Federal Register: March 25, 2009 (Volume , Number )
DOCID: fr25mr09-187 FR Doc E9-6465
SECURITIES AND EXCHANGE COMMISSION
Securities and Exchange Commission
NOTICE: NOTICES
DOCID: fr25mr09-187
SUBJECT CATEGORY:
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving Proposed Rule Change To Establish Fees for NYSE Arca Trades
DOCUMENT SUMMARY:
March 18, 2009.
I. Introduction
On January 21, 2009, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b4 thereunder,\2\ a
proposed rule change to introduce its NYSE Arca Trades service, a NYSE
Arcaonly market data service that allows a vendor to redistribute on a
realtime basis the same last sale information that NYSE Arca reports
to the Consolidated Tape Association (``CTA'') for inclusion in the
CTA's consolidated data stream and certain other related data elements
(``NYSE Arca Last Sale Information''), and to establish fees for that
service. The proposed rule change was published for comment in the
Federal Register on February 3, 2009.\3\ The Commission received no
comment letters on the proposal. This order approves the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 59308 (January 28, 2009), 74 FR 5955 (February 3, 2009).
II. Description of the Proposal
The Exchange proposes to introduce NYSE Arca Trades, a new service pursuant to which it will allow vendors, brokerdealers, and others (``NYSE ArcaOnly Vendors'') to make available NYSE Arca Last Sale Information on a realtime basis. NYSE Arca Last Sale Information would include last sale information for all securities that are traded on the Exchange. The Exchange will make NYSE Arca Last Sale Information available through its new NYSE Arca Trades service at the same time as it provides last sale information to the processor under the CTA Plan. In addition to the information that the Exchange provides to CTA, NYSE Arca Last Sale Information will also include a unique sequence number that the Exchange assigns to each trade and that allows an investor to track the context of the trade through such other Exchange market data products as ArcaBook[supreg].
The Exchange proposes to charge $750 per month for access to each
of the NYSE Arca Last Sale Information datafeeds that NYSE Arca makes
available. The Exchange proposes to charge each subscriber to an NYSE
ArcaOnly Vendor's NYSE Arca Trades service: $5 per month per display
device for the receipt and use of NYSE Arca Last Sale Information
relating to Network A and Network B Eligible Securities (as the CTA
Plan uses those terms); and $5 per month per display device for the
receipt and use of NYSE Arca Last Sale Information relating to
securities listed on Nasdaq.\4\ The access fee applies equally to all
NYSE ArcaOnly Vendors that receive the NYSE Arca Trades datafeed and
the device fee applies equally to all subscribers that receive an NYSE
ArcaOnly Vendor's NYSE Arca Trades service. The Exchange does not
propose to impose any program classification charges for the use of NYSE Arca Trades.
\4\ The Exchange does not currently perceive a demand for a
nonprofessional subscriber fee for NYSE Arca Trades, but will monitor customer response.
NYSE Arca represents that no investors or brokerdealers are
required to subscribe to the product, as they can find the same NYSE
Arca last sale prices either in the Exchange's NYSE Arca Realtime
Reference Prices service,\5\ or integrated with the prices that other
markets make available under the CTA Plan. NYSE Arca anticipates that,
even though NYSE Arca Trades' Last Sale Information provides a less
expensive alternative to the consolidated price information that
investors and brokerdealers receive from CTA, the information that NYSE Arca contributes to the CTA consolidated datafeed and
[[Page 12920]]
the low latency of the CTA datafeed will continue to satisfy the needs
of the vast majority of individual and professional investors. The
Exchange developed NYSE Arca Trades primarily at the request of traders
who are very latency sensitive and anticipates that demand for the
product will derive primarily from investors and brokerdealers who
desire to use NYSE Arca Trades to power certain trading algorithms or smart order routers.\6\
\5\ See Securities Exchange Act Release No. 58444 (August 29, 2008), 73 FR 51872 (September 5, 2008) (SRNYSEArca200896).
\6\ The latency difference between accessing last sales through
the NYSE Arca datafeed or through the CTA datafeed can be measured in tens of milliseconds.
