feeds.\2402\ However, if self-aggregation is required to be a new
entrant in these businesses, the number of potential new entrants could
be small, since using a competing consolidator may be more convenient
or less costly than self-aggregating.\2403\ It is also possible that
potential participants in the sophisticated SOR, automated market
making, and other latency sensitive trading businesses may find that
they cannot compete effectively without using the data that would
remain exclusive to proprietary feeds. To the extent this is the case,
the effects discussed above would be further limited.
---------------------------------------------------------------------------

    \2401\ See supra Section V.B.2(b).
    \2402\ This is because the Commission believes that self-
aggregators will use substantially the same technology and methods
to perform the self-aggregation function, including the same vendors
for such technology, as are used today by those market participants
who aggregate the proprietary data feeds.
    \2403\ For related discussion on latency advantages, see supra
note 2391.
---------------------------------------------------------------------------

    One commenter stated that the final amendments would create new
information asymmetries because of the possibility that competing
consolidators could customize their products, which would lead to
differences in information between their customers. This commenter
stated that this is in contradiction to the claim that information
asymmetries will be reduced.\2404\ The Commission does not believe that
the possibility of a reduction in information asymmetry in the market
is negated by the potential for product differentiation by competing
consolidators. New consolidated market data, aggregated in a
decentralized consolidation model, will present the opportunity for
improvement in the quality of market data received today for those
market participants capable of exploiting these improvements. These
improvements are relative to the exclusive SIP feeds today. For these
market participants who can take full advantage of expanded core data
and the decentralized consolidation model, the improvements to their
utilization of market data are likely to be more significant than the
differences that might emerge between competing consolidators product
offerings that improve over the current exclusive SIP feeds. Thus, such
market participants will represent a reduction in information
asymmetries between users of core data and users of proprietary data.
On the other hand, the Commission believes that those market
participants who elect to use any low cost, or display feed, options
offered by competing consolidators are likely to be participants who
currently do not make use of sophisticated market data access. Thus,
for these market participants,

information asymmetries with respect to latency will be no worse than
they are currently, though these market participants may still benefit
from the expanded content.\2405\
---------------------------------------------------------------------------

    \2404\ See Nasdaq Letter IV at 48.
    \2405\ See supra Section V.C.1 for a discussion of the benefits
of the expanded content of core data to market participants.
---------------------------------------------------------------------------

    In addition, many of the differences between competing consolidator
products (and their use by market participants) will be driven by
differences in what those market participants find most useful for
their trading needs, and differences in the ability to process and take
advantage of new consolidated market data products distributed by
competing consolidators, and these differences exist today.\2406\
---------------------------------------------------------------------------

    \2406\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

    One commenter stated that the decentralized consolidation model
would exacerbate the differences in advantage and information between
market participants and perpetuate a ``multi-tiered'' market structure.
The commenter pointed out the likelihood that different competing
consolidators would likely develop products with different levels of
performance and charge different prices for them. This commenter
concluded that this would result in the promotion of even more tiers of
separation in market data access than the two tiers separating those
who can afford proprietary data and those who cannot.\2407\ Commenters
also stated the rule would not reduce the difference that currently
exists between those who access market data in a fast, sophisticated
manner and those who do not. Specifically, these commenters stated that
the self-aggregator option available in the final rules will enable the
advantages of the fastest users of market data to remain, because these
self-aggregators would inevitably have a significant speed advantage
over competing consolidators.\2408\
---------------------------------------------------------------------------

    \2407\ See Nasdaq Letter IV at 8 (``Finally, the Commission
ignores the likelihood that different consolidators will provide
differing levels of service, replacing an allegedly two-tiered
market with a multi-tiered market. Even if multiple competing
consolidators end up racing against each other to produce unique or
superior data products or to distribute data more quickly, they
would likely charge premiums for better products and faster
services. If so, whatever concerns the SEC may have now about market
participants needing to pay high costs to access the best and
fastest data will not be solved by its Proposal; to the contrary,
the Proposal would only make this problem worse.'').
    \2408\ See, e.g., FINRA Letter at 8, NYSE Letter II at 23.
---------------------------------------------------------------------------

