feeds to consolidated market data.\2086\ However, only a small portion
of these are permitted to and will likely choose to be self-
aggregators. For instance, few, if any, of the market participants who
currently rely only on SIP data will become self-aggregators under the
amendments because of the extensive investment and technical expertise
that is needed to become a self-aggregator.\2087\ Additionally, of the
market participants who might switch from using the exchanges'
proprietary data to consolidated market data, only certain market
participants and with certain limitations are permitted to self-
aggregate under the amendments.\2088\ Other market participants who are
not permitted to self-aggregate but who are consumers of the exchanges'
proprietary data will need to subscribe to a competing consolidator if
they switch to using consolidated market data.\2089\ On the other hand,
the Commission acknowledges that while the number of potential self-
aggregators might be small their overall trading volume might be large,
because these market participants are also likely some of the highest
trading-volume broker-dealers and registered investment advisors.
---------------------------------------------------------------------------

    \2084\ See, e.g., NYSE Letter II at 17; Nasdaq Letter IV at 8,
24; Nasdaq Letter V at 7; STANY Letter at 7; IDS Letter I at 15.
    \2085\ One commenter stated that they would expect some of their
``members to consider becoming self-aggregators pursuant to the
Proposal.'' See FIA PTG Letter at 1-2.
    \2086\ See infra Section V.C.4(a) for a discussion on some
market participants' potential switch to consolidated market data.
    \2087\ See supra note 2073.
    \2088\ See supra Section III.D for a discussion on the market
participants that can be self-aggregators and the conditions under
which they can share data.
    \2089\ One commenter said that ``many non-broker-dealer market
participants subscribe directly to proprietary data feeds from
exchanges'' and that they will likely want to use consolidated
market data. See MFA Letter at 3. One asset manager commented that
they would expect much of their ``use case for direct feeds would be
eliminated if the SEC's rule is implemented as proposed, and if
there is a competitive consolidated tape offering with the processor
physically located in the same data center as the broker/dealers''
they employ as agents. See NBIM Letter at 4.
---------------------------------------------------------------------------

e. Competing Consolidators' Ability To Offer Differentiated Products
    The last factor that may affect the reasonableness of the
assumption that a sufficient number of competing consolidators will
enter the market is the ability to offer differentiated products,
determined by the demand for differentiated products and the
feasibility of supplying differentiated products. The greater the
ability to offer differentiated products, the more

competing consolidators are likely to register until no economic
incentives are left for new entry. In fact, the ability to
differentiate may be necessary to ensure multiple competing
consolidators can serve the market for the following reasons. As
discussed above, the production of consolidated data involves
relatively higher fixed costs (e.g., connectivity to the exchanges,
data storage, technical infrastructure needed to process large amounts
of data), and lower variable costs (e.g., costs of delivering the
processed data to each customer).\2090\ In such markets, the firms have
additional incentives to increase the number of their customers in
order to spread the fixed cost across a larger base of consumers.
Without differentiation, the fixed cost nature of the market, and
resulting economies of scale, could result in only one competing
consolidator, because the largest competing consolidator would be able
to offer the most competitive price.
---------------------------------------------------------------------------

    \2090\ Some commenters agreed. See, e.g., Angel Letter at 3, 19;
NBIM Letter at 2. See also supra Section V.B.3(a).
---------------------------------------------------------------------------

    The Commission believes that differentiation will likely be
possible both because market participants demand different market data
products and services and because competing consolidators will have the
incentives and ability to offer differentiated products to service
those diverse needs.
    Market participants' demand for consolidated market data products
is heterogeneous because there are many different investor types (e.g.,
retail investors, small banks, market participants focused on value
investment) that have differing investment strategies, and therefore,
different data needs.\2091\
---------------------------------------------------------------------------

    \2091\ Several commenters agreed with the Commission. See, e.g.,
BestEx Research Letter at 5; NYSE Letter II at 9; IEX Letter at 9;
MEMX Letter at 5.
---------------------------------------------------------------------------

    Additionally, competing consolidators will have the incentives and
ability to differentiate their products to meet their customers'
diverse needs. The Commission believes that competing consolidators
will have strong incentives to offer differentiated products because of
its potential implications for their survival in the market
place.\2092\ By offering products that are responsive to each type of
customer's specific needs, competing consolidators can specialize and
reduce their costs with this specialization. They can then pass these
costs savings on to their customers as lower consolidation and
dissemination fees and as a result capture market share. For example,
competing consolidators could meet investors' diverse demand by
offering different data products that range from the entirety of
consolidated market data to subsets of consolidated market data such as
top of book products.\2093\ In addition, some competing consolidators
could differentiate themselves by specializing in lower latency data
for a segment of the market where trading strategies require high speed
data access. Other competing consolidators could target data users who
might prefer not to have the lowest latency product if the higher
latency products came with a lower price or additional analytics.
Competing consolidators could offer a range of user interfaces and
analytics (e.g., various ways to display consolidated data, or provide
forecasting services) that appeal to different data users or could even
offer an analytical environment to customize analytics (e.g., offer
software tools allowing market participants to analyze and summarize
consolidate data). Differentiation along these dimensions will allow
competing consolidators to offer different services at potentially
different prices to different types of end users.
---------------------------------------------------------------------------

    \2092\ See infra Section V.C.2(b) for a discussion on the
relationship between differentiation and prices.
    \2093\ Several commenters agreed with the Commission that
investors have diverse market data needs. See, e.g., IEX Letter at
9; MEMX Letter at 5; NYSE Letter II at 9; Angel Letter at 9.
---------------------------------------------------------------------------

    Competing consolidators will also have the ability to differentiate
because the amendments do not restrict the type or variety of products
they can offer, which will be determined by competitive forces.
Additionally, the amendments do not require competing consolidators to
offer the entirety of consolidated data, potentially allowing them some
fixed cost savings (e.g., on their connectivity and processing costs)
if they offer narrower data content than the entirety of consolidated
market data. However, there is some uncertainty about the extent to
which competing consolidators can differentiate, because how fees are
set by the effective national market system plan(s) might affect the
feasibility to offer such diverse products.\2094\ For example, while
with differentiation competing consolidators can save on costs and
lower their consolidation and dissemination fees, in the absence of
differential prices for data content, competing consolidators'
differentiated products will have smaller corresponding price
differences from their customers' perspective. This is because the
biggest component of the overall data fees (i.e., data content,
consolidation and dissemination, and connectivity fees) that the market
participants pay will likely be data content fees that will go to the
effective national market system plan(s). Thus, cost savings passed
onto customers in terms of lower consolidation and dissemination fees
will make a limited difference when customers are comparing overall
data fees. As a result, potential competing consolidators will have a
narrower price band within which to differentiate themselves and price
their products.
---------------------------------------------------------------------------

    \2094\ See infra Section V.C.2(a)(i)e for a discussion of the
influence of fees on the ability to differentiate.
---------------------------------------------------------------------------

    Some commenters expressed concern that competing consolidators will
not offer differentiated products.\2095\ Some commenters said that
market participants' ability to receive differentiated products depends
on the choices of the Operating Committee(s) of the national market
system plan(s) and competing consolidators, and that, the absence of
differentiation will recreate the status quo.\2096\ Another commenter
stated that competing consolidators will not differentiate because this
business will rely on economies of scale (i.e., achieving cost savings
by increasing their scale), not on economies of scope (i.e., achieving
cost savings by increasing their product offerings).\2097\ The
Commission believes that competing consolidators will offer
differentiated products for two reasons.
---------------------------------------------------------------------------

    \2095\ See, e.g., NYSE Letter II at 4; Data Boiler Letter I at
79.
    \2096\ See NYSE Letter II at 4; Nasdaq Letter IV at 25.
    \2097\ See Data Boiler Letter I at 79.
---------------------------------------------------------------------------

    First, while the Commission cannot be certain of whether such fees
would provide discounts for those who wish to receive subsets of
consolidated market data or based on usage categories,\2098\ the
Commission believes that some form of differential pricing for
consolidated market data is the most likely outcome as discussed
above.\2099\ With differential pricing for the data content underlying
consolidated market data, competing consolidators will have greater
opportunity to offer differentiated products to market
participants.\2100\ Likewise, exchanges continuing to offer
connectivity at different latencies with different corresponding prices
would further promote product differentiation by competing
consolidators. This is because differential connectivity fees will lead
to different fixed costs for competing consolidators (e.g.,

competing consolidators specialized in serving higher latency customers
can purchase slower or lower capacity connectivity products and lower
their fixed costs), and thus, different consolidation and dissemination
and connectivity fees can be charged to their customers. Finally,
competing consolidators are not required to consolidate and disseminate
the entirety of consolidated market data, for example if they want to
concentrate on a customer segment that prefers narrower data content.
All of these--differential data content fees, the exchanges'
differential connectivity fees, and the lack of a requirement to
process and provide the entire data content of consolidated market
data--will allow a larger price band over which potential competing
consolidators can differentiate and price their products to serve their
customers' diverse needs. On the other hand, this differentiation can
still take place, in a more limited way, even if the effective national
market system plan(s) do not implement any differential data content
fees.
---------------------------------------------------------------------------

    \2098\ See infra Section V.C.2(b)(ii) for further discussion of
these fees.
    \2099\ See supra Section V.C.2(a)(i)b for a discussion on the
potential new fee structures under the amendments.
    \2100\ See supra Section V.C.2(b) for an additional discussion
on differentiated products and data fees.
---------------------------------------------------------------------------

    Second, the Commission believes that, for competing consolidators,
scale and differentiation and specialization are complements not
substitutes, as suggested by one of the commenters.\2101\ Competing
consolidators could expand their scale and market share to be able to
spread their fixed costs over a larger set of customers than they
otherwise would, by relying on their differentiated product offerings,
similar to how the third party data aggregators operate today. For
example, current third party data aggregators can be focused on more or
less latency sensitive segments of the market and use this
differentiation as a way to reach a larger set of customers than they
otherwise would. The Commission believes that this business model will
carry over into the new competing consolidator business, and could
similarly differentiate across a variety of product characteristics
such as latency, data content, analytics, and user interfaces.
---------------------------------------------------------------------------

    \2101\ See Data Boiler Letter I at 56.
---------------------------------------------------------------------------

    Finally, in the absence of differentiation, the market might end up
with only one competing consolidator; \2102\ however, the Commission
believes this is a low probability outcome for the reasons discussed
above.
---------------------------------------------------------------------------

    \2102\ See infra Section V.C.2(a)(ii)a for a discussion on the
probability and potential results of having a single competing
consolidator operate in the market.
---------------------------------------------------------------------------

(ii) Risk of Few Competing Consolidator Registrants
    As discussed in the previous section, there are several factors
that may affect the number of competing consolidators entering the
market. These factors determine the number of competing consolidators,
which in turn determines the level of competition and ultimately the
magnitude of benefits from the final amendments. While the Commission
recognizes uncertainty in some of these factors, the Commission
believes that it is reasonable to assume that there will be a
sufficient number of competing consolidators to achieve the benefits of
the rulemaking and that the risk that the anticipated benefits of the
amendments will not materialize because of insufficient competition
among competing consolidators is low.\2103\
---------------------------------------------------------------------------

    \2103\ One of the commenters did not ``find any fault'' with the
Commission's assessment over the potential competitive outlook of
the competing consolidator market. The commenter stated that ``[t]he
Department finds no fault with the SEC's preliminary determination
that the risk is low that either no new SIP Data consolidators enter
or only very few enter.'' See DOJ Letter at 5.
---------------------------------------------------------------------------

