[Federal Register Volume 84, Number 198 (Friday, October 11, 2019)]
[Proposed Rules]
[Pages 54794-54806]
[FR Doc No: 2019-21770]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 242

[Release No. 34-87193; File No. S7-15-19]
RIN 3235-AM56

Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee
Amendments

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'' or
``SEC'') is proposing to amend Regulation NMS under the Securities
Exchange Act of 1934 (``Exchange Act'') to rescind a provision that
allows a proposed amendment to a national market system plan (``NMS
plan'') to become effective upon filing if the proposed amendment
establishes or changes a fee or other charge. As a result of rescinding
the provision, such a proposed amendment instead would be subject to
the procedures set forth in Rule 608(b)(1) and (2) that require the
Commission to publish the proposed amendment, provide an opportunity
for public comment, and preclude a proposed amendment from becoming
effective unless approved by the Commission (the ``standard
procedure'').

DATES: Comments should be received on or before December 10, 2019.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/proposed.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-15-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549-1090.

All submissions should refer to File Number S7-15-19. This file number
should be included on the subject line if email is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
internet website (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549-1090 on
official business days between the hours of 10:00 a.m. and 3:00 p.m.
All comments received will be posted without change. Persons submitting
comments are cautioned that we do not redact or edit personal
identifying information from comment submissions. You should submit
only information that you wish to make available publicly.
    Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any materials will
be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Michael Bradley, Special Counsel, at
(202) 551-5594, Andrew Sherman, Special Counsel, at<PHONE_NUMBER>,
Liliana Burnett, Attorney-Advisor, at<PHONE_NUMBER>, Division of
Trading and Markets, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing to amend 17 CFR
242.608 (Rule 608 of Regulation NMS) under the Exchange Act to rescind
paragraph (b)(3)(i) of Rule 608 and thereby eliminate the effective-
upon-filing exception for proposed NMS plan amendments to establish or
change a fee or other charge collected on behalf of all the plan
participants in connection with access to, or use of, any facility
contemplated by the plan or amendment (including changes in any
provision with respect to distribution of any net proceeds from such
fees or other charges to the participants) (``Proposed Fee Changes'').

Table of Contents

I. Introduction
II. Background
    A. NMS Plans That Charge Fees
    1. Core Data Plans
    2. The CAT Plan
    3. NMS Plans' Fee Setting Process
    B. Rule 608 of Regulation NMS and the Fee Exception
    C. Recent Roundtable Comments and Petitions Regarding the Fee
Exception
III. Proposed Rescission of the Fee Exception
    A. NMS Plan Fees Must Be Paid by Non-Plan Participants and Are
Substantial
    B. Proposed Fee Changes To Be Subject to Standard Procedure
IV. Paperwork Reduction Act
V. Economic Analysis
    A. Introduction
    B. Baseline
    1. NMS Plan Fee Filings
    2. Market for Core and Aggregated Market Data Products
    3. Current Structure of the Market for Trading Services in NMS
Securities
    C. Benefits
    D. Costs
    E. Impact on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    F. Alternative
    G. Request for Comment on the Economic Analysis
VI. Consideration of Impact on the Economy
VII. Regulatory Flexibility Certification
VIII. Statutory Authority and Text of the Proposed Rule Amendments

I. Introduction

    Section 11A(a) of the Exchange Act directs the Commission to
facilitate the creation of a national market system for qualified
securities.\1\ To help implement the national market system, the
Commission has required the self-regulatory organizations (``SROs'') to
act jointly through NMS plans to, among other things, establish certain
facilities. Some NMS plans govern the facilities through which
registered securities information processors (``SIPs'') collect,
consolidate, and distribute real-time market information (also known as
core data) that is essential to investors and others who wish to
participate in the U.S. markets for exchange-listed equities and
options. The SRO participants, through these NMS plans, charge fees for
core data, and the total revenues generated by these fees totaled more
than $500 million in 2017.\2\ Core data fees are paid by a wide range
of market participants, including investors, broker-dealers, data
vendors, and others. The NMS plan governing the consolidated audit
trail (``CAT'') also contemplates fees would be paid by SRO
participants and collected from SRO members.
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    \1\ 15 U.S.C. 78k-1(a).
    \2\ See infra Section III.A.
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    Rule 608(b) of Regulation NMS sets forth the procedure and
requirements for amending an NMS plan. Specifically, pursuant to Rule
608(b)(1), the Commission shall publish notice of any proposed NMS plan
amendments, together with the terms of substance of the filing or a
description of the subjects and issues involved, and provide

interested persons an opportunity to submit written comments. These
filings and related comments assist the Commission in determining
whether to approve the proposed amendment. Pursuant to Rule 608(b)(2),
the Commission shall approve a proposed NMS plan amendment, with such
changes or subject to such conditions as the Commission may deem
necessary or appropriate, if it finds that such plan amendment is
necessary or appropriate in the public interest, for the protection of
investors and the maintenance of fair and orderly markets, to remove
impediments to, and perfect the mechanisms of, a national market
system, or otherwise in furtherance of the purposes of the Exchange
Act.\3\ Pursuant to Rule 608(b)(1) and (2), the Commission publishes
public notice of a proposed NMS plan amendment and provides an
opportunity for public comment before the amendment can go into effect.
In addition, the rule provides that a proposed amendment cannot become
effective until it is approved by the Commission.\4\
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    \3\ See Rule 608(b)(2).
    \4\ See Rule 608(b)(1).
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    Paragraph (b)(3)(i) of Rule 608, however, provides an exception to
the standard procedure for Proposed Fee Changes (``Fee Exception'').
Under the Fee Exception, a Proposed Fee Change may be put into effect
upon filing with the Commission, and an NMS plan may begin charging the
new fee prior to an opportunity for public comment and without
Commission action.
    Rule 608(b)(3)(iii) also provides that the Commission may summarily
abrogate a Proposed Fee Change within 60 days after filing and require
it to be refiled in accordance with the standard procedure if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or the
maintenance of fair and orderly markets, to remove impediments to, and
perfect the mechanisms of, a national market system, or otherwise in
furtherance of the purposes of the Exchange Act. The substance of a
Proposed Fee Change filed under the Fee Exception is required to be the
same as the substance of a Proposed Fee Change (or any other proposed
NMS plan amendment) filed under the standard procedure.\5\
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    \5\ See Rule 608(a).
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    Given the substantial amount and broad effect of NMS plan fees, as
well as the need of many market participants to obtain core data and
the potential conflicts of interest in setting fees discussed below,\6\
the Commission preliminarily believes that a Proposed Fee Change should
not become effective (and SROs should not be able to charge new or
altered fees to investors, broker-dealers, and others) until after the
public has had an opportunity to comment and the Commission has
approved the Proposed Fee Change. Accordingly, the Commission is
proposing to eliminate the Fee Exception by rescinding subparagraph
(b)(3)(i) of Rule 608.
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    \6\ See infra Sections V.B.1 and V.B.2.
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II. Background

A. NMS Plans That Charge Fees

    The Fee Exception is available for NMS plans that currently charge
or intend to charge fees and for which the SRO participants, through
these NMS plans, must file Proposed Fee Changes with the Commission.
Currently, these NMS plans are the core data plans and the CAT plan.\7\
The participants in these plans are all SROs.
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    \7\ NMS plan filings under Rule 608 are available at: https://www.sec.gov/rules/sro/nms.htm.
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1. Core Data Plans
    For each NMS security,\8\ the NMS plans generally define
consolidated market information (or ``core data'') as consisting of:
(1) The price, size, and exchange of the last sale; (2) each exchange's
current highest bid and lowest offer, and the shares available at those
prices; and (3) the national best bid and offer (i.e., the highest bid
and lowest offer currently available on any exchange).\9\ Pursuant to
NMS plans, this core data is collected, consolidated, processed, and
disseminated by the SIPs.\10\ In addition, the SIPs collect, calculate,
and disseminate certain regulatory data, including information required
by the National Market System Plan to Address Extraordinary Market
Volatility (``LULD Plan''),\11\ information relating to regulatory
halts and market-wide circuit breakers (``MWCBs''),\12\ and information
regarding short sale circuit breakers pursuant to Rule 201,\13\ as well
as collect and disseminate other NMS stock data and disseminate certain
administrative messages.
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    \8\ See Rule 600(b)(47) (defining ``NMS security'' as any
security or class of securities for which transaction reports are
collected, processed, and made available pursuant to an effective
transaction reporting plan, or an effective national market system
plan for reporting transactions in listed options); see also Rule
600(b)(48) (defining ``NMS stock'' as any NMS security other than an
option).
    \9\ See In the Matter of the Application of Bloomberg L.P.,
Securities Exchange Act Release No. 83755 at 3 (July 31, 2018),
available at https://www.sec.gov/litigation/opinions/2018/34-83755.pdf (``Bloomberg Order'').
    \10\ See Rule 603(b) (requiring that every national securities
exchange on which an NMS stock is traded and national securities
association act jointly pursuant to one or more effective NMS plans
to disseminate consolidated information on quotations for and
transactions in NMS stocks, and that such plan or plans provide for
the dissemination of all consolidated information for an individual
NMS stock through a single plan processor).
    \11\ See Securities Exchange Act Release Nos. 85623 (Apr. 11,
2019), 84 FR 16086 (Apr. 17, 2019) (approving LULD Plan on a
permanent basis); 67091 (May 31, 2012), 77 FR 33498 (June 6, 2012)
(approving LULD Plan, as modified by Amendment No. 1, on a pilot
basis); see also http://www.luldplan.com/index.html.
    \12\ See Securities Exchange Act Release No. 67090 (May 31,
2012), 77 FR 33531(June 6, 2012) (SR-BATS-2011-038; SR-BYX-2011-025;
SR-BX-2011-068; SR-CBOE-2011-087; SR-C2-2011-024; SR-CHX-2011-30;
SR-EDGA-2011-31; SR-EDGX-2011-30; SR-FINRA-2011-054; SR-ISE-2011-61;
SR-NASDAQ-2011-131; SR-NSX-2011-11; SR-NYSE-2011-48; SR-NYSEAmex-
2011-73; SR-NYSEArca-2011-68; SR-Phlx-2011-129).
    \13\ See Rule 201(b)(3) of Regulation SHO; 17 CFR 242.201(b)(3).
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    Multiple NMS plans currently govern the collection, consolidation,
processing, and dissemination of core data for NMS stocks.
Specifically, these plans govern three networks (``Networks'') that
disseminate core data based on primary listing market: (1) Network A
for NYSE-listed stocks; (2) Network B for stocks listed on exchanges
other than the NYSE or Nasdaq; and (3) Network C for stocks listed on
Nasdaq. Networks A and B are operated pursuant to the Consolidated Tape
Association (``CTA'') Plan, which governs the collection and
distribution of transaction information, and the Consolidated Quotation
(``CQ'') Plan, which governs the collection and distribution of
quotation information. Transaction and quotation information for
Network C stocks is collected and distributed pursuant to the Joint
Self-Regulatory Organization Plan Governing the Collection,
Consolidation, and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on Exchanges on an
Unlisted Trading Privilege Basis (``Nasdaq/UTP'').
    In addition, one NMS plan governs the collection, consolidation,
processing, and dissemination of last sale and quotation information
for listed options, namely, the plan for Reporting of Consolidated
Options Last Sale Reports and Quotation Information (``OPRA'').
2. The CAT Plan
    The NMS plan governing the CAT was approved by the Commission on
November 15, 2016.\14\ The purpose of