    The Commission disagrees with these commenters, and believes that
the rule will reduce the differences between existing tiers of market
data access, and that the self-aggregator option is essential in
producing this outcome. This is because the distinctions between market
data access capabilities that exist today are driven by more than just
the price and availability of data (as explained further below), and so
to the extent such differences remain they will not be a result of
these rules. Additionally, the final rules will likely reduce one of
the key cost barriers for market participants interested in self-
aggregation, thereby reducing the advantage held by those market
participants that can afford and choose to pay for it today.
    In the context of market data access broadly, there exist many
differences in the approaches taken to obtain, process, and use market
data.\2409\ These differences arise because of differentiation across
many aspects of the market data access processes, and the Commission
does not expect these differences to go away as a result of these
rules. Furthermore (and as explained above \2410\), it is the
Commission's understanding that some of these differences exist because
the strategies employed by market participants do not all require
exactly the same level of sophistication in market data processing to
run effectively, as such some participants will be unwilling to change
how they consume real time data even if given the opportunity to do
so.\2411\ What this means is that any discussion of multiple tiers of
market data access must be understood within the context of the complex
differences in data use across market participants that exist today.
---------------------------------------------------------------------------

    \2409\ See supra Section V.B.2(c), where additional details of
the various approaches are described.
    \2410\ See supra Section V.B.2(c).
    \2411\ For example, the Commission believes that retail
investors have no need for sub-millisecond improvements in latency,
but do need timely and complete market data in order to make
investment decisions.
---------------------------------------------------------------------------

    At the same time, there are market participants, within each of the
levels of sophistication for market data access described above,\2412\
who may be able to significantly improve their ability to compete as a
result of the rule, both at their current level of capability and
beyond. This is because core data will now be delivered according to
the decentralized consolidation model, which introduces an incentive
structure that will likely result in improvements to latency; and
because core data will now contain additional content.\2413\ To the
extent that these rules result in greater affordability of high quality
market data, firms may find they are able to use the savings obtained
from substituting away from proprietary feeds to invest in the
technology and personnel necessary to increase the level of
sophistication at which they use market data. These investments may
take the form of purchasing the highest quality, lowest latency
aggregation technology from a competing consolidator (which may be
priced at a premium compared to lower performing products) or investing
in the infrastructure necessary to self-aggregate.\2414\ In either
case, market participants have a greater opportunity to improve their
quality of market data access, and therefore, the competitiveness at
each level of market participation may be increased.
---------------------------------------------------------------------------

    \2412\ See supra Section V.B.2(c).
    \2413\ Furthermore, the Commission believes it is likely that at
least some competing consolidators will provide all core data in
their product offerings. See supra Section V.C.1(c) for additional
discussion of this point.
    \2414\ It is the Commission's understanding that much of the
infrastructure necessary to self-aggregate data today can be
purchased from third-party vendors, so that in practice, the
experience of purchasing the lowest latency access to consolidated
market data may be similar whether the market participant choose to
use a competing consolidator or to self-aggregate new consolidated
market data.
---------------------------------------------------------------------------

    Also, the Commission does not believe that the self-aggregator
option will further solidify the advantages held by sophisticated users
of market data. To the contrary, the Commission continues to believe
that the self-aggregator option assists in promoting the ability of a
wider array of market participants to improve their access to market
data. The Commission believes that the advantages of self-aggregators
today come in part from the significant costs to self-aggregation,
which prevent other market participants from becoming self-aggregators
themselves and thereby preserves self-aggregators as the only market
participants with such high quality information. To the extent that it
happens that self-aggregation is necessary in order to obtain the
maximum possible latency advantages,\2415\ the exclusive advantage this
offers will be reduced, because, whereas today one must purchase
proprietary data feeds in order to employ this methodology of self-
aggregation, under the final rule, the end user can purchase
consolidated market data and employ this methodology through the self-
aggregator

option.\2416\ This has the effect of reducing the costs to employ such
technology, because the fees for new consolidated market data will
likely be lower than the fees for proprietary data. Thus, rather than
institutionalizing the advantages enjoyed by current users of the self-
aggregation methodology, we expect the self-aggregator option in the
decentralized consolidation model will reduce the barriers to entry
into this level of market data access for other market participants.
---------------------------------------------------------------------------

    \2415\ See, e.g., NBIM Letter at 4 (``In our experience,
therefore, broker/dealers that do not undertake data aggregation in-
house, and do not use the fastest connectivity available, will in
general not be consistently competitive. This does not preclude
using third-party technology to do the data aggregation, as long as
it is done in-house to avoid incremental latency.'').
    \2416\ This of course depends on the extent to which the end
user finds the content of new core data a viable substitute for
proprietary data.
---------------------------------------------------------------------------

    While the final rules will not eliminate levels of sophistication
in the utilization of market data, it will likely reduce the cost of
moving between levels.\2417\ With lower costs to increase
sophistication, the information asymmetry between the two tiers of
market data access, of those who can afford and choose to purchase
proprietary data and those who do not, will be reduced. This may lead
to new entrants into the market making, executing broker-dealer, and
latency sensitive trading businesses.
---------------------------------------------------------------------------