    The assumption that there will be a sufficient number of competing
consolidators entering the market affects some economic effects of the
decentralized consolidation model. Generally, many of the benefits and
competitive considerations below depend on this assumption. For
example, the Commission believes that competition among competing
consolidators will lead to lower fees paid by market participants for
consolidated market data products,\2104\ larger gains in efficiency in
the delivery of consolidated market data products and market data
communication innovations,\2105\ as well as a reduction in data
consolidation and dissemination latencies.\2106\ In addition, some of
the costs discussed below also depend on this assumption. For example,
after the transition ends, the decentralized consolidation model will
decrease regulatory compliance costs imposed by Regulation SCI on
existing exclusive SIPs that may register as competing consolidators,
by changing their systems from ``critical SCI systems'' to ``SCI
systems.'' \2107\
---------------------------------------------------------------------------

    \2104\ See infra Section V.C.2(b).
    \2105\ See infra Section V.C.2(c).
    \2106\ Id.
    \2107\ See infra Section V.C.2(e)(ii) for a discussion on the
heightened requirements for ``critical SCI systems'' versus standard
requirements for ``SCI systems.''
---------------------------------------------------------------------------

    Some commenters questioned the Commission's assumption that there
will be a sufficient number of competing consolidators and argued that
there is not sufficient industry support for competing
consolidators.\2108\ On the other hand, several commenters indicated an
interest in becoming a potential competing consolidator \2109\ and one
commenter predicted that several of the other current market
participants will come forward to become one.\2110\
---------------------------------------------------------------------------

    \2108\ See, e.g., Nasdaq Letter IV at 2, 3, 23, 24, 47; NYSE
Letter II at 13, 16; TechNet Letter II at 2; Angel Letter at 20; IDS
Letter I at 3, 7. See also supra note 615.
    \2109\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at
2; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of
their interest in registering as competing consolidators.
    \2110\ See NovaSparks Letter at 1.
---------------------------------------------------------------------------

    The Commission continues to believe that the risk that the
anticipated benefits of the amendments will not materialize because the
likelihood of insufficient competition among competing consolidators is
low. Specifically, based on its analysis, as well as its experience and
judgment, the Commission believes that there will initially be at least
two competing consolidators and entry into the competing consolidator
market space will likely continue until no economic incentives are left
for any new competing consolidators to enter. The Commission believes
that the most likely outcome is three or more competing consolidators
with at least one competing consolidator that is not affiliated with
either one of the exchanges currently operating the exclusive SIPs or
an exchange that has sufficient proprietary data revenue that would
create conflicting profit incentives.\2111\ The Commission believes
that this scenario will likely lead to vigorous competition and, as a
result, will be enough for the predicted benefits to materialize.
---------------------------------------------------------------------------

    \2111\ See infra Section V.C.2(a)(ii)a for a discussion on
conflicting profit incentives of some potential competing
consolidators.
---------------------------------------------------------------------------

a. Likelihood of Zero or One Competing Consolidator
    In this section, the Commission analyzes the likelihood of zero or
one competing consolidators registering and believes that the risk of
either of these outcomes is low because of the strong incentives to
enter. As such, and also because of the transition period requirements,
the risk that the amendments will not achieve their benefits because
only one or no competing consolidators register is low.
    One commenter stated that the EU has been attempting to create a
market for competing consolidators, but ``no consolidators have signed
up. By declaring that the risk of few or zero consolidators is low, the
Commission appears to be signaling ignorance of the

experience of other countries.'' \2112\ The Commission does recognize
the risk of no entry, but believes that strong incentives to enter
render this risk low and that the European experience is not relevant
to the U.S. because the regulatory framework in Europe is very
different from that in the U.S.\2113\
---------------------------------------------------------------------------

    \2112\ See Angel Letter at 20.
    \2113\ The Commission does not believe that lack of potential
consolidated tape providers (the EU equivalent of competing
consolidators) in Europe has any implications for the U.S. markets
or the predictions of the amendments because the regulatory
framework within which the European market participants operate is
very different from the U.S. Most significantly, the relevant
European regulation, MiFID II, ``does not mandate the establishment
of a CT [consolidated tape] in the EU and does not oblige trading
venues and APAs [approved public arrangements] to submit transaction
data to a CTP [consolidated tape provider] for consolidation. The
latter solution is the one chosen by the legislation in the US.''
Under the European regulatory framework, both the supply of and
demand for market data would be uncertain, making it an economic
calculation very different from the one the potential competing
consolidators will make in the U.S. See European Securities and
Markets Authority, MiFID II/MiFIR Review Report No. 1, at 35,
available at https://www.esma.europa.eu/sites/default/files/library/mifid_ii_mifir_review_report_no_1_on_prices_for_
market_data_and_the_equity_ct.pdf (last accessed Sept. 1, 2020). For
additional discussion on how the European market data framework is
different from the one in the U.S., see Philip Stafford, EU-backed
study calls for new body to track equities trades, FINANCIAL TIMES
(Oct. 7, 2020), available at https://www.ft.com/content/616acec6-cfc4-44d4-95c0-6053a041e0d7.
---------------------------------------------------------------------------

    There is some risk of no entity entering the new competing
consolidator business for two reasons and if no entity enters as a
competing consolidator, none of the Commission's predicted benefits
will materialize. First, the potential registrants with some of the
lowest entry barriers are also the same market participants who
expressed a strong preference to maintain the current status quo.\2114\
Second, potential registrants who expressed interest in becoming
competing consolidators also expressed some concern about not being
able to compete with any potential competing consolidators affiliated
with the exchanges operating the exclusive SIPs, because they might not
be competing on a level playing field.\2115\
---------------------------------------------------------------------------

    \2114\ See, e.g., Equity Markets Association Letter at 2; NYSE
Letter II at 24; Nasdaq Letter IV at 5. The two exchanges operating
the exclusive SIPs stated that the exclusive SIP model performs very
well and does not need to be replaced with the decentralized
consolidation model.
    \2115\ One commenter said that its letter discusses ``the
significance of establishing a level playing field by ensuring fair
and equal access to exchanges and the need to extend these
principles to the legs of the market data distribution system over
which an exchange (or an exchange affiliate) may exercise direct or
indirect control.'' See McKay Letter at 2. See also ACTIV Financial
Letter at 2; MIAX Letter at 1.
---------------------------------------------------------------------------

    However, the Commission believes that this risk is low. Even if the
two exchanges operating the exclusive SIPs choose not to become
competing consolidators, there are several other potential entrants
that stated that they are interested in becoming a competing
consolidator.\2116\ For example, one or more of the exchanges that do
not currently operate an exclusive SIP have incentives to, and are
likely to, enter the new competing consolidator business.\2117\ Entry
into the competing consolidator business would provide these exchanges
new data processing and dissemination, as well as connectivity,
revenues. Additionally, being an entrant in the first wave could give a
competing consolidator some first mover advantage--even if small--to
capture a part of the market that is currently served by the exclusive
SIPs. The incentive to have a first mover advantage will only be
available to competing consolidators during the initial registration
period. In particular, the provision that temporarily precludes
registration once the initial registration period closes would provide
an incentive to register early, during the initial registration
period.\2118\ Furthermore, entry costs are going to be lowest during
this initial transition period,\2119\ making it more attractive to
register before this temporary relief expires.
---------------------------------------------------------------------------

    \2116\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at
2; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of
their interest in registering as competing consolidators. One market
participant submitted a comment letter to an NYSE filing fee where
the market participant stated that ``Virtu plans to establish a
competing consolidator to provide competitive market data
products.'' See letter from Douglas A. Cifu, Chief Executive
Officer, Virtu Financial, to Vanessa A. Countryman, Secretary,
Commission, dated Aug. 28, 2020, available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf. See also
IEX Letter at 2, 3.
    \2117\ One of the commenters, an exchange, expressed an interest
in becoming a competing consolidator. See MIAX Letter at 1.
Additionally, in the past, the same exchange was an active contender
to run one of the exclusive SIPs. The announcement made by the law
firm conducting the tender offer stated that ``The UTP Operating
Committee short-listed four firms as the finalists for the RFP bid:
CenturyLink, MIAX Technologies, Nasdaq and Thesys Technologies''
available at https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf (last accessed Sept. 7, 2020).
    \2118\ See supra Section III.H for a discussion on details of
the transition period.
    \2119\ The requirements of Regulation SCI will not apply to
competing consolidators during an initial phase in period after the
effective date of this rulemaking. See supra Section III.F for a
discussion of the amendments to Rule 1000 of Regulation SCI.
---------------------------------------------------------------------------

    In the unlikely event that only a single competing consolidator
enters the market, very few of the Commission's benefit predictions may
materialize. The Commission believes that market participants may
receive some benefits such as a degree of latency reduction and some
cost savings from only needing to connect to a single data provider
instead of the two exclusive SIPs. However, overall, most of the
predicted benefits depend on the new competing consolidator business
being a competitive market, and therefore, will not likely materialize
if only a single competing consolidator registers.
    The Commission believes that a single competing consolidator
scenario is also a low probability outcome. The Commission believes
that both of the exchanges operating the exclusive SIPs have strong
incentives to enter \2120\ the new competing consolidator market
because under the amendments, the exclusive SIPs will no longer be the
exclusive consolidators and disseminators of market data and this will
lead to potential revenue losses for the exchanges operating the
exclusive SIPs.\2121\ The exchanges operating the exclusive SIPs will
be incentivized to enter during the initial registration period to
start recouping some or all of their potential losses, because
competing consolidators that do not enter during the initial wave will
not be able to register and operate until the Commission opens up the
registration process again.\2122\ Additionally, the two exchanges
operating the exclusive SIPs have entry costs, profit potentials, and
economic interests similar to each other. Thus, neither exchange may
leave the new consolidated market data business entirely to the other
one and not pursue the chance to recoup some or all of their potential
losses from no longer having the exclusive rights to consolidate and
disseminate market data. Finally, as mentioned above, there are several
other market participants who already have expressed an interest in
becoming a competing consolidator, expanding the potential pool of
initial entrants.\2123\
---------------------------------------------------------------------------

    \2120\ Throughout this section, ``entry by an exchange operating
an exclusive SIP'' refers to either the exchange or one of its
affiliates becoming a competing consolidator.
    \2121\ See infra Section V.C.2(d) for a discussion of the
indirect costs of the decentralized consolidation model.
    \2122\ See supra Section III.H for a discussion on the
transition and initial registration period.
    \2123\ See supra note 2109.
---------------------------------------------------------------------------

b. Likelihood of Two Competing Consolidators and Impact on Benefits
    The Commission believes that the likelihood that only two market
participants enter as competing consolidators is slightly higher than
the likelihood of zero or one.\2124\ This will

most likely happen if two competing consolidators affiliated with the
exchanges operating the exclusive SIPs file to be the two initial
entrants,\2125\ because the disclosure of their identities will
potentially deter other potential competing consolidators from
registering. The exclusive SIPs have a lot of experience in data
consolidation and dissemination, which might deter other potential
competing consolidators from entering. Additionally, while several
commenters expressed an interest in becoming competing consolidators,
they also listed several issues they see as potential risks.\2126\ Most
of those risks were about the exchanges operating the exclusive SIPs
not creating a level playing field for competing consolidators that are
not affiliated with them. To the extent that any potential competing
consolidator believes that they cannot compete with the exchanges
operating the exclusive SIPs, they might not register as additional
competing consolidators, leaving the market with only two competing
consolidators where both are affiliated with the exchanges operating
the exclusive SIPs.
---------------------------------------------------------------------------

    \2124\ One commenter stated that ``[o]ne possibility is that
only two consolidators will emerge (the current operators of the CTA
and UTP plans).'' See Angel Letter at 20.
    \2125\ The Commission believes an outcome of two competing
consolidators, where one or both are unaffiliated with either of the
exchanges operating the exclusive SIPs, is a very low probability
one. This is because, as discussed above, the Commission believes
that in such a situation both of the exchanges operating the
exclusive SIPs will have incentives to enter. Thus it is unlikely
that this would be a two competing consolidator scenario.
    \2126\ See, e.g., ACTIV Financial Letter at 1; McKay Letter at
2; NovaSparks Letter at 1; MIAX Letter at 1 for the risks the
commenters state about competing consolidators' ability to compete
on level playing field.
---------------------------------------------------------------------------