the CAT plan is to provide for the creation, implementation, and
maintenance of a comprehensive audit trail for the U.S. securities
markets.\15\ This consolidated audit trail is designed to ``capture
customer and order event information for orders in NMS securities,
across all markets, from the time of order inception through routing,
cancellation, modification, or execution in a single, consolidated data
source.'' \16\
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    \14\ See Limited Liability Company Agreement of CAT NMS, LLC
(effective Jan. 10, 2018), available at https://www.catnmsplan.com/wp-content/uploads/2018/01/CAT-NMS-Plan-Current-as-of-1.10.18.pdf
(``2018 CAT Plan''); Securities Act Release No. 79318 (Nov. 15,
2016), 81 FR 84696 (Nov. 23, 2016) (``CAT Plan Approval Order''). In
2012, the Commission adopted Rule 613, which required national
securities exchanges and national securities associations to submit
a national market system plan to create, implement, and maintain a
consolidated audit trail. See Securities Act Release No. 67457 (July
18, 2012), 77 FR 45721 (Aug. 1, 2012).
    \15\ See CAT Plan Approval Order, supra note 14, at 84698.
    \16\ See id.
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    The CAT plan approved by the Commission allows the operating
committee of CAT NMS, LLC (the entity charged with the creation,
implementation, and maintenance of CAT), to establish funding for CAT
NMS, LLC, including establishing an allocation of its related costs
among SRO participants and SRO members that is consistent with the
Exchange Act.\17\ The CAT plan thus contemplates that fees would be
paid by the SRO plan participants, as well as collected from SRO
members, which are the ``Industry Members'' under the plan.\18\
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    \17\ 2018 CAT Plan, supra note 14, at Sections 11.1-11.2. The
operating committee's funding responsibility also includes, among
other things, establishing a ``tiered fee structure'' in which the
fees charged to ``execution venues'' (i.e., SRO participants and
alternative trading systems) are based upon the level of market
share, and the fees charged to SRO members' non-ATS activities are
based upon message traffic, as well as avoiding ``any disincentives
such as placing an inappropriate burden on competition and reduction
in market quality[.]'' Id. at Section 11.2.
    \18\ See CAT Plan Approval Order, supra note 14, at 84710; see
also 2018 CAT Plan, supra note 14, at Section 1.1 (defining an
``Industry Member'' as a member of a national securities exchange or
a member of a national securities association) and Section 11.1(b).
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3. NMS Plans' Fee Setting Process
    Each of the NMS plans is governed by an operating committee
composed of one voting representative from each SRO participant.\19\
Through their participation in the plan operating committees and votes
to approve plan amendments, the SRO plan participants approve new fee
proposals for each plan and, in the case of the core data plans (CTA/
CQ, Nasdaq/UTP and OPRA), new proposed allocations of fee revenues.\20\
Under the CAT plan, the operating committee has discretion to establish
fees, which the SRO participants will implement, for both SRO
participants and Industry Members.\21\ Once a fee or revenue allocation
proposal has been approved by the SRO plan participants, the proposal
must be filed with the Commission pursuant to Rule 608 of Regulation
NMS in order to become effective.
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    \19\ See Second Restatement of CTA Plan Articles (effective Aug.
27, 2018), available at https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CTA%20Plan%20-%20Composite%20as%20of%20August%2027,%202018.pdf (``2018 CTA
Plan''), at I.(b), IV.(a); Restatement of CQ Plan (effective July 9,
2018), available at https://www.nyse.com/publicdocs/ctaplan/notifications/trader-update/CQ_Plan_Composite_as_of_July_9_2018.pdf
(``2018 CQ Plan''), at IV.(a); Joint Self-Regulatory Organization
Plan Governing the Collection, Consolidation and Dissemination of
Quotation and Transaction Information for Nasdaq-Listed Securities
Traded on Exchanges on an Unlisted Trading Privilege Basis
(effective Jan. 9, 2018), available at https://www.utpplan.com/DOC/Nasdaq-UTPPlan_after_43rd_Amendment-Excluding_21st_36th_38th_42nd_Amendments.pdf (``2018 Nasdaq/UTP
Plan''), at IV.A; Limited Liability Company Agreement of Options
Price Reporting Authority, LLC (effective Nov. 3, 2017), available
at https://uploads-ssl.webflow.com/5ba40927ac854d8c97bc92d7/5bf419a6b7c4f5085340f9af_opra_plan.pdf (``2017 OPRA Plan''), at
Section 4.2 (the 2017 OPRA Plan refers to its operating committee as
the ``Management Committee'' and its SRO participants as
``Members''; the terms ``operating committee'' and ``participants''
are used throughout this release for ease of reference and are meant
to be interchangeable with the terms ``Management Committee'' and
``Members'' in the context of the OPRA Plan); 2018 CAT Plan, supra
note 14, at Section 4.2.
    \20\ See 2018 CTA Plan, supra note 19, at XII.(a) and
XII.(b)(iii); 2018 CQ Plan, supra note 19, at IX.(a) and
IX.(b)(iii); 2018 Nasdaq/UTP Plan, supra note 19, at IV.B.(3),
IV.B.(5) and IV.C; 2017 OPRA Plan, supra note 19, at Sections
4.1(d), 7.1, 10.3; 2018 CAT Plan, supra note 14, at Sections 11.1-
11.2.
    \21\ See 2018 CAT Plan, supra note 14, at Sections 11.1(b) and
11.2.
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B. Rule 608 of Regulation NMS and the Fee Exception

    Rule 608 of Regulation NMS sets forth requirements for filing and
amendment of NMS plans. Rule 608(a) provides that any two or more SROs,
acting jointly, may file a new proposed NMS plan or a proposed
amendment to an existing NMS plan by submitting to the Commission the
text of the plan or amendment along with extensive supporting
information. Rule 608(b) addresses the effectiveness of proposed NMS
plans and plan amendments. It sets forth the standard procedure, along
with exceptions for certain types of proposals. Specifically,
paragraphs (b)(1) and (b)(2) of Rule 608 generally require that
proposed plan changes must be filed with the Commission, published for
comment, and approved by Commission order before they can become
effective and implemented.\22\ Paragraph (b)(3) of Rule 608, however,
provides an exception to this procedure in three contexts: (i) To
establish or change fees or charges (including the allocation of
resulting revenues among the participating SROs) (i.e., the Fee
Exception), (ii) solely plan administration matters, and (iii) solely
technical or ministerial matters. Proposed NMS plan amendments fitting
one of these contexts may (but are not required to) be filed pursuant
paragraph (b)(3) of Rule 608 and thereby avoid the standard procedure
of paragraphs (b)(1) and (2).
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    \22\ The Commission is required to approve an NMS plan amendment
within 120 days of the date of publication of notice of the filing,
with such changes or subject to such conditions as the Commission
may deem necessary or appropriate, if it finds that such plan or
amendment is necessary or appropriate in the public interest. See
Rule 608(b)(2). The Commission may extend this review period up to
180 days if it finds such a longer review period to be appropriate
and publishes its reasons for so finding, or if the sponsors of the
proposal consent to a longer review period. Id.
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    A proposed NMS plan amendment that is filed pursuant to paragraph
(b)(3) of Rule 608 is deemed effective upon filing, prior to an
opportunity for public comment and without Commission action. Paragraph
(b)(3)(iii), however, provides that the Commission, at any time within
60 days of the filing of an immediately effective amendment, may
summarily abrogate the amendment and require that the amendment be re-
filed pursuant to the standard procedure of paragraphs (b)(1) and (2).
Consequently, while Rule 608(b)(3) provides an opportunity for public
comment and for the Commission to abrogate a Proposed Fee Change, the
effective-upon-filing provision means that market participants can be
charged a new or altered fee before comments can be submitted and
before the Commission can evaluate whether to abrogate a Proposed Fee
Change.
    The Commission originally adopted the Fee Exception in 1981 in Rule
11Aa3-2, the predecessor to Rule 608. Rule 11Aa3-2 was adopted pursuant
to Section 11A(a)(3)(B) of the Exchange Act, which broadly authorizes
the Commission to require SROs to act jointly with respect to matters
relating to the national market system or facilities thereof, including
NMS plans.\23\ Separate from the context of NMS plans and the SROs'
roles as participants in those plans, SROs also charge fees
individually pursuant to a different section of the Exchange Act. In
contrast to Section 11A(a)(3)(B), which

