of products they offer using the new expanded core data and that new
firms enter the data vendor business. To the extent that the risk of
price increases for core data is realized instead, the Commission
believes these businesses could potentially face higher costs, which
when passed on to clients could cause their customer base to shrink. In
the event that these outcomes are severe, it is possible that some data
vendors could exit the market. The Commission is uncertain about the
potential size and scope of these effects because it is unable to
determine both the role of these costs in producing the products
supplied by the data services industry and the extent to which the
enhanced quality of new core data could play a role in the quality of
their products. The Commission invites comments on the issue.
(e) Request for Comments
    The Commission requests comments on its analysis of the economic
effects from the interaction of changes to core data and the
decentralized consolidation model. In particular, the Commission
solicits comment on the following.
    261. Do you agree with the Commission's analysis of the effect of
the proposal on the proprietary data business? Why or why not? Please
explain in detail.
    262. Would exchanges lose proprietary data business as a result of
the proposed decentralized consolidation model? Why or why not? Please
explain. Would any market participants still elect to purchase
proprietary data feeds from exchanges? If so, which market
participants? Please explain in detail. What would be the net effect of
any changes in this business?
    263. The Commission invites comment on the role of SIP data revenue
and proprietary feed revenue in the overall data revenue of exchanges.
To what extent do exchanges rely on each source of revenue? Please
explain in detail.
    264. Do you agree with the Commission's analysis of the effects of
the proposed amendments on the broad financial industry data services
industry? Why or why not? Please explain in detail. Would the proposal
lead to new broker-dealers developing SORs, new market makers, or other
new latency sensitive traders? If so, what would be the economic effect
of these new players? Please explain in detail.
    265. Do you agree with the Commission's analysis of the effects of
the interaction between the proposal and the Consolidated Audit Trail?
Why or why not? Please explain.
    266. Would the proposal result in more complete and/or accessible
CAT Data? Please explain. How would regulators use the additional CAT
Data resulting from the proposal and how would investors benefit from
this usage? Please explain.
    267. To what extent would the proposal alter the SROs enhanced
surveillances using CAT Data? Please explain. Would the proposal result
in SROs incorporating more depth of book and auction information into
their surveillances? What would be the costs and benefits of doing so?
Please explain.
    268. If the proposal resulted in FINRA CAT switching data
providers, what would be the switching costs? How would the proposed
amendments affect the implementation and ongoing costs of CAT? Please
provide estimates if possible.
    269. Do you agree that the proposal would not affect the
implementation of CAT? Please explain.
    270. Do you agree with the Commission's analysis of the effects of
the proposal on data vendors? Why or why not? Please explain.
5. Request for Comments on the Economic Effects of the Proposed Rule
    The Commission requests comment on its analysis of the economic
effects of the proposed amendments. In particular, the Commission
solicits comment on the following:
    271. Do you believe the Commission's analysis of the potential
economic effects of the proposed amendments is reasonable? Why or why
not? Please explain in detail.
    272. Do you believe the proposed amendments may have unintended
consequences that are not captured by the Commission's analysis of the
potential economic effects? Why or why not? Please explain in detail.
    273. Do you agree with the Commission's analysis of the benefits of
the proposed amendments? Why or why not? Please explain in detail.
    274. Do you agree with the Commission's analysis of the costs of

the proposed amendments? Why or why not? Please explain in detail.
    275. The Commission requests that commenters provide relevant data
and analysis to assist us in determining the economic consequences of
the proposed amendments. In particular, the Commission requests data
and analysis regarding the costs SROs, exclusive SIPs, and market
participants may incur, and benefits they may receive, from the
proposed amendments.

D. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    The Commission preliminarily believes that the proposed amendments
would have a number of different effects on efficiency. In particular,
the Commission preliminarily believes that the proposed amendments
would: Lead to more efficient gains from trade, improve the efficiency
of order execution for some market participants, improve price
efficiency, and affect how efficiently core data is distributed. The
rest of this section discusses these different effects of the proposed
amendments on efficiency in detail. The Commission solicits comments
whether the proposed amendments might have a significant impact on
other forms of efficiency.
    As discussed above, the Commission preliminarily believes that the
expansion of core data under the proposed amendments would increase
transparency for market participants who do not currently access
proprietary DOB feeds and allow them to more easily find liquidity that
they can trade against.\1130\ Currently, some of these market
participants may not trade because they cannot see the quotes available
to them, either through a lack of information about odd-lots, depth of
book, or auction information. The Commission preliminarily believes
that the proposed amendments would alleviate some of this information
shortage and would allow traders to more easily find counterparties.
This may result in more voluntary trades occurring between market
participants, which could lead to more efficient gains from trade,
since these are trades which currently do not take place only because
of a lack of information.\1131\ However, if the inclusion of additional
odd-lot, depth of book, or auction information does not induce
additional voluntary trading from market participants who do not
currently access proprietary DOB feeds, then the proposed amendments
may not produce more efficient gains from trade.\1132\
---------------------------------------------------------------------------

    \1130\ See supra Section VI.C.1(b).
    \1131\ Id.
    \1132\ Id.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the expansion of core
data could also improve the efficiency with which some market
participants, or their broker-dealers, execute orders. As discussed
above, by adding odd-lot, depth of book, and auction information to
core data, the proposed amendments would reduce information asymmetry
between broker-dealers and other market participants who subscribe to
proprietary data feeds and users of current SIP data. This could
improve the ability of broker-dealers and other market participants who
currently do not have access to this information to trade against those
market participants who do. As a result, this could improve the
efficiency with which they execute their orders by allowing them to
select a better trading venue or method of executing their order.
Furthermore, for market participants who currently rely on exclusive
SIPs for their order executions, the reduction in latency provided by
the decentralized consolidation model could reduce the risk that their
orders are picked off, which could reduce their adverse selection
costs. This could potentially reduce their transaction costs and allow
them to more efficiently achieve their investment or trading objectives
or those of their clients.\1133\
---------------------------------------------------------------------------

    \1133\ Id.
---------------------------------------------------------------------------

    As discussed previously, the Commission preliminarily believes that
there is some potential for new broker-dealers to become competitive in
the market for sophisticated order execution as a result of this rule
because they may be able to use the expanded content and lower latency
of core data to develop SORs or other tools that allow them to compete
more effectively with broker-dealers who currently base order execution
decisions off of proprietary DOB data.\1134\ To the extent that this
happens, the clients of these broker-dealers could see their orders
executed more efficiently and their execution costs reduced.
---------------------------------------------------------------------------

    \1134\ See supra Section VI.C.4(b).
---------------------------------------------------------------------------

    The current lack of certain odd-lot quote, depth of book, and
auction information in SIP data could affect price efficiency. The gap
in information between data provided by exclusive SIPs and proprietary
data products may cause prices in some securities to be less efficient,
i.e., to deviate further from fundamental values, if market
participants with access to proprietary data products do not
incorporate this information into prices quickly enough through their
trading or quoting activity. However, the Commission does not know the
extent of this possible effect, but it preliminarily believes the
effect could be larger in less actively traded securities where the gap
in information between SIP data and proprietary data products is
larger.
    The Commission preliminarily believes that, to the extent that
there is information in the new core data elements that is not
currently reflected in market prices, the proposed amendments may
improve price efficiency.\1135\ In particular, the proposed
introduction of odd-lot quote, depth of book, and auction information
into core data could result in the information becoming impounded in
prices more rapidly and accurately as a result of the more widespread
dissemination of this information. As the Commission understands that
the most sophisticated traders already have access to this information
and likely already compete to profit from it, the Commission expects
that the size of this gain in price efficiency would be small because
this information is already impounded quickly into prices.
---------------------------------------------------------------------------

    \1135\ See supra Section VI.B.2(a).
---------------------------------------------------------------------------

    Finally, under the current rule, the exclusive SIPs operate like
public utilities in their consolidation and distribution of the NMS
stock data.\1136\ The proposed changes would unbundle the data fees for
consolidated market data from the fees for its consolidation and
distribution.\1137\ The decentralized consolidation model would subject
the fees charged by competing consolidators for the consolidation and
distribution of consolidated market data to competition. The Commission
preliminarily believes that the proposed decentralized consolidation
model would lead to consolidated market data being distributed in a
more timely, efficient, and cost-effective manner. The Commission
preliminarily believes that the proposed changes to the consolidation
and distribution of consolidated data is economically similar to the
restructuring of public utilities and may have an impact on the
efficiency with which the consolidation and distribution is carried
out. In particular, as discussed above, the proposed decentralized
consolidation model is anticipated to produce better investment to
lower costs and improve quality in the consolidation and distribution
of consolidated market data, as well as promote better price
competition (all of which translates into a more efficient allocation
of capital)

than the bidding process currently in place.\1138\
---------------------------------------------------------------------------

    \1136\ See supra note 390.
    \1137\ See supra Section VI.C.2(c).
    \1138\ See id.
---------------------------------------------------------------------------

    The Commission acknowledges the uncertainty in this conclusion. The
literature on the economics of restructuring of public utilities does
not provide clear guidance. Some papers show efficiency gains from
regulatory restructuring,\1139\ yet others claim no efficiency gains or
efficiency declines after regulatory restructuring of public
utilities.\1140\ The likely impact of the proposed changes rests on the
strengths and weaknesses of the existing exclusive SIP model.
---------------------------------------------------------------------------

    \1139\ See, e.g., Kira R. Fabrizio et al., Do Markets Reduce
Costs? Assessing the Impact of Regulatory Restructuring on US
Electric Generation Efficiency, 97 a.m. ECON. REV. 1250 (2007).
    \1140\ See, e.g., Severin Borenstein, The Trouble with
Electricity Markets: Understanding California's Restructuring
Disaster, 16 J. ECON. PERSP. 191 (2002).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the existing exclusive
SIP model has an important weakness: It does not provide sufficient
competitive incentives.\1141\ SIPs have significant market power in the
market for core and aggregated market data products and, as a result,
do not need to compete hard to capture demand for their products. The
Commission preliminarily believes that the adoption of the
decentralized consolidation model would open up the consolidation and
distribution services to data consolidators that would need to
vigorously compete to capture some demand for the data they provide.
This need to compete for market share would create incentives to reduce
costs. As discussed above, the Commission preliminarily believes that
this competition could incentivize competing consolidators to pass on
some of those cost savings to customers by charging lower service fees
in order to capture market share.\1142\ The focus to capture market
share might also lead to technological improvements for competing
consolidators to be able to differentiate themselves in the eyes of the
customers and generate demand.\1143\ The Commission preliminarily
believes that these improvements in data provision technology and the
introduction of competitive forces on fees for the consolidation and
distribution of consolidated market data could result in a more
efficient allocation of capital.
---------------------------------------------------------------------------

    \1141\ See supra Section VI.B.3(a) (discussing SIPs market
power).
    \1142\ See supra Section VI.C.2(b). However, the Commission also
acknowledges the possibility that fees for the consolidation and
distribution of consolidated market data may remain the same or
increase, because consolidated market data will contain more
information and/or there might not be enough competition among
competing consolidators.
    \1143\ Several studies found evidence of efficiency gains and
technological improvements from restructuring in the public
utilities sector. In the electricity industry, for example, the
introduction of competition to the electricity generation services
created strong incentives to become more cost efficient and
technologically advanced to improve operating performance. If a
plant could not become efficient enough to compete, it would lose
business and have to exit the market. Craig and Savage (2013)
establish a 9% increase in efficiency in investor-owned electricity
plants in response to the restructuring and increasing competition
in the electricity sector. Similarly, Davis and Wolfram (2012) argue
that electricity market restructuring is associated with a 10
percent increase in operating performance for nuclear plants
generating electricity. The authors state that increasing
competition led to managers focusing more attention on financial
costs of outages. See J. Dean Craig and Scott J. Savage, Market
Restructuring, Competition and the Efficiency of Electricity
Generation: Plant-level Evidence from the United States 1996 to
2006, 34 ENERGY J. 1 (2013); Lucas W. Davis and Catherine D.
Wolfram, Deregulation, Consolidation, and Efficiency: Evidence from
US Nuclear Power, Am. Econ. J.: Applied Econ. (Oct. 2012), at 194.
---------------------------------------------------------------------------