    In the event that the consolidated market data business is served
by only two competing consolidators that are both affiliated with the
exchanges operating the exclusive SIPs, some of the economic benefits
of the competing consolidator model may be limited. In particular,
while this result could produce lower gains in delivery efficiency,
innovation, and latency differentials and less competitive pressure on
data processing and delivery fees, it could bring some degree of
competition and corresponding benefits relative to the exclusive SIP
model.
    If the only competing consolidators to enter are the exchanges
operating the exclusive SIPs, the outcome could be lower gains in data
delivery efficiency and innovation, and smaller reductions in data
consolidation and dissemination latencies. This may be the case
primarily because competing consolidators that are affiliated with the
exchanges operating the exclusive SIPs would have conflicting profit
incentives. For a portion of the market participants, new consolidated
market data and proprietary data could be close substitutes. Thus for
competing consolidators serving those market participants, the
consolidated market data business may cannibalize profits from their
parent company's proprietary data business. In that case, these
competing consolidators would have to weigh their potential revenue
gains from the competing consolidator business against their parent
company's potential losses from the proprietary data business. This
prospect would reduce these competing consolidators' incentives to
compete in this new business line.\2127\ Under this scenario, if the
market is being served only by two competing consolidators both
affiliated with the exchanges operating the exclusive SIPs, market
participants would lack a consolidated market data product vendor
without conflicting profit incentives.
---------------------------------------------------------------------------

    \2127\ One commenter stated that just having SIAC and Nasdaq UTP
as competing consolidators will not create a very competitive market
because it ``will do little to encourage innovation or price
competition as intended by the Proposal.'' See MIAX Letter at 4.
---------------------------------------------------------------------------

    Additionally, if there are only two competing consolidators both
with conflicting profit incentives, there may not be strong downward
competitive pressure on data processing and delivery fees. The
Commission's prediction about any downward pressure on data processing
and delivery fees depends on the strength of competition among
competing consolidators. Having just two competing consolidators--both
affiliated with an exchange, with similar economic incentives, and a
shared history of serving the whole SIP data market without competing
with each other--could soften competition. Specifically, these two
competing consolidators might explore opportunities to differentiate in
ways that limit competition, such as offering products in different
sets of stocks or capturing completely different segments of the
market. If market participants would not see these two competing
consolidators' products as viable substitutes, they would not be able
to switch between them. And this would remove most of the competitive
pressure on data processing and delivery fees.
    However, even the scenario with only two competing consolidators
affiliated with the exchanges operating the exclusive SIPs will bring
some degree of competition and corresponding benefits relative to the
exclusive SIP model. Unlike the exclusive SIPs today, the exchange-
affiliated competing consolidators will operate under a threat of
competition from each other and from other potential entrants if an
economic opportunity presents itself. In particular, the exchange-
affiliated competing consolidators will still have an economic
incentive to target each other's customers by introducing new data
products serving those customers' needs. In addition, there will likely
be some latency benefits from being able to get a consolidated feed
from a single competing consolidator instead of the two exclusive SIPs.
Additionally, market participants might see some decline in their
consolidation and dissemination costs for equivalent data.\2128\
Finally, if an economic opportunity emerges, perhaps because of supra-
competitive prices charged by the existing competing consolidators that
are affiliated with the exchanges operating the exclusive SIPs, another
market participant might register to become a new competing
consolidator, and try to capture those customers with product offerings
at lower prices.
---------------------------------------------------------------------------

    \2128\ One commenter agreed. See Angel Letter at 21.
---------------------------------------------------------------------------

c. Likelihood of Three or More Competing Consolidators With at Least
One Unaffiliated Third Party Registrant and Impact on Benefits
    The Commission believes that the most likely scenario for the new
data consolidation business is for there to be three or more entrants,
where at least one of the newly registered competing consolidators is
not affiliated with either one of the exchanges operating an exclusive
SIP or an exchange with a proprietary data revenue stream enough to
create conflicting profit incentives.\2129\ The Commission believes
that this scenario will likely lead to vigorous competition and, as a
result, will be enough for the predicted benefits to materialize.
---------------------------------------------------------------------------

    \2129\ For a competing consolidator affiliated with an exchange
that has a proprietary data revenue stream, there could be
conflicting profit incentives as described in Section V.C.2(a)(ii)b.
The degree of this conflicting profit incentive will depend on the
size of the proprietary data stream relative to the exchange's
overall revenues.
---------------------------------------------------------------------------

    The Commission believes that in addition to the exchanges operating
a current exclusive SIP, there are several market participants, such as
current third party data aggregators or other intermediary product and/
or service providers or exchanges that do not currently operate an
exclusive SIP that would have the capability and incentives to enter
the newly created

competing consolidator business.\2130\ Some of the commenters already
expressed an interest in doing so.\2131\
---------------------------------------------------------------------------

    \2130\ One commenter said that ``[t]he Commission cites only a
handful of entities who sought to become data processors in the
context of a guaranteed monopoly.'' See NYSE Letter II at 19. The
Commission agrees and notes that for the 2014 UTP SIP tender 11
intent to bid letters were submitted. Similarly, for the CAT SIP
tender over 30 intent to bid letters were submitted. See 2014 UTP
SIP tender processor selection announcement, available at https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf (last accessed Aug. 12, 2020);
2017 CAT SIP tender processor selection announcement, available at
https://financialservices.house.gov/uploadedfiles/11.30.2017_mike_beller_testimony.pdf (last accessed Aug. 12, 2020).
    \2131\ See, e.g., McKay Letter at 2; ACTIV Financial Letter at
1; NovaSparks Letter at 1; MIAX Letter at 1 for an expression of
their interest in registering as competing consolidators. See also
letter from Douglas A. Cifu, Chief Executive Officer, Virtu
Financial, to Vanessa A. Countryman, Secretary, Commission, dated
Aug. 28, 2020, available at https://www.sec.gov/comments/sr-nyse-2020-05/srnyse202005-7707480-222891.pdf.
---------------------------------------------------------------------------

    Several current market participants, such as third party data
aggregators or other intermediary product and/or service providers in
the market data space, have the technical capabilities,\2132\ customer
base,\2133\ and incentives a new entrant would need. Some of the
potential competing consolidators that might register to enter this new
business line are some of the most technically sophisticated industry
participants. These market participants are currently operating in
adjacent markets (e.g., proprietary data aggregation business), making
entry into the new consolidated data business easier. Others currently
serve as normalizers of the SIP data for retail investors.\2134\ They
are experienced in market data processing and dissemination, and
already serve a portion of the market.
---------------------------------------------------------------------------

    \2132\ See, e.g., McKay Letter at 1 note 1; ACTIV Financial
Letter at 1 note 1; NovaSparks Letter at 1; MIAX Letter at 1.
    \2133\ One of the commenters said that while it would like to
contemplate being a competing consolidator, any contender would need
a large customer base that the commenter believes it does not have.
According to the commenter, the big market data aggregators with an
existing large customer base are the ones that can achieve this. The
Commenter said that ``[d]ominated (sic) market data aggregators,
like Bloomberg and Refinitiv, would most likely spread their fixed
cost to large customer base in quickest time.'' See Data Boiler
Letter I at 84; Data Boiler Letter II at 1.
    \2134\ See supra note 1777. Companies that normalize market data
take in raw data delivered in a variety of protocols and, using feed
handlers, normalize into single protocol different from the one used
by the original venue. This way a data user can receive one feed
using one streaming protocol. See Vela blog, available at https://info.tradevela.com/definitive-guide-to-market-data#normalisation
(last accessed Sept. 17, 2020).
---------------------------------------------------------------------------

    These potential competing consolidators also have the incentives to
enter this new competing consolidator business. For an exchange that
does not currently operate an exclusive SIP, competing consolidator
business would provide an opportunity to get new data consolidation and
dissemination as well as connectivity revenues. For a third party data
aggregator, it would be a chance to build upon its existing business.
For example, if a current third party data aggregator's main revenue
source is its normalized SIP data products, then registering as a
competing consolidator would be the most direct way for this data
aggregator to continue receiving its revenue stream. Even if a current
third party data aggregator is mainly focused on the proprietary data
aggregation business, becoming a competing consolidator would be a new
revenue source and would not create the same conflicting profit
incentives described above.
    The Commission believes that if three or more competing
consolidators enter the market where at least one of them is not
affiliated with either one of the exchanges operating the exclusive
SIPs or an exchange with sufficient proprietary data revenue to create
conflicting profit incentives, this scenario will lead to vigorous
competition and will be enough for the predicted benefits to
materialize. The conflicting profit incentives described above stem
from a competing consolidator's proprietary data customers switching to
use consolidated market data products if the data content and speed of
the latter become a viable substitute for them. The conflicting profit
incentives would stem from the fact that the exchange would have data
content revenues to lose as a result of its competing consolidator's
customers switching from proprietary data to consolidated market data.
But if an exchange does not have significant data content revenues to
lose, they would not have such a conflicting profit incentive. A
competing consolidator's revenues will mainly come from its data
processing, dissemination, and connectivity services, irrespective of
the data content it disseminates. Without conflicting profit
incentives, such a competing consolidator will focus on expanding its
revenue base by aggressively pursuing consolidated market data product
clients and capturing an ever larger market share. As part of this
pursuit, this competing consolidator would have an incentive to
innovate to gain efficiency and speed in data processing and delivery,
reduce its costs, and potentially pass on some of these cost savings to
its clients to gain market share. Therefore, even if some of the
potential competing consolidators have conflicting profit incentives,
if at least one other competing consolidator is free from this
conflict, competition will intensify.
    Overall, the Commission believes that there will initially be at
least two competing consolidators and entry into the competing
consolidator market space will likely continue until no economic
incentives are left for new entry. The Commission believes that the
most likely outcome is three or more competing consolidators with at
least one competing consolidator that is not affiliated with either one
of the exchanges operating the exclusive SIPs or with an exchange with
a proprietary data revenue stream that creates conflicting profit
incentives. As the number of competitors increase, the level of
competition among them will intensify until no economic incentive is
left for new entry. As discussed below,\2135\ intensifying competition
will benefit market participants.
---------------------------------------------------------------------------

    \2135\ See infra Section V.C.2(c) for a discussion on the
benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

    One commenter stated that the Commission did not consider a
possible scenario of ``a relatively large number of high-cost
consolidators charging high prices for NMS information.'' \2136\ As
discussed above,\2137\ the Commission believes that a large number of
high-cost competing consolidators will not be an equilibrium outcome,
because while competing consolidators will have an incentive to
differentiate and capture different segments of the market, they can
also offer each other's products if they see an economic opportunity to
do so. If a large number of high-cost competing consolidators enter
this new business line, over time the more efficient of those will
capture market share from the less efficient ones.\2138\ This is
because more efficient competing consolidators will have lower costs
and therefore the ability to charge lower prices to market participants
and increase their market share. The ability to differentiate will not
change this dynamic, because even as competing consolidators
differentiate, this real threat of competition will discipline prices
and efficiency in the consolidated market data space and will drive out
inefficient competing consolidators.
---------------------------------------------------------------------------

    \2136\ See Nasdaq Letter IV at 23, 24.
    \2137\ See supra Section V.C.2(b) for a discussion of fees as
one of the factors to influence the strength of competition in the
competing consolidator business.
    \2138\ In a market, more efficient companies have lower
production costs and therefore can lower their prices relative to
and capture market share from higher cost, thus more inefficient,
companies.