    \2417\ These costs are the costs discussed in moving along the
continuum of market data utilization methods in Section V.B.2(c).
Also, market participants may be able to improve their use of market
data under the final rules even if they currently utilize
proprietary market data, because they may be able to substitute new
core data for proprietary data. If they do switch, the likely cost
savings they will obtain may enable them to invest in other aspects
of the data access process, thereby improving their ability to
compete with more sophisticated market participants.
---------------------------------------------------------------------------

    One commenter stated that the rule would put ``retail investors who
subscribe to a competing consolidator at a disadvantage relative to
those traders who can afford to self-aggregate and generate their own
`NBBO' more quickly than retail investors reliant on third parties to
obtain the NBBO.'' \2418\ The Commission disagrees that retail
investors in particular would be put at a disadvantage compared to
self-aggregators as a result of the rule. As discussed above,\2419\
currently, retail investors typically access the market using display
and per quote feeds, which are not competitive in terms of speed with
typical market data feeds. Investors who use such feeds understand that
it is not possible to compete on speed and make their investment
decisions based on other kinds of strategies. Thus, differences
measured in microseconds, even if they resulted from this rule, would
be meaningless to retail investors at the moment when they are making
investment or trading decisions. Furthermore, retail investors, like
many professional investors, do not execute their own trades but
instead leave that function to their broker-dealer. For example, retail
broker-dealers route their customers' orders to exchanges, ATSs, or
wholesalers, the latter of which may route the order to the exchanges
itself. Once the order has reached such market participants, the
execution decisions are made in a much more sophisticated fashion (and
microsecond differences matter), but crucially, these players will be
able to exploit the fastest competing consolidator or self-aggregator
options available on behalf of their retail clients. At this level of
market data access, the Commission believes that that market
participants will make decisions about what sort of competing
consolidator product to use (or whether to self-aggregate) based off of
competitive business considerations, that the final rules will make the
options available cheaper than today, and that this will all work to
the benefit of retail investors when these market participants work on
their behalf to execute orders.
---------------------------------------------------------------------------

    \2418\ See Nasdaq Letter IV at 41.
    \2419\ See supra Section V.B.2(c).
---------------------------------------------------------------------------

(c) Effects From the Interaction With the Consolidated Audit Trail
(i) CAT Baseline
    Section 242.613 (Rule 613) of Regulation NMS requires the national
securities exchanges and national securities associations (``SROs'') to
jointly develop and file with the Commission a national market system
plan to create, implement and maintain a consolidated audit trail
(``CAT'').\2420\ At the time of adoption, and even today, trading data
was and is inconsistent across the self-regulatory organizations and
certain market activity is difficult to compile because it is not
aggregated in one, directly accessible consolidated audit trail system.
The goal of Rule 613 was to require the SROs to create a system that
provides regulators with more timely access to a sufficiently
comprehensive set of trading data, enabling regulators to more
efficiently and effectively reconstruct market events, monitor market
behavior, and identify and investigate misconduct. Rule 613 thus aims
to modernize a reporting infrastructure to oversee the trading activity
generated across numerous markets in today's national market system.
---------------------------------------------------------------------------

    \2420\ See supra note 1220.
---------------------------------------------------------------------------

    On November 15, 2016, the Commission approved the national market
system plan required by Rule 613 (``CAT NMS Plan'' or ``Plan'') that
was filed by the self-regulatory organizations.\2421\ In the CAT NMS
Plan, the SROs described the numerous elements they proposed to include
in the CAT, including, (1) requirements for the plan processor
responsible for building, operating and maintaining the Central
Repository,\2422\ (2) requirements for the creation and functioning of
the Central Repository, (3) requirements applicable to the reporting of
CAT Data by SROs and their members. ``CAT Data'' is defined in the CAT
NMS Plan as ``data derived from Participant Data, Industry Member Data,
SIP Data, and such other data as the Operating Committee may designate
as `CAT Data' from time to time.'' \2423\
---------------------------------------------------------------------------

    \2421\ See id.
    \2422\ The Central Repository is the repository responsible for
the receipt, consolidation, and retention of all information
reported to the CAT. See CAT NMS Plan, supra note 1220, at Section
1.1.
    \2423\ See id. The Operating Committee is the governing body of
the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan requires SROs and their members to record and
report various data regarding orders by 8:00 a.m. the day following an
order event.\2424\ The Plan requires industry members to record
timestamps for order events in millisecond or finer increments with a
clock synchronization standard of within 50 milliseconds.\2425\ The CAT
NMS Plan Processor, FINRA CAT, is then required to process the order
data into a uniform format, link the entire lifecycle of each order,
and combine it with other CAT Data such as SIP Data.\2426\ The Plan
Processor is also required to store CAT Data to allow the ability to
return results of queries on the status of order books at varying time
intervals.\2427\ Regulators, such as the Commission and SROs will use
the resulting CAT Data only for regulatory purposes such as
reconstructing market events, monitoring market behavior, and
identifying and investigating misconduct.\2428\ At this time, the
Commission has little information about what specific data, in addition
to CAT Data, such as proprietary depth of book and auction data, the
SROs currently intend to include in their enhanced surveillance
systems.\2429\
---------------------------------------------------------------------------