The Exchange will require NYSE ArcaOnly Vendors to enter into the form of ``vendor'' agreement into which the CTA Plan requires recipients of the Network A last sale prices information datafeeds to enter (the ``Network A Vendor Form''). The Network A Vendor Form will authorize the NYSE ArcaOnly Vendor to provide the NYSE Arca Trades service to its subscribers and customers. The Network A Participants drafted the Network A Vendor Form, it is sufficiently generic to accommodate NYSE Arca Trades, and it has been in use in substantially the same form since 1990.\7\ The Exchange will require professional and nonprofessional subscribers to NYSE Arca Trades to undertake to comply with the same contract, reporting, payment, and other administrative requirements as to which the Network A Participants subject them in respect of Network A last sale information under the CTA Plan. \7\ See Securities Exchange Act Release Nos. 28407 (September 6, 1990), 55 FR 37276 (September 10, 1990); and 49185 (February 4, 2004), 69 FR 6704 (February 11, 2004).
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\8\ In
particular, it is consistent with Section 6(b)(4) of the Act,\9\ which
requires that the rules of a national securities exchange provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other parties using its facilities,
and Section 6(b)(5) of the Act,\10\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest,
and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\11\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\12\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\13\ \11\ 15 U.S.C. 78f(b)(6).
\12\ 17 CFR 242.603(a).
\13\ NYSE Arca is an exclusive processor of NYSE Arca Trades
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes information with respect to quotations or transactions on an exclusive basis on its own behalf.
The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for noncore market data fees.\14\ In the
NYSE Arca Order, the Commission stated that ``when possible, reliance
on competitive forces is the most appropriate and effective means to
assess whether the terms for the distribution of noncore data are
equitable, fair and reasonable, and not unreasonably discriminatory.''
\15\ It noted 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 or
unfairly discriminatory.'' \16\ If an exchange ``was subject to
significant competitive forces in setting the terms of a proposal,''
the Commission will approve a proposal unless it determines that
``there is a substantial countervailing basis to find that the terms
nevertheless fail to meet an applicable requirement of the Exchange Act or the rules thereunder.'' \17\
\14\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SRNYSEArca200621) (``NYSE
Arca Oder''). In the NYSE Arca Order, the Commission describes the
competitive factors that apply to noncore market data products. The
Commission hereby incorporates by reference the data and analysis from the NYSE Arca Order into this order.
\15\ Id. at 74771.
\16\ Id. at 74782.
\17\ Id. at 74781.
As noted in the NYSE Arca Order, the standards in Section 6 of the
Act and Rule 603 of Regulation NMS do not differentiate between types
of data and therefore apply to exchange proposals to distribute both
core data and noncore data. Core data is the bestpriced quotations
and comprehensive lastsale reports of all markets that the Commission,
pursuant to Rule 603(b), requires a central processor to consolidate
and distribute to the public pursuant to jointSRO plans.\18\ In
contrast, individual exchanges and other market participants distribute
noncore data voluntarily. The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees. Noncore data products and their fees are,
by contrast, much more sensitive to competitive forces. The Commission
therefore is able to use competitive forces in its determination of
whether an exchange's proposal to distribute noncore data meets the
standards of Section 6 and Rule 603. Because NYSE Arca's instant
proposal relates to the distribution of noncore data, the Commission
will apply the marketbased approach set forth in the NYSE Arca Order.
\18\ See 17 CFR 242.603(b). (``Every national securities
exchange on which an NMS stock is traded and national securities
association shall act jointly pursuant to one or more effective national market system plans to disseminate consolidated
information, including a national best bid and national best offer,
on quotations for and transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all consolidated information
for an individual NMS stock through a single plan processor.'').
In the NYSE Arca Order, the Commission discussed two broad types of competitive forces that generally apply to exchanges in their distribution of a noncore data productthe need to attract order flow and the availability of data alternatives. These forces also applied to NYSE Arca in setting the terms of this proposal for the NYSE Arca Trades data product: (i) NYSE Arca's compelling need to attract order flow from market participants; and (ii) the availability to market participants of alternatives to purchasing NYSE Arca's data.
Table 1 below provides a recent snapshot of the state of
competition in the U.S. equity markets in the month of January 2009: \19\
\19\ Source: ArcaVision (available at http:// www.arcavision.com).