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

    Some commenters questioned the likelihood of any potential
competing consolidators entering the market because of the uncertainty
associated with the proposed transition period.\2139\ One commenter
questioned whether market participants would have incentives to make
large investments before the effective national market system plan(s)
sets data content fees.\2140\ Another commenter stated that potential
entrants would have to make large investments ``but would have no
ability to earn any returns on those investments--or estimate when or
if such returns would be realized--until after the Commission has
elected to transition to the decentralized model.'' \2141\
---------------------------------------------------------------------------

    \2139\ See NYSE Letter II at 15, 16; IDS Letter I at 8, 9. See
Proposing Release, 85 FR at 16794-95 for a discussion of the
transition period.
    \2140\ See IDS Letter I at 8.
    \2141\ See NYSE Letter II at 16.
---------------------------------------------------------------------------

    The Commission believes that three aspects of the adopted
transition period, discussed above,\2142\ addresses the issues raised
by the commenters. First, potential competing consolidators will be
able to see and comment on the data content fees before deciding
whether to register and become a competing consolidator. This will
eliminate some of the uncertainties about the potential value of the
new competing consolidator business. Second, in phase one, following
the development and testing periods, potential competing consolidators
will be able to start operating and earn revenues as soon as they
complete their test period. Thus competing consolidators would not be
making large investments to earn potential future returns at an
uncertain time.\2143\ Finally, the Commission will implement an initial
registration period with the following two features designed to
encourage entry into the new competing consolidator business space. The
first feature is the limited initial registration period, which limits
market participants' ability to enter the competing consolidator market
until after the exclusive SIPs are retired, if they miss the first
wave. This feature could encourage entry because being in the initial
wave of competing consolidators could help market participants achieve
a first mover advantage and capture some market share. However, the
registration requirements for potential competing consolidators are the
same whether they enter during the initial registration period or after
the exclusive SIPs are retired. If a potential competing consolidator
enters in the second wave, they will miss the opportunity to have a
first mover advantage, but otherwise will go through the same
registration process. The second feature is the disclosure of market
participants' identities shortly after their filing of a Form CC.\2144\
This feature, in combination with the first one, could encourage entry
because once potential competing consolidators start to register, these
disclosures will signal that there are market participants interested
in becoming competing consolidators in addition to revealing their
identities. This could encourage other potential competing
consolidators to register instead of adopting a wait-and-see approach.
---------------------------------------------------------------------------

    \2142\ See supra Section III.H for a discussion on the three
phases of the transition period.
    \2143\ See supra note 1356 for a discussion on the length of
time it might take to reach this point in the transition to the
decentralized consolidation model.
    \2144\ See supra Section III.C.7(i)(ii) for a discussion on the
disclosure of an initial Form CC filer's identity.
---------------------------------------------------------------------------

    Lastly, one commenter stated that the Commission ``fails to
consider the possibility that, once the new model was in place,
sufficient numbers of competing consolidators could cease operations,
resulting in a system that is not viable.'' \2145\ The Commission
acknowledges that after the new model is established, there might be
some on-going entry and exit of competing consolidators, an expected
economic dynamic just like in every other market place. However, the
Commission believes that there is no reason for the economic conditions
of the market to change drastically to lead to a wave of competing
consolidator exits and a consolidated market data space without enough
competition for two reasons. First, demand for consolidated market data
products is not likely to dramatically decline over time, because
market participants need certain consolidated market data products for
regulatory compliance. Second, supply by competing consolidators is
also unlikely to decline dramatically because as discussed above,\2146\
a competing consolidator is required to provide 90 calendar days'
notice of its cessation of operations. This advance notice will provide
enough time for new competing consolidators to enter the market or
existing competing consolidators to expand their products and services
to meet any unmet demand stemming from a competing consolidator's exit.
---------------------------------------------------------------------------

    \2145\ See IDS Letter I at 9.
    \2146\ See supra Section III.C.7(g)(ii) for a discussion on the
requirements to file a notice of cessation.
---------------------------------------------------------------------------

(b) Analysis of the Impact on Data Fees
    The introduction of the decentralized consolidation model is likely
to reduce the fees market participants will pay for consolidated market
data. When comparing data fees for the consolidated market data with
current data fees, this economic analysis holds data content constant.
In other words, the fee comparison in this analysis is between what
market participants will pay under the amendments versus what they
currently would have to pay to access the same content. Specifically,
the analysis finds that the amendments are likely to reduce, and
unlikely to increase, fees paid for the equivalent of consolidated
market data as well as the fees paid for the equivalent current SIP
content. This effect on fees underlies the potential for many of the
benefits and costs discussed above in Section V.C.1 and below in
Section V.D.1 to be realized.
(i) Fees for Consolidated Market Data Content
    The Commission believes that the total fees for the equivalent of
consolidated market data (i.e., data content, consolidation and
dissemination, and connectivity fees) are likely to decline because of
the amendments, but recognizes uncertainty about how the effective
national market system plan(s) will set the fees for data content
underlying consolidated market data offerings \2147\ and how SROs will
set the fees for connectivity necessary to receive the data content
underlying consolidated market data as well as how the competing
consolidators will price their services. As a result of lower fees,
some market participants will choose to purchase more market data
content than they purchase today, such as purchasing the expanded core
data. The likelihood of this outcome will depend on the difference
between total fees for consolidated market data and current total fees
for equivalent data content.\2148\
---------------------------------------------------------------------------

    \2147\ Several commenters agree. See, e.g., NYSE Letter II at
19-20; STANY Letter II at 5.
    \2148\ The economic effect of more market participants
purchasing expanded core data is discussed above in Section
V.C.1(c).
---------------------------------------------------------------------------

    The Commission believes that three sets of fees may be affected as
a result of this rule: Fees for data content underlying consolidated
market data offerings, fees for the consolidation and dissemination of
consolidated market data products, and fees for the connectivity
services necessary to receive the data content underlying

consolidated market data from the SROs.\2149\
---------------------------------------------------------------------------

    \2149\ The first two fees are currently bundled into a single
fee, which covers SROs' data and the exclusive SIPs' operations such
as consolidation and dissemination of data. The amendments will
unbundle these two components and will allow competing consolidators
to provide the data consolidation and dissemination services. Under
the rule, the fee for data content will be set by the effective
national market system plan(s). See supra Section III.E.2(c) and
Proposing Release, 85 FR at n. 96 for a discussion on the amendments
to the provision regulating effective national market system plan(s)
fee filings. Within 150 days of the effectiveness of Rule 614, the
Operating Committee(s) of the effective national market system
plan(s) will be required to propose the data content fees for the
SROs' data required to create consolidated market data and will then
file the proposed fees with the Commission for consideration
pursuant to Rule 608. See supra Section III.H.1. Competing
consolidators will likely charge a second fee for their
consolidation and dissemination services, which could also include
associated costs for data access at exchanges and transmission of
data between data centers. The fees for data consolidation and
dissemination will be determined by competition among competing
consolidators. Finally, SROs currently charge connectivity fees for
both exclusive SIP and proprietary data feeds. Under the amendments,
SROs could charge connectivity fees to competing consolidators and
self-aggregators, which must be consistent with statutory standards.
Currently, connectivity fees are charged to the market participants
that connect to the exchange and not to end users. See Proposing
Release, 85 FR at n. 1017. Competing consolidators could charge
connectivity fees to end users, which will be subject to competitive
forces.
---------------------------------------------------------------------------

d. Data Content Fees
    The Commission believes that the fees for the data content used to
create consolidated market data are unlikely to increase and actually
will likely be lower than today's fees for equivalent data,\2150\
because the effective national market system plan(s) would have to
satisfy the statutory standards that apply to such data. In addition,
fees for data content underlying consolidated market data will be
subject to a notice and comment period and Commission approval. As
discussed above, the fees for the data content underlying consolidated
market data must be fair, reasonable and not unreasonably
discriminatory. One method for demonstrating compliance with such
requirements is that fees are reasonably related to costs; this has
been the principal method discussed by the Commission for analyzing the
fairness and reasonableness of such fees for core data since the Market
Information Concept Release.\2151\
---------------------------------------------------------------------------

    \2150\ The Operating Committee(s) of the effective national
market system plan(s) will have to propose the data content fees for
the SROs' data required to create consolidated market data and will
then file the proposed fees with the Commission for consideration
pursuant to Rule 608, within 150 days of the effectiveness of Rule
614. See supra Section III.H.2.
    \2151\ For the purposes of this section, the Commission assumes
that the Operating Committee of the effective national market system
plan(s) will set fees for data content underlying consolidated
market data offerings that are reasonably related to costs. See
III.E.2(c) for a discussion of the statutory standards for fees on
the data content underlying consolidated market data. See also supra
note 21.
---------------------------------------------------------------------------

    The Commission believes that the fees for consolidated market data
will likely be subject to downward pressure. Specifically, the new data
content underlying consolidated market data (i.e., depth of book data,
auction information, and odd-lot information) are currently elements of
proprietary data products, which are assessed under the statutory
standards that apply to proprietary data and are effective on
filing.\2152\ However, fees for data content underlying consolidated
market data will be developed and proposed by the effective national
market system plan(s) and will be subject to notice and comment.\2153\
As stated above,\2154\ the fees for the data content underlying
consolidated market data must satisfy the statutory standards of being
fair, reasonable, and not unreasonably discriminatory. The Commission
has historically analyzed fees for consolidated SIP data generated
under the national market system plans using a standard under which
fees are reasonably related to cost, while its analysis of proprietary
data fees has not been limited in this manner.\2155\
---------------------------------------------------------------------------

    \2152\ See supra Section III.B.6. These statutory standards
include Section 6(b)(4) of the Exchange Act and Section 11A(c)(1)(D)
and Rule 603(a) under Regulation NMS.
    \2153\ See Effective-Upon-Filing Adopting Release, supra note
17.
    \2154\ See supra Section III.B.6 and Section III.E.2(c).
    \2155\ See supra Section III.E.2(c); see also notes 1175 and
1178.
---------------------------------------------------------------------------

    Under such methodology, data content fees are likely to decrease
because between 2010 and 2018, the proprietary data feed portion of the
current fees for equivalent data appears to have increased at a rate
that seems unlikely to have been based on costs.\2156\ To the extent
that the exchanges have generally not attempted to justify their
proprietary data fees on a cost basis but instead relied on other
justifications, their fees seem to have outpaced their costs.\2157\
---------------------------------------------------------------------------

    \2156\ See supra Section V.B.2(d); see, e.g., AHSAT Letter at 1;
Better Markets Letter at 4.
    \2157\ In a comment letter, IEX provided data that the SRO
markups on proprietary data may be large. In particular, IEX
compared its own costs of providing proprietary market data with the
fees charged by other exchanges for comparable produces and found
markups of 900-1,800 percent. See Katsuyama Letter II; Letter from
John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, to
Brent J. Fields, Secretary, Commission (Feb. 4, 2019) (discussing
the ``all-in'' cost to trade concept advocated by other exchanges).
Additionally, in a letter submitted in advance of the Market Data
Roundtable, one commenter stated that ``[t]he Exchanges have
formulated pricing schemes that layer in redundant costs and fees
which raises the true cost of market data well above the costs of
producing and distributing the data'' and that ``the Exchanges
impose multiple synthetic access fees for participants to physically
connect to obtain the required data; these costs bear no relation to
the Exchanges' actual cost of the connectivity.'' See letter from
Douglas A. Cifu, Chief Executive Officer, Virtu Financial, to Brent
J. Fields, Secretary, Commission, dated Oct. 23, 2018, at 3, 5,
available at https://www.sec.gov/comments/4-729/4729-4558490-176196.pdf.
---------------------------------------------------------------------------

    The Commission believes that fees for content equivalent to the
data content of consolidated market data will not increase because the
downward pressure on fees noted above will not permit the fees for
consolidated market data to be greater than the sum of the current fees
for individual data components. Currently, market participants who want
to access content equivalent to the data content of consolidated market
data need to separately purchase SIP data and additional data elements
from each exchange via proprietary data feeds.\2158\ As discussed in
the Proposing Release,\2159\ the Commission understands that SRO
proprietary feeds for depth of book data are more expensive than the
exclusive SIP feeds.\2160\ The Commission believes that

a combination of these data elements, in the form of consolidated
market data, is unlikely to be priced more than the sum of its parts.
---------------------------------------------------------------------------