governs Rule 608 and NMS plan fees, Section 19(b) of the Exchange Act
governs the fees that a SRO charges individually.\24\ Unlike Section
11A(a)(3)(B), which does not statutorily mandate an effective-upon-
filing procedure for Proposed Fee Changes, Section 19(b)(3)(A)
specifically mandates by statute an effective-upon-filing procedure for
all fee changes that SROs individually propose, regardless of whether
the fee is charged to persons other than members of the SRO.\25\
Congress added this mandate to Section 19(b)(3)(A) of the Exchange Act
in the Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (``Dodd-Frank Act'').\26\ The legislative history of the Dodd-
Frank Act indicates that Congress was responding to a concern expressed
by several exchanges that the Section 19(b) SRO rule filing process
creates a significant competitive advantage for less regulated
competitors that do not have to seek regulatory approval before
changing their rules.\27\
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    \23\ See 15 U.S.C. 78k-1(a)(3)(B); see also Securities Exchange
Act Release No. 17580 (Feb. 26, 1981), 46 FR 15866 (Mar. 10, 1981)
(``Rule 608 Adopting Release'').
    \24\ 15 U.S.C. 78s(b).
    \25\ See 15 U.S.C. 78s(b)(3)(A).
    \26\ Public Law 111-203, 124 Stat. 1833 (July 21, 2010).
    \27\ See S. Rep. No. 111-176, at 106 (2010).
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    NMS plan fees, in contrast, are not subject to Section 19(b) of the
Exchange Act and, as discussed above, Congress, in amending Section
19(b)(3)(A), was responding to concerns about competitive disparities
in the context of individual SRO fees. Indeed, the Commission
previously has noted that Congress did not intend to treat NMS plan
amendments the same as individual SRO rule changes. For example, when
the Commission adopted Rule 11Aa3-2 (the prior designation of Rule
608), the Commission stated that it did ``not believe that it was the
intent of Congress to treat NMS Plans as analogous to SRO rules'' and
rejected the argument of some commenters that the procedures for NMS
plan amendments under Section 11A should incorporate the same
procedures specified in Section 19 for rule changes by individual
SROs.\28\
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    \28\ See Rule 608 Adopting Release, supra note 23, at 15868
(noting that the legislative history ``indicates that Congress
viewed the Commission's authority in Section 11A(a)(3)(B) as
distinct from its authority contained in Section 19 or any other
provision of the Act.'').
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    Although the Commission did not believe that Congress mandated
Section 19 procedures for NMS plan amendments, Rule 11Aa3-2, as adopted
in 1981, included all three of the effective-upon-filing exceptions
that currently are in Rule 608 and that were similar to the effective-
upon-filing exceptions in Section 19.\29\ At that time, the Commission
stated that the Fee Exception was added in response to concerns
expressed by exchanges that they should be able to change NMS plan fees
without prior Commission approval to avoid administrative delay.\30\
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    \29\ See Rule 608 Adopting Release, supra note 23.
    \30\ Id. at 15869.
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    When Regulation NMS was adopted in 2005, Rule 11Aa3-2 was
redesignated as Rule 608 (and will hereinafter be referred to as Rule
608).\31\ Several commenters on the proposal of Regulation NMS in 2004
advocated eliminating the effective-upon-filing procedure; they argued
that it gave excessive power to self-interested parties and did not
facilitate informed and meaningful public and industry participation
and comment.\32\ When adopted however, Regulation NMS did not change
the effective-upon-filing procedure. Rather, the Commission stated that
issues relating to the level of core data fees would be most
appropriately addressed in the broader context of its separate review
of SRO structure, governance, and transparency, which included a 2004
proposal on SRO transparency and a 2004 concept release on SRO
structure.\33\ The Commission ultimately did not take further action on
the proposal or concept release.
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    \31\ See Securities Exchange Act Release No. 51808 (June 9,
2005), 70 FR 37495, 37570 (June 29, 2005).
    \32\ See Letter from Carrie E. Dwyer, General Counsel and
Executive Vice President, Charles Schwab & Co., Inc. (June 30, 2004)
at 9, available at https://www.sec.gov/rules/proposed/s71004/dwyer63004.pdf; Letter from Marc E. Lackritz, President, Securities
Industry Association (June 30, 2004) at 26, available at https://www.sec.gov/rules/proposed/s71004/s71004-362.pdf; Letter from Marc
E. Lackritz, President, Securities Industry Association (Feb. 1,
2005) at 26, available at https://www.sec.gov/rules/proposed/s71004/sia020105.pdf; Letter from Lisa M. Utasi, President, et. al., The
Security Traders Association of New York, Inc. (June 30, 2004) at
15, available at https://www.sec.gov/rules/proposed/s71004/stany063004.pdf.
    \33\ See Securities Exchange Act Release Nos. 51808 (June 9,
2005), 70 FR 37495, 37560-61 (June 29, 2005) (Regulation NMS
adopting release); 50699 (Nov. 18, 2004), 69 FR 71125 (Dec. 8, 2004)
(SRO governance and transparency proposing release); 50700 (Nov. 18,
2004), 69 FR 71255 (Dec. 8, 2004) (Concept Release Concerning Self-
Regulation). One commenter on the SRO structure concept release
echoed the sentiment expressed by commenters on the Regulation NMS
proposal that the effective-upon-filing procedure gives excessive
power to self-interested parties and does not facilitate informed
and meaningful public and industry participation and comment. See
Letter from Phylis M. Esposito, Executive Vice President and Chief
Strategy Officer, Ameritrade, Inc. (Mar. 8, 2005) at 3, available at
https://www.sec.gov/rules/concept/s74004/pmesposito030805.pdf.
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C. Recent Roundtable Comments and Petitions Regarding the Fee Exception

    Some market participants questioned the Fee Exception more
recently. Two petitions for rulemaking were submitted to the Commission
in 2017 and 2018 requesting, among other things, that the Fee Exception
be rescinded.\34\ One of the petitions was submitted by 24 firms
representing a broad cross section of market participants, including
institutional investors, broker-dealers, and data vendors.\35\ In
connection with and during the Roundtable on Market Data and Market
Access (``Roundtable'') that was hosted by SEC staff in October 2018,
commenters and panelists urged the Commission to rescind the Fee
Exception to allow for more public and Commission scrutiny of Proposed
Fee Changes for core data before they are effective.\36\ These
commenters and petitioners believe that market participants do not have
an opportunity to meaningfully comment on Proposed Fee Changes for core
data before the

market participants are subject to the new fees.\37\
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    \34\ See Petition for Rulemaking Regarding Market Data Fees and
Request for Guidance on Market Data Licensing Practice; Investor
Access to Market Data (Aug. 22, 2018) (SEC 4-728) at 2, 11,
available at https://www.sec.gov/rules/petitions/2018/petn4-728.pdf
(noting that Section 11A does not mandate that SIP fee increases be
effective upon filing and expressing the public's need for time to
comment); Petition for Rulemaking Concerning Market Data Fees (Dec.
6, 2017) (SEC 5-716) at 8, available at https://www.sec.gov/rules/petitions/2017/petn4-716.pdf (``December 6, 2017 Petition'')
(similarly noting that Section 11A of the Exchange Act does not
speak to the immediate effectiveness of SIP fee filings, and
proposing that the Commission remove paragraph (b)(3)(i) from Rule
608); see also Letter from Melissa MacGregor, Managing Director and
Associate General Counsel, SIFMA (May 21, 2018) at 1, available at
https://www.sec.gov/comments/4-716/4716-3678964-162455.pdf
(endorsing the December 6, 2017 Petition's proposal, among other
things, that the Commission repeal immediate effectiveness for SIP
fee filings).
    \35\ See December 6, 2017 Petition, supra note 34, at 9.
    \36\ See, e.g., Letter from Marcy Pike, SVP, Enterprise
Infrastructure, Krista Ryan, VP, Associate General Counsel, Fidelity
Investments (Oct. 26, 2018) at 6-7, available at https://www.sec.gov/comments/4-729/4729-4566044-176136.pdf (``Fidelity
Letter'') (recommending ``that the SEC amend Rule 608(b) under
Regulation NMS to prevent SIP fees from becoming effective
immediately upon filing with the SEC, and to require a public notice
and comment period for all SIP fee filings''); Letter from Mehmet
Kinak, Vice President--Global Head of Systematic Trading & Market
Structure, and Jonathan D. Siegel, Vice President--Senior Legal
Counsel (Legislative & Regulatory Affairs), T. Rowe Price
Associates, Inc. (Jan. 10, 2019) at 2 available at https://www.sec.gov/comments/4-729/4729-4844471-177204.pdf (recommending
that fee changes by the SIPs be ``subject to notice and public
comment before approval or disapproval by the SEC''); Equity Market
Structure Roundtables: Roundtable on Market Data and Market Access
October 26, 2018 Transcript, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102618-transcript.pdf (``Oct. 26 Tr.''), at
239:13-20 (statement of Mr. Rich Steiner, RBC Capital Markets,
noting that rescinding the Fee Exception ``would require a public
notice and comment period prior to the SEC's approval or disapproval
of any fee changes, thereby allowing transparency and stakeholder
input'').
    \37\ See, e.g., Fidelity Letter, supra note 36, at 6-7 (noting
that ``[f]rom a practical standpoint, [the Fee Exception] means that
market participants do not know until after a fee filing is
effective that fees have increased, or have an opportunity to
meaningfully comment on fee increases before being subject to
them.''); December 6, 2017 Petition, supra note 34, at 6-7 (``In the
public interest and for the protection of investors, there should be
more transparency and stakeholder input into fee filings through the
public notice and comment process, as well as more transparency into
fee increases that come in the form of policy changes or changes to
the terms and conditions stipulating allowable uses of market
data.'').
---------------------------------------------------------------------------

III. Proposed Rescission of the Fee Exception

    The Commission is proposing to rescind Rule 608(b)(3)(i) and
thereby eliminate the effective-upon-filing procedure for Proposed Fee
Changes. As a result, the standard procedure, which requires public
notice, an opportunity for public comment, and Commission approval by
order before a proposed plan amendment can become effective, would
apply to any Proposed Fee Change.
    The proposed rescission of the Fee Exception would not change any
requirements regarding the substantive information that must be set
forth in Proposed Fee Changes. The information required by paragraph
(a) of Rule 608 and the relevant provisions of the Exchange Act apply
whether a proposed fee change filing is submitted under the Fee
Exception or the standard procedure.
    The Commission preliminarily believes that eliminating the Fee
Exception and instead requiring the standard procedure for Proposed Fee
Changes would help ensure that fees are fair and reasonable before they
go into effect. NMS plan fee changes can significantly affect the
interests of investors and market participants. By changing the timing
of effectiveness, the proposed rescission of the Fee Exception would
give commenters an opportunity to provide their views about a Proposed
Fee Change prior to the time they are charged a new or altered fee.
Moreover, while the Commission can abrogate an immediately effective
NMS plan amendment, the input of commenters is an important part of the
Commission's review of Proposed Fee Changes, and the Commission
generally has not abrogated a Proposed Fee Change prior to reviewing
the comments. Rather than allow an NMS plan to charge new or altered
fees during this review process, with the potential that investors and
market participants may not have adequate notice or time to plan for a
fee change before it goes into effect, the Commission preliminarily
believes, for the reasons discussed throughout, that the effectiveness
and implementation of new or altered fees should occur only after the
comment and review process is complete.