    Additionally, the decentralized consolidation model could allow
market participants to receive consolidated market data more
efficiently. Instead of having to receive separate consolidated market
data feeds from two exclusive SIP plan processors, UTP and CTA/CQ
Plans, market participants would have the option to receive all of
their consolidated market data from one competing consolidator.\1144\
This could allow market participants to achieve efficiencies in the
design and in making modifications to their systems for the intake of
consolidated market data because they would only have to configure
their systems to intake consolidated market data from one source.
---------------------------------------------------------------------------

    \1144\ The Commission acknowledges that market participants may
subscribe to more than one competing consolidator for different core
data products or as a backup feed.
---------------------------------------------------------------------------

2. Competition
    As discussed previously, the Commission preliminarily believes this
proposed rule would have a substantial impact on competition. The
Commission preliminarily identifies seven markets or areas of the
market for which the proposed rule would have a substantial impact on
competition. The Commission acknowledges that the seven markets or
areas may not be a comprehensive list of all markets or areas for which
the proposed rule might have an impact on competition. However, the
Commission preliminarily believes that competition in these seven
markets or areas are most likely to be impacted substantially by the
proposed rule. The Commission solicits comments regarding whether the
proposed rule might have a substantial impact on competition in other
markets or areas of the market.
    First, the proposed rule introduces a competitive marketplace for
the consolidation and dissemination of consolidated market data to
replace the centralized consolidation model, which is not currently
subject to competitive pressures.\1145\ Under the proposed amendments
multiple competing consolidators would be able to distribute
consolidated market data to market participants. The Commission
preliminarily believes that, since market participants could freely
select the competing consolidator that charged the lowest distribution
fee or offered better quality (i.e., lower latency, a more reliable
system, etc.), the competing consolidators would be subject to
competitive forces and the marketplace for the consolidation and
dissemination of proposed consolidated market data would be competitive
if enough competing consolidators enter the market.\1146\ As discussed
above, the Commission preliminarily believes that this introduction of
competition could reduce the prices competing consolidators charge for
the consolidation and distribution of consolidated market data and
improve the quality of consolidated market access.\1147\ The Commission
recognizes the risk that there could be too few competing consolidators
to realize these benefits fully, in which case the proposed competitive
changes may have a number of costs,\1148\ including higher prices for
the consolidation and dissemination of consolidated market data, which
could increase the overall prices market participants pay for
consolidated market data.\1149\
---------------------------------------------------------------------------

    \1145\ See supra Sections IV.B.2, VI.B.3(a).
    \1146\ The Commission assumes that enough competing
consolidators will enter the market in order to make it competitive.
See supra Section VI.C.2(a).
    \1147\ See supra Sections VI.C.2(a), VI.C.2(b), VI.C.2(c).
    \1148\ See supra Sections VI.C.2(a), VI.C.2(d).
    \1149\ See supra Section VI.C.2(a).
---------------------------------------------------------------------------

    The Commission recognizes that the extension of Regulation SCI to
include competing consolidators could impact competitive dynamics in
the competing consolidator market. The Commission preliminarily
believes the costs associated with being an SCI entity could raise the
barriers to entry for firms seeking to become competing consolidators
who are not already SCI entities, including market data aggregation
firms.\1150\ Exclusive SIPs and SROs who seek to become competing
consolidators could gain a

competitive advantage over these firms because they would face lower
barriers to entry since they are currently SCI entities and already
incur many of these costs.\1151\ Therefore, the extension of Regulation
SCI to competing consolidators could result in fewer firms seeking to
become competing consolidators which could lead to less competition in
the competing consolidator market. Less competition and less innovation
would reduce the incentives of competing consolidators to reduce the
costs and improve the speed and quality of their consolidated market
data aggregation and dissemination services.
---------------------------------------------------------------------------

    \1150\ See supra Sections VI.C.2(a)(i)b., VI.C.2(e)(ii).
    \1151\ See supra Sections V.G.,ViC.2(a)(i)b.
---------------------------------------------------------------------------

    Additionally, the Commission preliminarily believes that the public
disclosure of the information in Form CC and the performance metrics
and operational information competing consolidators would provide on
their websites would enhance competition between competing
consolidators.\1152\ The public disclosure of competing consolidator
fees and performance metrics would allow market participants to more
easily compare competing consolidators and select the ones that charged
the lowest fees or offered the best performance. This could enhance
competition between competing consolidators. For example, if the public
disclosures show that certain competing consolidators have higher fees
or poor performance, it may result in those competing consolidators
losing subscribers and earning lower revenues. Similarly, competing
consolidators who display lower prices or superior system performance
may be able to attract more subscribers and earn more revenue. This in
turn could enhance competition by incentivizing competing consolidators
to lower fees and/or innovate and make investments in their systems in
order to improve system performance in order to attract more
subscribers. In theory, the Commission acknowledges that the public
disclosure of Form CC could harm competition by making firms reluctant
to enter the competing consolidator market and reducing the incentives
of competing consolidators to innovate if it discloses certain
information that a competing consolidator might view as a ``trade
secret'' or giving it a competitive advantage. However, the Commission
believes that these effects are not likely to occur because it
preliminarily believes that the disclosures on Form CC are not detailed
enough to allow other market participants to reproduce a competing
consolidator's ``trade secret.'' Additionally, the Commission
preliminarily believes that the delayed public disclosure of material
amendments to Form CC should prevent another competing consolidator
from replicating a competing consolidator's innovations before it has a
chance to implement them.\1153\
---------------------------------------------------------------------------

    \1152\ See supra Section VI.C.3.
    \1153\ See supra Sections IV.B.2(e), VI.C.3.
---------------------------------------------------------------------------

    The Commission recognizes that the registration process for Form CC
could create uncertainty about whether a Form CC would be declared
ineffective. This could potentially harm competition in the market for
competing consolidators by raising the barriers to entry and creating a
disincentive for entities to become competing consolidators. However,
the Commission preliminarily believes that these effects will not be
significant because the Commission would not declare a Form CC
ineffective without notice and opportunity for hearing. Additionally,
entities whose Form CC is declared ineffective would still have the
opportunity to file a new Form CC with the Commission.
    The Commission considered the effect of the interaction between the
proposal and the CAT NMS Plan on competition among competing
consolidators, but believes that this interaction would not have a
significant effect on the competitive landscape. In particular, the
Commission considered two effects: First, the effect in the event that
there is a bias toward an exchange-operated competing consolidator over
other competing consolidators and second, any competitive advantage for
the competing consolidator selected for the CAT NMS Plan. In relation
to any bias, the Commission notes that the CAT NMS Plan would be only
one of many potential customers of the competing consolidator, so this
bias is not likely to affect the market unless the selection produces a
competitive advantage. In particular, a competing consolidator could
enjoy a competitive advantage only if broker-dealers believe that
market surveillances would be less likely to appear to show violations
if the broker-dealers made trading decisions using the same data used
in SRO surveillances. However, the latency differences across the
competing consolidators are likely to measure in the microseconds while
the clock synchronization requirements for industry members in the CAT
NMS Plan is 50 milliseconds for electronic order flow.\1154\ Therefore,
the Commission does not believe the CAT's choice of competing
consolidator would confer any regulatory value on the competing
consolidator or their broker dealer clients.
---------------------------------------------------------------------------

    \1154\ See CAT NMS Plan, supra note 624, at Section 6.8.
---------------------------------------------------------------------------

    Second, the Commission preliminarily believes that the expanded
content and reduced latency of consolidated market data would make it a
more viable substitute for proprietary data feeds.\1155\ The Commission
preliminarily believes that this would increase competition between
consolidated market data and exchange proprietary data feeds. These
competitive pressures could lead to lower prices for proprietary data
feeds and may reduce the data costs that market participants pay, at
the expense of the SROs who charge the fees.\1156\ The Commission
recognizes the risk that the extension of Regulation SCI to include
competing consolidators could lead to less competition in the competing
consolidator market, which could reduce the incentives of competing
consolidators to reduce the cost and improve the speed and quality of
consolidated market data. If this occurs, it could make consolidated
market data less of a viable substitute for proprietary data feeds,
which would reduce the competitive pressures consolidated market data
would impose on proprietary data feeds.
---------------------------------------------------------------------------

    \1155\ However, consolidated market data would not be a perfect
substitute for the proprietary data feeds because it would not
contain all the information in proprietary data feeds. For example,
the expanded core data would not include full depth of book
information or information on all odd-lots. See supra Section
VI.C.4.
    \1156\ See supra Section VI.C.4(a).
---------------------------------------------------------------------------

    Third, the Commission preliminarily expects the new decentralized
consolidation model for proposed consolidated market data to create
competitors to market data aggregators for two reasons. First, the
potential revenues from becoming a competing consolidator may cause new
firms to enter the market for the consolidation and distribution of
market data. Second, some market participants who currently use market
data aggregators may switch to getting proposed consolidated market
data from a competing consolidator. This could have two effects: The
competition could lead to lower prices and higher quality in the market
data aggregator business, but it could also lead to fewer market data
aggregators if the competition from the proposed consolidated market
data system makes it no longer viable for some market data aggregators
to offer their services.\1157\

The latter could lead to higher prices in the market data aggregator
space.\1158\ In addition, some of these market data aggregators may
choose to become competing consolidators, which could have two effects:
It could cause market data aggregators to leave the proprietary feed
aggregation space thereby reducing the competition in that space, or it
could cause market data aggregators to use the economies of scale and
the additional profits they derive from being a competing consolidator
to improve their offerings as a market data aggregator of proprietary
feeds. Depending on which effect dominates, competition in the market
data aggregator space could increase or decrease, which in turn could
lead to lower or higher prices, respectively. The Commission recognizes
that the extension of Regulation SCI to include competing consolidators
could diminish the ability of market data aggregators who become
competing consolidators to compete in the market data aggregator space.
If a market data aggregator becomes a competing consolidator, the
requirements of being an SCI entity could also extend to their
aggregation of proprietary market data.\1159\ These requirements could
raise their costs, which could reduce their ability to compete with
other market data aggregators that are not competing consolidators.
---------------------------------------------------------------------------

    \1157\ The Commission acknowledges that fewer competitors could
decrease or increase efficiency in the market data aggregator
business. On the one hand, fewer competitors could reduce the
incentives for market data aggregators to innovate, which could
reduce efficiency. On the other hand, fewer competitors could also
improve efficiency if the firms that exited the market did not
aggregate market data as efficiently as the firms that remained.
    \1158\ As discussed above, consolidated market data would not be
a perfect substitute for proprietary data feeds, so there would
still be demand for proprietary data. Since not all firms aggregate
proprietary data themselves, there would still be a demand for
third-party aggregators to perform this function.
    \1159\ See supra Section VI.C.2(e)(ii).
---------------------------------------------------------------------------

    Fourth, the Commission preliminarily expects that the expanded
content and reduced latency of core market data provided by this
proposed rule may increase competition in the broker-dealer business by
improving the ability of some broker-dealers who currently access core
data to execute orders.\1160\ It is the Commission's understanding that
some broker-dealers that do not subscribe to all of the current
proprietary DOB feeds rely solely on the exclusive SIPs today and that
this makes them uncompetitive in the market for offering execution
services to the most transaction-cost-sensitive market participants.
The new decentralized consolidation model with expanded core data would
reduce the latency and expand the information delivered to broker-
dealers who subscribe to core data, possibly without raising data
prices. This in turn would allow broker-dealers that subscribe to
consolidated data to improve their order execution services and compete
more effectively with broker-dealers who subscribe to proprietary DOB
feeds. This would lead to greater competition between broker-dealers,
which could benefit investors by resulting in lower prices for and
higher quality of broker-dealer execution services.\1161\
---------------------------------------------------------------------------