    \2158\ Currently, fees for SIP data and proprietary data are
generally charged based on the number and type of end user of the
data. For example, the CTA/CQ Plan Schedule of Charges distinguishes
fees by professional and nonprofessional subscribers and the number
of devices. See CTA Plan, Schedule of Market Data Charges, supra
note 1734; Proposing Release, 85 FR at n. 1511. The Nasdaq UTP Plan,
Exhibit 2 provides separate fees for non-professionals and per
device fees. See Proposing Release, 85 FR at n. 13 for Nasdaq UTP
Plan. Similar user distinctions are made in proprietary data
products. See Nasdaq, Price List--U.S. Equities, available at
www.nasdaqtrader.com/Trader.aspx?id=DPUSdata#tv (last accessed Jan.
30, 2020) (showing Nasdaq TotalView usage fees, which provide fees
for professional and non-professional subscribers); NYSE Proprietary
Market Data Fees (as of Nov. 4, 2019), available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Fee_Schedule.pdf
(showing the NYSE Integrated Feed fee schedule, which distinguishes
between professional and non-professional users).
    \2159\ See Proposing Release, 85 FR at 16839. See also supra
Section I.B.
    \2160\ Several commenters supported this statement, some of whom
stated that the fees for the exchanges' proprietary data makes it
hard for them to fulfill their regulatory requirements. See, e.g.,
AHSAT Letter at 1; Better Markets Letter at 4. But another commenter
stated that this statement represents an ``apples-to-oranges''
comparison, because a DOB feed contains more information than the
exclusive SIP feeds. See Nasdaq Letter IV at 49. The Commission is
aware that there is more information in the DOB feeds than the SIP
feeds; the comparison in this statement is of the SIP data fees to
the proprietary data fees to explain how the two current data
content components' underlying consolidated market data are priced.
This is because today any market participant that wants to get data
content equivalent to consolidated market data would have to pay for
certain DOB feeds as well as the SIP data feeds.
---------------------------------------------------------------------------

    Finally, the Commission would not expect fees for content
equivalent to the data content of consolidated market data to be
higher, because under the amendments the SROs are not required to incur
significant new costs by creating a separate dedicated data feed and
connectivity system. The amendments allow the SROs to use their
existing proprietary data and connectivity infrastructure to provide
the data content underlying consolidated market data.\2161\ This
provision will likely reduce the SROs' implementation costs, further
limiting the probability that the fees proposed by the effective
national market system plan(s) for the data content underlying
consolidated market data will be higher than the current fees for
equivalent data.\2162\ In addition, the Commission does not believe
that the rule will significantly increase SRO costs specifically for
distributing data.\2163\ However, the exchanges could shift the
allocation of fixed exchange costs to consolidated market data from
some of their proprietary data.\2164\ The Commission lacks the
necessary information to ascertain those impacts.
---------------------------------------------------------------------------

    \2161\ See supra Section III.B.9(b) for a discussion on how the
SROs will provide the data content underlying consolidated market
data.
    \2162\ See supra Section V.C.1(c)(iv).
    \2163\ See id.
    \2164\ One commenter agreed with the Commission's assessment
however did not provide any analysis or data. See BlackRock Letter
at 5. See also infra Section V.C.4(a) for a discussion of the likely
effects of the rule on the revenues exchanges receive for
proprietary data.
---------------------------------------------------------------------------

e. Consolidation and Dissemination Fees
    The Commission believes that data consolidation and dissemination
fees for consolidated market data products will be lower than
consolidation and dissemination fees market participants currently pay
to receive equivalent data for two reasons.\2165\
---------------------------------------------------------------------------

    \2165\ Some commenters agreed. See, e.g., IntelligentCross
Letter at 5.
---------------------------------------------------------------------------

    First, to receive data equivalent to consolidated market data
today, market participants would have to pay separately for a portion
of exclusive SIPs' cost to perform consolidation and dissemination of
market data and a fee for consolidation and dissemination of additional
data content underlying consolidated market data that are available via
third-party providers of proprietary market data, who face competitive
pressures. As discussed above,\2166\ exclusive SIPs are not constrained
by competition and thus have lower incentives to reduce their costs. By
comparison, the Commission expects that competition among competing
consolidators will put downward pricing pressure on these service fees,
because competing consolidators will have incentives to undertake
investments intended to lower costs and improve quality in the
provision of consolidated market data products. Competing consolidators
will be competing over market share. Unlike in today's world of
exclusive SIPs, under the amendments, a competing consolidator's
inefficiencies or lack of desirable products could lead to its clients
switching to another consolidated data vendor and that competing
consolidator losing market share or even getting driven out of the
market. The Commission recognizes that the stronger the competition
among competing consolidators, the harder it would be for any given
competing consolidator to increase its consolidation and dissemination
fees and make supra-competitive profits from these services.\2167\
---------------------------------------------------------------------------

    \2166\ Several commenters agreed. See, e.g., DOJ Letter at 5;
MFA Letter at 2; AHSAT Letter at 1. See also supra Section V.A.2.
    \2167\ See infra Section V.C.2(c) for a discussion on the
benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

    Second, the fixed costs of the competing consolidators could be
spread out among its subscribers, including subscribers to services
provided by the competing consolidators that are not covered by the
fees established by the effective national market system plan(s) such
as, for example, proprietary data customers that might be purchasing
their data from competing consolidators that also sell consolidated
market data products. Consolidation and dissemination fees that
competing consolidators will charge for equivalent data are expected to
cover several associated costs, including fixed costs of hardware and
software, processing to take in data, processing for consolidation
(including compiling the NBBO and protected quotes), distribution of
the data, and connectivity fees paid to exchanges to acquire the data
for consolidation. The variable costs of the competing consolidators
will be minor in comparison because additional data users will have a
minimal impact on the costs of competing consolidators. Because having
more subscribers could help competing consolidators spread out their
fixed costs, any increase in the number of subscribers of current
market data aggregators who would become competing consolidators would
reduce the consolidation and dissemination fees of those aggregators in
equivalent data. For example, some market participants who currently
use proprietary data might switch to using consolidated market data
products.\2168\ Additionally, as discussed below, the availability of
the new consolidated market data might allow new entry into the market
making, broker-dealer, and other trading businesses.\2169\ This would
expand the potential subscriber pool, giving competing consolidators a
chance to further spread their fixed costs. For these reasons, the
Commission believes that the competition among competing consolidators
will lead to lower consolidation and dissemination fees for
consolidated market data products as compared to these fees for
equivalent data today.
---------------------------------------------------------------------------

    \2168\ One of the commenters agreed that some of the current
proprietary data users might switch to using consolidated market
data products. According to the commenter, a portion of those could
become self-aggregators and others could be served by competing
consolidators. See Nasdaq Letter IV at 25. See also infra Section
V.C.4(a) for a discussion on the effects of the amendments on
exchanges' proprietary data feeds.
    \2169\ See infra Section V.C.4(b) for a discussion on new
potential entrants into the market maker, broker-dealer, and other
latency sensitive trading businesses.
---------------------------------------------------------------------------

f. Connectivity Fees
    The Commission believes that connectivity fees charged by competing
consolidators for consolidated market data products will also be lower
than connectivity fees market participants would currently have to pay
to receive equivalent data. To receive data equivalent to consolidated
market data today, market participants currently have to pay separately
a connectivity fee to the exchanges to access SIP data and a
connectivity fee to the exchanges or market data aggregators to access
additional data elements that are not part of SIP data but that will be
part of consolidated market data. Under the rule, the Commission
expects that market participants will pay only one connectivity fee for
consolidated market data products (unless they choose to have a back-up
competing consolidator), set by a competing consolidator, and this
connectivity fee will be subject to competition among competing
consolidators. Competing consolidators will have the ability to sell
potentially substitutable data products via their connectivity,
subjecting their connectivity products to competition. By contrast,
current exchange connectivity fees may not be as competitive because an
exchange has sole control over its own connectivity

charge for its proprietary market data.\2170\ Therefore, the Commission
believes that connectivity fees that will be charged by competing
consolidators for consolidated market data products will be lower than
the connectivity fees for equivalent data today.
---------------------------------------------------------------------------

    \2170\ Several commenters agreed. See, e.g., Virtu Letter at 2;
SIFMA Letter at 4; IEX Letter at 5-6.
---------------------------------------------------------------------------

    The Commission recognizes that SROs will charge connectivity fees
to competing consolidators and self-aggregators. The exchanges could
continue to set connectivity fees for data feeds as part of their SRO
fee schedules, and these fees must continue to meet statutory
standards.\2171\ The exchanges' connectivity fees are not currently
based on the number of end users, and therefore the Commission believes
that the connectivity fees for consolidated market data products would
not be directly passed through to the end users. SRO connectivity fees
would be fixed costs incurred by self-aggregators and by competing
consolidators, a cost the latter could spread out among their end users
as a part of the consolidation and dissemination as well as
connectivity fees.
---------------------------------------------------------------------------

    \2171\ For example, under Section 6(b)(4) of the Exchange Act,
the rules of an exchange must ``provide for the equitable allocation
of reasonable dues, fees, and other charges among its members and
issuers and other persons using its facilities.''
---------------------------------------------------------------------------

g. Response to Comments on Fees for Consolidated Market Data
    Several commenters stated that the decentralized consolidation
model is unlikely to reduce data costs, including because of the richer
core data content and the additional upkeep costs introduced by the
decentralized consolidation model.\2172\ One commenter said that the
uncertainty around data reliability and fees did not provide assurances
that the market data costs would decline after adoption of these
amendments.\2173\ Another commenter stated that given the potential
data and technology input costs, competition alone cannot lower
prices.\2174\ Another commenter said that there will be a speed race
among competing consolidators and, as a result, as their costs go up
their prices will go up.\2175\ One other commenter expressed sympathy
for the idea of introducing competitive forces, but said that the
release did not provide any proof that introducing competition from
competing consolidators and self-aggregators will lower data fees and
latency.\2176\
---------------------------------------------------------------------------

    \2172\ See, e.g., BlackRock Letter at 5; Cboe Letter at 23-24;
Angel Letter at 21; TD Ameritrade Letter at 2; Healthy Markets
Letter I at 4; STANY Letter II at 5; Nasdaq Letter III at 8; Nasdaq
Letter IV at 8; Data Boiler Letter I at 2.
    \2173\ See TD Ameritrade Letter at 2.
    \2174\ See Healthy Markets Letter I at 4.
    \2175\ See Nasdaq Letter III at 8.
    \2176\ See STANY Letter II at 5.
---------------------------------------------------------------------------

    The Commission disagrees with these comments and believes that
competition among competing consolidators will likely decrease
consolidated market data costs for equivalent data.\2177\ First, as
discussed above, the Commission agrees that there is uncertainty around
data content fees. However, for the reasons explained above, the
Commission believes that the overall data fees (i.e., data content,
consolidation and dissemination, and connectivity fees) will likely be
lower for equivalent data. One commenter's statement about potential
fee increases due to ``richer core data content'' \2178\ makes an
accurate comparison to baseline SIP data fees difficult, because
current SIP data fees bundle data content and consolidation and
dissemination fees. While data content portion of the SIP data fees
might go up because of the richer content of consolidated market data,
consolidation and dissemination portion of SIP data fees could approach
zero, as the exclusive SIPs will be discontinued. Thus the overall
outcome is unclear, making comparisons to the current SIP data fees
very difficult. A more accurate way to examine the data fees is by
breaking them down into the three fee components (i.e., data content,
consolidation and dissemination, and connectivity) while holding data
content constant, as in the Commission's analysis above. As a result of
that analysis, the Commission concludes that the overall data fees
(i.e., data content, consolidation and dissemination, and connectivity
fees) will likely be lower for equivalent data.
---------------------------------------------------------------------------