    \2424\ See id. at Sections 6.3 and 6.4.
    \2425\ See id. at Section 6.8.
    \2426\ See id. at Section 6.5.
    \2427\ See id. at Section 6.5(c)(ii).
    \2428\ See id. at Section 6.5(g); CAT NMS Plan Approval Order,
supra note 1220, at 84833-34.
    \2429\ See 17 CFR 242.613(f) (Rule 613(f)) of Regulation NMS.
---------------------------------------------------------------------------

(ii) Economic Effects on CAT
    The Commission recognizes that the final rules could affect the
Consolidated Audit Trail, resulting in benefits to investors from
improved regulatory

oversight, costs to CAT from potentially switching from a current SIP
to a competing consolidator, costs to CAT from integrating consolidated
market data into the CAT Data model, and costs to SROs of updating
their enhanced surveillance systems to use consolidated market data
provided by the CAT.\2430\ Specifically, the Plan Processor for the
Consolidated Audit Trail, FINRA CAT, is required to incorporate all
data from SIPs or pursuant to an NMS plan into the Consolidated Audit
Trail. If the Commission were to approve these amendments, the CAT NMS
Plan Operating Committee could choose to purchase such data from a
different entity and would be required to purchase the expanded
consolidated data.
---------------------------------------------------------------------------

    \2430\ See supra Section IV.B.5 for a more detailed discussion
of how the proposal would alter the requirements of the Consolidated
Audit Trail NMS Plan.
---------------------------------------------------------------------------

    The Commission believes that the incorporation of the expanded data
into CAT will improve regulatory oversight to the benefit of investors.
As explained in the Approval order for the Consolidated Audit Trail,
the expected benefits of the CAT include ``improvements in regulatory
activities such as the analysis and reconstruction of market events, in
addition to market analysis and research . . . , as well as market
surveillance, examinations, investigations, and other enforcement
functions,'' and derive from improvements in four data qualities:
Accuracy, completeness, accessibility, and timeliness.\2431\ Accuracy
refers to whether the data about a particular order or trade is correct
and reliable. Completeness refers to whether a data source represents
all market activity of interest to regulators, and whether the data is
sufficiently detailed to provide the information regulators require.
Accessibility refers to how the data is stored, how practical it is to
assemble, aggregate, and process the data, and whether all appropriate
regulators could acquire the data they need. Timeliness refers to when
the data is available to regulators and how long it would take to
process before it could be used for regulatory analysis.
---------------------------------------------------------------------------

    \2431\ See CAT NMS Plan Approval Order, supra note 1220, at
84802-803.
---------------------------------------------------------------------------

    The Commission believes that the expanded consolidated data from
the final rules could improve the completeness and accessibility of CAT
Data.\2432\ In particular, the final rules will improve the
completeness of CAT Data because CAT Data would contain quotes smaller
than 100 shares, depth of book information, and auction information.
While the CAT will contain query functionality capable of recreating
limit order books, the depth of book information will allow regulators
to see the displayed order books that others see around the time of the
order events. While the Commission does not know if SROs plan to
incorporate depth of book and auction information into their enhanced
surveillance systems or other regulatory activities using CAT Data, the
proposal will improve the accessibility of consolidated market data for
SRO and Commission CAT-related uses because SROs would have access to
such data in a standardized format through the Consolidated Audit Trail
instead of through the variety of formats currently used in proprietary
data. The final rules will also improve accessibility because the SROs
and Commission would have such data on the same system as CAT Data.
---------------------------------------------------------------------------

    \2432\ The Commission believes the final rules will not affect
the accuracy or timeliness of CAT Data. The Commission does not
believe that the proposal would alter the accuracy of timestamps of
trades and quotes. While some competing consolidators might offer
data that more accurately represents the data observed by certain
market participants at the time of an order event, the Commission
does not expect that all market participants would observe the exact
same data at that order event, much like the case today. In
addition, industry member clock synchronization and timestamps on
the order events in CAT Data are not fine enough for the latency
improvements to affect the accuracy of assigning an order event to
the consolidated market data likely observed at the time of the
order event. Finally, the order data in CAT is not required to be
reported until 8:00 a.m. the day following an order event. Hence,
because latency improvements from the proposal would be measured in
microseconds, the Commission does not believe that the final rules
will improve the timeliness of CAT Data.
---------------------------------------------------------------------------