    \1160\ See supra Section VI.C.4(b).
    \1161\ See supra Sections VI.B.3(e), VI.C.4(b).
---------------------------------------------------------------------------

    Fifth, the Commission preliminarily believes that the proposed rule
could affect competition between exchanges. As discussed above, the
proposed enhancements to core data could increase competition between
proposed consolidated market data and proprietary data feeds, which
could lead to exchanges charging lower fees for proprietary market
data.\1162\ If these lower fees do not result in more subscribers to
proprietary market data, it would lead to a decline in revenues from
proprietary market data for SROs.\1163\ Additionally, the proposed
amendments could affect competition in the market for exchange data
connectivity. If some current subscribers to proprietary market data
decide to only receive consolidated market data from competing
consolidators, they could also reduce the exchange connectivity
services that they currently use. In turn, this could reduce the
revenue that some exchanges earn from connectivity services.
Additionally, new connectivity fees may be proposed for core data use
cases, which could potentially increase or decrease the revenue
exchanges earn from connectivity.\1164\ It is the Commission's
understanding that revenues from proprietary market data and
connectivity services are a substantial portion of overall revenues for
many exchanges.\1165\ The Commission recognizes that it is possible
that an exchange group could close some or all of its exchanges if the
revenues from proposed consolidated market data did not increase and
revenues from proprietary market data and connectivity services were to
decline to a level that a given exchange or exchange group is no longer
able to cover operating expenses. The Commission is unable to quantify
the likelihood that an exchange will cease operating because it would
depend on the fees and revenue allocation for consolidated market data.
However, the Commission preliminarily believes that it is unlikely
exchanges will be forced to leave the market.
---------------------------------------------------------------------------

    \1162\ See supra Section VI.C.4(a).
    \1163\ In addition to adjusting fees, SROs could also redesign
their proprietary market data product lines to try and increase
revenue. However, it is possible that demand for these new products
would not be sufficient to offset the decline in revenues from
proprietary market data.
    \1164\ See supra Section VI.C.4(a).
    \1165\ See supra Section VI.B.3(b).
---------------------------------------------------------------------------

    Even if an exchange were to exit, the Commission does not believe
this would significantly impact competition in the market for trading
services because the market is served by multiple competitors,
including off-exchange trading venues. Consequently, if an exchange
were to exit the market, demand is likely to be swiftly met by existing
competitors. The Commission recognizes that small exchanges may have
unique business models that are not currently offered by competitors,
but the Commission preliminarily believes a competitor could create
similar business models if demand were adequate, and if they did not do
so, it seems likely new entrants would do so if demand were sufficient.
    Sixth, the Commission preliminarily believes that the proposed rule
would affect competition between traders.\1166\ The Commission
preliminarily believes that traders will be affected differently based
on the type of market data they use when making trading decisions.
Traders who subscribe to different types of market data can broadly be
grouped into three categories: (1) Traders who use proprietary DOB
feeds received directly from the SROs and self-aggregate, (2) traders
who use market data aggregators to aggregate proprietary DOB feeds, and
(3) traders who use core data (currently from the exclusive SIPs and,
under the proposed rule, competing consolidators).\1167\ The Commission
preliminarily believes that under the proposed rule the core data would
be of higher quality, and thus the value to traders from acquiring
proprietary DOB data would decrease.\1168\ As a result, it would be
harder for traders who use proprietary DOB feeds (both self-aggregators
and traders who use market data aggregators) to generate profits and
the competition between those traders would increase. For traders who
use core data, the Commission believes that the

competition between those traders would increase because the proposed
amendments would reduce the latency and expand the information included
in core data, which would allow those traders to devise better trading
strategies with bigger profit potential. The Commission preliminarily
believes that the most substantial change in competition would occur
between traders who use proprietary DOB feeds (both self-aggregators
and traders who use market data aggregators) and traders who use core
data. As described, the proposed rule expands the information and
reduces the latency of core data, thereby closing the gap between core
data and proprietary DOB feeds. This would allow traders who use core
data to compete on a more level playing field with traders who use
proprietary DOB feeds. The Commission preliminarily believes that this
would lead to a transfer of profits from traders who use proprietary
DOB feeds to traders who use proposed consolidated market data.
---------------------------------------------------------------------------

    \1166\ In this context the term traders could refer to either
proprietary traders executing orders on their own behalf or broker-
dealers executing orders on behalf of their clients.
    \1167\ Traders who currently subscribe to proprietary DOB feeds
may also subscribe to the exclusive SIPs as part of their backup
systems. However, the Commission preliminarily believes that these
traders primarily rely on proprietary DOB feeds when making trading
decisions because proprietary DOB feeds contain more information and
have lower latency than the exclusive SIPs.
    \1168\ See supra Section VI.C.4(a).
---------------------------------------------------------------------------

    Seventh, the Commission preliminarily believes that the proposed
rule changes would affect competition between off-exchange trading
venues and exchanges in the market for trading services. As discussed
above, the Commission preliminarily believes that the proposed
amendments would reduce the latency of core data.\1169\ This could
improve the competitive positions of some off-exchange trading venues
in the market for trading services. Off-exchange trading venues that
currently rely on the exclusive SIPs to calculate the NBBO would
benefit from the latency reductions in the distribution of core data
provided by the competing consolidators.\1170\ These venues would now
receive a more timely view of the NBBO, which could improve the
execution quality of trades that take place on these venues. This could
make them more attractive venues to trade on and they could attract
more order flow, from both exchanges and other off-exchange venues.
Off-exchange trading venues that currently subscribe to proprietary
data feeds could also see their competitive positions improve. If the
new core data represents a viable alternative to the proprietary data
feeds for their order executions, they could substitute core data for
proprietary data, which could lower their costs. They might be able to
pass along these cost reductions as reduced fees to subscribers, which
could improve their competitive position relative to exchanges and
other off-exchange trading venues. Reductions in the fees charged by
these off-exchange trading venues could in turn potentially benefit
investors if broker-dealers who subscribe to these venues passed along
these cost savings by, in turn, reducing their fees.\1171\
---------------------------------------------------------------------------

    \1169\ See supra Section VI.C.2(c).
    \1170\ Id.
    \1171\ Broker-dealer subscribers could potentially pass along
the cost savings from the reduction in off-exchange trading venue
fees to investors either directly, if they reduced fees for
investors who were clients of the broker-dealer, or indirectly, if
they reduced fees for institutional clients, such as mutual funds,
who, in turn, passed along the cost savings to their end investors.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission preliminarily believes the proposed amendments would
have only a modest impact on capital formation. However, the Commission
is unable to quantify the effects on capital formation because, as
discussed above, it is unable to quantify the additional gains from
trade and the effects of improvements in order routing that may be
realized from the proposed amendments.\1172\ However, in the section
below the Commission provides a qualitative description of the effects
it preliminarily believes the proposed amendments would have on capital
formation and invites comments on the subject.
---------------------------------------------------------------------------

    \1172\ See supra Sections VI.C.1(b), VI.D.1.
---------------------------------------------------------------------------

    As discussed above, the Commission preliminarily believes that the
addition of information about odd-lot quotes, depth of book, and
auction information to core data may result in more voluntary trades
occurring between market participants, which could lead to more
efficient gains from trade.\1173\ Improved gains from trade may result
in a more efficient allocation of capital, which would improve capital
formation.
---------------------------------------------------------------------------

    \1173\ See supra Section VI.D.1.
---------------------------------------------------------------------------

    Additionally, the Commission preliminarily believes that the
proposed amendments would improve order execution for market
participants who currently rely upon SIP data, which may lower their
transaction costs.\1174\ Lower transaction costs could reduce firms'
cost of raising capital.\1175\ This, in turn could improve capital
formation.
---------------------------------------------------------------------------

    \1174\ See supra Sections VI.C.1(b), VI.D.1.
    \1175\ See Yakov Amihud and Haim Mendelson, Asset Pricing and
the Bid--Ask Spread, 17 J. Fin. Econ. 223 (1986).
---------------------------------------------------------------------------

4. Request for Comments on Impact on Efficiency, Competition, and
Capital Formation
    The Commission requests comments on its analysis of the impact of
the proposed amendments on efficiency, competition, and capital
formation. In particular, the Commission solicits comment on the
following:
    276. Do you agree with the Commission's analysis of the effects the
proposed amendments might have on efficiency, competition and capital
formation? Why or why not? Please explain in detail.
    277. Do you believe the proposed amendments may have unintended
consequences that are not captured by the Commission's analysis of the
effects the proposed amendments may have on efficiency, competition and
capital formation? Why or why not? Please explain in detail.
    278. Do you agree that the proposed amendments would lead to gains
from trade? Do you agree that the proposed amendments would improve the
efficiency or order execution? Do you agree that the proposed
amendments would improve price efficiency? Do you agree that the
proposed amendments would improve the efficiency of how core data is
distributed? Please explain.
    279. To what extent does the gap in information between SIP data
and proprietary DOB products affect price efficiency? Are these effects
larger in less actively traded securities where the gap in information
between SIP data and proprietary DOB products is larger? Please explain
in detail.
    280. Do you believe the proposed amendments would have effects on
efficiency that the Commission has not recognized? Please explain in
detail.
    281. Do you agree with the Commission's analysis that the proposal
will have a substantial impact on competition in several markets? In
particular, do you agree that the decentralized consolidation model
improves the competition in the market to distribute consolidated
market data? Do you agree that the decentralized consolidation model
creates more viable substitutes for proprietary exchange data? Do you
agree that the proposal increases competition to provide smart order
routing? Do you agree that the proposal could affect competition among
exchanges to provide transaction services? Do you agree that the
proposal could affect competition among traders? Do you agree that the
proposal could affect competition among exchanges and off-exchange
trading venues? Please explain in detail.
    282. Do you agree that the public disclosure of Form CC and the
performance metrics promote competition more than if such information
were not disclosed? Please explain.
    283. Do you agree that the extension of Regulation SCI to include
competing consolidators could raise the barriers to entry for competing
consolidators and reduce competition in the competing

consolidator market? Why or why not? Please explain in detail.
    284. Do you agree that the purchase of consolidated market data
from a competing consolidator by the CAT would not have a significant
effect on competition among competing consolidators? Why or why not?
Please explain in detail.
    285. Would the public disclosure of Form CC or the performance
metrics risk revealing any trade secrets that could harm competition?
Please explain.
    286. Do you believe the proposed amendments would have effects on
competition that the Commission has not recognized? Please explain in
detail.
    287. Do you agree that the proposal would only have a modest impact
on capital formation? Why or why not? Please explain in detail.
    288. Do you believe the proposed amendments would have effects on
capital formation that the Commission has not recognized? Please
explain in detail.