[[Page 12921]]
Table 1
[Reported Share Volume in U.S.Listed Equities during January 2009 (%)]
Trading venue All stocks NYSElisted NASDAQ listed
NASDAQ.......................................................... 27.1 20.5 39.9
All NonExchange................................................ 26.7 26.2 31.0
NYSE Arca....................................................... 17.9 15.7 15.8
NYSE............................................................ 14.8 26.2 0.0
BATS............................................................ 10.7 9.0 10.8
International Stock Exchange.................................... 1.3 1.4 1.4
National Stock Exchange......................................... 0.6 0.7 0.7
Chicago Stock Exchange.......................................... 0.4 0.4 0.3
CBOE Stock Exchange............................................. 0.2 0.0 0.1
NYSE Alternext.................................................. 0.1 0.0 0.0
NASDAQ OMX BX................................................... 0.0 0.0 0.0
The market share percentages in Table 1 strongly indicate that NYSE
Arca must compete vigorously for order flow to maintain its share of
trading volume. The need to attract order flow imposes significant
pressure on NYSE Arca to act reasonably in setting its fees for NYSE
Arca market data, particularly given that the market participants that
must pay such fees often will be the same market participants from whom
NYSE Arca must attract order flow. These market participants
particularly include the large brokerdealer firms that control the
handling of a large volume of customer and proprietary order flow.
Given the portability of order flow from one trading venue to another,
any exchange that sought to charge unreasonably high data fees would
risk alienating many of the same customers on whose orders it depends
for competitive survival. Moreover, distributing data widely among
investors, and thereby promoting familiarity with the exchange and its
services, is an important exchange strategy for attracting order flow.\20\
\20\ See NYSE Arca Order at 74784 nn. 218219 and accompanying
text (noting exchange strategy of offering data for free as a means to gain visibility in the marketplace).
In addition to the need to attract order flow, the availability of
alternatives to NYSE Arca Trades significantly affect the terms on
which NYSE Arca can distribute this market data.\21\ In setting the
fees for its NYSE Arca Trades, the Exchange must consider the extent to
which market participants would choose one or more alternatives instead
of purchasing the Exchange's data.\22\ Of course, the most basic source
of information generally available at an exchange is the complete
record of an exchange's transactions that is provided in the core data
feeds.\23\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to the exchange's market data product.\24\
\21\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific Raliway Co. v. U.S., 356 U.S. 1 (1958).
\22\ See NYSE Arca Order at 74783.
\23\ Id.
\24\ Id.
The various selfregulatory organizations, the several Trade Reporting Facilities of FINRA, and ECNs that produce proprietary data, as well as the core data feed, are all sources of competition in non core data products. As Table 1 illustrates, share volume in U.S.listed equities is widely dispersed among trading venues, and these venues are able to offer competitive data products as alternatives to NYSE Arca Trades. The Commission believes that the availability of those alternatives, as well as the NYSE Arca's compelling need to attract order flow, imposed significant competitive pressure on the NYSE Arca to act equitably, fairly, and reasonably in setting the terms of its proposal.
Because NYSE Arca was subject to significant competitive forces in setting the terms of the proposal, the Commission will approve the proposal in the absence of a substantial countervailing basis to find that its terms nevertheless fail to meet an applicable requirement of the Act or the rules thereunder. An analysis of the proposal does not provide such a basis. No comments were submitted on this proposal, and the Commission notes that the proposal does not unreasonably discriminate among types of users.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\25\ that the proposed rule change (SRNYSEArca200905), be, and it hereby is, approved.
\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\26\
\26\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E96465 Filed 32409; 8:45 am]
BILLING CODE 801001P
SUMMARY:
NYSE Arca, Inc.,
DOCUMENT BODY 2:
March 18, 2009.
I. Introduction
On January 21, 2009, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b4 thereunder,\2\ a
proposed rule change to introduce its NYSE Arca Trades service, a NYSE
Arcaonly market data service that allows a vendor to redistribute on a
realtime basis the same last sale information that NYSE Arca reports
to the Consolidated Tape Association (``CTA'') for inclusion in the
CTA's consolidated data stream and certain other related data elements
(``NYSE Arca Last Sale Information''), and to establish fees for that
service. The proposed rule change was published for comment in the
Federal Register on February 3, 2009.\3\ The Commission received no
comment letters on the proposal. This order approves the proposed rule change.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ See Securities Exchange Act Release No. 59308 (January 28, 2009), 74 FR 5955 (February 3, 2009).
