Federal Register: April 1, 2003 (Volume 68, Number 62)
DOCID: FR Doc 03-7730
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
CFR Citation: 17 CFR Part 240
RIN ID: RIN 3235-AI78
DOCUMENT ID: [Release No. 34-47571; File No. S7-07-03]
NOTICE: PROPOSED RULES
ACTION: Securities:
DOCUMENT ACTION: Concept release; request for comments.
SUBJECT CATEGORY:
Request for Comment on the NYSE Petition Relating to Participant Fee Exemptions
DATES: Comments must be received on or before May 1, 2003.
DOCUMENT SUMMARY:
The Securities and Exchange Commission (``Commission'' or ``SEC'') seeks comment on a petition (``NYSE Petition'') submitted by the New York Stock Exchange, Inc. (``NYSE''), as a member of the Consolidated Tape Association (``CTA''). The NYSE Petition requests that the Commission amend the CTA Plan and the CQ Plan (collectively, the ``Plans'') to delete the provisions that exempt any participant in the Plans (``Participant'') from market data fees if the Participant receives the data for its internal use in regulating its market (``Participant Fee Exemptions''). The NYSE Petition would require all Participants to pay for CTA and CQS market data whether such data is received or used for regulation or other purposes. The Commission seeks comment on whether it should act on the NYSE Petition and the effects that eliminating the Participant Fee Exemptions would have on Participants in the National Market System.
SUMMARY:
Consolidated Tape Association; participant fee exemptions,
SUPPLEMENTAL INFORMATION
I. Background
Section XII(b)(iv) of the CTA \2\ Plan and section IX(b)(iv) of the
CQ Plan provide, in relevant part, that no Participant may be charged
for receiving or using any portion of the CTA and CQ Networks' last
sale price and quotation information, provided that such information
is: (1) Furnished to the Participant ``only at premises occupied solely
by such Participant or on the trading floor or trading floors (as the
term is generally understood) of such Participant''; (2) used by the
Participant ``solely for regulatory and surveillance purposes, or for
any other approved purposes''; and (3) not ``made available [by the
Participant] to any person not located within or on, such premises or trading floor.'' \3\
\2\ CTA is an association consisting of representatives from the
American Stock Exchange LLC (``AMEX''); The Chicago Stock Exchange,
Inc.; the National Association of Securities Dealers, Inc.; the
NYSE; the Pacific Exchange, Inc.; the Philadelphia Stock Exchange,
Inc.; the Cincinnati Stock Exchange, Inc.; the Boston Stock
Exchange, Inc.; and the Chicago Board Options Exchange, Inc. CTA's
function is to oversee the dissemination, on a current and
continuous basis, of last sale prices of transactions in securities listed on a national securities exchange.
\3\ The CTA Plan, pursuant to which markets collect and
disseminate last sale price information for securities listed on
national securities exchanges, is a ``transaction reporting plan''
under Rule 11Aa31 of the Securities Exchange Act of 1934 (``Act''),
17 CFR 240.11Aa31, and a ``national market system plan'' under Rule
11Aa32 of the Act, 17 CFR 240.11Aa32. The CQ Plan, pursuant to
which markets collect and disseminate bid/ask quotation information
for securities listed on national securities exchanges, is also a
``national market system plan'' under Rule 11Aa32 of the Act, 17 CFR 240.11Aa32.
On February 16, 2001, the NYSE filed the NYSE Petition with the
Commission requesting that the Commission, pursuant to Section 11A of
the Act \4\ and Rule 11Aa32(b)(2) thereunder,\5\ amend the CTA and CQ
Plans to remove the Participant Fee Exemptions.\6\ The NYSE Petition is
described in more detail in Part II below. We note that this is not the
first time the Commission has been asked to take action related to these paragraphs of the Plans.\7\
\4\ 15 U.S.C. 78k1.
\5\ 17 CFR 240.11Aa32(b)(2).
\6\ See letter to Jonathan G. Katz, Secretary, Commission, from
Robert G. Britz, Group Executive Vice President, NYSE, dated February 14, 2001.