E. Alternatives

    The Commission considered potential alternatives to the proposed
amendments that broadly fall into two categories: Introduce the
decentralized consolidation model and make alternative changes to the
core data definition, and make changes in the core data definition as
proposed in the amendments and consider alternative models of SIP
competition.
1. Introduce Decentralized Consolidation Model With Additional Changes
in Core Data Definition
    The Commission considered an alternative that would introduce the
decentralized consolidation model and expand core data more than the
proposal does. For example, the Commission considered expanding core
data to include information on quotations and aggregate size at all
prices in the limit order book (``full depth of book'') in addition to
the depth of book information contained in the proposal, i.e., five
price levels from the protected quotes.\1176\ Alternatively, the
Commission considered expanding core data to include information on all
odd-lot sized quotes instead of only information on quotes at or above
the proposed round lot size.\1177\ Under both alternatives, the
definition of a round lot for the purposes of determining the NBBO and
a protected quote would remain the same as in the proposed amendments,
which means the costs and benefits associated with the changes in the
definition of the NBBO and protected quotes would be similar to the
proposal.\1178\
---------------------------------------------------------------------------

    \1176\ See supra Section III.C.2.
    \1177\ See supra Section III.C.1.
    \1178\ See supra Section VI.C.1(c).
---------------------------------------------------------------------------

    Relative to the proposal, full depth of book information would
provide market participants who currently do not access proprietary DOB
feeds, as well as market participants who currently access proprietary
DOB feeds and would have switched to using consolidated market data
under the proposal, with additional information on liquidity provision
across more price levels. To the extent that these market participants
can utilize full depth of book information, the Commission
preliminarily believes that this alternative could result in increased
benefits to such market participants relative to the proposal.\1179\
Certain commenters on the Roundtable stated that without full depth of
book information, broker-dealers may not be able to provide best
execution to their clients,\1180\ indicating that full depth of book
information would provide valuable information to market participants.
However, as discussed above, the Commission preliminarily believes that
the marginal benefit of including additional information on price
levels further away from the best quotes may decrease as the price
level moves away from the best quote because orders at these price
levels are less likely to execute.\1181\
---------------------------------------------------------------------------

    \1179\ This alternative could increase costs relative to the
proposal for market participants that access full depth of book
information and execute trading that earn profits at the expense of
other market participants who do not access this information. As
discussed above, this cost would represent a partial transfer from
traders who currently have access to depth of book to those who do
not. See supra Section VI.C.1(b)(iv).
    \1180\ See supra notes 284-285.
    \1181\ See supra Sections VI.C.1(b)(ii), III.C.2.
---------------------------------------------------------------------------

    Relative to the proposal, the inclusion of full depth of book
information in core data would increase the ability of market
participants to use it as a substitute for proprietary DOB feeds.\1182\
Currently, market participants interested in full depth of book data
rely on proprietary DOB feeds offered by exchanges, which provide
varying degrees of the depth of book information. To the extent that
there are market participants who utilize full depth of book
information via proprietary DOB feeds in trading, this alternative
could increase the benefits for some of these market participants
relative to the proposal by potentially reducing their data costs if
they would switch to using core data under this alternative but would
not have done so under the proposal. Subscribers of proprietary DOB
feeds would realize these cost savings if they switched to receiving
proposed consolidated market data through a competing consolidator or
if they registered as a self-aggregator.\1183\
---------------------------------------------------------------------------

    \1182\ Including full depth of book information in core data
would not make it a perfect substitute for all proprietary DOB
feeds. For example, some proprietary DOB feeds contain more detailed
information than full depth of information, such as messages on
individual orders.
    \1183\ See supra Section VI.C.2(b).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the alternative to
include full depth of the book in core data would result in greater
costs for exchanges than would the proposal. To the extent that the
alternative results in fewer market participants subscribing to
proprietary DOB data or purchasing connectivity services from the
exchanges than under the proposal, exchanges' business for their
proprietary feeds and connectivity services could be less
profitable.\1184\ Additionally, to the extent that not all exchanges
sell full depth of book, certain exchanges would incur additional costs
to set up systems and produce full depth of book information to be
included in the core data. However, the Commission is unable to
quantify this cost because it lacks information on the modifications
exchanges would need to make to their systems in order to provide full
depth of book information, but the Commission invites comments on the
issue.
---------------------------------------------------------------------------

    \1184\ More broadly, this could have differential effects
between exchanges who derive significant revenue from proprietary
data feeds and those who derive significant revenue primarily from
SIP revenue. These effects would also depend on the NMS plan(s) fees
for consolidated market data as well as their method for allocating
revenue received from consolidated market data among the SROs. See
supra Section VI.C.4(a).
---------------------------------------------------------------------------

    Compared to the proposal, this alternative could result in
additional costs for competing consolidators to create infrastructure
and expand capacity to distribute full depth of book information.\1185\
The costs are likely to vary substantially according to the existing
infrastructure of the entity seeking to be a competing consolidator.
The Commission preliminarily believes that these incremental costs for
market data aggregators and existing exclusive SIPs will be small,
because they already work with proprietary DOB data. However, the
Commission invites comments on the issue.
---------------------------------------------------------------------------

    \1185\ See supra Section VI.C.2(d).
---------------------------------------------------------------------------

    Additionally, including full depth of book information would
require market participants who subscribed to core data and wished to
receive the additional depth of book information to make more extensive
upgrades to their systems than

under the proposal. However, the Commission is unable to estimate the
associated costs because it does not have access to information about
the infrastructure expenses a market participant incurs to process
market data and because of the likelihood that such costs vary
substantially according to the existing infrastructure of the market
participant, but the Commission invites comments on the issue. To the
extent that some market participants who subscribe to the exclusive
SIPs do not need full depth of book information, they would not need to
expand their own proprietary technology or that of a third-party vendor
to process the full depth of the book data. Therefore, this alternative
would not result in additional costs for these market participants
compared to the proposal.
    In addition to the alternative of adding full depth of book
information, the Commission also considered expanding core data to
include information on all odd-lot sized quotes instead of only
information on quotes at or above the proposed round lot size.\1186\
The proposed rule is specifically designed to leave out odd-lot quotes
for low priced stocks. Under this alternative, market participants who
subscribe to core data would have odd-lot information for low priced
stocks. Furthermore, compared to the proposal, this alternative would
provide market participants who subscribe to core data with more
detailed information about at which prices odd-lot liquidity exists
(i.e., instead of rolling up odd-lot quotes at different prices to the
highest price) for higher priced stocks. To the extent that market
participants who currently do not have access to this information
utilize the more detailed odd-lot information in order routing and
execution, this alternative could improve their execution quality
relative to the proposal.\1187\ However, as discussed above,\1188\
Commission and commenter analysis shows that there is a higher
percentage of odd-lot trades in higher priced stocks. This could imply
that there are fewer odd-lot quotes present in low priced stocks, which
could mean that the marginal benefit of including odd-lot information
in low priced stocks may be smaller than including it in stocks with
higher prices.
---------------------------------------------------------------------------

    \1186\ See supra Section III.C.1.
    \1187\ This alternative could increase costs relative to the
proposal for market participants that access all odd-lot quotes and
execute trading that earn profits at the expense of other market
participants who do not access this information. As discussed above,
this cost would represent a partial transfer from traders who
currently have access to all odd-lot quotes to those who do not. See
supra Section VI.C.1(b)(iv).
    \1188\ See supra note 178 and accompanying text.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the inclusion of all
odd-lot data would not significantly change the processing costs for
competing consolidators relative to the proposal. Under the current
proposal, competing consolidators would already be processing all odd-
lot data in order to calculate exchange round lot BBOs and the round
lot NBBO that would be contained in the proposed core market data.
Competing consolidators may incur some additional infrastructure
expenses in order to disseminate the additional message volume
associated with all odd-lot information to market participants. These
costs are likely to vary according to the existing infrastructure of
the entity seeking to be a competing consolidator, but the Commission
preliminarily believes that these additional infrastructure costs are
likely to be small.\1189\ However, the Commission invites comments on
the issue.
---------------------------------------------------------------------------

    \1189\ See supra Section VI.C.2(d).
---------------------------------------------------------------------------

    Additionally, the Commission preliminarily estimates that market
participants and data vendors would need to make additional upgrades to
their systems beyond the proposal in order to receive the additional
odd-lot data. However, the Commission does not have access to
information about the infrastructure expenses a market participant
incurs to process market data and because of the likelihood that such
costs vary substantially according to the existing infrastructure of
market participants, but the Commission invites comments on the issue.
2. Introduce Changes in Core Data and Introduce a Distributed SIP Model
    The Commission considered an alternative that would expand the core
data as proposed and would introduce a distributed SIP model whereby
the current exclusive SIP processors would establish multiple instances
of their systems in multiple data centers.\1190\ As some commenters and
panelists suggested at the Roundtable,\1191\ this alternative would
achieve a similar reduction in exclusive SIP geographic latency to the
proposal by allowing firms to consume data under the current structure
without making any changes or to consume data at the nearest exclusive
SIP instance depending on the firms' latency concerns. However, this
alternative would still provide exclusive rights to one operator to
provide exclusive SIP services for a given tape.
---------------------------------------------------------------------------

    \1190\ See also a discussion about a single SIP alternative,
supra Section IV.C.2.
    \1191\ See supra Section IV.C.1(a).
---------------------------------------------------------------------------

    This Commission preliminarily believes that this alternative would
produce lower benefits compared to the proposed decentralized
consolidation model.\1192\ Under this alternative, the exclusive SIPs
would not be subject to the same competitive forces that competing
consolidators may be subject to under the decentralized consolidation
model.\1193\ This lack of competition would reduce the incentives to
innovate and would not improve efficiency or reduce the transmission
and aggregation latencies of core data as much as the proposal. If core
data does not achieve the same overall latency reduction as under the
proposal, then market participants would be less likely to substitute
using core data for proprietary data than they would be under the
proposal. This could mean that the decline in profits from exchanges'
proprietary data fees may not be as large as they would be under the
proposal.\1194\
---------------------------------------------------------------------------

    \1192\ See supra Sections VI.C.2, IV.C.1.
    \1193\ See supra Sections VI.C.2, VI.D.2.
    \1194\ See supra Section VI.C.4(a).
---------------------------------------------------------------------------

    Under this alternative, the exclusive SIPs would still need to make
upgrades to their systems to account for the expansion of core data and
would still need to install systems in multiple data centers. The
Commission preliminarily believes that the costs of these SIP system
upgrades would be similar to those under the proposal.\1195\ However,
under this alternative, market participants may experience higher costs
to access core data compared to the proposal. Instead of having the
option to receive all core data from one competing consolidator, as
they would under the proposal, market participants would still need to
receive data from both exclusive SIP plan processors.\1196\ This means
that under this alternative, the total price market participants would
pay to access core data may be greater than under the proposal because
it would include the costs of the two plan processors to aggregate and
transmit the data. Under the proposal, the total price market
participants would pay to receive core data may only include the costs
of one processor, because market participants would have the option to
receive all of their core data from one competing consolidator.\1197\
---------------------------------------------------------------------------

    \1195\ See supra Section VI.C.2(d).
    \1196\ See supra Section VI.B.2.
    \1197\ See supra Section VI.C.2(c).

---------------------------------------------------------------------------

3. Require Competing Consolidators' Fees B e Subject to the
Commission's Approval
    The Commission considered an alternative to the decentralized
consolidation model that would require competing consolidators' fees to
be subject to the Commission's regulatory approval.
    The Commission preliminarily believes that, relative to the
proposal, this alternative would potentially reduce the risk and
uncertainty surrounding the total price of consolidated market data.
This alternative would provide for Commission review and approval of
the fees of competing consolidators. Therefore, compared to the
proposal, this alternative could reduce the risk that market
participants are exposed to unreasonable fees, which could reduce the
risk that some market participants or data vendors would no longer
provide services in the equity market because the price of consolidated
market data becomes too high.\1198\
---------------------------------------------------------------------------

    \1198\ See supra Section VI.C.2(d).
---------------------------------------------------------------------------

    The Commission preliminarily believes, however, that this
alternative would impose additional regulatory burdens on the competing
consolidator business compared to the proposal, and may inhibit
competing consolidators from being able to respond effectively and
quickly to free market forces. These burdens would reduce the incentive
for firms to become competing consolidators and lead to less robust
competition in the decentralized consolidation model than under the
proposal.\1199\ With less competitive forces to discipline competing
consolidators' service fees, competing consolidators' would have less
incentive to innovate in their consolidating business. Moreover, less
competing consolidators in the market would reduce the extent to which
the pricing is based on market forces.
---------------------------------------------------------------------------

    \1199\ See supra Section VI.C.2(a).
---------------------------------------------------------------------------