    The Commission believes that the improvements in completeness and
accessibility would facilitate more efficient regulatory activities
using CAT Data that will benefit investors. In particular, the final
rules could make broad-based market reconstructions using CAT Data more
efficient by increasing the depth of information that could be
incorporated into such reconstructions with current CAT Data. The
Commission believes that depth of book information, quote information
in sizes less than 100 shares, and auction information are all valuable
in a broad-based market reconstruction. Further, the improvements would
allow for more targeted surveillances and risk-based examinations using
current CAT Data. For example, the depth of book information will be
valuable when building surveillances to detect spoofing or in
investigating spoofing because spoofing often involves creating a false
impression of depth at prices outside of the best bid or offer. In
addition, the auction information will facilitate auction market
reconstruction to evaluate manipulation concerns and inform policy.
Quote information in sizes less than 100 shares will facilitate
analysis by regulators of broker-dealers' best execution practices by
providing potential execution prices that are better than the current
NBBO in stocks priced over $250.\2433\
---------------------------------------------------------------------------

    \2433\ See supra Section V.C.1(b)(i) for data showing that odd-
lot quotes in higher priced securities often improve upon the
current NBBO.
---------------------------------------------------------------------------

    The Commission recognizes that the interaction between the final
rules and the Consolidated Audit Trail could also create additional
costs. Such additional costs are likely to be borne by SROs and their
members. These costs could include switching costs, additional data
costs, and data storage and processing costs. The proposal will result
in switching costs if the Central Repository has to obtain the data
from a different source. The source of the switching costs could be
from changing data input formats and technical specifications, which
would require one-time implementation costs. The Commission recognizes
that the SIP technical specifications change a few times a year such
that the switching costs associated with the proposal would be the
costs in excess of the regular costs incurred when the SIP technical
specifications change.\2434\ The Commission at this time, cannot judge
whether switching data providers would result in higher or lower on-
going data intake costs but data intake costs presumably could be
factored into the selection of a competing consolidator. Also, in order
to continue to receive certain quotation and transaction data for OTC
equities currently included in the SIP feeds, CAT would have to obtain
such data from a different source, and would have to incur any
associated costs in doing so.\2435\ The Commission recognizes that
increasing the amount of data managed and analyzed by CAT will increase
the costs of data storage and processing to integrate the expanded data
with other CAT Data. However, the Commission does not expect the final
rules to substantially increase the costs of operating the CAT because
any marginal increase in cost associated with consolidated market data
will be dwarfed by the processing costs already

incurred by CAT, which includes processing for all options quotation
activity among other order lifecycle events and is significantly larger
in size than consolidated market data.
---------------------------------------------------------------------------

    \2434\ See CTA, Technical Documents, available at https://www.ctaplan.com/tech-specs (last accessed Jan. 30, 2020) (showing
the SIP tech specs version history, which identifies the changes
over the years); UTP Data Feed Services Specification, available at
http://www.utpplan.com/DOC/UtpBinaryOutputSpec.pdf (showing the SIP
tech specs version history, which identifies the changes over the
years).
    \2435\ See supra Sections II.C.2(c) and V.C.1(a) for a
discussion of these potential costs.
---------------------------------------------------------------------------

    The Commission recognizes that the final rules will result in SROs
incurring costs to integrate additional CAT Data into their
surveillances. Even if the SROs would otherwise include depth of book
and auction information in the CAT-related surveillances, they would
incur costs in changing their surveillances to use the data in CAT
rather than using data from proprietary feeds.
    The Commission also considered whether the requirements in CAT will
impose costs as a result of CAT's effect on the competition among
competing consolidators. Because the Commission does not believe CAT
will significantly affect the competition among competing
consolidators,\2436\ it will not impose additional costs resulting from
this effect.
---------------------------------------------------------------------------

    \2436\ See infra Section V.D.2 for a discussion of the
interaction between the proposal and CAT on competition among
competing consolidators.
---------------------------------------------------------------------------