A. NMS Plan Fees Must Be Paid by Non-Plan Participants and Are
Substantial

    Non-SRO market participants, including investors, broker-dealers,
data vendors, and others, are required to pay the fees charged by the
NMS plans to obtain access to core data.\38\ Retail investors that
access core data through their broker-dealers (and not directly) can
still be affected by core data fees in that such fees paid by their
broker-dealers can affect their ready access through their broker-
dealer to full NBBO market information.\39\ The Commission has
previously stated that investors must have core data to participate in
the U.S. equity markets.\40\ And many market participants, including
all broker-dealers, must have access to core data to meet their
regulatory obligations. Broker-dealer panelists at the Roundtable noted
that they are compelled to purchase core data for various reasons,
including to receive Limit Up/Limit Down (``LULD'') plan price bands,
to perform checks required by Rule 15c3-5 under the Exchange Act (the
``market access'' rule),\41\ and for redundancy purposes.\42\ Moreover,
some broker-dealers use core data to comply with the requirements of
Rule 611 of Regulation NMS to prevent trade-throughs and to meet their
duty of best execution for customer orders. Also, pursuant to Rule
603(c) of Regulation NMS,\43\ known as the ``Vendor Display Rule,'' if
a broker-dealer displays any information with respect to quotations for
or transactions in an NMS stock in certain contexts, it must also
provide a consolidated display for such stock.\44\ Broker-dealers
typically meet this regulatory requirement by using core data, for
which fees must be paid.\45\
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    \38\ SROs also pay the relevant fees for use of core data. The
CAT plan is currently being funded by the plan participants, but the
CAT plan contemplates a funding model in which both plan
participants and market participants would contribute to the funding
of the CAT. See 2018 CAT Plan, supra note 14, at Article XI.
    \39\ As discussed in Section V.B.2 below, some broker-dealers
provide customers with market information from SRO proprietary top-
of-book data feeds as substitutes for core data in certain
applications. This proprietary top-of-book data may be less
expensive than SIP data, but may only contain information from one
exchange or one exchange family.
    \40\ See Bloomberg Order, supra note 9, at 4.
    \41\ 17 CFR 240.15c3-5.
    \42\ See Equity Market Structure Roundtables: Roundtable on
Market Data and Market Access October 25, 2018 Transcript, available
at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf (``Oct. 25 Tr.''), at 138:23-139:3, 169:12-24
(statements of Adam Inzirillo, Bank of America Merrill); Oct. 25
Tr., at 184:14-185:2 (statement of Michael Friedman, Trillium).
    \43\ 17 CFR 242.603(c).
    \44\ See Rule 603(c).
    \45\ See December 6, 2017 Petition, supra note 34, at 1 (``As
required by the SEC's Display Rule, vendors and broker-dealers are
required to display consolidated data from all the market centers
that trade a stock. In order to comply with the Display Rule, such
vendors and broker-dealers must purchase and display consolidated
data feeds distributed by securities information processors
(`SIPs'), which are owned by the exchanges and operated pursuant to
NMS plans. The fees charged by SIPs are distributed as income to
each of the participating exchanges.'').
---------------------------------------------------------------------------

    Similarly, pursuant to the CAT plan, the SRO participants may set
fees that Industry Members must pay for the costs of the CAT
system.\46\ As discussed above, the CAT plan allows the SRO plan
participants, through the operating committee of CAT, to establish an
allocation of costs among SRO participants and Industry Members, and
collect fees from Industry Members.\47\ SRO participants, in setting
the allocation of costs among themselves and Industry Members, are
beset by similar conflicts that exist when setting fees for core
data.\48\
---------------------------------------------------------------------------

    \46\ See supra note 17.
    \47\ See supra Section II.A.2.
    \48\ See infra Section V.B.1.
---------------------------------------------------------------------------

    Moreover, the total revenues derived from NMS plan fees are
substantial. For example, the total revenues generated by fees for core
data totaled more than $500 million in 2017.\49\ Similarly, with
respect to the CAT plan, the fees related to the costs of creation and
maintenance of the CAT systems are and will continue to be
substantial.\50\ The substantial fees charged by NMS plans to a wide
range of market participants heightens the need for full review of
Proposed Fee Changes prior to the time that a new or altered fee is
charged to market participants.
---------------------------------------------------------------------------

    \49\ This figure is derived from 2017 audited financial
statements for the CTA/CQ and Nasdaq/UTP plans, and from 2017
summary financial information for the OPRA plan.
    \50\ See, e.g., CAT Plan Approval Order, supra note 14, at
84801-02; Securities Exchange Act Release No. 81189 (July 21, 2017),
82 FR 35005, 35008 (July 27, 2017) (stating that the Operating
Committee estimated overall CAT costs to be $50,700,000 in total for
the year beginning November 21, 2016).
---------------------------------------------------------------------------

B. Proposed Fee Changes To Be Subject to Standard Procedure

    As noted above,\51\ the Commission added the Fee Exception to Rule
608 in 1981 in response to concerns expressed by exchanges about the
administrative burdens and delays that could occur if

fees could not be changed without prior Commission approval.\52\ A
potential concern about administrative delay could arise in
circumstances where an SRO's competitive position might be harmed by
the inability to change its fee quickly. However, the Commission
previously has noted that where plans responsible for providing core
data are monopolistic providers of such data, there is no market
competition that can be relied upon to set competitive prices.\53\ For
example, the core data plans provide critical market information that
is not available from other sources, such as LULD plan price bands and
administrative messages.\54\
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    \51\ See supra Section II.B.
    \52\ See Rule 608 Adopting Release, supra note 23, at 15869.
    \53\ See, e.g., Bloomberg Order, supra note 9, at 4. Because the
CTA, CQ, and Nasdaq/UTP plans establish the only processors to whom
exchanges and associations are required to report their NMS stock
data under Rule 603(b) of Regulation NMS, they effectively have a
monopoly over core data. Cf. Securities Exchange Act Release No.
42208 (Dec. 9, 1999), 64 FR 70613, 70627 (Dec. 17, 1999) (Concept
Release on Regulation of Market Information Fees and Revenues)
(characterizing ``exclusive processors of [core data] market
information'' as ``monopolistic provider[s] of a service'').
    \54\ Examples of administrative messages include free form text
messages that, among other things, announce systems problems at an
exchange.
---------------------------------------------------------------------------

    Moreover, SRO structures and the nature of SRO relations with their
members have changed substantially since the Fee Exception was adopted
in 1981. Then, exchange SROs were structured as mutual organizations
that were owned, for the most part, by SRO members that were registered
broker-dealers.\55\ Today, in contrast, nearly all exchange SROs are
part of publicly-traded exchange groups that are not owned by the SRO
members, and there is less opportunity for members to influence a
Proposed Fee Change before it is filed with the Commission. As a
result, the Commission preliminarily believes that it is more important
today than it was prior to the demutualization of the exchange SROs for
members and other interested parties to have an opportunity, via the
standard procedure, to express their views on a Proposed Fee Change
after it is filed with the Commission but before it is effective and
can be charged to market participants. This opportunity is not
available under the Fee Exception because, even if a Proposed Fee
Change is subsequently abrogated, the fee is effective immediately upon
filing, remains effective for the period between filing and abrogation,
and market participants can be charged the fee during the entire period
between filing and abrogation.
---------------------------------------------------------------------------

    \55\ See Securities Exchange Act Release No. 50699 (Nov. 18,
2004), 69 FR 71125, 71132 (Dec. 8, 2004) (noting that SROs had been
challenged by the trend to demutualize and that the ``impact of
demutualization is the creation of another SRO constituency--a
dispersed group of public shareholders--with a natural tendency to
promote business interests'').
---------------------------------------------------------------------------

    The Commission recognizes that eliminating the Fee Exception and
subjecting Proposed Fee Changes to the standard procedure may extend
the timeframe in which NMS plan participants can put into effect new or
amended fees. But the Commission preliminarily believes that changes in
the costs of operating NMS plans generally can be reasonably forecasted
and that NMS plan participants should be able to account for the longer
time periods of the standard procedure in planning new or amended fees.
Moreover, as discussed below, few Proposed Fee Changes are filed each
year under Rule 608, and we estimate based on past practice that the
median time it would take the Commission to make a decision to approve
or disapprove proposed NMS plan amendments would be 70.5 days from the
time of filing.\56\ In the Commission's preliminary view, this delay
should not disrupt the ability of NMS plan participants to implement
new or amended fees as necessary to perform their plan
responsibilities. On balance, therefore, the Commission preliminarily
believes that subjecting Proposed Fee Changes to the standard procedure
should not impose significant costs, and that any such costs are
justified by the benefit of requiring public notice, an opportunity for
public comment, and Commission approval by order before a Proposed Fee
Change can become effective and market participants are charged a new
or altered fee.
---------------------------------------------------------------------------

    \56\ See infra Section V.B.1. The Commission recognizes that
this estimate is based on historical data on proposed NMS plan
amendments. This historical data necessarily reflects the substance
of the particular amendments, the comments received on those
amendments, and other factors that can affect the timing of
Commission action. As a result, the estimate based on historical
data may not reflect the time periods for Commission action going
forward.
---------------------------------------------------------------------------

    The Commission therefore is proposing that all Proposed Fee Changes
be subject to the standard procedure set forth in Rule 608(b)(1) and
(2).
    Requests for Comment:
    The Commission requests comment on all aspects of this proposal as
well as, in particular, on the following:
    1. Do commenters agree that the Commission should rescind the Fee
Exception? Why or why not?
    2. Are there positive or negative implications, in addition to
those discussed above, of the Commission's proposal to rescind the Fee
Exception?
    3. Is the procedure for notice, comment, and Commission approval or
disapproval under existing Rule 608(b)(1) and (2) appropriate for
Proposed Fee Changes? Should there be an opportunity for public comment
before Proposed Fee Changes can become effective? Should Commission
approval be required before Proposed Fee Changes can become effective?
Should the time periods set forth in Rule 608(b)(2) be longer or
shorter if applied to Proposed Fee Changes? Should any other aspects of
paragraphs (b)(1) or (b)(2) of Rule 608 be altered in their application
to Proposed Fee Changes?
    4. Does the current effective-upon-filing procedure detract from
the willingness of commenters to submit their views on Proposed Fee
Changes, given that the proposed fee is already in effect when
commenters may submit their views? Would market participants be more
likely to comment on Proposed Fee Changes if they knew that the fees at
issue were not yet effective and could not become effective without
Commission action after consideration of comments? If so, do commenters
believe that the proposed approach would lead to a more diverse and
rich comment process and thereby promote a more informed evaluation of
Proposed Fee Changes than is currently provided by the Fee Exception?
If commenters do not believe the change would promote a more informed
evaluation, why not?
    5. Instead of rescinding the Fee Exception altogether, should the
Commission modify the abrogation procedure in Rule 608(b)(3)(iii) such
that Proposed Fee Changes are not effective immediately upon filing,
but become automatically effective some time period (e.g., 60 or 90
days) after filing if the Commission does not abrogate the filing? This
alternative would assure that commenters had an opportunity to comment
prior to being charged a new or altered fee, as well as provide the
Commission an opportunity to review the comments in deciding whether to
abrogate the filing. If this new period between the date of filing and
automatic effectiveness expired without Commission abrogation, the
Proposed Fee Change would become effective without Commission action.
Do commenters believe this alternative is preferable to the proposed
rescission of the Fee Exception? What, if any, additional aspects of
this potential alternative should be considered?
    6. Are there other alternative approaches that the Commission could
adopt for achieving the goal of providing an opportunity for public
comment on and Commission review of

Proposed Fee Changes prior to the time they become effective and new or
altered fees are charged to market participants?
    7. Do commenters believe that the fact that nearly all exchange
SROs are public companies that have demutualized raises concerns about
immediate effectiveness of Proposed Fee Changes? Do commenters believe
that, currently, investors and other market participants that are not
plan participants do not have a meaningful opportunity to influence
Proposed Fee Changes before they become effective under the Fee
Exception? Do commenters believe that such an opportunity is provided
under the Rule 608(b)(1) and (2) procedures?
    8. What issues or improvements relating to Rule 608 procedures
would you recommend the Commission address or undertake to ensure
Proposed Fee Changes are not unduly delayed if the immediate
effectiveness procedure were eliminated?
    9. Do commenters believe that additional guidance on the content of
Proposed Fee Changes would help improve the process for handling such
filings?
    10. Does the availability of proprietary data products sold by some
SROs mitigate the Commission's preliminary concerns about subjecting
market participants to new fees prior to any review by the Commission
or opportunity for comment? Do those proprietary data products
represent viable, competitively-priced alternatives to the core data
distributed by the NMS plan processors?