4. Do Not Extend Regulation SCI To Include Competing Consolidators
    The Commission considered an alternative that would not extend
Regulation SCI to include competing consolidators. Under this
alternative, the Commission would have required competing consolidators
to establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that its systems involved in the
collection, consolidation, and dissemination of consolidated market
data have levels of capacity, integrity, resiliency, availability, and
security adequate to maintain operational capability and to assure the
prompt, accurate, and reliable delivery of consolidated market data.
These policies and procedures could address, among other things, data
security and integrity; reasonable current and future capacity
estimates; business continuity and disaster recovery plans; periodic
capacity stress tests of critical systems; procedures to review and
keep current system development and testing methodology; periodic
reviews to assess the vulnerability of its systems and operations to
internal and external threats, physical hazards, and natural disasters;
and an annual independent audit to ensure that these requirements are
satisfied, together with a review by senior management of a report
containing the commendations and conclusions of the independent review.
The Commission preliminarily believes that this alternative would
reduce some of the benefits as well as some of the costs compared to
extending Regulation SCI to include competing consolidators.\1200\
---------------------------------------------------------------------------

    \1200\ See supra Section VI.C.2(e).
---------------------------------------------------------------------------

    The Commission preliminarily believes that this alternative could
result in some competing consolidators producing systems that would be
less secure and resilient than they would be under the proposed
amendments because they would not be subject to all of the requirements
of being an SCI entity.\1201\ If competing consolidators produce less
secure and resilient systems compared to if they were SCI entities,
then there could be a greater risk of more market disruptions due to
systems issues in competing consolidators compared to the proposed
amendments.\1202\ Additionally, if a competing consolidator does
experience a systems issue, it could result in more severe and longer
disruptions compared to the proposed amendments. However, the increase
in competing consolidator systems issues compared to the proposal may
not be significant. Under this alternative, competing consolidators
would still have to establish policies and procedures to ensure that
their systems have levels of capacity, integrity, resiliency,
availability, and security adequate to maintain operational capability.
They would also still need to post information on systems issues on
their websites as well as monthly reports containing statistics on
their capacity and systems availability.\1203\ This would place
competitive pressure on competing consolidators to ensure that their
systems are reliable and resilient. Otherwise, they could lose
subscribers to competing consolidators that had more reliable and
resilient systems.
---------------------------------------------------------------------------

    \1201\ See supra Section VI.C.2(e)(i).
    \1202\ Id.
    \1203\ See supra Section VI.C.3(a).
---------------------------------------------------------------------------

    The Commission preliminarily believes that this alternative would
result in lower costs for some competing consolidators compared to the
proposed amendments. Under this alternative, competing consolidators
would not incur the costs that are associated with SCI entities that
are discussed above.\1204\ Instead, the Commission preliminarily
estimates that requiring a competing consolidator to establish,
maintain, and enforce written policies and procedures reasonably
designed to ensure that its systems involved in the collection,
consolidation, and dissemination of consolidated market data have
levels of capacity, integrity, resiliency, availability, and security
adequate to maintain operational capability and to assure the prompt,
accurate, and reliable delivery of consolidated market data would
require an average initial expense of $68,710 per competing
consolidator.\1205\ The Commission based these estimates upon those it
used with regards to establishing similar policies and procedures for
Security-Based Swap Data Repository Registration, Duties and Core
Principles.\1206\ Once these policies and procedures are established,
the Commission preliminarily estimates that, on average, a competing
consolidator will incur an ongoing cost of $21,810 annually to maintain
these policies and procedures.\1207\
---------------------------------------------------------------------------

    \1204\ See supra Section VI.C.2(e)(ii).
    \1205\ The Commission estimates a total of 210 initial burden
hours per competing consolidator. The Commission estimates a total
monetized initial burden of $68,710 per competing consolidator. The
Commission derived this estimate based on per hour figures from
SIFMA's Management & Professional Earnings in the Securities
Industry 2013, modified by Commission staff to account for an 1,800-
hour work-year and inflation, and multiplied by 5.35 to account for
bonuses, firm size, employee benefits and overhead: [(Compliance
Manager at $310 for 80 hours) + (Attorney at $417 for 80 hours) +
(Sr. Systems Analyst at $285 for 25 hours) + (Operations Specialist
at $137 for 25 hours)] = 210 initial burden hours per competing
consolidator and $68,710.
    \1206\ See Securities Exchange Act Release No. 74246, supra note
554, at 14523; 17 CFR 242.13n-6.
    \1207\ The Commission preliminarily estimates that it will take,
on average, 60 annual hours to maintain these policies and
procedures per competing consolidator. The Commission estimates the
monetized burden for this requirement to be $21,810. The Commission
derived this estimate based on per hour figures from SIFMA's
Management & Professional Earnings in the Securities Industry 2013,
modified by Commission staff to account for an 1,800-hour work-year
and inflation, and multiplied by 5.35 to account for bonuses, firm
size, employee benefits and overhead: [(Compliance Manager at $310
for 30 hours) + (Attorney at $417 for 30 hours)] = 60 annual burden
hours per competing consolidator and $21,810.

---------------------------------------------------------------------------

    The Commission preliminarily believes that, compared to the
proposed amendments, this would lower the barriers to entry for new
competing consolidators who are not currently SCI entities, including
market data aggregators.\1208\ This could result in more firms becoming
competing consolidators and could increase competition in the competing
consolidator market compared to the proposal. Increased competition
could lower the costs and increase the speed and quality of
consolidated market data compared to the proposed amendments. This, in
turn, could make consolidated market data a more viable substitute for
proprietary data feeds and result in greater competition between
consolidated market data and proprietary data feeds compared to the
proposed amendments.
---------------------------------------------------------------------------

    \1208\ See supra Sections VI.C.2(a)(i)b., VI.D.2.
---------------------------------------------------------------------------

5. Require Competing Consolidators To Submit Form CC in the EDGAR
System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing
consolidators to submit Form CC using the Commission's EDGAR system and
using the Inline XBRL format. Requiring this could create benefits for
market participants by enabling more efficient retrieval, aggregation
and analysis of disclosed information and facilitating comparisons
across competing consolidators. This alternative also could allow a
competing consolidator to efficiently benchmark key aspects of its
operations (e.g., operational capabilities or fee structures) against
the rest of the potential competing consolidator population. However,
the benefits to market participants of efficient aggregation and
comparison and the benefits to potential competing consolidators of
efficient benchmarking depend on the number of competing consolidators
that ultimately register with the Commission, which we estimate to be
relatively low at twelve.
    Additionally, many potential competing consolidators may not be
familiar with Inline XBRL and thus could incur increased costs if they
need to learn Inline XBRL compared to the proposal's requirement to
submit Form CC and various exhibits through EFFS--a system with which
we believe many potential competing consolidators are already familiar.
However, to the extent that potential competing consolidators already
have experience filing information in EDGAR in an XML format, costs
associated with learning a new system and format may be mitigated. We
request comment on the specific benefits and costs of filing Form CC in
EDGAR using the Inline XBRL format.
6. Require Competing Consolidators To Submit Monthly Disclosures in the
EDGAR System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing
consolidators to submit their monthly performance metrics and
operational information using the Commission's EDGAR system and using
the Inline XBRL format. This alternative could create benefits for
market participants by having the monthly information of each competing
consolidator in a centralized location. Additionally, it could allow
for more efficient retrieval, aggregation and analysis of disclosed
information and facilitate comparisons across competing consolidators
and time periods. To the extent there are a small number of potential
competing consolidators, the magnitude of such benefits would be
reduced.
    Additionally, competing consolidators would incur increased costs
to file the information with the Commission compared to the proposal's
requirement to post the monthly information on the competing
consolidator's website in any format. The difference in costs would
likely vary across competing consolidators, depending on the systems
and processes they currently have in place, such as for internal
reporting, posting of website updates, and submission of regulatory
filings, and the manner in which competing consolidators currently
maintain data required for the additional disclosures.
    In addition, similar to submitting Form CC information on EDGAR
using the Inline XBRL format, competing consolidators may need to learn
Inline XBRL. We request comment on the specific benefits and costs of
filing the monthly disclosures in EDGAR using the Inline XBRL format.
7. Prescribing the Format of NMS Information
    The Commission considered an alternative in which it would
prescribe a single format that SROs would use to provide NMS
information to competing consolidators and self-aggregators. Each SRO
would still be required to make all methods of access available to
competing consolidators and self-aggregators as such SRO makes
available to any other person.\1209\ Each SRO would still be able to
offer proprietary data products in other formats.
---------------------------------------------------------------------------

    \1209\ See supra note 428.
---------------------------------------------------------------------------

    By prescribing the format, the Commission could better ensure
consistency of the data. Compared to the proposal, a standard format
could reduce the costs for competing consolidators and self-aggregators
to aggregate the data to create consolidated market data. However, the
Commission preliminarily believes that these costs may not be
significantly reduced. As discussed above, the SROs currently use a
variety of formats for their proprietary data feeds and some broker-
dealers, market data aggregators, and the SIPs are already adept and
experienced in aggregating and normalizing the data across different
formats.\1210\ Therefore, some potential competing consolidators and
self-aggregators may not experience significant cost reductions
relative to the proposal if the Commission required that SROs provide
NMS information in a prescribed format.
---------------------------------------------------------------------------

    \1210\ See supra Section VI.B.2(b).
---------------------------------------------------------------------------

    Requiring a single format for SROs to deliver NMS information to
competing consolidators and self-aggregators would also increase the
costs to SRO's compared to the proposal. SROs would incur a greater
cost to conform their existing data to a format they do not already
use. It could also increase the costs of exchanges making future
changes to their data because they may need to make alterations to both
their proprietary data products and to data in the standard format they
would supply to competing consolidators and self-aggregators, assuming
the changes would need to be included in consolidated market data.
Additionally, compared to the proposal, this increased cost could
reduce the likelihood that the effective NMS plan(s) for NMS stocks or
SROs introduce additional elements into consolidated data in the
future.\1211\
---------------------------------------------------------------------------

    \1211\ See supra Sections III.C, III.D.
---------------------------------------------------------------------------

    Requiring the SROs to deliver data to competing consolidators and
self-aggregators in a single format could also impact the latency
between consolidated market data and aggregated proprietary DOB feeds.
On the one hand, receiving all of the data in a single format should
expedite the aggregation and normalization process for consolidated
data. This could potentially reduce the latency differential between
consolidated market data and aggregated proprietary data feeds compared
to the proposal. However, it is possible that the format of certain
proprietary data feeds may allow for faster aggregation initially than
the single format specified by the Commission because of certain SROs'

existing familiarity with its format. If this occurred, it could
increase the latency differential compared to the proposal.
    In addition, if the SROs are required to transform their existing
data to a different format, it could hinder the timeliness of the data
competing consolidators receive compared to data delivered via the
proprietary feeds. Any changes in the timeliness with which the
competing consolidators receive the data or any difference in latency
between consolidated core data and proprietary data feeds would affect
the viability of consolidated core data as a substitute for proprietary
data feeds and affect many of the benefits of the decentralized
consolidation model.\1212\ If the latency differential is reduced, more
market participants may substitute consolidated market data for
proprietary data feeds and the benefits of the decentralized
consolidation model could increase compared to the proposal. If
competing consolidators receive less timely data or the latency
differential increases, fewer market participants would switch to
consolidated market data and the benefits would be smaller than under
the proposal.
---------------------------------------------------------------------------

    \1212\ See supra Section VI.C.2(c).
---------------------------------------------------------------------------