    The Commission believes that CAT implementation milestones will not
be impacted by the final rules given that sufficient lead time will be
available and integration efforts could be scheduled as part of
standard release planning. The Commission believes that switching
market data providers and expanding consolidated market data within CAT
will require limited resources relative to the current implementation
activities. Further, any resources devoted by SROs to updating their
surveillances are separate from the efforts to implement CAT.
(d) Effects on Data Vendors
    The Commission believes that the final amendments would have an
effect on the broad financial data services industry. To the extent
that the amendments lead to cheaper (relative to proprietary data
feeds) and higher content consolidated market data products, the
Commission expects that costs to data vendors would go down and the
ability of such vendors to grow their customer base would increase. It
is also possible that data vendors may increase the range and quality
of products they offer using the new expanded core data and that new
firms enter the data vendor business. To the extent that the risk of
price increases for core data is realized instead, the Commission
believes these businesses could potentially face higher costs, which
when passed on to clients could cause their customer base to shrink. In
the event that these outcomes are severe, it is possible that some data
vendors could exit the market. The Commission is uncertain about the
potential size and scope of these effects because it is unable to
determine both the role of these costs in producing the products
supplied by the data services industry and the extent to which the
enhanced quality of new core data could play a role in the quality of
their products.\2437\
---------------------------------------------------------------------------

    \2437\ One commenter stated that this information ``should be
essential'' to the Commission's analysis. See Nasdaq Letter IV at
47. The Commission requested comment on the costs of market data
vendors and the effect of new core data on their products and did
not receive any. Data vendors are not required to disclose
information to the Commission about the costs of their business at a
level of detail sufficient to improve the Commission's understanding
beyond what is said here. The assertions the Commission does make in
this section about the effect of the rule on market data vendors do
not depend on this information.
---------------------------------------------------------------------------

D. Impact on Efficiency, Competition, and Capital Formation

1. Efficiency
    The Commission believes that the adopted amendments will have a
number of different effects on efficiency. In particular, the
Commission believes that the amendments will lead to more efficient
gains from trade, improve the efficiency of order execution for some
market participants, improve price efficiency, and affect how
efficiently core data is distributed. The rest of this section
discusses these different effects of the amendments on efficiency.
    As discussed above, the Commission believes that the expansion of
core data under the final amendments would increase transparency for
market participants who do not currently access proprietary DOB feeds
and allow them to more easily find liquidity that they can trade
against.\2438\ Currently, some of these market participants may not
trade because they cannot see the quotes available to them, either
through a lack of information about odd-lots, depth of book, or auction
information. The Commission believes that the final amendments will
alleviate some of this information shortage and will allow traders to
more easily find counterparties. This may result in more voluntary
trades occurring between market participants, which could lead to more
efficient gains from trade, since these are trades which currently do
not take place only because of a lack of information.\2439\ However, if
the inclusion of additional odd-lot, depth of book, or auction
information does not induce additional voluntary trading from market
participants who do not currently access proprietary DOB feeds, then
the final amendments may not produce more efficient gains from
trade.\2440\
---------------------------------------------------------------------------

    \2438\ See supra Sections V.C.1(b), V.C.1(c).
    \2439\ Id.
    \2440\ Id.
---------------------------------------------------------------------------

    The Commission believes that the expansion of core data could also
improve the efficiency with which some market participants, or their
broker-dealers, execute orders. As discussed above, by adding odd-lot,
depth of book, and auction information to core data, the final
amendments will reduce information asymmetry between broker-dealers and
other market participants who subscribe to proprietary data feeds and
users of current SIP data. This could improve the ability of broker-
dealers and other market participants who currently do not have access
to this information to trade against those market participants who do.
As a result, this could improve the efficiency with which they execute
their orders by allowing them to select a better trading venue or
method of executing their order. Furthermore, for market participants
who currently rely on exclusive SIPs for their order executions, the
reduction in latency provided by the decentralized consolidation model
could reduce the risk that their orders are picked off, which could
reduce their adverse selection costs. This could potentially reduce
their transaction costs and allow them to more efficiently achieve
their investment or trading objectives or those of their clients.\2441\
---------------------------------------------------------------------------

    \2441\ Id.
---------------------------------------------------------------------------

    As discussed previously, the Commission believes that there is some
potential for new broker-dealers to become competitive in the market
for sophisticated order execution as a result of this rule because they
may be able to use the expanded content and lower latency of core data
to develop SORs or other tools that allow them to compete more
effectively with broker-dealers who currently base order execution
decisions off of proprietary DOB data.\2442\ To the extent that this
happens, the clients of these broker-dealers could see their orders
executed more efficiently and their execution costs reduced.
---------------------------------------------------------------------------

    \2442\ See supra Section V.C.4(b).
---------------------------------------------------------------------------