IV. Paperwork Reduction Act

    The Commission believes that the proposed rescission of the Fee
Exception would not impose any new, or revise any existing, collection
of information requirement as defined by the Paperwork Reduction Act of
1995, as amended (``PRA'').\57\ Accordingly, the Commission is not
submitting this proposal to the Office of Management and Budget for
review under the PRA.\58\ The Commission requests comment on whether
the proposed rescission of the Fee Exception would create any new, or
revise any existing, collection of information pursuant to the PRA.
---------------------------------------------------------------------------

    \57\ 44 U.S.C. 3501 et seq.
    \58\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

V. Economic Analysis

A. Introduction

    Section 3(f) of the Exchange Act requires the Commission, whenever
it engages in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital
formation.\59\ In addition, Section 23(a)(2) of the Exchange Act
requires the Commission, when making rules under the Exchange Act, to
consider the impact such rules would have on competition.\60\ Exchange
Act Section 23(a)(2) prohibits the Commission from adopting any rule
that would impose a burden on competition not necessary or appropriate
in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \59\ 15 U.S.C. 78c(f).
    \60\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    Wherever possible, the Commission has quantified the likely
economic effects of the proposed amendments. However, most of the
costs, benefits, and other economic effects discussed are inherently
difficult to quantify. Therefore, much of our discussion is qualitative
in nature. Our inability to quantify certain costs, benefits, and
effects does not imply that such costs, benefits, or effects are less
significant. We request that commenters provide relevant data and
information to assist us in analyzing the economic consequences of the
proposed amendments.

B. Baseline

    The Commission has assessed the likely economic effects of the
proposed amendments, including benefits, costs, and effects on
efficiency, competition, and capital formation, against a baseline that
consists of the existing regulatory process for NMS plan fee filings in
practice, the structure of the market for core data and aggregated
market data products, and the structure of the market for trading
services in NMS securities.
1. NMS Plan Fee Filings
    There are currently a total of five NMS plans that either charge
fees or could charge fees and have filed Proposed Fee Changes under the
Fee Exception. These consist of the CAT Plan along with four NMS plans
that govern the collection and dissemination of core data: The CTA
Plan, the CQ Plan, the Nasdaq/UTP Plan, and the OPRA Plan.\61\
---------------------------------------------------------------------------

    \61\ See supra Section II.A.
---------------------------------------------------------------------------

    The SROs approve all Proposed Fee Changes.\62\ This can create
potential conflicts of interest for the SROs because their duties
administering NMS plans that either charge or could charge fees could
potentially come into conflict with other products the SROs sell or
costs they incur as part of their businesses.\63\ For example, some of
the SROs sell proprietary data products that can, in some situations,
be used as substitutes for core data.\64\ This can create a conflict of
interest with respect to the four NMS plans that set fees for core data
because the SROs vote to set SIPs' fees and also own and control the
dissemination of all equity and option market data and set the prices
of some of the proprietary data products SIPs may compete against.\65\
Another conflict potentially exists because both SRO participants and
Industry Members are responsible for paying fees related to the CAT
plan; however, the CAT operating committee decides how these fees
should be split.\66\ The Commission comment process is one of the only
ways market participants have to express their views on these Proposed
Fee Changes.\67\ However, under the current process, market
participants do not have the opportunity to comment before the Proposed
Fee Changes become effective.\68\
---------------------------------------------------------------------------

    \62\ See id.
    \63\ See supra Section III.B and infra Section V.B.2.
    \64\ However, these proprietary data products do not contain
some critical market information, such as LULD plan price bands and
administrative messages, which are only available through the SIPs.
See supra note 54 and accompanying text; see also infra Section
V.B.2.
    \65\ See infra Section V.B.2.
    \66\ See supra note 17 and accompanying text.
    \67\ Industry members and other market participants also sit on
the Advisory Committees to NMS plans and can express their views
during Operating Committee meetings. However, they cannot vote on
Proposed Fee Changes. See supra note 19.
    \68\ See supra Section III.B.
---------------------------------------------------------------------------

    Because Proposed Fee Changes are effective upon filing, fees in
connection with an NMS plan can be charged immediately upon filing with
the Commission.\69\ In some cases, SRO members or subscribers to core
data plans may not be given adequate time to plan for a new or altered
fee before it is implemented.\70\ For example, if

subscribers to SIP core data are not given enough warning before a SIP
changes fees, some subscribers, such as market data vendors, might not
have enough time to adjust to the fee changes.
---------------------------------------------------------------------------

    \69\ SRO participants must post a proposed amendment to an NMS
plan on their website no later than two business days after the
filing of the proposed amendment with the Commission. See Rule
608(a)(8)(ii).
    \70\ The median time it takes NMS plans to begin charging new
fees pursuant to Proposed Fee Changes is 62.5 days after filing with
the Commission. See infra note 72 and accompanying text. However, a
few Proposed Fee Changes give significantly less notice before
beginning to charge new fees. See, e.g., Securities Exchange Act
Release Nos. 69157 (Mar. 18, 2013), 78 FR 17946 (Mar. 25, 2013) and
69361 (Apr. 10, 2013), 78 FR 22588 (Apr. 16, 2013). In some
instances, commenters have indicated that they did not receive
enough notice regarding the fee changes. See, e.g., Letter from
Peter Moss, Managing Director, Trading, Financial and Risk, Thomson
Reuters (May 7, 2013) at 1-2, available at https://www.sec.gov/comments/s7-24-89/s72489-34.pdf (``Moss Letter'') (commenting on
need to ``make necessary changes to billing systems and to notify
clients of the changes''); Letter from Kimberly Unger, Esq., CEO and
Executive Director, The Security Traders Association of New York,
Inc., New York, New York (Apr. 10, 2013) at 2, available at https://www.sec.gov/comments/sr-ctacq-2013-01/ctacq201301-2.pdf (``Unger
Letter''); Letter from Ira D. Hammerman, Senior Managing Director &
General Counsel, SIFMA (Mar. 28, 2013) at 6-7, available at https://www.sec.gov/comments/s7-24-89/s72489-31.pdf (``Hammerman Letter'')
(commenting on need of ``professionals and their firms, as well as
market data vendors, to alter their systems and business plans'');
and Fidelity Letter, supra note 36, at 6.
---------------------------------------------------------------------------

    Table 1 shows information on the number of Proposed Fee Changes
filed under Rule 608(b)(3)(i) since 2010 for each of the NMS plans that
either charge fees or could charge fees. Since 2010, an average of 4.2
Proposed Fee Changes have been filed each year. The median time it
takes the Commission to notice a Proposed Fee Change on its website is
25.5 days from the time it is filed.\71\ The median time it takes an
NMS plan to begin charging new fees pursuant to Proposed Fee Changes is
62.5 days after filing with the Commission.\72\ Table 1 also contains
information on how many of the fee filings were abrogated by the
Commission or withdrawn by the NMS plan after receiving comments from
market participants. For cases in which the Commission abrogates a NMS
plan fee filing, the median time the fee filing is effective before the
Commission abrogates the filing is 57 days.\73\ No Proposed Fee Changes
that have been abrogated by the Commission have been refiled under the
standard procedure.\74\ For cases in which an NMS plan withdraws a fee
filing, the median time that the fee filing is effective before the NMS
plan withdraws the filing is 46.5 days.\75\ The median time it takes
the Commission to notice fee filings that have been withdrawn is 34
days.\76\ When an NMS plan refiles a withdrawn Proposed Fee Change, it
is refiled on an immediately effective basis. The median time it takes
an NMS plan to refile a withdrawn Proposed Fee Change is 174 days from
the time the initial Proposed Fee Change was withdrawn.\77\ The median
time it takes the Commission to determine whether to approve an NMS
plan amendment filed under the standard procedure is 45 days from the
time it was noticed.\78\
---------------------------------------------------------------------------

