not demonstrated that approval of the
proposed NMS plan amendment is necessary or appropriate in the public
interest, for the protection of investors and the maintenance of fair
and orderly markets, to remove impediments to, and perfect the
mechanisms of, a national market system, or otherwise in furtherance of
the purposes of the Act.
---------------------------------------------------------------------------
\341\ See The Nasdaq Stock Market LLC, et al. v. Securities and
Exchange Commission, supra note 18.
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E. Consideration of Other Actions Under Rule 608 of Regulation NMS
In connection with recommending disapproval of the Proposed
Amendment, one commenter states the Commission could consider potential
action under Rule 608(a)(2) of Regulation NMS, which allows the
Commission to directly propose amendments to effective national market
system plans.\342\ The commenter
[[Page 58613]]
states that in connection with a Commission disapproval of the Proposed
Amendment, it would ``support the Commission's efforts to ensure that
the newly expanded consolidated market data (i.e., new core data) under
the Commission's Infrastructure Rule is disseminated in a manner
consistent with the Exchange Act standards to ensure the investing
public and all market participants have fair and reasonable access to
it.'' \343\
---------------------------------------------------------------------------
\342\ See SIFMA Letter I, supra note 56, at 2.
\343\ Id.
---------------------------------------------------------------------------
One Filing Commenter states that it would be inconsistent with the
Exchange Act and Rule 608 of Regulation NMS for the Commission to
change sua sponte any or all of the proposed fees, as any such change
would be material to the Proposed Amendment.\344\ This commenter states
that, if the Commission intends to revise the Proposed Amendment in any
material way, it must do so through rulemaking under Rule 608(b)(2) of
Regulation NMS, by providing public notice of the specific changes it
proposes and giving the Plan's participants and the general public an
opportunity to comment.\345\
---------------------------------------------------------------------------
\344\ See NYSE Letter, supra note 70, at 8.
\345\ See id.
---------------------------------------------------------------------------
One commenter states that the Commission should provide guidance in
terms of the requirements of the MDI Rules as well as the application
of the terms ``fair and reasonable'' and ``not unfairly
discriminatory'' in the context of supplying competing consolidators
with the underlying content of consolidated market data, adding that,
without such guidance, any refiling of the amendments will result in
proposals that do not meet standards under the Exchange Act.\346\
---------------------------------------------------------------------------
\346\ See MayStreet Letter II, supra note 57, at 1-2, 4, 20.
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To the extent that these comments bear on potential future
Commission action, rather than on the basis for the Commission's
decision to disapprove the Proposed Amendment, further discussion on
these topics is unnecessary in this Order.
V. Conclusion
For the reasons set forth above, the Commission does not find,
pursuant to Section 11A of the Act, and Rule 608(b)(2) thereunder, that
the Proposed Amendment is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to an NMS plan
amendment.
It is therefore ordered, pursuant to Section 11A of the Act, and
Rule 608(b)(2) thereunder, that the Proposed Amendment (File No. S7-24-
89) be, and hereby is, disapproved.
By the Commission.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-20831 Filed 9-26-22; 8:45 am]
BILLING CODE 8011-01-P
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