    The current lack of certain odd-lot quote, depth of book, and
auction information in SIP data could affect price efficiency. The gap
in information between data provided by exclusive SIPs and proprietary
data products may cause prices in some securities to be less efficient,
i.e., to deviate further from fundamental values, if market

participants with access to proprietary data products do not
incorporate this information into prices quickly enough through their
trading or quoting activity. However, the Commission does not know the
extent of this possible effect, but it believes the effect could be
larger in less actively traded securities where the gap in information
between SIP data and proprietary data products is larger.
    The Commission believes that, to the extent that there is
information in the new core data elements that is not currently
reflected in market prices, the final amendments may improve price
efficiency.\2443\ In particular, the introduction of odd-lot quote,
depth of book, and auction information into core data could result in
the information becoming impounded in prices more rapidly and
accurately as a result of the more widespread dissemination of this
information. As the Commission understands that the most sophisticated
traders already have access to this information and likely already
compete to profit from it, the Commission expects that the size of this
gain in price efficiency would be small because this information is
already impounded quickly into prices.
---------------------------------------------------------------------------

    \2443\ See supra Section V.B.2(a).
---------------------------------------------------------------------------

    Finally, under the current rule, the exclusive SIPs operate like
public utilities in their consolidation and distribution of the NMS
stock data.\2444\ The changes will unbundle the data fees for
consolidated market data from the fees for its consolidation and
distribution.\2445\ The decentralized consolidation model will subject
the fees charged by competing consolidators for the consolidation and
distribution of consolidated market data to competition. The Commission
believes that the decentralized consolidation model will lead to
consolidated market data being distributed in a timelier, efficient,
and cost-effective manner. The Commission believes that the changes to
the consolidation and distribution of consolidated data is economically
similar to the restructuring of public utilities and may have an impact
on the efficiency with which the consolidation and distribution is
carried out. In particular, as discussed above, the decentralized
consolidation model is anticipated to produce better investment to
lower costs and improve quality in the consolidation and distribution
of consolidated market data, as well as promote better price
competition (all of which translates into a more efficient allocation
of capital) than the bidding process currently in place.\2446\
---------------------------------------------------------------------------

    \2444\ See Proposing Release, 85 FR at n. 390.
    \2445\ See supra Section V.C.2(c).
    \2446\ See id.
---------------------------------------------------------------------------

    The Commission acknowledges the uncertainty in this
conclusion.\2447\ The literature on the economics of restructuring
public utilities does not provide clear guidance. Some papers show
efficiency gains from regulatory restructuring,\2448\ yet others claim
no efficiency gains or efficiency declines after regulatory
restructuring of public utilities.\2449\ The likely impact of the
adopted changes rests on the strengths and weaknesses of the existing
exclusive SIP model.
---------------------------------------------------------------------------

    \2447\ One commenter stated that this information ``should be
essential'' to the Commission's analysis. See Nasdaq Letter IV
Letter at 47. The Commission continues believe there is uncertainty
in its conclusion, but does not believe this precludes the
conclusion entirely.
    \2448\ See, e.g., Kira R. Fabrizio et al., Do Markets Reduce
Costs? Assessing the Impact of Regulatory Restructuring on US
Electric Generation Efficiency, 97 Am. Econ. Rev. 1250 (2007).
    \2449\ See, e.g., Severin Borenstein, The Trouble with
Electricity Markets: Understanding California's Restructuring
Disaster, 16 J. Econ. Persp. 191 (2002).
---------------------------------------------------------------------------

    The Commission believes that the existing exclusive SIP model has
an important weakness: It does not provide sufficient competitive
incentives.\2450\ SIPs have significant market power in the market for
core and aggregated market data products and, as a result, do not need
to compete to capture demand for their products. The Commission
believes that the adoption of the decentralized consolidation model
will open up the consolidation and distribution services to data
consolidators that will need to vigorously compete to capture some
demand for the data they provide. This need to compete for market share
will create incentives to reduce costs. As discussed above, the
Commission believes that this competition could incentivize competing
consolidators to pass on some of those cost savings to customers by
charging lower service fees in order to capture market share.\2451\ The
focus to capture market share might also lead to technological
improvements for competing consolidators to be able to differentiate
themselves in the eyes of the customers and generate demand.\2452\ The
Commission believes that these improvements in data provision
technology and the introduction of competitive forces on fees for the
consolidation and distribution of consolidated market data could result
in a more efficient allocation of capital.
---------------------------------------------------------------------------

    \2450\ See supra Section V.B.3(a) discussing SIPs market power.
    \2451\ See supra Section V.C.2(b). However, the Commission also
acknowledges the possibility that fees for the consolidation and
distribution of consolidated market data may remain the same or
increase, because consolidated market data will contain more
information and/or there might not be enough competition among
competing consolidators.
    \2452\ Several studies found evidence of efficiency gains and
technological improvements from restructuring in the public
utilities sector. In the electricity industry, for example, the
introduction of competition to the electricity generation services
created strong incentives to become more cost efficient and
technologically advanced to improve operating performance. If a
plant could not become efficient enough to compete, it would lose
business and have to exit the market. Craig and Savage (2013)
establish a 9% increase in efficiency in investor-owned electricity
plants in response to the restructuring and increasing competition
in the electricity sector. Similarly, Davis and Wolfram (2012) argue
that electricity market restructuring is associated with a 10
percent increase in operating performance for nuclear plants
generating electricity. The authors state that increasing
competition led to managers focusing more attention on financial
costs of outages. See J. Dean Craig and Scott J. Savage, Market
Restructuring, Competition and the Efficiency of Electricity
Generation: Plant-level Evidence from the United States 1996 to
2006, 34 Energy J. 1 (2013); Lucas W. Davis and Catherine D.
Wolfram, Deregulation, Consolidation, and Efficiency: Evidence from
US Nuclear Power, Am. Econ. J. Applied Econ. 194 (2012).
---------------------------------------------------------------------------