8. Request for Comments on Alternatives
    The Commission requests comments on its analysis of alternatives to
the proposed amendments. In particular, the Commission solicits comment
on the following:
    289. Should the Commission adopt an alternative approach? Why or
why not? What alternatives should the Commission consider? What are the
benefits and costs of such an approach? Please explain in detail.
    290. Do you agree with the Commission's analysis of the alternative
to further increase the content of core data to include the full depth
of book and/or all odd-lot quotes? Would additional depth of book
information, beyond what is include in the proposal, be valuable? Why
or why not? How much larger would consolidated market data be if it
included the full depth of book and/or all odd-lots? How much larger
than the proposal would the costs of this alternative be for exchanges,
competing consolidators, and other market participants? Please provide
estimates, if possible.
    291. Do you agree with the Commission's analysis of the distributed
SIP alternative? Why or why not? Please explain. How would the
competitive effects of the distributed SIP alternative compare to the
competitive effects of the proposed decentralized consolidated model?
As such, how would the benefits of the distributed SIP model compare to
the benefits of the decentralized consolidation model? How would the
costs of the distributed SIP model compare to the costs of the
decentralized consolidation model? How would the distributed SIP model
affect aggregate data fees paid by market participants for market data?
How would the distributed SIP model affect the types of products and
services available to purchase consolidated data?
    292. Do you agree with the Commission's analysis of the relative
economic effects of the alternative to not extend Regulation SCI to
include competing consolidators? Why or why not? Please explain. Would
this alternative increase the risk of a competing consolidator
experiencing a system disruption? If so, how economically significant
would this increase be? Would this alternative lower the barriers to
entry for competing consolidators compared to the proposed amendments?
Would this alternative result in more new competing consolidators?
Would this alternative increase competition among competing
consolidators? Would this alternative increase innovation in the
competing consolidator market? Would this alternative increase
competition between consolidated market data and proprietary depth of
book feeds? Please explain and provide estimates if possible.
    293. Do you agree with the Commission's analysis of the relative
economic effects of the alternative to require that competing
consolidator fees be subject to Commission approval? Why or why not?
Please explain. Should the Commission be concerned that the proposal
does not require an approval process for competing consolidators'
market data fees? What is the risk and how large is that risk? Would
the alternative reduce this risk? If so, how economically significant
would this reduction be? How burdensome would it be for competing
consolidators to have to obtain Commission approval for their fees?
Please explain and provide cost estimates if possible.
    294. Do commenters agree with the Commission's analysis of the
alternative to require all disclosures be filed in the EDGAR system
using the Inline XBRL format? Why or why not? Please explain in detail.
Would the alternative further help market participants evaluate and
compare the merits of competing consolidators? Would the alternative
promote consistency relative to the proposal? Would the disclosures be
more accessible in EDGAR than if they were on the Commission's website
or on competing consolidators' websites? Please explain in detail. What
are the costs of using EDGAR and the Inline XBRL format relative to the
proposal? Please explain and provide estimates if possible.
    295. Do you agree with the Commission's analysis of the relative
economic effects of the alternative in which the Commission would
prescribe a single format that SROs would use to provide NMS
information to competing consolidators and self-aggregators? Why or why
not? Please explain. What effects would the Commission prescribing NMS
information be provided in a single format have on the costs of SROs,
competing consolidators, and self-aggregators? How economically
significant would these effects be? What effects would the alternative
have on the latency of consolidated market data compared to aggregated
proprietary data feeds? What effects would the alternative have on the
timeliness of the data competing consolidators and self-aggregators
would receive? Please explain and provide estimates if possible.
    296. Are there other reasonable alternatives for the proposed
amendments to Regulation NMS to update the content of the consolidated
market data and introduce competition into the distribution of that
consolidated market data? If so, please provide additional alternatives
and how their costs and benefits, as well as their potential impacts on
the promotion of efficiency, competition, and capital formation, would
compare to the impact of the proposed amendments.
    297. Is the competing consolidator approach necessary to achieve
the economic benefits of the proposal related to expanding consolidated
market data? Are there alternatives to the decentralized consolidation
model with competing consolidators that would achieve the Commission's
objectives at lower cost? If so, how would their costs and benefit
compare to the proposed decentralized consolidation model? Please
explain and provide estimates if possible.

F. Request for Comments on the Economic Analysis

    The Commission is sensitive to the potential economic effects,
including the costs and benefits, of the proposed amendments to
Regulation NMS to update the content of core data and introduce the
decentralized consolidation model into the distribution of consolidated
market data. The Commission has identified

above certain costs and benefits associated with the proposal and
requests comment on all aspects of its preliminary economic analysis,
including with respect to the specific questions posed above. The
Commission encourages commenters to identify, discuss, analyze, and
supply relevant data, information, or statistics regarding any such
costs or benefits.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\1213\ the Commission requests comment on the
potential effect of the proposed amendments on the United States
economy on an annual basis. The Commission also requests comment on any
potential increases in costs or prices for consumers or individual
industries, and any potential effect on competition, investment, or
innovation. Commenters are requested to provide empirical data and
other factual support for their views to the extent possible.
---------------------------------------------------------------------------

    \1213\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C., and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \1214\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) \1215\ of the Administrative
Procedure Act,\1216\ as amended by the RFA, generally requires the
Commission to undertake a regulatory flexibility analysis of all
proposed rules, or proposed rule amendments, to determine the impact of
such rulemaking on ``small entities.'' \1217\ Section 605(b) of the RFA
states that this requirement shall not apply to any proposed rule or
proposed rule amendment which, if adopted, would not have a significant
economic impact on a substantial number of small entities.\1218\
---------------------------------------------------------------------------

    \1214\ 5 U.S.C. 601 et seq.
    \1215\ 5 U.S.C. 603(a).
    \1216\ 5 U.S.C. 551 et seq.
    \1217\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for purposes of Commission rulemaking in accordance
with the RFA. Those definitions, as relevant to this proposed
rulemaking, are set forth in Rule 0-10, 17 CFR 240.0-10.
    \1218\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    The proposed rule would apply to national securities exchanges
registered with the Commission under Section 6 of the Exchange Act,
national securities associations registered with the Commission under
Section 15A of the Exchange Act, and competing consolidators. None of
the exchanges registered under Section 6 that would be subject to the
proposed amendments are ``small entities'' for purposes of the
RFA.\1219\ There is only one national securities association, and the
Commission has previously stated that it is not a small entity as
defined by 13 CFR 121.201.\1220\ For purposes of the Commission
rulemaking in connection with the RFA \1221\ as it relates to competing
consolidators, a small entity includes a SIP that ``(1) Had gross
revenues of less than $10 million during the preceding fiscal year (or
in the time it has been in business, if shorter); (2) Provided service
to fewer than 100 interrogation devices or moving tickers at all times
during the preceding fiscal year (or in the time that it has been in
business, if shorter); and (3) Is not affiliated with any person (other
than a natural person) that is not a small business or small
organization under this section.'' \1222\ The Commission preliminarily
believes that no competing consolidators would be ``small entities''
for purposes of the RFA.
---------------------------------------------------------------------------

    \1219\ See 17 CFR 240.0-10(e). Paragraph (e) of Rule 0-10 states
that the term ``small business,'' when referring to an exchange,
means any exchange that has been exempted from the reporting
requirements of Rule 601 of Regulation NMS, 17 CFR 242.601, and is
not affiliated with any person (other than a natural person) that is
not a small business or small organization as defined in Rule 0-10.
Under this standard, none of the exchanges subject to the proposed
amendment to Rule 608 is a ``small entity'' for the purposes of the
RFA. See also Securities Exchange Act Release Nos. 82873 (Mar. 14,
2018), 83 FR 13008, 13074 (Mar. 26, 2018) (File No. S7-05-18)
(Transaction Fee Pilot for NMS Stocks Proposed Rule); 55341 (May 8,
2001), 72 FR 9412, 9419 (May 16, 2007) (File No. S7-06-07) (Proposed
Rule Changes of Self-Regulatory Organizations Proposing Release).
    \1220\ See, e.g., Securities Exchange Act Release No. 62174 (May
26, 2010), 75 FR 32556, 32605 n.416 (June 8, 2010) (``FINRA is not a
small entity as defined by 13 CFR 121.201.'').
    \1221\ See supra note 1217.
    \1222\ 17 CFR 240.0-10(g).
---------------------------------------------------------------------------

    For the above reasons, the Commission certifies that the proposed
amendments to Rules 600 and 603 and the new Rule 614, if adopted, would
not have a significant economic impact on a substantial number of small
entities for purposes of the RFA.
    The Commission invites commenters to address whether the proposed
rules would have a significant economic impact on a substantial number
of small entities, and, if so, what would be the nature of any impact
on small entities. The Commission requests that commenters provide
empirical data to support the extent of such impact.

IX. Statutory Authority

    Pursuant to the Exchange Act, and particularly Sections 3(b), 5, 6,
11A, 15, 17, and 23(a) thereof, 15 U.S.C. 78c, 78e, 78f, 78k-1, 78o,
78q, and 78w(a), the Commission proposes to amend Sections 240.3a51-1,
240.13h-1, 242.105, 242.201, 242.204, 242.600, 242.602, 242.603,
242.611, and 242.1000 of Chapter II of Title 17 of the Code of Federal
Regulations and proposes Rule 614, as set forth below.

List of Subjects

17 CFR Part 240

    Brokers, Dealers, Registration, Securities.

17 CFR Part 242 and 249

    Brokers, Reporting and recordkeeping requirements, Securities.

    For the reasons stated in the preamble, the Commission is proposing
to amend title 17, Chapter II of the Code of Federal Regulations as
follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read in part as
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20,
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350;
Pub. L. 111-203, 939A, 124 Stat. 1376, (2010); and Pub. L. 112-106,
sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

Sec.  240.3a51-1  [Amended].

0
2. In Sec.  240.3a51-1, amend paragraph (a) by removing the text
``Sec.  242.600(b)(48)'' and adding in its place ``Sec.
242.600(b)(55)''.

Sec.  240.13h-1  [Amended].

0
3. In Sec.  240.13h-1, amend paragraph (a)(5) by removing the text
``Sec.  242.600(b)(47)'' and adding in its place ``Sec.
242.600(b)(54)''.

PART 242--REGULATIONS M, SHO, ATS, AC, NMS, AND SBSR AND CUSTOMER
MARGIN REQUIREMENTS FOR SECURITY FUTURES

0
4. The authority citation for part 242 continues to read as follows:

    Authority:  15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a),

78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and 80a-37.

Sec.  242.105  [Amended].

0
5. Amend Sec.  242.105 by:
0
a. In paragraph (b)(1)(i)(C) removing the text ``Sec.  242.600(b)(23)''
and adding in its place ``Sec.  242.600(b)(29)'' and
0
b. In paragraph (b)(1)(ii) removing the text ``Sec.  242.600(b)(68)''
and adding in its place ``Sec.  242.600(b)(76)''.

Sec.  242.201  [Amended].

0
6. Amend Sec.  242.201 by:
0
a. In paragraph (a)(1) removing the text ``Sec.  242.600(b)(48)'' and
adding in its place ``Sec.  242.600(b)(55)'';
0
b. In paragraph (a)(2) removing the text ``Sec.  242.600(b)(23)'' and
adding in its place ``Sec.  242.600(b)(29)'';
0
c. Amending paragraph (a)(3) by removing the text ``the term ``listing
market'' as defined in the effective transaction reporting plan for the
covered security'' and adding in its place ``the term ``primary listing
exchange'' as defined in Sec.  242.600(b)(67)'';
0
d. In paragraph (a)(4) removing the text ``Sec.  242.600(b)(43)'' and
adding in its place ``Sec.  242.600(b)(50)'';
0
e. In paragraph (a)(5) removing the text ``Sec.  242.600(b)(51)'' and
adding in its place ``Sec.  242.600(b)(58)'';
0
f. In paragraph (a)(6) removing the text ``Sec.  242.600(b)(59)'' and
adding in its place ``Sec.  242.600(b)(66)'';
0
g In paragraph (a)(7) removing the text ``Sec.  242.600(b)(68)'' and
adding in its place ``Sec.  242.600(b)(76)''; and
0
h. In paragraph (a)(9) removing the text ``Sec.  242.600(b)(82)'' and
adding in its place ``Sec.  242.600(b)(93)''.
0
i. Amending paragraph (b)(1)(ii) by removing the text ``by a plan
processor'';
0
j. Amending paragraph (b)(3) by removing the text ``notify the single
plan processor responsible for consolidation of information for the
covered security pursuant to Sec.  242.603(b). The single plan
processor must then disseminate this information'' and adding in its
place ``make such information available as provided in Sec.
242.603(b)''.

Sec.  242.204  [Amended].