    \2177\ Several commenters agreed. See, e.g., BestEx Research
Letter at 4; Fidelity Letter at 9; Committee on Capital Markets
Regulation Letter at 3; Wellington Letter at 1; Intelligent Cross at
5.
    \2178\ See BlackRock Letter at 5.
---------------------------------------------------------------------------

    Second, the Commission understands that competing consolidators
will have input and technology costs, but as discussed above, these are
mostly fixed costs that competing consolidators will spread over their
customer base. Competitive pressure will encourage competing
consolidators to always look for ways to reduce their costs and try to
capture market share by passing some or all of these cost savings onto
their customers. Additionally, the Commission believes that this same
competitive dynamic will be unchanged even if competing consolidators
charge different consolidation and dissemination prices for different
products, such as higher prices for lower latency products, as
suggested by one of the commenters. On the other hand, current market
participants whose trading strategies require low-latency data need to
buy proprietary data and the exchanges may not be subject to robust
competition in their proprietary data business.\2179\ Similarly, the
exclusive SIPs are not under competitive pressure and are unlikely to
be focused on cost saving measures, as the competing consolidators
will.
---------------------------------------------------------------------------

    \2179\ See supra Section V.B.3(b) for a discussion on the
current market structure for proprietary market data.
---------------------------------------------------------------------------

    Some commenters stated that the Commission's belief about multiple
competing consolidators offering differentiated products is in conflict
with its predictions about the overall fees for consolidated market
data potentially being lower than today for equivalent data.\2180\ One
commenter said that ``if the Commission's prediction of 12
consolidators were correct, the fixed costs associated with the two
exclusive SIPs would be supplemented with the fixed costs associated
with 12 consolidators, likely resulting in a substantial increase in
industry fixed costs. Such an increase in fixed costs would ultimately
have to be borne by industry participants, including investors, and
ultimately recovered from consumers of market data.'' \2181\ Another
commenter relied on an academic article to make the point that
competition could increase prices when product differentiation is
possible.\2182\ The Commission does not believe the commenters'
conclusions necessarily follow for the new competing consolidator
business.
---------------------------------------------------------------------------

    \2180\ See Nasdaq Letter IV at 2, 25, 26; Angel Letter at 23.
    \2181\ See Nasdaq Letter IV at 25.
    \2182\ See Angel Letter at 23.
---------------------------------------------------------------------------

    First, the Commission does not believe that the market having
several competing consolidators will lead to higher fixed costs for
equivalent data and thus higher consolidated market data prices. What
the competing consolidators' fixed costs will be is uncertain, because
a portion of those fixed costs will be the connectivity fees that the
SROs will file with the Commission and those are yet to be
proposed.\2183\ Additionally, even if the fixed costs end up being
higher, that would not immediately imply higher consolidated market
data prices because the demand for consolidated market data products
might be higher as a result of some market participants potentially
choosing to buy consolidated market data products instead of
proprietary

data feeds \2184\ and potential new entry into the broker-dealer,
market making, and other latency sensitive businesses.\2185\ Finally,
the Commission believes that, unlike in the current centralized
consolidation model, competitive pressures will make it harder for
competing consolidators to raise their prices to supra-competitive
levels under the decentralized consolidation model. At any given point,
competing consolidators are unlikely to have exactly the same
incremental costs. Some of them might have cost advantages over the
others, which will allow them to pass these cost advantages to
customers in terms of lower prices and to compete over each other's
customer segments. Those competing consolidators with a cost advantage
will increase their market share by pushing out the higher cost
competing consolidators from the market. Eventually the market will
reach a stable level of competition where individual competing
consolidators cannot raise their prices to supra-competitive levels
without risking a loss of their customers to a competitor.
---------------------------------------------------------------------------

    \2183\ See supra Section V.C.2(b)(i)c for a discussion on
connectivity fees and their potential impact on competing
consolidators.
    \2184\ See infra Section V.C.4(a) for a discussion on the impact
of the amendments on proprietary data business.
    \2185\ See infra Section V.C.4(b) for a discussion on the impact
of the amendments on new entrants into broker-dealer, market making,
and other latency sensitive businesses.
---------------------------------------------------------------------------

    Second, the Commission does not believe that the comment about
competition potentially leading to price increases in a market with
product differentiation applies to the competing consolidator business.
The comment relies on an academic paper that examines prices and
competition under a duopoly market structure. The academic paper does
not examine or try to understand potential price outcomes under a
different market structure, such as one with several competing firms--
the most likely outcome for the competing consolidator business.\2186\
Therefore, it is hard to extrapolate the paper's arguments from a
duopoly market to a market with more than two competitors because the
competitive dynamics and the resulting price effects in a duopoly
market might be very different from the competitive dynamics and the
resulting price effects in a market with several competitors. The
Commission acknowledges that competition may not be very strong if the
new competing consolidator business ends up with two competing
consolidators, especially if both of them are affiliated with the
exchanges that currently operate an exclusive SIP.\2187\ However, even
in such a market, this academic paper's predictions will not
necessarily be applicable because the two competing consolidators will
have the ability to target each other's customers if they see an
economic opportunity to do so. On the other hand, the paper cited by
the commenter examines a research question motivated by empirical
observations in industries such as the anti-ulcer drug market.
Competitors in those markets have a hard time offering each other's
products, given potential patent and other restrictions. However, in
the consolidated market data business, firms can offer perfectly or
partially substitutable products as well as each other's differentiated
products if an economic opportunity to do so exists. For example, as
discussed above, an economic opportunity may exist if an inefficient
competing consolidator charges prices above competitive levels. Unlike
a brand name drug manufacturer, competing consolidators will maintain
the ability to compete over the same customer segments, even as they
differentiate their products. And this ability to compete will create a
threat of competition that will discipline competing consolidators'
prices.
---------------------------------------------------------------------------

    \2186\ See Yongmin Chen and Michael H. Riordan, Price-Increasing
Competition, 39 Rand J. Econ. 1042, 1056 (2008). See also, supra
Section V.C.2(a)(ii) for a discussion of the potential scenarios for
the number of competing consolidator registrants.
    \2187\ See supra Section V.C.2(a)(ii)b for a discussion on the
potential softening of competition if the only two registrants for
the new competing consolidator business are exchange-affiliated
competing consolidators.
---------------------------------------------------------------------------

(ii) Fees for the Content of Current SIP Data
    The Commission also considers the effect of the rule on fees market
participants currently pay for SIP data content versus what they would
pay for equivalent content under the decentralized consolidation model.
The Commission recognizes that a significant proportion of market
participants currently purchase only SIP data and/or the unconsolidated
equivalent of SIP data.\2188\ Under this rule and conditional on fees
for consolidated market data, while some of these market participants
will choose to purchase more data than they purchase today, other
market participants may choose to continue to purchase content
equivalent to current SIP data (e.g., NBBO and TOB).\2189\ The
Commission believes that data fees paid for equivalent data could be
similar to current SIP data fees or could be lower than current SIP
data fees. Whether the fees are the same or lower depends on several
factors: The data content fee structure proposed by the effective
national market system plan(s) for NMS stocks, how competing
consolidators allocate their costs of processing (i.e., receiving,
consolidating, and disseminating) consolidated market data, and any
connectivity fees charged by competing consolidators for consolidated
market data products.
---------------------------------------------------------------------------

    \2188\ Several commenters agreed. See, e.g., BestEx Research
Letter at 2-3; State Street Letter at 2; BlackRock Letter at 1.
    \2189\ Some commenters agreed. See, e.g., MEMX Letter at 5.
---------------------------------------------------------------------------

a. Data Content Fees
    The Commission believes that the data content fee structure
proposed by the effective national market system plan(s) for NMS stocks
under the decentralized consolidation model is an important factor in
determining whether total data fees (i.e., the sum of data content
fees, consolidation and dissemination fees, and connectivity fees) for
the equivalent of current SIP data could be similar or lower under this
rule.\2190\ Until the effective national market system plan(s) propose
fees for data content underlying consolidated market data offerings,
the Commission is unable to determine the extent to which this fee
structure would charge lower fees for end users who wish to receive
subsets of consolidated market data from competing consolidators.
---------------------------------------------------------------------------

    \2190\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

    The Commission also understands that the current SIP data content
fees are different for different use cases.\2191\ In the 2018 SEC
roundtable, several exchanges agreed that their many different types of
market participants and that one type of data product does not meet
everybody's needs.\2192\ The amendments will not change the market
reality that market participants have diverse data needs. Thus the
Commission believes that the effective

national market systems plan(s) will likely take this market reality
into account when proposing the fee schedule for data content
underlying consolidated market data by, for example, proposing
different fees based on the scope of data content a market participant
consumes or usage category or a combination of both.\2193\
---------------------------------------------------------------------------

    \2191\ See CTA Plan, Q2 2020 CTA Quarterly Revenue Disclosure,
available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_2Q2020.pdf; Nasdaq UTP Plan, Q2
2020 UTP Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q22020.pdf.
    \2192\ One of the round table participants said that ``there are
many different types of market data consumers, from major Wall
Street banks and market makers to retail online brokerages and media
companies across the world and all have differing data needs.'' (See
Oliver Albers speech on page 107, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf). Another round table
participant stated that ``[e]xchanges offer a variety of data
products to meet the diverse needs of market participants.'' (See
James Brooks' speech on page 177, available at https://www.sec.gov/spotlight/equity-market-structure-roundtables/roundtable-market-data-market-access-102518-transcript.pdf).
    \2193\ One commenter agreed that different types of investor
place different values on market data and therefore the market data
pricing schemes should take this into account. See Angel Letter at
9, 11, and 27.
---------------------------------------------------------------------------

    Two commenters \2194\ emphasized the uncertainty around the
potential national market system plan(s) fee schedules, with one
commenter stating that ``the Commission cannot assume that the
operating committee of an NMS plan would create such a [top of book]
product, or whether the costs of such a product would meet the needs of
market participants who do not want or cannot consume the full
consolidated market data.'' \2195\ Indeed the Commission does not
assume that the Operating Committee of an effective national market
system plan will create a differential pricing structure that might
satisfy the needs of market participants who will continue to purchase
data content equivalent to the current SIP data.\2196\ However, the
Commission believes that this is a likely outcome based on market
realities. The effective national market system plan(s) may choose
different price levels based on usage category because that is the
current fee practice for the exclusive SIPs. Thus it is possible this
pricing method will carry over into the new market under the
amendments.\2197\ On the other hand, it is also possible that the
effective national market system plan(s) will choose different price
levels based on the scope of data content market participants
consume,\2198\ especially because competing consolidators are not
required to offer the entire data content of consolidated market data.
As a result, the Commission acknowledges that the amendments could
decrease or keep at similar rates the content fees for the equivalent
of SIP data.\2199\ The outcome is dependent on the effective national
market system data plan(s)' fee proposals.\2200\
---------------------------------------------------------------------------