    \71\ Statistics on the number of days it takes the Commission to
notice a Proposed Fee Change and the number of days it takes the
Commission to notice a withdrawn Proposed Fee Change were determined
from NMS plan fee filing amendments to the CAT Plan, the CTA Plan,
the CQ Plan, the Nasdaq/UTP Plan, and the OPRA Plan filed under Rule
608(b)(3)(i) between 2014 and 2019. The Commission chose this five-
year lookback time period to calculate these measures because it
reflects a current snapshot of the timeframes under which the
Commission provides notices of Proposed Fee Changes and withdrawn
Proposed Fee Changes. The Commission preliminarily believes that the
median value is the most appropriate measure to estimate these
times. The Commission preliminarily believes that the average is not
an informative estimate for these measures because the sample size
is small and contains extreme outliers. NMS plan amendments are
available at: https://www.sec.gov/rules/sro/nms.htm.
    \72\ Statistics on the number of days it takes an NMS plan to
begin charging a new fee are based on dates determined from NMS plan
fee filing amendments to the CTA Plan, the CQ Plan, the Nasdaq/UTP
Plan, and the OPRA Plan filed under Rule 608(b)(3)(i) between 2010
and 2019. NMS plan fee filings that contained policy changes and did
not alter or impose a fee or fee cap were not included in this
calculation. These statistics do not include NMS plan fee filing
amendments to the CAT Plan. NMS plan amendments are available at:
https://www.sec.gov/rules/sro/nms.htm.
    \73\ The input of commenters are an important part of the
Commission's review of Proposed Fee Changes, and the Commission
generally has not abrogated a Proposed Fee Change prior to reviewing
the comments. See supra Section III and Section II.B. Statistics on
the number of days it takes the Commission to abrogate an NMS plan
fee filing were determined from NMS plan fee filing amendments to
the CAT Plan, the CTA Plan, the CQ Plan, the Nasdaq/UTP Plan, and
the OPRA Plan filed under Rule 608(b)(3)(i) between 2010 and 2019.
NMS plan amendments are available at: https://www.sec.gov/rules/sro/nms.htm.
    \74\ See supra Section II.B.
    \75\ Statistics on the number of days it takes an NMS plan to
withdraw a fee filing were determined from NMS plan fee filing
amendments to the CAT Plan, the CTA Plan, the CQ Plan, the Nasdaq/
UTP Plan, and the OPRA Plan filed under Rule 608(b)(3)(i) between
2010 and 2019. Note these statistics do not include the Twenty-
fourth amendment to the CTA Plan and the Fifteenth amendment to the
CQ Plan. See Securities Exchange Act Release No. 84194 (Sept. 18,
2018), 83 FR 48356 (Sept. 24, 2018). These amendments withdraw fee
changes from the Twenty-second amendment to the CTA Plan and the
Thirteenth amendment to the CQ Plan, which was challenged by
Bloomberg and stayed by the Commission on July 31, 2018. See
Bloomberg Order, supra note 9. NMS plan amendments are available at:
https://www.sec.gov/rules/sro/nms.htm.
    \76\ See supra note 71.
    \77\ Some refiled Proposed Fee Changes were modified but
remained substantially similar to the withdrawn fee changes. See,
e.g., Securities Exchange Act Release No. 82071 (Nov. 14, 2017), 82
FR 55130 (Nov. 20, 2017). Other refiled Proposed Fee Changes were
modified in response to comments. See, e.g., Securities Exchange Act
Release No. 70953 (Nov. 27, 2013), 78 FR 72932 (Dec. 4, 2013).
    \78\ The time it takes for the Commission to determine whether
to approve an NMS plan amendment filed under the standard procedure
ranges from a minimum of 28 days to a maximum of 111 days. It takes
the Commission an average of 60.8 days to determine whether to
approve an NMS plan amendment filed under the standard procedure
from the time it was noticed. Statistics on the number of days it
takes the Commission to approve an NMS plan amendment filed under
the standard procedure are based on NMS plan amendments to the CAT
Plan, the CTA Plan, the CQ Plan, the Nasdaq/UTP Plan, and the OPRA
Plan filed under the standard procedure between 2010 and 2019. NMS
plan amendments are available at: https://www.sec.gov/rules/sro/nms.htm.

                                                              Table 1--Information on NMS Plan Fee Filings Under Rule 608(b)(3)(i)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Number filed                              Number abrogated                            Number withdrawn
                                                             -----------------------------------------------------------------------------------------------------------------------------------
                            Year                                          NASDAQ/                                     NASDAQ/                                     NASDAQ/
                                                                CTA/CQ      UTP        OPRA       CAT       CTA/CQ      UTP        OPRA       CAT       CTA/CQ      UTP        OPRA       CAT
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2010........................................................          2          0          1  .........          0          0          0  .........          0          0          0  .........
2011........................................................          0          2          4  .........          0          0          0  .........          0          0          0  .........
2012........................................................          0          0          2  .........          0          0          0  .........          0          0          0  .........
2013........................................................          3          3          1  .........          0          0          0  .........          2          2          0  .........
2014........................................................          2          1          2  .........          0          0          0  .........          0          0          0  .........
2015........................................................          0          0          0  .........          0          0          0  .........          0          0          0  .........
2016........................................................          0          0          5          0          0          0          0          0          0          0          0          0
2017........................................................          2          1          2          1          0          0          0          1          2          0          0          0
2018........................................................          1          2          0          1          1          1          0          0          0          0          0          1
                                                             -----------------------------------------------------------------------------------------------------------------------------------
    Total...................................................         10          9         17          2          1          1          0          1          4          2          0          1
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
This table shows the number of Proposed Fee Changes filed under Rule 608(b)(3)(i) of Regulation NMS, the number of Proposed Fee Changes that were abrogated by the Commission, and the number of
  Proposed Fee Changes that were withdrawn by the NMS plan each year from 2010-2018 for the following NMS plans: The CTA and CQ Plans, the NASDAQ/UTP Plan, the OPRA Plan, and the CAT Plan.
  Proposed Fee Changes to the CTA and CQ Plans are included in one category because fee changes to both NMS plans are included in the same filing.
Source: This table was compiled from NMS plan rule filings available at https://www.sec.gov/rules/sro/nms.htm.

    Since 2010, the four NMS plans that govern core data have filed a
total of 36 Proposed Fee Change amendments under Rule 608(b)(3)(i). Two
of these filings have been abrogated by the Commission and six have
been withdrawn by the SRO participants.
    Since 2017, the CAT Plan has filed two Proposed Fee Change
amendments under Rule 608(b)(3)(i) to establish the allocation of
funding for the CAT. One of these fee filings was abrogated by the
Commission and one was withdrawn by the SRO participants.
2. Market for Core and Aggregated Market Data Products
    Under the NMS plans described above,\79\ core data is collected,
consolidated, processed, and disseminated by the SIPs.\80\ NMS plan
operating committees, which are composed of the SROs, set the fees the
SIPs charge for core data.\81\ Any revenue earned by the SIPs, after
deducting costs, is split among the SROs.\82\
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    \79\ See supra Section II.A.1.
    \80\ See supra note 10 and accompanying text.
    \81\ See supra Section II.A.3.
    \82\ FINRA rebates a portion of the SIP revenue it receives back
to its members. See FINRA Rule 7610B, available at http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=7355.
    One Roundtable commenter estimated that from 2013 to 2017,
through the Nasdaq/UTP plan, the FINRA/Nasdaq TRF gave 83 percent of
SIP revenue it received to broker-dealers. See Letter from Thomas
Wittman, Executive Vice President, Head of Global Trading and Market
Services and CEO, Nasdaq Stock Exchange (Oct. 25, 2018) at 19,
available at https://www.sec.gov/comments/4-729/4729-4562784-176135.pdf.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the SIPs have
significant market power in the market for core and aggregated market
data products and are monopolistic providers of certain
information,\83\ which means that for all such products they would have
the market power to charge supracompetitive prices.\84\ Fees for core
data are paid by a wide range of market participants, including
investors, broker-dealers, data vendors, and others.
---------------------------------------------------------------------------

    \83\ See supra note 54 accompanying text.
    \84\ See NCAA v. Board of Regents, 468 U.S. 85, 109 n.38 (1984).
---------------------------------------------------------------------------

    One reason the SIPs have significant market power is that, although
some market data products are comparable to SIP data and could be used
by some core data subscribers as substitutes for SIP data in certain
situations, these products are not perfect substitutes and are not
viable substitutes across all use cases. For example, in the equity
markets, some third party data aggregators buy direct depth-of-book
feeds from the exchanges and aggregate them to produce products similar
to the equity market SIPs.\85\ However, these products do not provide
market information that is critical to some subscribers and only
available through the SIPs, such as LULD plan price bands and
administrative messages.\86\ Additionally, some SROs offer top-of-book
data feeds, which may be considered by some to be viable substitutes
for SIP data for certain applications.\87\ However, in the equity
markets, broker-dealers typically rely on the SIP data to fulfill their
obligations under Rule 603 of Regulation NMS, i.e., the ``Vendor
Display Rule'', which requires a broker-dealer to show a consolidated
display of market data in situations in which a trading or order
routing decision can be implemented.\88\
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    \85\ The feeds produced by third party data aggregators offer
additional features, such as lower latency, but usually cost more
than SIP data. See Oct. 25 Tr., supra note 42, at 126:20-129:8
(statement of Mr. Skalabrin).
    The equity market SIPs are the core data governed by the CTA
Plan, the CQ Plan, and the Nasdaq/UTP Plan. See supra Section
II.A.1.
    \86\ See supra note 54 and accompanying text.
    \87\ In the equity markets, the top-of-book feeds offered by the
SROs are usually less expensive than SIP data. However, they may
only contain information from one exchange, or one exchange family.
See, e.g., Nasdaq Basic available at: https://business.nasdaq.com/intel/GIS/nasdaq-basic.html; CBOE One available at: https://markets.cboe.com/us/equities/market_data_services/cboe_one/; and
NYSE BQT available at: https://www.nyse.com/market-data/real-time/nyse-bqt.
    In the options markets, some SROs also offer top-of-book data
feeds that aggregate options data from exchanges in their exchange
family. However, they do not offer consolidated information from all
of the options exchanges. These data feeds usually offer lower
latency than OPRA. See, e.g., CBOE BBO available at: https://markets.cboe.com/us/options/market_data_services/; and Best of
NASDAQ Options (BONO) available at: http://www.nasdaqtrader.com/Micro.aspx?id=BONO.
    \88\ See supra note 45 and accompanying text.
---------------------------------------------------------------------------

    The purchase of market data from all SROs, either directly or
indirectly, is necessary for all broker-dealers executing orders in NMS
securities. For example, Rule 611(a) of Regulation NMS requires trading
centers to establish policies and procedures reasonably designed to
prevent trade-throughs. In order to prevent trade-throughs, executing
broker-dealers need to be able view the protected quotes on all
exchanges. They can fulfill this requirement by using SIP data,
proprietary data feeds offered by the SROs, or by using a combination
of both. Additionally, some broker-dealers use core data to meet their
duty of best execution for customer orders.
    SROs have significant influence over the prices of most market data
products. For example, SROs set the pricing of the top-of-book data
feeds that compete with SIP data, and they also collectively, as
participants in the NMS plans, decide what fees to set for SIP
data.\89\ Although third party data aggregators might compete with the
SIPs by offering products that provide core data for the equity
markets, they ultimately derive their data from exchange proprietary
direct feeds, whose prices are set by the SROs.\90\
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    \89\ Fees are subject to Commission approval. See supra Section
II.A.3 and Section II.B.
    \90\ Pursuant to Section 19(b) of the Exchange Act and Rule 19b-
4 thereunder, SROs submit proposed rule changes to the Commission in
which they set prices for their direct feed data, and those prices
can vary depending on the type of end user.
---------------------------------------------------------------------------