0
7. In Sec.  242.204, paragraph (g)(2) is amended by removing the text
``Sec.  600(b)(68) of Regulation NMS (17 CFR 242.600(b)(68))'' and
adding in its place ``Sec.  600(b)(76) of Regulation NMS (17 CFR
242.600(b)(76))''.
0
8. Amend Sec.  242.600 by:
0
a. Redesignating paragraphs (b)(72) through (87) as paragraphs (b)(83)
through (98);
0
b. Adding new paragraphs (b)(81) and (82);
0
c. Redesignating paragraphs (b)(69) through (71) as paragraphs (b)(78)
through (80);
0
d. Adding new paragraph (b)(77);
0
e. Redesignating paragraphs (b)(60) through (68) as paragraphs (b)(68)
through (76);
0
f. Adding new paragraph (b)(67);
0
g. Redesignating paragraphs (b)(26) through (59) as paragraphs (b)(33)
through (66);
0
h. Adding new paragraph (b)(32);
0
i. Redesignating paragraphs (b)(20) through (25) as paragraphs (b)(26)
through (31);
0
j. Adding new paragraph (b)(25);
0
k. Redesignating paragraphs (b)(16) through (19) as paragraphs (b)(21)
through (24);
0
l. Adding new paragraphs (b)(19) and (20);
0
m. Redesignating paragraphs (b)(14) and (15) as paragraphs (b)(17) and
(18);
0
n. Adding new paragraph (b)(16);
0
o. Redesignating paragraphs (b)(4) through (13) as paragraphs (b)(6)
through (15);
0
p. Adding new paragraph (b)(5);
0
q. Redesignating paragraphs (b)(2) and (3) as paragraphs (b)(3) through
(4);
0
r. Adding new paragraph (b)(2); and
0
s. Revising newly redesignated paragraphs (b)(50) and (69).
    The additions and revisions read as follows:

Sec.  242.600  NMS security designation and definitions.

    (b) * * *
    (2) Administrative data means administrative, control, and other
technical messages made available by national securities exchanges and
national securities associations pursuant to the effective national
market system plan or plans required under Sec.  242.603(b) or the
technical specifications thereto as of [date of Commission approval of
this proposal].
* * * * *
    (5) Auction information means all information specified by national
securities exchange rules or effective national market system plans
that is generated by a national securities exchange leading up to and
during an auction, including opening, reopening, and closing auctions,
and disseminated during the time periods and at the time intervals
provided in such rules and plans.
* * * * *
    (16) Competing consolidator means a securities information
processor required to be registered pursuant to Rule 614 or a national
securities exchange or national securities association that receives
information with respect to quotations for and transactions in NMS
stocks and generates consolidated market data for dissemination to any
person.
* * * * *
    (19) Consolidated market data means the following data,
consolidated across all national securities exchanges and national
securities associations:
    (i) Core data;
    (ii) Regulatory data;
    (iii) Administrative data;
    (iv) Exchange-specific program data; and
    (v) Additional regulatory, administrative, or exchange-specific
program data elements defined as such pursuant to the effective
national market system plan or plans required under Sec.  242.603(b).
    (20) Core data means the following information with respect to
quotations for, and transactions in, NMS stocks. For purposes of the
calculation and dissemination of core data by competing consolidators,
and the calculation of core data by self-aggregators, the best bid and
best offer, national best bid and national best offer, and depth of
book data shall include odd-lots that when aggregated are equal to or
greater than a round lot; such aggregation shall occur across multiple
prices and shall be disseminated at the least aggressive price of all
such aggregated odd-lots. For purposes of the calculation and
dissemination of core data by competing consolidators, and the
calculation of core data by self-aggregators, protected quotations
shall include odd-lots at a single price that when aggregated are equal
to or greater than 100 shares:
    (i) Quotation sizes;
    (ii) Aggregate quotation sizes;
    (iii) Best bid and best offer;
    (iv) National best bid and national best offer;
    (v) Protected bid and protected offer;
    (vi) Transaction reports;
    (vii) Last sale data;
    (viii) Odd-lot transaction data disseminated pursuant to the
effective national market system plan or plans required under Sec.
242.603(b) as of [date of Commission approval of this proposal].
    (ix) Depth of book data; and
    (x) Auction information.
* * * * *
    (25) Depth of book data means all quotation sizes at each national
securities exchange, aggregated at each price at which there is a bid
or offer that is lower than the best bid down to the protected bid and
higher than the best offer up to the protected offer; and all quotation
sizes at each national securities exchange, aggregated at each of the
next 5 prices at which there is a bid that is lower than the protected
bid and offer that is higher than the protected offer.
* * * * *

    (32) Exchange-specific program data means: (i) Information related
to retail liquidity programs specified by the rules of national
securities exchanges and disseminated pursuant to the effective
national market system plan or plans required under Sec.  242.603(b) as
of [date of Commission approval of this proposal]; and
    (ii) Other exchange-specific information with respect to quotations
for or transactions in NMS stocks as specified by the effective
national market system plan or plans required under Sec.  242.603(b).
* * * * *
    (50) National best bid and national best offer means, with respect
to quotations for an NMS stock, the best bid and best offer for such
stock that are calculated and disseminated on a current and continuing
basis by a competing consolidator or calculated by a self-aggregator
and, for NMS securities other than NMS stocks, the best bid and best
offer for such security that are calculated and disseminated on a
current and continuing basis by a plan processor pursuant to an
effective national market system plan; provided, that in the event two
or more market centers transmit to the plan processor, a competing
consolidator or self-aggregator identical bids or offers for an NMS
security, the best bid or best offer (as the case may be) shall be
determined by ranking all such identical bids or offers (as the case
may be) first by size (giving the highest ranking to the bid or offer
associated with the largest size), and then by time (giving the highest
ranking to the bid or offer received first in time).
* * * * *
    (67) Primary listing exchange means, for each NMS stock, the
national securities exchange identified as the primary listing exchange
in the effective national market system plan or plans required under
Sec.  242.603(b).
* * * * *
    (69) Protected bid or protected offer means a quotation in an NMS
stock that:
    (i) Is displayed by an automated trading center;
    (ii) Is disseminated pursuant to an effective national market
system plan; and
    (iii) Is an automated quotation that is the best bid or best offer
of at least 100 shares of a national securities exchange, or the best
bid or best offer of at least 100 shares of a national securities
association.
* * * * *
    (77) Regulatory data means:
    (i) Information required to be collected or calculated by the
primary listing exchange for an NMS stock and provided to competing
consolidators and self-aggregators pursuant to the effective national
market system plan or plans required under Sec.  242.603(b), including,
at a minimum:
    (A) Information regarding Short Sale Circuit Breakers pursuant to
Sec.  242.201;
    (B) Information regarding Price Bands required pursuant to the Plan
to Address Extraordinary Market Volatility (LULD Plan);
    (C) Information relating to regulatory halts or trading pauses
(news dissemination/pending, LULD, Market-Wide Circuit Breakers) and
reopenings or resumptions;
    (D) The official opening and closing prices of the primary listing
exchange; and
    (E) An indicator of the applicable round lot size.
    (ii) Information required to be collected or calculated by the
national securities exchange or national securities association on
which an NMS stock is traded and provided to competing consolidators
and self-aggregators pursuant to the effective national market system
plan or plans required under Sec.  242.603(b), including, at a minimum:
    (A) Whenever such national securities exchange or national
securities association receives a bid (offer) below (above) an NMS
stock's lower (upper) LULD price band, an appropriate regulatory data
flag identifying the bid (offer) as non-executable; and
    (B) Other regulatory messages including subpenny execution and
trade-though exempt indicators.
    (iii) For purposes of paragraph (i)(C) of this definition, the
primary listing exchange that has the largest proportion of companies
included in the S&P 500 Index shall monitor the S&P 500 Index
throughout the trading day, determine whether a Level 1, Level 2, or
Level 3 decline, as defined in self-regulatory organization rules
related to Market-Wide Circuit Breakers, has occurred, and immediately
inform the other primary listing exchanges of all such declines.
* * * * *
    (81) Round lot means:
    (i) For any NMS stock for which the prior calendar month's average
closing price on the primary listing exchange (or the IPO price if the
prior month's average closing price is not available) was $50.00 or
less per share, an order for the purchase or sale of an NMS stock of
100 shares;
    (ii) For any NMS stock for which the prior calendar month's average
closing price on the primary listing exchange (or the IPO price if the
prior month's average closing price is not available) was $50.01 to
$100.00 per share, an order for the purchase or sale of an NMS stock of
20 shares;
    (iii) For any NMS stock for which the prior calendar month's
average closing price on the primary listing exchange (or the IPO price
if the prior month's average closing price is not available) was
$100.01 to $500.00 per share, an order for the purchase or sale of an
NMS stock of 10 shares;
    (iv) For any NMS stock for which the prior calendar month's average
closing price on the primary listing exchange (or the IPO price if the
prior month's average closing price is not available) was $500.01 to
$1,000.00 per share, an order for the purchase or sale of an NMS stock
of 2 shares; and
    (v) For any NMS stock for which the prior calendar month's average
closing price on the primary listing exchange (or the IPO price if the
prior month's average closing price is not available) was $1,000.01 or
more per share, an order for the purchase or sale of an NMS stock of 1
share.
    (82) Self-aggregator means a broker or dealer that receives
information with respect to quotations for and transactions in NMS
stocks, including all data necessary to generate consolidated market
data, and generates consolidated market data solely for internal use. A
self-aggregator may not make consolidated market data, or any subset of
consolidated market data, available to any other person.
* * * * *

Sec.  242.602  [Amended].

0
9. Amend Sec.  242.602 by:
0
a. In paragraph (a)(5)(i) removing the text ``Sec.  242.600(b)(77)''
and adding in its place ``Sec.  242.600(b)(88)'' and
0
b. In paragraph (a)(5)(ii) removing the text ``Sec.  242.600(b)(77)''
and adding in its place ``Sec.  242.600(b)(88)''.
0
10. Amend Sec.  242.603 by revising paragraph (b) to read as follows:

Sec.  242.603  Distribution, consolidation, and display of information
with respect to quotations for and transactions in NMS stocks.

* * * * *
    (b) Dissemination of information. 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 for the dissemination of consolidated
market data. Every national securities exchange on which an NMS stock
is traded and national securities association shall make available to
all competing

consolidators and self-aggregators its information with respect to
quotations for and transactions in NMS stocks, including all data
necessary to generate consolidated market data, in the same manner and
using the same methods, including all methods of access and the same
format, as such national securities exchange or national securities
association makes available any information with respect to quotations
for and transactions in NMS stocks to any person.
* * * * *

Sec.  242.611  [Amended].

0
11. In Sec.  242.611, amend paragraph (c) by removing the text ``Sec.
242.600(b)(31)'' and adding in its place ``Sec.  242.600(b)(38)''.
0
12. Add Sec.  242.614 to read as follows:

Sec.  242.614  Registration and responsibilities of competing
consolidators.