    \2194\ See Nasdaq Letter IV at 47; NYSE Letter II at 4.
    \2195\ See NYSE Letter II at 4.
    \2196\ See Proposing Release, 85 FR at 16840-41 for a discussion
on the uncertainty about data content fees.
    \2197\ One commenter stated that the distinction between
professional and non-professional users and the corresponding price
differences between those categories should be retained under the
amendments. See Angel Letter at 9. Within 150 days of the
effectiveness of Rule 614, the Operating Committee(s) of the
effective national market system plan(s) will be required to propose
the data content fees for the SROs' data required to create
consolidated market data and will then file the proposed fees with
the Commission for consideration pursuant to Rule 608. See supra
Section III.H.1. Thus the Commission is uncertain about the
potential data content fee structure the effective national market
system plan(s) will propose.
    \2198\ One commenter said that ``[u]sage categories are complex
and lack standardization in terminology across exchanges, leading to
excessive audits and subjective interpretations about compliance
with contractual agreements.'' See BlackRock Letter at 6.
    \2199\ See NYSE Letter II at 20.
    \2200\ The Commission has issued an order to modernize the
governance of the data plans. See Proposing Release, 85 FR at n. 8.
---------------------------------------------------------------------------

b. Consolidation and Dissemination Fees
    The fees for data consolidation and dissemination depend on how
competing consolidators allocate fixed costs among subscribers
receiving different subsets of data. As discussed in the Proposing
Release,\2201\ the Commission expects competing consolidators to offer
a menu of products and services, regardless of the data content fee
structure of the effective national market system plan(s). Competing
consolidators could elect to charge lower consolidation and
dissemination fees to subscribers receiving subsets of data compared to
fees charged to subscribers receiving the entirety of consolidated
market data. In fact, the Commission believes that competitive pressure
could result in such a fee structure. Additionally, some competing
consolidators can specialize in serving market participants that prefer
to consume subsets of consolidated market data. In such a case, these
specialized competing consolidators might be able to lower some of
their fixed costs (e.g., by signing up for a smaller, and therefore,
cheaper connectivity port to take in only a subset of consolidated
market data) and pass those cost savings in terms of lower
consolidation and dissemination fees. Overall, the data consolidation
and dissemination component of total fees charged to those who purchase
content equivalent to SIP data could be lower than this component of
current SIP data fees today.
---------------------------------------------------------------------------

    \2201\ See Proposing Release, 85 FR at Section VI.C.2(a).
---------------------------------------------------------------------------

c. Connectivity Fees
    The fees for connectivity services paid by end users seeking to
purchase only what was previously SIP data may decline for some users
but could stay the same for others. Currently, some SIP data users
connect to the exchanges that are the administrators of exclusive SIPs
and pay connectivity fees to access the SIP data. These connectivity
fees are paid directly to the exchanges and do not go to the exclusive
SIPs. There are also SIP data users that do not connect to the
exchanges and thus do not pay SRO connectivity fees for SIP data, but
may pay fees to other market data service providers. Under this rule,
subscribers may be charged a connectivity fee by competing
consolidators when they subscribe to consolidated market data products.
The Commission acknowledges that there is uncertainty over whether the
competing consolidator connectivity fees would be similar to or smaller
than what SIP data users currently pay in connectivity fees. The
overall connectivity fees under this rule may be similar if competing
consolidators charge connectivity fees similar to what the current SIP
data normalizers charge. As discussed above \2202\ and in the Proposal
\2203\ and given the potential connectivity options available, the
Commission believes competing consolidators will be under competitive
pressure, and as such, they may offer a range of connectivity fees,
including based on market participants' scope of data content and speed
choice. In that case, SIP data subscribers who currently pay
connectivity fees to the exchanges may see their connectivity fees
decline.
---------------------------------------------------------------------------

    \2202\ See supra Section V.C.2(b)(i).
    \2203\ See Proposing Release, 85 FR at Section V.C.2(b)(i).
---------------------------------------------------------------------------

d. Response to Comments on Fees for the Content of Current SIP Data
    Several commenters argued that data fees for retail investors will
go up and that those investors will effectively be subsidizing benefits
incurred by self-aggregators or other market participants who use
larger data content or the entirety of consolidated market data.\2204\
---------------------------------------------------------------------------

    \2204\ See, e.g., NYSE Letter II at 20; Angel Letter at 24; TD
Ameritrade Letter at 4.
---------------------------------------------------------------------------

    The Commission acknowledges that market participants who would like
to purchase a narrower data content that is equivalent to the current
SIP data might pay fees similar to the current SIP data fees. This is
because it is uncertain whether the effective national market system
plan(s) will implement a fee schedule that has different fees based on
the scope of data content a market participant consumes or usage
categories, whether competing consolidators will allocate their fixed
costs taking into account consolidation and dissemination bandwidth
their customers use based on their data content consumption or usage
category,

and at what level competing consolidators will charge connectivity
fees. Despite this uncertainty, as discussed above, the Commission
believes that there are several reasons why market participants who
would like to purchase a narrower data content that is equivalent to
the current SIP data might pay lower fees than the current SIP data
fees.\2205\ The Commission does not have enough information to
determine whether these fees will be lower or similar.
---------------------------------------------------------------------------

    \2205\ See supra Section V.C.2(b)(ii) for a discussion on the
reasons why data fees for investors who would like to purchase data
content equivalent to the current SIP data might pay lower fees than
the current SIP data fees.
---------------------------------------------------------------------------

(c) Benefits of the Decentralized Consolidation Model Pertaining to
Competing Consolidators
    As discussed above,\2206\ currently SIP data is collected,
consolidated, and disseminated to market participants through a
centralized consolidation model with an exclusive SIP for each NMS
stock. The amendments will discontinue the centralized model, and
instead will introduce a decentralized consolidation model. Even though
the current exclusive SIPs are selected through a bidding
process,\2207\ the Commission believes that a competitive marketplace
is more capable of producing the benefits that come from competitive
forces than the process of soliciting bids for exclusive
contracts.\2208\ In particular, the Commission believes that the
decentralized consolidation model will have four potential benefits for
market participants. First, the Commission believes that the
decentralized consolidation model offers the potential for gains in
efficiency in the delivery of consolidated market data products to
emerge over time. Second, the Commission believes that the model will
promote innovation in market data delivery in the future, in a way that
the current centralized consolidation model has not. Third, the
Commission expects that the new model will significantly reduce content
and latency differentials that currently exist between SIP data and
proprietary data products. Finally, the Commission believes that the
decentralized consolidation model will potentially increase market
resiliency.
---------------------------------------------------------------------------

    \2206\ See supra Section V.B.2(b) for a discussion on the
current process for dissemination of market data.
    \2207\ See supra SectionV.B.3(a) for a discussion on why the SIP
bidding process is not necessarily competitive.
    \2208\ See supra Section V.A.2 for a discussion of the problems
with the current process and infra Section V.D.2 for a discussion of
the effect of the amendments on competition.
---------------------------------------------------------------------------

    The Commission acknowledges that some commenters raised issues
about the potential benefits of the decentralized consolidation model
predicted in the Proposing Release.\2209\ However, other commenters
stated that the decentralized consolidation model will bring potential
benefits and agreed with the Commission's earlier predictions.\2210\
The analysis responds to the comments below.
---------------------------------------------------------------------------

    \2209\ See, e.g., STANY Letter II at 5; Healthy Markets Letter I
at 4; TD Ameritrade Letter at 2; Kubitz Letter at 1.
    \2210\ See, e.g., DOJ Letter at 3-4; IntelligentCross Letter at
4-5; Better Markets Letter at 3; Clearpool Letter at 7; MEMX Letter
at 8; Committee on Capital Markets Regulation Letter at 3; FIA PTG
Letter at 1; Steinmetz Letter (comment on entire proposal).
---------------------------------------------------------------------------

(i) Gains in Efficiency, Such as Cost Savings
    The Commission believes that introducing competition into the
provision of consolidated market data products and dissemination
services will likely reduce costs and lower prices for those services,
and create incentives for innovating on product offerings more tailored
to the needs of the consumers.\2211\ It is therefore the Commission's
expectation that the decentralized consolidation model will result in a
meaningful increase in investments intended to lower costs and/or
improve quality in the provision of consolidated market data products.
This represents an economic benefit for the national market system,
some of which will be kept by competing consolidators as profit, and
some of which will be received by market participants in the form of
lower fees for competing consolidator services.
---------------------------------------------------------------------------

    \2211\ See Section V.C.2(b) for an analysis of the potential for
a reduction in the fees associated with of data consolidation and
dissemination. See also, e.g., BestEx Research Letter at 4; Fidelity
Letter at 9; Committee on Capital Markets Regulation Letter at 3;
Wellington Letter at 1; RBC Letter at 6.
---------------------------------------------------------------------------

    Some market participants may benefit as a result of the
introduction of the decentralized consolidation model if they
experience a lower price for consolidated market data relative to
today's price for consolidated market data, holding data content
constant.\2212\
---------------------------------------------------------------------------

    \2212\ See supra Section V.C.2(b) for a discussion of why data
fees might decline for some participants.
---------------------------------------------------------------------------

    Additionally, market participants could potentially save on the
cost of consolidated market data because they will only need to
subscribe to one competing consolidator instead of two exclusive SIPs
(i.e., UTP and CTA/CTQ). To the extent market participants can
subscribe to one competing consolidator, they could save money by not
having to pay the costs of processing consolidated market data to two
SIPs.\2213\ To the extent that some market participants that receive
consolidated market data products from competing consolidators that are
not SCI entities choose to retain a back-up connection to a second
competing consolidator, their cost savings could be lower. Finally, the
amendments could improve efficiency in the consumption of market data
because purchasers could receive consolidated market data products for
all NMS stocks on one feed instead of three.\2214\
---------------------------------------------------------------------------

    \2213\ One commenter agreed. See Angel Letter at 21. See also
supra V.C.2(b) for a discussion of why competing consolidator fees
for consolidation and dissemination are likely to be lower than
current SIP fees for the same services.
    \2214\ One commenter agreed. See BlackRock Letter at 5.
---------------------------------------------------------------------------

    Several commenters raised issues about the prediction that the new
decentralized consolidation model will lead to declines in market data
costs.\2215\ On the other hand, several commenters said that the
decentralized consolidation model will lead to more efficient and lower
cost market data products.\2216\ As discussed in detail above, the
Commission agrees with the second group of commenters and believes that
competition will likely improve quality and lower market data
costs.\2217\
---------------------------------------------------------------------------

    \2215\ See, e.g., TD Ameritrade Letter at 2; Healthy Markets
Letter I at 4; STANY Letter II at 5; Data Boiler Letter I at 2.
    \2216\ See, e.g., BestEx Research Letter at 4; Fidelity Letter
at 9; Committee on Capital Markets Regulation Letter at 3;
Wellington Letter at 1; RBC Letter at 6.
    \2217\ See supra Section V.C.2(b) for an analysis of the
amendments' impact on data fees.
---------------------------------------------------------------------------

(ii) Innovation in Data Delivery
    Second, the Commission believes that the decentralized
consolidation model will enable consolidated market data delivery to
continue to keep up with market data communication innovations in the
future, in a way that the current centralized consolidation model has
not.\2218\ This represents an improvement over the current system for
dissemination of SIP data, in which the lack of competitors reduces the
incentives of the exchanges that govern the exclusive SIPs to
innovate.\2219\ The Commission believes that the current system of
disseminating SIP data through exclusive SIPs, which are managed by the
Equity Data Plans' Operating Committees, is not well suited to keep up
with the pace of innovation in data processing and communication in the
market.\2220\ The

decentralized consolidation model will place the task of determining
the method of consolidation and dissemination to free market forces,
which the Commission believes will make it easier to innovate rapidly
and maintain competitive parity with other market participants.\2221\
The end result of this improved efficiency in investment decisions by
consolidators will be to improve the quality and reliability of market
data consolidation and dissemination services, which will result in
market participants having better data to make trading decisions.\2222\
The Commission believes this will lead to better trading decisions,
lower execution costs, and will help reduce information asymmetries
between market participants that currently solely rely on SIP data and
market participants who purchase the exchanges' proprietary data
products.\2223\
---------------------------------------------------------------------------

    \2218\ One commenter agreed. See State Street Letter at 3.
    \2219\ See supra Section V.A.2.
    \2220\ See id.
    \2221\ Several commenters agreed. See, e.g., State Street Letter
at 3; ACS Execution Services Letter at 5.
    \2222\ See infra Section V.D.1.
    \2223\ Several commenters agreed. See, e.g., BlackRock Letter at
5-6; AHSAT Letter at 3.
---------------------------------------------------------------------------