3. Current Structure of the Market for Trading Services in NMS
Securities
    The Commission described the structure of the market for trading in
NMS securities, as of that time, in the Notice and the CAT NMS Plan
Approval Order.\91\ While the Commission's analysis of state of
competition in the Notice is fundamentally unchanged, the market for
trading services in options and equities currently consists of 23
national securities exchanges, all but one of which are participants to
NMS plans,\92\ as well as off-exchange trading venues including broker-
dealer internalizers and 31 NMS Stock ATSs,\93\ which are not
participants in NMS plans.\94\ The 23 exchanges are currently
controlled by seven separate entities; three of which operate a single
exchange.\95\
---------------------------------------------------------------------------

    \91\ See CAT NMS Plan Approval Order, supra note 14, Section
V.G.1.
    \92\ LTSE is not yet a participant to NMS plans.
    \93\ As of September 18, 2019, 31 NMS Stock ATSs are operating
pursuant to an initial Form ATS-N. A list of NMS Stock ATSs,
including access to initial Form ATS-N filings that are effective,
can be found at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
    \94\ Members from some ATSs or broker-dealer internalizers may
serve on the Advisory Committees of some NMS plans, but they would
not be able to vote on NMS plan amendments. See supra note 67.
    \95\ Cboe Global Markets, Inc. controls BYX, BZX, C2, EDGA, EDGX
and CBOE; Miami Internal Holdings, Inc. controls Miami
International, MIAX Emerald and MIAX PEARL; NASDAQ, Inc. controls
BX, GEMX, ISE, MRX, PHLX and Nasdaq; Intercontinental Exchange, Inc.
controls NYSE, Arca, American, Chicago and National. The three
entities that control a single-exchange are IEX Group which controls
IEX, a consortium of broker-dealers which controls BOX, and Long
Term Stock Exchange, Inc. which controls LTSE.
---------------------------------------------------------------------------

    As discussed above, broker-dealer internalizers and ATSs subscribe
to SIP data as well as other proprietary data products offered by the
exchanges and data aggregators.\96\ Additionally, FINRA rebates a
portion of the SIP revenue it receives back to broker-dealer
internalizers and ATSs based on the trade volume they report.\97\ The
CAT NMS Plan Approval Order discusses

how the CAT funding model and the allocation of fees between SRO
participants and Industry Members could affect competition in the
market for trading services in options and equities.\98\
---------------------------------------------------------------------------

    \96\ See supra Section V.B.2.
    \97\ See supra note 82.
    \98\ See CAT Plan Approval Order, supra note 14, at 84882-84.
---------------------------------------------------------------------------

C. Benefits

    Overall, the Commission preliminarily believes that the proposed
rescission of the Fee Exception will not have significant economic
effects for a number of reasons. First, on average, there are very few
(only 4.2) proposed NMS plan fee changes in a year.\99\ Second, because
the existing filing procedure allows for Commission abrogation of
proposed fee changes, the impact of the proposed amendments on the fees
paid by market participants would largely be restricted to the two to
six month Commission review period, during which a fee change is
effective under the current procedure, but would not be effective under
the proposed amendments.\100\ Third, as discussed above, the Commission
preliminarily believes that the SIPs have significant market power in
the market for core and aggregated market data products and are
monopolistic providers of certain information.\101\ Therefore, the
Commission preliminarily believes the proposed amendments would have a
minimal effect on the SIPs' pricing models. Additionally, because the
proposed amendments are a procedural change, they would not affect the
contents of the SIP data or comparable products.\102\
---------------------------------------------------------------------------

    \99\ See supra Section V.B.1.
    \100\ The Commission preliminarily believes that the median
delay from the proposed amendments would be 70.5 days. See infra
note 106.
    \101\ See supra Section V.B.2.
    \102\ See id.
---------------------------------------------------------------------------

    Nonetheless, the Commission preliminarily believes that the
proposed amendments offer three potential benefits. First, the
Commission preliminarily believes that the proposed amendments would
provide a benefit to market participants because Proposed Fee Changes
to NMS plans would be subject to public notice, an opportunity for
public comment, and Commission approval by order before they could
become effective. Therefore, under the proposed amendments, changes to
NMS plan fees and charges could not be immediately imposed, and market
participants would not have to pay fees (even temporarily) that the
Commission may later determine do not meet the standard for approval.
    Second, the Commission preliminarily believes that the proposed
amendments offer a benefit to SRO members and subscribers of SIP data.
Because Proposed Fee Changes to NMS plans would not become effective
until after they are subject to public comment and approved by the
Commission, in cases where SRO members and subscribers to SIP data may
not have received adequate notice, they should have more time to plan
and prepare before they are subject to a new or altered NMS plan
fee.\103\ For example, under the proposed amendments, third party
vendors of SIP data would learn about potential fee changes to a type
of SIP fee (i.e., non-displayed fees) earlier, which could give them
more time to make adjustments and notify their clients before they are
subject to the fee changes.
---------------------------------------------------------------------------

    \103\ See supra note 70 and accompanying text.
---------------------------------------------------------------------------

    Third, the Commission preliminarily believes that the proposed
amendments could benefit SRO members and subscribers of SIP data if a
Proposed Fee Change increased an NMS plan fee. Under the proposed
amendments, SRO members and subscribers of SIP data could benefit from
the delay caused by the comment and Commission approval process because
they would not have to pay the increased fee until the Commission
approved the fee change and it became effective. However, the
Commission preliminarily believes this benefit to SRO members and
subscribers of SIP data would also represent a corresponding cost to
the SROs.\104\
---------------------------------------------------------------------------

    \104\ Correspondingly, if a Proposed Fee Change decreased an NMS
plan fee, the delay caused by the comment and Commission approval
process could impose a cost on SRO members and subscribers of SIP
data and provide a benefit to the SROs. One comment letter submitted
in response to the Roundtable contained analysis examining the
change in fees that some broker-dealers paid for CTA data between
2010 and 2018. The analysis showed that CTA fees for most categories
of data increased by an average of 5% between 2010 and 2018.
However, the change in the total amount each broker-dealer spent on
CTA data varied based on the type of broker-dealer. They found that
the average amount of money spent on CTA data by retail broker-
dealers declined by 4% between 2010 and 2017, but the average amount
spent by institutional broker-dealers increased by 7%. See Letter
from Melissa MacGregor, Managing Director and Associate General
Counsel and Theodore R. Lazo, Managing Director and Associate
General Counsel, SIFMA (Oct. 24, 2018) at 21-28, available at
https://www.sec.gov/comments/4-729/4729-4559181-176197.pdf.
---------------------------------------------------------------------------

D. Costs

    The Commission preliminarily believes that the proposed amendments
could impose costs on SROs because they could be delayed from
implementing Proposed Fee Changes while they wait for the Commission to
determine whether to approve a fee change. In the case of the SIPs, if
the Proposed Fee Change would increase the revenue earned by the SIP,
then this delay could cause the SIP to lose out on the incremental
revenue it could have collected compared to the baseline, where the
Proposed Fee Change would have been effective immediately upon filing.
This, in turn, could reduce the revenues the SROs are able to collect
from the SIP, as well as the SIP revenue that FINRA rebates back to its
members.\105\ In the case of the CAT plan, the proposed amendments
could also delay the SROs from recovering money for costs they might
have already incurred. However, the Commission preliminarily believes
that the costs of the proposed amendments would not be significant
because the Commission preliminarily estimates that the median delay
caused by the proposed amendments to the implementation of Proposed Fee
Changes would be 70.5 days.\106\ Additionally, on average, there are
not many NMS plan fee changes in a year.\107\ The Commission
preliminarily believes that any lost revenue or delay in recovering
money by the SROs could represent a corresponding benefit to SRO
members and subscribers of SIP data. Similarly, if a Proposed Fee
Change decreased an NMS plan fee, the delay caused by the comment and
Commission approval process from the proposed amendments could impose a
cost on SRO members and subscribers of SIP data and provide a benefit
to SROs.\108\
---------------------------------------------------------------------------

    \105\ See supra note 82; see also supra Section V.B.2.
    \106\ The Commission preliminarily believes that the median
delay caused by the proposed amendments to the implementation of
Proposed Fee Changes would be 70.5 days. This estimate is based on
the median time it takes the Commission to notice a Proposed Fee
Change from the time it is filed, 25.5 days, and the median time it
takes the Commission to determine whether to approve an NMS plan
amendment filed under the standard procedure from the time it was
noticed, 45 days. However, the Commission could extend the review
period for a Proposed Fee Filing up to a total 180 days from the
time it is noticed. See supra note 56; see also supra Section V.B.1
and Section II.B.
    This delay does not include the time between when an NMS plan
fee change is filed and the NMS plan begins charging the fee. Under
the proposed amendments, an NMS plan fee filing could specify a date
when fees will begin being charged based on a certain number of days
after the fee filing is approved by the Commission. It is possible
that the median delay specified by the NMS plan between approval and
when the NMS plan begins charging fees could be similar to the
current median delay, i.e., 62.5 days. The delay could also be
shorter, since market participants would have received earlier
notice about the potential fee change due to the delay caused by the
Commission approval process. See supra note 70.
    \107\ See supra Section V.B.1.
    \108\ See supra note 104.
---------------------------------------------------------------------------

    The proposed rescission of the Fee Exception is a procedural
amendment and impacts the timing of effectiveness of Proposed Fee
Changes; it does not

affect the supporting information that must be included in all proposed
NMS plan amendments.\109\ Therefore, the Commission preliminarily
believes that the proposed amendments will not impose implementation
costs on the administration of NMS plans or on market participants.
---------------------------------------------------------------------------

    \109\ See supra Section I.
---------------------------------------------------------------------------

E. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    For the reasons discussed above,\110\ the Commission preliminarily
believes that the proposed amendments will not have significant
effects. Nonetheless, the Commission preliminarily believes that the
proposed amendments could affect efficiency in a number of ways.
---------------------------------------------------------------------------

    \110\ See supra Section V.C.
---------------------------------------------------------------------------

    First, the Commission preliminarily believes that the proposed
amendments could improve the efficiency with which SRO members and
subscribers to SIP data adjust to fee changes to NMS plans.
Specifically, the notice of Proposed Fee Changes to NMS plans before
they are approved by the Commission and become effective might give
market participants more time to plan and prepare before they are
subject to a new or altered NMS plan fee. For example, under the
proposed amendments, in circumstances where market participants
previously would not have received adequate notice,\111\ market
participants such as market data vendors would now have more time to
make adjustments and notify their clients before they are subject to a
change in fees.
---------------------------------------------------------------------------

    \111\ See supra note 70 and accompanying text.
---------------------------------------------------------------------------