II. Description of the Proposal
The Exchange proposes to introduce NYSE Arca Trades, a new service pursuant to which it will allow vendors, brokerdealers, and others (``NYSE ArcaOnly Vendors'') to make available NYSE Arca Last Sale Information on a realtime basis. NYSE Arca Last Sale Information would include last sale information for all securities that are traded on the Exchange. The Exchange will make NYSE Arca Last Sale Information available through its new NYSE Arca Trades service at the same time as it provides last sale information to the processor under the CTA Plan. In addition to the information that the Exchange provides to CTA, NYSE Arca Last Sale Information will also include a unique sequence number that the Exchange assigns to each trade and that allows an investor to track the context of the trade through such other Exchange market data products as ArcaBook[supreg].
The Exchange proposes to charge $750 per month for access to each
of the NYSE Arca Last Sale Information datafeeds that NYSE Arca makes
available. The Exchange proposes to charge each subscriber to an NYSE
ArcaOnly Vendor's NYSE Arca Trades service: $5 per month per display
device for the receipt and use of NYSE Arca Last Sale Information
relating to Network A and Network B Eligible Securities (as the CTA
Plan uses those terms); and $5 per month per display device for the
receipt and use of NYSE Arca Last Sale Information relating to
securities listed on Nasdaq.\4\ The access fee applies equally to all
NYSE ArcaOnly Vendors that receive the NYSE Arca Trades datafeed and
the device fee applies equally to all subscribers that receive an NYSE
ArcaOnly Vendor's NYSE Arca Trades service. The Exchange does not
propose to impose any program classification charges for the use of NYSE Arca Trades.
\4\ The Exchange does not currently perceive a demand for a
nonprofessional subscriber fee for NYSE Arca Trades, but will monitor customer response.
NYSE Arca represents that no investors or brokerdealers are
required to subscribe to the product, as they can find the same NYSE
Arca last sale prices either in the Exchange's NYSE Arca Realtime
Reference Prices service,\5\ or integrated with the prices that other
markets make available under the CTA Plan. NYSE Arca anticipates that,
even though NYSE Arca Trades' Last Sale Information provides a less
expensive alternative to the consolidated price information that
investors and brokerdealers receive from CTA, the information that NYSE Arca contributes to the CTA consolidated datafeed and
[[Page 12920]]
the low latency of the CTA datafeed will continue to satisfy the needs
of the vast majority of individual and professional investors. The
Exchange developed NYSE Arca Trades primarily at the request of traders
who are very latency sensitive and anticipates that demand for the
product will derive primarily from investors and brokerdealers who
desire to use NYSE Arca Trades to power certain trading algorithms or smart order routers.\6\
\5\ See Securities Exchange Act Release No. 58444 (August 29, 2008), 73 FR 51872 (September 5, 2008) (SRNYSEArca200896).
\6\ The latency difference between accessing last sales through
the NYSE Arca datafeed or through the CTA datafeed can be measured in tens of milliseconds.
The Exchange will require NYSE ArcaOnly Vendors to enter into the form of ``vendor'' agreement into which the CTA Plan requires recipients of the Network A last sale prices information datafeeds to enter (the ``Network A Vendor Form''). The Network A Vendor Form will authorize the NYSE ArcaOnly Vendor to provide the NYSE Arca Trades service to its subscribers and customers. The Network A Participants drafted the Network A Vendor Form, it is sufficiently generic to accommodate NYSE Arca Trades, and it has been in use in substantially the same form since 1990.\7\ The Exchange will require professional and nonprofessional subscribers to NYSE Arca Trades to undertake to comply with the same contract, reporting, payment, and other administrative requirements as to which the Network A Participants subject them in respect of Network A last sale information under the CTA Plan. \7\ See Securities Exchange Act Release Nos. 28407 (September 6, 1990), 55 FR 37276 (September 10, 1990); and 49185 (February 4, 2004), 69 FR 6704 (February 11, 2004).
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\8\ In
particular, it is consistent with Section 6(b)(4) of the Act,\9\ which
requires that the rules of a national securities exchange provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other parties using its facilities,
and Section 6(b)(5) of the Act,\10\ which requires, among other things,
that the rules of a national securities exchange be designed to promote
just and equitable principles of trade, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system and, in general, to protect investors and the public interest,
and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
\8\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(4).
\10\ 15 U.S.C. 78f(b)(5).