    One commenter disagreed, stating that the Commission is actually
replacing competition with ``a government-supervised rate-setting
board.'' \2224\ The same commenter said that ``[t]he Commission would
no longer permit competition to determine the prices of market data or
to spur innovation.'' \2225\ Another commenter said that market data
``should remain subject to market forces.'' \2226\ The Commission
disagrees with this characterization of the amendments. Under the
amendments, the exchanges can continue to sell their proprietary data
feeds by filing their fee schedules with the Commission, like they do
today. In addition, similar to today, the effective national market
system plan(s) will file data content fees with the Commission for
market data. Finally, as mentioned above, unlike the exclusive SIPs,
competing consolidators' consolidation and dissemination fees will be
determined by market forces.\2227\
---------------------------------------------------------------------------

    \2224\ See Nasdaq Letter IV at 9.
    \2225\ See Nasdaq Letter IV at 9.
    \2226\ See WFE Letter at 1.
    \2227\ See supra Section V.C.2(b) for a discussion on competing
consolidators' consolidation and dissemination prices.
---------------------------------------------------------------------------

(iii) Reduce Latency Differentials
    Third, the Commission expects that the new model will significantly
reduce the various types of content and latency differentials between
data that is currently SIP data and data currently included in
proprietary data products.\2228\
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    \2228\ Several commenters agreed with the Proposal's predictions
on latency reduction as a result of the decentralized consolidation
model. See, e.g., IntelligentCross Letter at 4; DOJ Letter at 3-4;
AHSAT Letter at 3; Wellington Letter at 1; BlackRock Letter at 5.
See also supra Section V.B.2(b) for information on current latency
differentials.
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    The Commission's belief that there will be a significant reduction
in the latency differential between consolidated market data products
and proprietary data feeds is based upon the Commission's assumption
that the business practices of current market data aggregators, some of
which expressed interest in becoming competing consolidators,\2229\
will serve as a model for how competing consolidators will operate
under the decentralized consolidation model.\2230\ Current market data
aggregators have achieved connectivity, transmission, consolidation,
and distribution speeds that are meaningfully faster than SIP data even
as they process larger amounts of data than SIP data.\2231\ Therefore,
the Commission believes that competition among competing consolidators
will keep market data consolidation and distribution speeds close to
the processing speeds achieved in the market data aggregation space
currently.\2232\
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    \2229\ Several commenters stated that they are interested in
registering as competing consolidators. See, e.g., McKay Letter at
2; ACTIV Financial Letter at 1; NovaSparks Letter at 1. See also
Press Release, Miami Int'l Holdings, Miami Int'l Holdings Announces
That It Is Evaluating Registration as a Competing Consolidator (Nov.
18, 2020), available at https://www.miaxoptions.com/sites/default/files/press_release-files/MIAX_Press_Release_11182020.pdf.
    \2230\ See supra Section V.C.2(a) for a discussion of the
factors affecting the decision to become a competing consolidator.
    \2231\ The Commission believes that if the existing exclusive
SIPs choose to become competing consolidators in the decentralized
consolidation model, the competition with other competing
consolidators will incentivize them to improve their connectivity,
transmission, consolidation, and distribution speeds to the levels
of other competing consolidators.
    \2232\ See supra Section V.B.2(b) for a discussion on the
latency differentials between SIP data and proprietary data feeds.
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    The Commission believes that all forms of latency discussed
previously--geographic, consolidation, and transmission latency
\2233\--have the potential to be the source of these reductions in the
latency differential. The Commission understands that the existing
market data aggregator business does not rely on the single-instance
consolidator model but instead produces a separate consolidated feed at
each data center. This has the potential to substantially reduce
geographic latency for data centers that are not co-located with one of
the existing exclusive SIPs because it means new information at a data
center can be used immediately at that data center instead of being
returned to the processing center first. The Commission therefore
expects that the decentralized consolidation model will serve to
substantially reduce geographic latency in the same way for market
participants. For instance, the existing market data aggregators
already have infrastructure in place to consolidate market data in the
described way. And if the existing exclusive SIPs become competing
consolidators, they will also have to produce separate consolidated
feeds at each data center to be able to compete with other competing
consolidators. Therefore, the Commission believes that the geographic
latency reduction in the decentralized consolidation model can be
achieved even if one existing market data aggregator enters the
competing consolidator business. The benefit of the decentralized
consolidation model with regard to geographic latency will not rely
heavily on the assumption that a large number of consolidators would
enter the market.\2234\ Importantly, as discussed above,\2235\
geographic latency is the biggest cause of latency differentials
between current SIP data distributed by exclusive SIPs and current
proprietary data feeds.\2236\
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    \2233\ See id.
    \2234\ See supra Section V.C.2(a); V.C.2(a)(ii).
    \2235\ See supra Section V.B.2(b).
    \2236\ Several commenters agreed. See, e.g., Cboe Letter at 23;
Nasdaq Letter IV at 49; STANY Letter II at 6.
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    Also, the Commission understands that many current market data
aggregators rely on wireless communications to receive data from
various exchange data centers, using fiber connections as a backup in
case of bad weather. As discussed above,\2237\ wireless communications
are faster than current transmission methods for SIP data. To the
extent that the business practices of current market data aggregators
serve as a model for competing consolidators, the Commission expects
the decentralized consolidation model to reduce consolidation and
transmission latency as well.\2238\ Additionally, some competing
consolidators could achieve lower consolidation and transmission
latency by processing subsets of consolidated market data for market

participants that prefer narrower data content than the entirety of
consolidated market data. The Commission believes that the effect of
the decentralized consolidation model on the consolidation and
transmission latencies depends on robust competition among competing
consolidators going forward.
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    \2237\ One commenter agreed and provided a technical explanation
for these speed differentials. See, e.g., Data Boiler Letter I at
39. See also supra Section V.B.2(b) for a discussion on the current
process for dissemination of SIP data and proprietary data feeds.
    \2238\ Some commenters agreed. See, e.g., ICI Letter at 10.
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    The Commission believes that to the extent that the benefits of
faster access to market data come from the ability to engage in more
timely participation in the provision of liquidity, this effect
represents an economic benefit to the equity market generally because
it will provide more fair and equal access to market data and will
reduce information asymmetries among market participants.\2239\ In
particular, to the extent that the existing advantages of having access
to fast proprietary data feeds are derived from trading strategies
exploiting differentials in the speed of access to market data (i.e.,
exploiting traders in the market who currently rely solely on slower
SIP data), this benefit would represent a transfer from current users
of faster proprietary data to the users of consolidated market data
products in the decentralized consolidation model that will now also
have access to faster data.\2240\
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    \2239\ One commenter agreed and said that ``[l]ow latency
proprietary traders with independent decision engines in different
data centers will always be the fastest actors in the system;
however, lessening the information asymmetry between these actors
and other market participants has great value.'' See Capital Group
Letter at 4.
    \2240\ One commenter agreed and stated that ``[r]ace conditions
are impossible to solve. Even if you're fastest by a picosecond, you
are still first.'' See Nasdaq Letter III at 5. For a discussion of
the effect of speed differentials on trading, see also Don
Bollerman, A NYSE Speed Bump You Weren't Aware Of, IEX available at
https://www.sec.gov/comments/10-222/10222-395.pdf (last accessed
Jan. 8, 2020).
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    In order for both economic benefits and transfers to be realized,
at least some market participants that are new users of fast and more
content-rich consolidated market data products will need to possess the
technological capability to take advantage of the speed improvements
the decentralized consolidation model is likely to provide. It is the
Commission's understanding that such technological capabilities are
costly to acquire, and this fact could reduce the amount of benefit and
the degree to which individual market participants can profit (through
the transfers mentioned above) from the decrease in data latency.
    Several commenters disagreed with the Proposing Release's
predictions on latency reduction.\2241\ Some commenters stated that the
existence of multiple competing consolidators will not reduce latency
much because processing times are already minuscule.\2242\ Other
commenters argued that additional latency gains are unlikely to improve
outcomes for retail and long-term investors.\2243\ Other commenters
argued that competing consolidators will be an extra hop on the data
delivery chain and market participants receiving data from competing
consolidators will always be slower than self-aggregators or
proprietary data users who receive market data directly from the
exchanges.\2244\
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    \2241\ See, e.g., Nasdaq Letter IV at 36; Cboe Letter at 23;
Citadel Letter at 5; Nasdaq Letter III at 5; STANY Letter II at 6;
Data Boiler Letter II at 1; NBIM Letter at 6.
    \2242\ See, e.g., Nasdaq Latter IV at 49; Cboe Letter at 23;
Citadel Letter at 5; STANY Letter II at 6.
    \2243\ See, e.g., Nasdaq Letter IV at 41; Proof Trading Letter
at 1.
    \2244\ See, e.g., Nasdaq Letter IV at 8; Healthy Markets Letter
I at 3-4; Data Boiler Letter II at 1.
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    The Commission believes that the decentralized consolidation model
will reduce latency rates for market data and will bring consolidated
market data products' latency rates more in line with the latency rates
of proprietary data feeds. This latency reduction could come from all
forms of latency, including geographic latency.\2245\ Even if the
potential gains from processing speeds are small, competing
consolidators could achieve larger latency reductions by decreasing
geographic latency. Unlike the exclusive SIPs, competitive forces will
incentivize competing consolidators to respond to market participants'
needs. For example, for market participants whose trading strategies
depend on low-latency data, some competing consolidators could create
an instance of consolidated market data in every data center,
significantly reducing geographic latency.\2246\ Furthermore, while
retail and long term investors might have less latency sensitive
trading strategies, even small gains in speed can be meaningful for
improving execution quality, a benefit to investors.\2247\ Finally, the
Commission expects the introduction of the decentralized consolidation
model to reduce data latency for market participants who currently rely
on SIP data but will switch to using consolidated market data products,
because competing consolidators will be incentivized to provide faster
data products than the exclusive SIPs. The Commission discusses the
full details of the relationship between self-aggregators and competing
consolidators with respect to latency below.\2248\ This then will lead
to a reduction in information asymmetry caused by current large latency
differences among investors using SIP data versus proprietary data
feeds.\2249\
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    \2245\ Several commenters agreed. See, e.g., DOJ Letter at 3-4;
IntelligentCross Letter at 4; Wellington Management Letter at 1;
BlackRock Letter at 5.
    \2246\ Several commenters agreed. See, e.g., BlackRock Letter at
5; Wellington Letter at 1. Additionally, one commenter stated that
``[g]eographic latency could be addressed either through a
distributed SIP or competing consolidators, therefore agreeing with
the Commission. See Nasdaq Letter IV at 49.
    \2247\ See supra Section V.B.3(e) for discussion of latency and
execution quality.
    \2248\ See infra Section V.C.4(b) for this discussion.
    \2249\ Some commenters agreed. See, e.g., Capital Group Letter
at 4; AHSAT Letter at 3.
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    One other commenter disagreed with the Commission's assessment of
the decentralized consolidation model's latency benefits, stating that
``[c]competing consolidators will create a costly arms race in speed.''
\2250\ The Commission believes that there is already demand for fast
data in the market and the introduction of the decentralized
consolidation model will not affect market participants' demand for
faster data. However, the new model will affect the supply of market
data speeds available to market participants. Hence, with the
amendments, market participants who currently rely on SIP data will
have other data options that are faster than SIP data and that are
potentially a closer substitute to proprietary data feeds.
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    \2250\ See Angel Letter at 19.
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(iv) Market Resiliency
    Fourth, the Commission believes that the decentralized
consolidation model will eliminate the single point of failure in
market data consolidation and dissemination step and potentially
increase market resiliency. However, the Commission acknowledges that
the provision of data content underlying consolidated market data will