    Second, the Commission preliminarily believes that the proposed
amendments could improve efficiency for Proposed Fee Changes to NMS
plans that would otherwise have been abrogated.\112\ As discussed
above, the median time it takes the Commission to abrogate a fee filing
is 57 days, during which time the filings are effective. Under the
proposed amendments, the Commission would not need to abrogate the fee
filings; absent approval by the Commission, such fee changes would
never take effect. To the extent that a fee filing would later be
disapproved by the Commission, the proposed change would make the
filing process more efficient than the current process.
---------------------------------------------------------------------------

    \112\ The proposed amendments may also improve the efficiency of
implementing some Proposed Fee Changes that would otherwise have
been withdrawn and later refiled. These fee changes are refiled on
an immediately effective basis. The median time it takes an NMS plan
to refile these fee changes is 174 days. If these amendments are
ultimately approved more quickly under the proposed amendments, it
could increase the efficiency of their implementation. See supra
Section V.B.1.
---------------------------------------------------------------------------

    On the other hand, the proposed amendments could also have a
negative impact on efficiency because they could delay when NMS plans
could begin charging new fees. As discussed above,\113\ if plan
participants seek to change existing NMS plan fees, possibly due to
changes in technology or market conditions or other demonstrable
increases in NMS plan costs, then the proposed amendments could reduce
efficiency because any Proposed Fee Changes would take longer to become
effective under the standard procedure than under the effective-upon-
filing procedure.
---------------------------------------------------------------------------

    \113\ See supra Section V.D.
---------------------------------------------------------------------------

2. Competition
    The Commission preliminarily believes that the proposed amendments
will not have a significant impact on competition in either the market
for core and aggregated market data products or in the market for
trading services in NMS securities.
    The Commission preliminarily believes that the proposed amendments
will not have a significant impact on competition in the market for
core and aggregated market data products because, for the reasons
discussed above, the Commission preliminarily believes the proposed
amendments will not have a significant effect on the fees charged for
core data.\114\ Although the proposed amendments are not likely to have
a significant effect on the market power of the SIPs, the Commission
preliminarily believes the proposed amendments could have minor effects
on the SIPs' ability to compete. On the margin, the SIPs' competitive
positions could be negatively affected by the proposed amendments
because the amendments would allow the SIPs' competitors, such as third
party data aggregators and SRO top-of-book feeds, to be able to adjust
their fees and prices more quickly than the SIPs. Under the proposed
amendments, the SIPs would face a delay in adjusting their prices,
because they could not make any fee changes until they had been noticed
for public comment and approved by the Commission. Other market data
products would not face this delay because fee changes to products
offered directly by the SROs would still be effective upon filing with
the Commission and vendors that aggregate market data are not required
to file with the Commission to change their prices. This means that if
these data products were subject to a cost shock, vendors and data
products offered by the SROs would be able to adjust their prices more
quickly in response to the cost shock, while the SIPs would face a
delay. However, for the reasons discussed above, the Commission
preliminarily believes that these competitive effects will not be
significant.
---------------------------------------------------------------------------

    \114\ See supra Section V.C.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
will not have a significant impact on competition in the market for
trading services in NMS securities. First, for the reasons discussed
above, the Commission preliminarily believes the proposed amendments
will not have a significant impact on revenues SROs receive or the
costs broker-dealer internalizers and ATSs pay for core data.\115\
Second, the Commission preliminarily believes that the proposed
amendments will not have a significant impact on the future fees the
CAT plan will collect from Industry Members or the allocation of costs
among Participants and Industry Members because the Commission already
has the ability to abrogate NMS plan fee filings.\116\
---------------------------------------------------------------------------

    \115\ See supra Section V.C and Section V.D.
    \116\ See supra Section II.A.2.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission preliminarily believes that the proposed amendments
will not have a significant impact on capital formation because, for
the reasons discussed above, the proposed amendments will not have a
significant impact on NMS plan fees or on the average costs to the
subscribers of SIP market data.\117\ Since the proposed amendments are
unlikely to have a significant effect on the cost of core data, they
are also unlikely to significantly affect the fees that investors pay
or investor participation in the market. Therefore, the Commission
preliminarily believes the proposed amendments are unlikely to have a
significant impact on capital formation.
---------------------------------------------------------------------------

    \117\ See supra Section V.C.
---------------------------------------------------------------------------

F. Alternative

    The Commission considered an alternative where the Commission would
amend Rule 608(b)(3)(i) of Regulation NMS to provide that NMS plan fee
filings would not become effective immediately upon filing, but would
instead become effective automatically without the Commission having to
approve the fee filing at the end of the 60 day period, during which
the Commission could potentially abrogate the fee filing. If the

Commission did abrogate the fee filing, then the amendment would still
need to be re-filed pursuant to the standard procedure of paragraphs
(b)(1) and (2).
    This alternative would provide a comment period for Proposed Fee
Changes to NMS plans before they go into effect. Therefore, similar to
the proposed amendments, market participants would benefit from being
able to comment on Proposed Fee Changes before they could become
effective. SRO members and subscribers to SIP data should have more
time to plan and prepare before they are subject to a new or altered
NMS plan fees.
    Compared to the proposed amendments, the time until a Proposed Fee
Filing becomes effective could be shorter.\118\ Therefore, the costs to
the SROs from the delay in implementing NMS plan fee changes could be
lower than under the proposed amendments.\119\
---------------------------------------------------------------------------

    \118\ Under this alternative, Proposed Fee Filings would become
effective 60 days after filing unless the Commission decided to
abrogate the fee filing. Under the proposed amendments, the
Commission preliminarily estimates that the median time it would
take for Proposed Fee Filings to be approved by the Commission and
become effective would be 70.5 days from the time of filing. See
supra note 106.
    \119\ See supra Section V.D.
---------------------------------------------------------------------------

    However, under this alternative, the Commission could not extend
the 60 day abrogation period.\120\ This would provide market
participants with more certainty about when the Proposed Fee Changes
would become effective because the Commission could not extend its
review period. However, if a Proposed Fee Filing is complicated, the
Commission may be unable to complete its review during the 60 day
abrogation period. If the filing were abrogated by the Commission, it
could be subject to the delays of refiling under the standard
procedure, which could cause these fee filings to take longer to be
approved from the date of initial filing than under the proposed
amendments.\121\
---------------------------------------------------------------------------

    \120\ The Commission could also consider an alternative where it
had the option to extend the 60 day abrogation period to allow the
Commission more time to consider the filing and comments. The filing
would not become effectively automatically until the expiration of
this longer time period. This alternative would have similar
benefits and costs to the proposed amendments.
    \121\ See supra Section II.B.
---------------------------------------------------------------------------

G. Request for Comment on the Economic Analysis

    The Commission is sensitive to the potential economic effects,
including the costs and benefits, of the proposed amendments to Rule
608 of Regulation NMS. The Commission has identified above certain
costs and benefits associated with the proposal and requests comment on
all aspects of its preliminary economic analysis. The Commission
encourages commenters to identify, discuss, analyze, and supply
relevant data, information, or statistics regarding any such costs or
benefits. In particular, the Commission seeks comment on the following:
    11. Do you believe the Commission's analysis of the potential
effects of the proposed amendments to Rule 608 of Regulation NMS is
reasonable? Why or why not? Please explain in detail.
    12. What is the state of competition in the market for core and
aggregated market data products? Is the state of competition similar in
the equities and options markets? Why or why not? Please explain in
detail.
    13. 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 and SRO members and subscribers
of SIP data may incur from the proposed amendments delaying the
implementation of Proposed NMS Fee Changes.
    14. Do you agree with the Commission's assessment that the proposed
amendments will not have significant effects on efficiency, benefits,
or competition? Why or why not? Please explain in detail.
    15. Do you agree with the Commission's analysis of the benefits of
the proposed amendments? Why or why not? Please explain in detail.
    16. Do you agree with the Commission's analysis of the costs of the
proposed amendments? Why or why not? Please explain in detail.
    17. Do you agree with the Commission's assessment that the proposed
amendments will have a minimal effect on the SIPs' pricing models? Why
or why not? Please explain in detail.
    18. Do you agree with the Commission's analysis of the effects the
proposed amendments will have on efficiency, competition, and capital
formation? Why or why not? Please explain in detail.
    19. Do you believe the proposed amendments will have effects on
efficiency, competition, and/or capital formation that the Commission
has not recognized? Please explain in detail.
    20. Should the Commission adopt an alternative approach in which
the Commission does not need to approve NMS plan fee filings but
instead delays them from becoming effective until after the 60 day
period in which the Commission can abrogate the fee filing? Why or why
not? What are the benefits and costs of such an approach? Please
explain in detail.
    21. Are there other reasonable alternatives for the proposed
amendments to Rule 608 of Regulation NMS? 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 proposed amendments.
    22. Commenters should provide analysis and empirical data to
support their views on the benefits and costs of the proposed
amendments to Rule 608 of Regulation NMS.

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\122\ the Commission requests comment on the
potential effect of this proposal 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.
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    \122\ 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).
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VII. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \123\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) \124\ of the Administrative Procedure
Act,\125\ 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.'' \126\ 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.\127\
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    \123\ 5 U.S.C. 601 et seq.
    \124\ 5 U.S.C. 603(a).
    \125\ 5 U.S.C. 551 et seq.
    \126\ 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.
    \127\ See 5 U.S.C. 605(b).
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    The proposed rule would apply to national securities exchanges
registered with the Commission under Section 6 of the Exchange Act and
national securities associations registered with the Commission under
Section 15A of the Exchange Act.\128\ None of the exchanges registered
under Section 6 that would be subject to the proposed amendments are
``small entities'' for purposes of the Regulatory Flexibility Act.\129\
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.\130\
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    \128\ See supra Section II.A.3.
    \129\ 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); 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).
    \130\ 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.'').
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    For the above reasons, the Commission certifies that the proposed
amendment to Rule 608, if adopted, would not have a significant
economic impact on a substantial number of small entities for purposes
of the Regulatory Flexibility Act.
    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.

VIII. Statutory Authority and Text of the Proposed Rule Amendments

    Pursuant to the Exchange Act, and particularly Section 2, 3, 6, 9,
10, 11A, 15, 15A, 17 and 23(a) thereof, 15 U.S.C. 78b, 78c, 78f, 78l,
78j, 78k-1, 78o, 78o-3 and 78w(a), the Commission proposes to amend
Section 242.608 of chapter II of title 17 of the Code of Federal
Regulations in the manner set forth below.

List of Subjects in 17 CFR Part 242

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

0
1. 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.  242.608   [Amended]

0
2. Amend Sec.  242.608 by removing and reserving paragraph (b)(3)(i).

    By the Commission.

    Dated: October 1, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-21770 Filed 10-10-19; 8:45 am]
 BILLING CODE 8011-01-P