The Commission also finds that the proposed rule change is
consistent with the provisions of Section 6(b)(8) of the Act,\11\ which
requires that the rules of an exchange not impose any burden on
competition not necessary or appropriate in furtherance of the purposes
of the Act. Finally, the Commission finds that the proposed rule change
is consistent with Rule 603(a) of Regulation NMS,\12\ adopted under
Section 11A(c)(1) of the Act, which requires an exclusive processor
that distributes information with respect to quotations for or
transactions in an NMS stock to do so on terms that are fair and
reasonable and that are not unreasonably discriminatory.\13\ \11\ 15 U.S.C. 78f(b)(6).
\12\ 17 CFR 242.603(a).
\13\ NYSE Arca is an exclusive processor of NYSE Arca Trades
under Section 3(a)(22)(B) of the Act, 15 U.S.C. 78c(a)(22)(B), which
defines an exclusive processor as, among other things, an exchange
that distributes information with respect to quotations or transactions on an exclusive basis on its own behalf.
The Commission has reviewed the proposal using the approach set
forth in the NYSE Arca Order for noncore market data fees.\14\ In the
NYSE Arca Order, the Commission stated that ``when possible, reliance
on competitive forces is the most appropriate and effective means to
assess whether the terms for the distribution of noncore data are
equitable, fair and reasonable, and not unreasonably discriminatory.''
\15\ It noted 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 or
unfairly discriminatory.'' \16\ If an exchange ``was subject to
significant competitive forces in setting the terms of a proposal,''
the Commission will approve a proposal unless it determines that
``there is a substantial countervailing basis to find that the terms
nevertheless fail to meet an applicable requirement of the Exchange Act or the rules thereunder.'' \17\
\14\ See Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770 (December 9, 2008) (SRNYSEArca200621) (``NYSE
Arca Oder''). In the NYSE Arca Order, the Commission describes the
competitive factors that apply to noncore market data products. The
Commission hereby incorporates by reference the data and analysis from the NYSE Arca Order into this order.
\15\ Id. at 74771.
\16\ Id. at 74782.
\17\ Id. at 74781.
As noted in the NYSE Arca Order, the standards in Section 6 of the
Act and Rule 603 of Regulation NMS do not differentiate between types
of data and therefore apply to exchange proposals to distribute both
core data and noncore data. Core data is the bestpriced quotations
and comprehensive lastsale reports of all markets that the Commission,
pursuant to Rule 603(b), requires a central processor to consolidate
and distribute to the public pursuant to jointSRO plans.\18\ In
contrast, individual exchanges and other market participants distribute
noncore data voluntarily. The mandatory nature of the core data
disclosure regime leaves little room for competitive forces to
determine products and fees. Noncore data products and their fees are,
by contrast, much more sensitive to competitive forces. The Commission
therefore is able to use competitive forces in its determination of
whether an exchange's proposal to distribute noncore data meets the
standards of Section 6 and Rule 603. Because NYSE Arca's instant
proposal relates to the distribution of noncore data, the Commission
will apply the marketbased approach set forth in the NYSE Arca Order.
\18\ See 17 CFR 242.603(b). (``Every national securities
exchange on which an NMS stock is traded and national securities
association shall act jointly pursuant to one or more effective national market system plans to disseminate consolidated
information, including a national best bid and national best offer,
on quotations for and transactions in NMS stocks. Such plan or plans
shall provide for the dissemination of all consolidated information
for an individual NMS stock through a single plan processor.'').
In the NYSE Arca Order, the Commission discussed two broad types of competitive forces that generally apply to exchanges in their distribution of a noncore data productthe need to attract order flow and the availability of data alternatives. These forces also applied to NYSE Arca in setting the terms of this proposal for the NYSE Arca Trades data product: (i) NYSE Arca's compelling need to attract order flow from market participants; and (ii) the availability to market participants of alternatives to purchasing NYSE Arca's data.
Table 1 below provides a recent snapshot of the state of
competition in the U.S. equity markets in the month of January 2009: \19\
\19\ Source: ArcaVision (available at http:// www.arcavision.com).