\7\ See In the Matter of the Application of the Chicago Board
Options Exchange, Administrative Proceeding File No. 310561 (March
13, 2002) and In the Matter of the Application of the Chicago Board
Options Exchange, Administrative Proceeding File No. 310561 (March
5, 2003). See also In the Matter of the Application of the
Cincinnati Stock Exchange, Inc., Administrative Proceeding File No. 39967.
II. Summary of the NYSE Petition
The NYSE is requesting that the Commission, pursuant to Rule 11Aa3 2(b)(2) of the Act, amend the CTA and CQ Plans to delete the Participant Fee Exemptions. The Participant Fee Exemptions are found in the section of each Plan that regulates Plan expenses and revenues, including the imposition of market data charges on data recipients. They specify that each of the Participants is exempt from market data charges (other than access fees) if it is in compliance with the requisite market data contract. According to the Participant Fee Exemptions, no Participant may be charged for receiving or using any portion of the CTA and CQ Networks' last sale price information, provided that such information is: (1) Furnished to the Participant ``only at premises occupied solely by such Participant or on the trading floor or trading floors (as the term is generally understood) of such Participant'; (2) used by the Participant ``solely for regulatory and surveillance purposes, or for any other approved purposes'; and (3) not ``made available [by the Participant] to any person not located within or on, such premises or trading floor.''
The NYSE states that the Participant Fee Exemptions, adopted in 1979, applied to practices used by the NYSE and AMEX at that time. However, as the technological and structural environment of the markets have changed, the NYSE represents that many Participants believe that the Participant Fee Exemptions are no longer desirable. The NYSE believes that the Participant Fee Exemptions create perceived inequities and interpretative disputes over their plain meaning. To address this problem, the NYSE requests that the Commission amend the Plans to delete Section XII(b)(iv) of the CTA Plan, and Section IX(b)(iv) of the CQ Plan, which would effectively eliminate the Participant Fee Exemptions in their entirety.
The NYSE believes that the elimination of the Participant Fee Exemptions will satisfy the standards of fairness mandated by the Act and the avoidance of unreasonable discrimination.\8\ The NYSE, however, asserts that an alternative to eliminating the Participant Fee Exemptions would be to expand them in an attempt to level the playing field among market makers. However, the NYSE believes that this would simply redraw the boundaries of fee exemptions for devices, which would only complicate the surveillance of market data, as new trading structures and technologies change the nature of such boundaries. Further, the NYSE asserts that such an alternative would simply result in future disputes over the boundaries of fee exemptions for devices. The NYSE also believes that expanding fee exemptions would only complicate market data administration and increase the policing burden. \8\ The NYSE believes that repealing the Participant Fee Exemptions would place the Plans on equal footing with the national market system plan governing market data relating to overthe counter securities, which does not provide for similar fee exemptions for participants, and which requires the participating markets and their remotely located market makers to pay the plan's fees.
The NYSE believes that favorable action on the NYSE Petition by the
Commission would be beneficial in several ways. First, the NYSE
believes that the elimination of the Participant Fee Exemptions would
eliminate future grievances relating to the application of the
Participant Fee Exemptions by eliminating the perception of inequity
that the Participant Fee Exemptions have caused, or may cause in the
future. Second, the NYSE believes that the elimination of the
Participant Fee Exemptions would eliminate the deviation of revenue
sharing among the Participants away from the revenue sharing formulae. Finally, the NYSE believes that the elimination of the
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Participant Fee Exemptions would allow each Participant to decide
individually whether or not to pass the fees for market data through to the members that use such data.
III. General Request for Comments
The Commission is seeking comment on the NYSE Petition in general.
More specifically, the Commission is requesting comments on whether it
should act on the NYSE Petition. The Commission is also seeking comment
on the effects of the NYSE Petition on Participants and on the National Market System as a whole.
Dated: March 26, 2003.
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 037730 Filed 33103; 8:45 am]
BILLING CODE 801001P
FOR FURTHER INFORMATION CONTACT
Any of the following attorneys in the Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 205491001: Alden S. Adkins at (202) 9420180; Katherine A. England at (202) 9420154; Sapna C. Patel at (202) 9420166; or Ian K. Patel at (202) 9420089.