    (a) Competing consolidator registration. (1) Initial Form CC. (i)
Filing and effectiveness requirement. No person, other than a national
securities exchange or a national securities association,
    (A) May receive directly from a national securities exchange or
national securities association information with respect to quotations
for and transactions in NMS stocks; and
    (B) Generate consolidated market data for dissemination to any
person unless the person files with the Commission an initial Form CC
and the initial Form CC has become effective pursuant to paragraph
(a)(1)(v) of this section.
    (ii) Electronic filing and submission. Any reports to the
Commission required under this Rule 614 shall be filed electronically
on Form CC (17 CFR 249.1002), include all information as prescribed in
Form CC and the instructions thereto, and contain an electronic
signature as defined in Sec.  240.19b-4(j).
    (iii) Commission review period. The Commission may, by order, as
provided in paragraph (a)(1)(v)(B) of this section, declare an initial
Form CC filed by a competing consolidator ineffective no later than 90
calendar days from the date of filing with the Commission.
    (iv) Withdrawal of initial Form CC due to inaccurate or incomplete
disclosures. During the review by the Commission of the initial Form
CC, if any information disclosed in the initial Form CC is or becomes
inaccurate or incomplete, the competing consolidator shall promptly
withdraw the initial Form CC and may refile an initial Form CC pursuant
to paragraph (a)(1).
    (v) Effectiveness; Ineffectiveness determination. (A) An initial
Form CC filed by a competing consolidator will become effective, unless
declared ineffective, no later than the expiration of the review period
provided in paragraph (a)(1)(iii) of this section and publication
pursuant to paragraph (b)(2)(i) of this section.
    (B) The Commission shall, by order, declare an initial Form CC
ineffective if it finds, after notice and opportunity for hearing, that
such action is necessary or appropriate in the public interest, and is
consistent with the protection of investors. If the Commission declares
an initial Form CC ineffective, the competing consolidator shall be
prohibited from operating as a competing consolidator. An initial Form
CC declared ineffective does not prevent the competing consolidator
from subsequently filing a new Form CC.
    (2) Form CC Amendments. A competing consolidator shall amend a Form
CC:
    (i) Prior to the implementation of a material change to the
pricing, connectivity, or products offered (``Material Amendment'');
and
    (ii) No later than 30 calendar days after the end of each calendar
year to correct information that has become inaccurate or incomplete
for any reason and to provide an Annual Report as required under Form
CC (each a ``Form CC Amendment'').
    (3) Notice of cessation. A competing consolidator shall notice its
cessation of operations on Form CC at least 30 business days prior to
the date the competing consolidator will cease to operate as a
competing consolidator. The notice of cessation shall cause the Form CC
to become ineffective on the date designated by the competing
consolidator.
    (4) Date of filing. For purposes of filings made pursuant to this
section:
    (i) The term business day shall have the same meaning as defined in
Sec.  240.19b-4(b)(2).
    (ii) If the conditions of this section and Form CC are otherwise
satisfied, all filings submitted electronically on or before 5:30 p.m.
Eastern Standard Time or Eastern Daylight Saving Time, whichever is
currently in effect, on a business day, shall be deemed filed on that
business day, and all filings submitted after 5:30 p.m. Eastern
Standard Time or Eastern Daylight Saving Time, whichever is currently
in effect, shall be deemed filed on the next business day.
    (b) Public disclosures. (1) Every Form CC filed pursuant to this
section shall constitute a ``report'' within the meaning of sections
11A, 17(a), 18(a), and 32(a) of the Act (15 U.S.C. 78k-1, 78q(a),
78r(a), and 78ff(a)), and any other applicable provisions of the Act.
    (2) The Commission will make public via posting on the Commission's
website, each:
    (i) Effective initial Form CC, as amended;
    (ii) Order of ineffective initial Form CC;
    (iii) Form CC Amendment. The Commission will make public the
entirety of any Form CC Amendment no later than 30 calendar days from
the date of filing thereof with the Commission; and
    (iv) Notice of cessation.
    (c) Posting of hyperlink to the Commission's website. Each
competing consolidator shall make public via posting on its website a
direct URL hyperlink to the Commission's website that contains the
documents enumerated in paragraph (b)(2) of this section.
    (d) Responsibilities of competing consolidators. Each competing
consolidator shall:
    (1) Collect from each national securities exchange and national
securities association, either directly or indirectly, the information
with respect to quotations for and transactions in NMS stocks as
provided in Rule 603(b).
    (2) Calculate and generate consolidated market data as defined in
Rule 600(b)(19) from the information collected pursuant to paragraph
(d)(1) of this section.
    (3) Make consolidated market data, as defined in Rule 600(b)(19),
as timestamped as required by paragraph (d)(4) of this section and
including the national securities exchange and national securities
association data generation timestamp required to be provided by the
national securities exchange and national securities association
participants by paragraph (e)(1)(ii) of this section, available to
subscribers on a consolidated basis on terms that are not unreasonably
discriminatory.
    (4) Timestamp the information collected pursuant to paragraph
(d)(1) of this section (i) upon receipt from each national securities
exchange and national securities association; (ii) upon receipt of such
information at its aggregation mechanism; and (iii) upon dissemination
of consolidated market data to subscribers.
    (5) Within fifteen [15] calendar days after the end of each month,
publish prominently on its website monthly performance metrics, as
defined by the effective national market system plan(s) for NMS stocks,
that shall include at least the following. All information must be
publicly posted in

downloadable files and must remain free and accessible (without any
encumbrances or restrictions) by the general public on the website for
a period of not less than three years from the initial date of posting.
    (i) Capacity statistics;
    (ii) Message rate and total statistics;
    (iii) System availability;
    (iv) Network delay statistics; and
    (v) Latency statistics for the following, with distribution
statistics up to the 99.99th percentile:
    (A) When a national securities exchange or national securities
association sends an inbound message to a competing consolidator
network and when the competing consolidator network receives the
inbound message;
    (B) When the competing consolidator network receives the inbound
message and when the competing consolidator network sends the
corresponding consolidated message to a subscriber; and
    (C) When a national securities exchange or national securities
association sends an inbound message to a competing consolidator
network and when the competing consolidator network sends the
corresponding consolidated message to a subscriber.
    (6) Within fifteen [15] calendar days after the end of each month,
publish prominently on its website the following information. All
information must be publicly posted and must remain free and accessible
(without any encumbrances or restrictions) by the general public on the
website for a period of not less than three years from the initial date
of posting.
    (i) Data quality issues;
    (ii) System issues;
    (iii) Any clock synchronization protocol utilized;
    (iv) For the clocks used to generate the timestamps described in
paragraph (d)(4) of this section, the clock drift averages and peaks,
and the number of instances of clock drift greater than 100
microseconds; and
    (v) Vendor alerts.
    (7) Keep and preserve at least one copy of all documents, including
all correspondence, memoranda, papers, books, notices, accounts and
such other records as shall be made or received by it in the course of
its business as such and in the conduct of its business. Competing
consolidators shall keep all such documents for a period of no less
than five years, the first two years in an easily accessible place;
    (8) Upon request of any representative of the Commission, promptly
furnish to the possession of such representative copies of any
documents required to be kept and preserved by it.
    (e) Amendment of the effective national market system plan(s) for
NMS stocks. (1) The participants to the effective national market
system plan(s) for NMS stocks shall file with the Commission, pursuant
to Rule 608, an amendment that includes the following provisions within
60 calendar days from the effective date of Rule 614:
    (i) Conforming the effective national market system plan(s) for NMS
stocks to reflect provision of information with respect to quotations
for and transactions in NMS stocks that is necessary to generate
consolidated market data by the national securities exchange and
national securities association participants to competing consolidators
and self-aggregators;
    (ii) The application of timestamps by the national securities
exchange and national securities association participants on all
consolidated market data, including the time that consolidated market
data was generated as applicable by the national securities exchange or
national securities association and the time the national securities
exchange or national securities association made the consolidated
market data available to competing consolidators and self-aggregators;
    (iii) Assessments of competing consolidator performance, including
speed, reliability, and cost of data provision and the provision of an
annual report of such assessment to the Commission;
    (iv) A list that identifies the primary listing exchange for each
NMS stock.
0
13. Amend Sec.  242.1000 by:
0
a. In the definition of ``Critical SCI systems,'' removing the text
``consolidated market data'' in paragraph (1)(v) and adding in its
place ``market data by a plan processor'';
0
b. Adding in alphabetical order the definition of ``Competing
consolidator'';
0
c. In the definition of ``Plan processor'' removing the text ``Sec.
242.600(b)(59)'' and adding in its place ``Sec.  242.600(b)(66)''.
0
d. In the definition``SCI entity'' removing the period and adding at
the end of the definition ``, or competing consolidator.''
    The addition to read as follows:

Sec.  242.1000  Definitions.

* * * * *
    Competing consolidator has the meaning set forth in Sec.
242.600(b)(16).
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
14. The general authority citation for part 249 continues to read in
part as follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012);
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001,
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
* * * * *
0
15. Add Sec.  249.1002 to Subpart K to read as follows:

Sec.  249.1002  Form CC, for application for registration as a
competing consolidator or to amend such an application or registration.

    This form shall be used for application for registration as a
competing consolidator, pursuant to section 11A of the Securities
Exchange Act of 1934 (15 U.S.C. 78k-1) and Sec.  242.614 of this
chapter, or to amend such an application or registration.

    Note:  The text of Form CC does not, and the amendments will
not, appear in the Code of Federal Regulations.

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Form CC General Instructions

A. Use of the Form

    Form CC is the form a competing consolidator must file to notify
the Securities and Exchange Commission (``SEC'' or ``Commission'') of
its activities pursuant to Rule 614 of Regulation NMS, Sec.  242.614 et
seq. Filings submitted pursuant to Rule 614 shall be filed in an
electronic format through an electronic form filing system (``EFFS''),
a secure website operated by the Commission. Documents attached as
exhibits filed through the EFFS system must be in a text-searchable
format without the use of optical character recognition. If, however, a
portion of a Form CC submission (e.g., an image or diagram) cannot be
made available in a text-searchable format, such portion may be
submitted in a non-text searchable format.

B. Need for Careful Preparation of the Completed Form, Including
Exhibits

    A competing consolidator must provide all of the information
required by Form CC, including the exhibits, and must provide
disclosure information that is accurate, current, and complete. The
information in the exhibits must be provided in a clear and
comprehensible manner. A filing that is incomplete or similarly
deficient may be returned to the competing consolidator. Any filing so
returned shall for all purposes be deemed not to have been filed with
the Commission. See also Rule 0-3 under the Securities Exchange Act of
1934 (17 CFR 240.0-3).

C. When To Use the FORM CC

    Form CC is comprised of 4 types of submissions to the Commission
required pursuant to Rule 614 of Regulation NMS. In filling out the
Form CC, a competing consolidator shall select the type of filing and
provide all information required by Rule 614 of Regulation NMS. The
types of submissions are:
    (1) Rule 614(a)(1) Initial Form CC: Prior to commencing operations,
a competing consolidator shall file an initial Form CC and the initial
Form CC must become effective.
    (2) Rule 614(a)(2)(i) Material Amendment: The competing
consolidator shall file an amendment on Form CC prior to implementing a
material change to the pricing, connectivity, or products offered of
the competing consolidator.
    (3) Rule 614(a)(2)(ii) Annual Report: The competing consolidator
shall file an Annual Report on Form CC correcting any information
contained in the initial Form CC or in any previously filed amendment
that has been rendered inaccurate or incomplete for any reason, and
that has not previously been reported to the SEC, no later than 30
calendar days after the end of each calendar year in which the
competing consolidator has operated. Competing consolidators filing the
Annual Report must file a complete form, including all pages and
answers to all items, together with all exhibits. The competing
consolidator must indicate which items have been amended since the last
Annual Report.
    (4) Rule 614(a)(3) Notice of Cessation: The competing consolidator
shall file a notice of cessation of operations at least 30 business
days prior to the date upon ceasing to operate as a competing
consolidator.

D. Documents Comprising the Completed Form

    The completed form filed with the Commission shall consist of Form
CC, responses to all applicable items, and any exhibits required in
connection with the filing. Each filing shall be marked on Form CC with
the initials of the competing consolidator, the four-digit year, and
the number of the filing for the year (e.g., FormCC-acronym-YYYY-XXX).

E. Contact Information; Signature; and Filing of Completed Form

    Each time a competing consolidator submits a filing to the
Commission on Form CC, the competing consolidator must provide the
contact information required by Section VI of Form CC. The contact
employee must be authorized to receive all contact information,
communications and mailings and must be responsible for disseminating
that information within the competing consolidator's organization.
    In order to file Form CC through the EFFS, a competing consolidator
must request access to the Commission's External Application Server.
Initial requests will be received by contacting the Division of Trading
& Markets at<PHONE_NUMBER>. An email will be sent to the requestor
that will provide a link to a secure website where basic profile
information will be requested.
    A duly authorized individual of the competing consolidator shall
electronically sign the completed Form CC as indicated in Section VII
of the form.