[[Page 12921]]
Table 1
[Reported Share Volume in U.S.Listed Equities during January 2009 (%)]
Trading venue All stocks NYSElisted NASDAQ listed
NASDAQ.......................................................... 27.1 20.5 39.9
All NonExchange................................................ 26.7 26.2 31.0
NYSE Arca....................................................... 17.9 15.7 15.8
NYSE............................................................ 14.8 26.2 0.0
BATS............................................................ 10.7 9.0 10.8
International Stock Exchange.................................... 1.3 1.4 1.4
National Stock Exchange......................................... 0.6 0.7 0.7
Chicago Stock Exchange.......................................... 0.4 0.4 0.3
CBOE Stock Exchange............................................. 0.2 0.0 0.1
NYSE Alternext.................................................. 0.1 0.0 0.0
NASDAQ OMX BX................................................... 0.0 0.0 0.0
The market share percentages in Table 1 strongly indicate that NYSE
Arca must compete vigorously for order flow to maintain its share of
trading volume. The need to attract order flow imposes significant
pressure on NYSE Arca to act reasonably in setting its fees for NYSE
Arca market data, particularly given that the market participants that
must pay such fees often will be the same market participants from whom
NYSE Arca must attract order flow. These market participants
particularly include the large brokerdealer firms that control the
handling of a large volume of customer and proprietary order flow.
Given the portability of order flow from one trading venue to another,
any exchange that sought to charge unreasonably high data fees would
risk alienating many of the same customers on whose orders it depends
for competitive survival. Moreover, distributing data widely among
investors, and thereby promoting familiarity with the exchange and its
services, is an important exchange strategy for attracting order flow.\20\
\20\ See NYSE Arca Order at 74784 nn. 218219 and accompanying
text (noting exchange strategy of offering data for free as a means to gain visibility in the marketplace).
In addition to the need to attract order flow, the availability of
alternatives to NYSE Arca Trades significantly affect the terms on
which NYSE Arca can distribute this market data.\21\ In setting the
fees for its NYSE Arca Trades, the Exchange must consider the extent to
which market participants would choose one or more alternatives instead
of purchasing the Exchange's data.\22\ Of course, the most basic source
of information generally available at an exchange is the complete
record of an exchange's transactions that is provided in the core data
feeds.\23\ In this respect, the core data feeds that include an
exchange's own transaction information are a significant alternative to the exchange's market data product.\24\
\21\ See Richard Posner, Economic Analysis of Law Sec. 9.1 (5th
ed. 1998) (discussing the theory of monopolies and pricing). See
also U.S. Dep't of Justice & Fed'l Trade Comm'n, Horizontal Merger
Guidelines Sec. 1.11 (1992), as revised (1997) (explaining the
importance of alternatives to the presence of competition and the
definition of markets and market power). Courts frequently refer to
the Department of Justice and Federal Trade Commission merger
guidelines to define product markets and evaluate market power. See,
e.g., FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1 (D.D.C.
2007); FTC v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004). In
considering antitrust issues, courts have recognized the value of
competition in producing lower prices. See, e.g., Leegin Creative
Leather Products v. PSKS, Inc., 127 S. Ct. 2705 (2007); Atlanta
Richfield Co. v. United States Petroleum Co., 495 U.S. 328 (1990);
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574
(1986); State Oil Co. v. Khan, 522 U.S. 3 (1997); Northern Pacific Raliway Co. v. U.S., 356 U.S. 1 (1958).
\22\ See NYSE Arca Order at 74783.
\23\ Id.
\24\ Id.
The various selfregulatory organizations, the several Trade Reporting Facilities of FINRA, and ECNs that produce proprietary data, as well as the core data feed, are all sources of competition in non core data products. As Table 1 illustrates, share volume in U.S.listed equities is widely dispersed among trading venues, and these venues are able to offer competitive data products as alternatives to NYSE Arca Trades. The Commission believes that the availability of those alternatives, as well as the NYSE Arca's compelling need to attract order flow, imposed significant competitive pressure on the NYSE Arca to act equitably, fairly, and reasonably in setting the terms of its proposal.
Because NYSE Arca was subject to significant competitive forces in setting the terms of the proposal, the Commission will approve the proposal in the absence of a substantial countervailing basis to find that its terms nevertheless fail to meet an applicable requirement of the Act or the rules thereunder. An analysis of the proposal does not provide such a basis. No comments were submitted on this proposal, and the Commission notes that the proposal does not unreasonably discriminate among types of users.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\25\ that the proposed rule change (SRNYSEArca200905), be, and it hereby is, approved.
\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\26\
\26\ 17 CFR 200.303(a)(12).
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E96465 Filed 32409; 8:45 am]
BILLING CODE 801001P