    Additionally, the decentralized consolidation model could allow
market participants to receive consolidated market data more
efficiently. Instead of having to receive separate consolidated market
data feeds from two exclusive SIP plan processors, UTP and CTA/CQ
Plans, market participants will have the option to receive all of their
consolidated market data from one competing consolidator.\2453\ This
could allow market participants to achieve efficiencies in the design
and in making modifications to their systems for the intake of
consolidated market data because they will only have to configure their
systems to intake consolidated market data from one source.
---------------------------------------------------------------------------

    \2453\ The Commission acknowledges that market participants may
subscribe to more than one competing consolidator for different core
data products or as a backup feed.
---------------------------------------------------------------------------

2. Competition
    As discussed previously, the Commission believes this rule will
have a substantial impact on competition. The Commission identifies
seven markets or areas of the market for which the rule would have a
substantial impact on competition. The Commission acknowledges that the
seven markets or areas may not be a comprehensive list of all markets
or areas for which the rule might have an impact on competition.
However, the Commission believes that competition in these seven
markets or areas are most likely to be impacted substantially by this
rule.

    First, the adopted rule fosters a competitive environment for the
consolidation and dissemination of consolidated market data to replace
the centralized consolidation model, which is not currently subject to
competitive pressures.\2454\ Under the final amendments multiple
competing consolidators will be able to distribute consolidated market
data products to market participants. The Commission believes that,
since market participants could freely select the competing
consolidator that charged the lowest distribution fee or offered better
quality (i.e., lower latency, a more reliable system), the competing
consolidators will be subject to competitive forces and the marketplace
for the consolidation and dissemination of consolidated market data
products will be competitive if enough competing consolidators enter
the market.\2455\ As discussed above, the Commission believes that this
introduction of competition could reduce the prices competing
consolidators charge for the consolidation and distribution of
consolidated market data products and improve the quality of
consolidated market access.\2456\ The Commission recognizes the risk
that there could be too few competing consolidators to realize these
benefits fully, in which case the adopted competitive changes may have
a number of costs,\2457\ including higher prices for the consolidation
and dissemination of consolidated market data products, which could
increase the overall prices market participants pay for consolidated
market data.\2458\
---------------------------------------------------------------------------

    \2454\ See supra Section V.B.3(a).
    \2455\ The Commission assumes that enough competing
consolidators will enter the market in order to make it competitive.
See supra Section V.C.2(a).
    \2456\ See supra Sections V.C.2(a); V.C.2(b); V.C.2(c).
    \2457\ See supra Sections V.C.2(a); V.C.2(d).
    \2458\ See supra Section V.C.2(a).
---------------------------------------------------------------------------

    One commenter stated that the above characterization of the effects
of the amendments on competition represented a ``false dichotomy''
because the current marketplace already has competition in the form of
competing exchanges, and notes that the Commission failed to analyze a
comparison with this feature.\2459\ This commenter stated that
exchanges compete for order flow, and that the sale of proprietary data
products is part of this competition, which offers trading services and
data in return for the ``all-in costs'' of trading. This commenter
stated that since exchanges compete for order flow, it is incorrect for
the Commission to say that there is no competition today, and that
there will be competition after the final amendments are implemented.
The Commission disagrees that the above characterization is a false
dichotomy. The market for the consolidation and dissemination of core
data today does not have competition, but rather, exclusive processors
in the form of the exclusive SIPs, from which all core data must
originate.\2460\ Because the final amendments are designed to expand
the content and improve the dissemination of core data, the appropriate
comparison is to the manner in which core data is processed today, not
to the competition between exchanges for trading services.
---------------------------------------------------------------------------

    \2459\ See Nasdaq Letter IV at 48. See also Nasdaq Letter IV at
32, describing proprietary data products as competitive.
    \2460\ See supra Section V.B.3(a) (discussing the exclusive
nature of the SIP processors).
---------------------------------------------------------------------------

    The Commission recognizes that Rule 614(d)(9) and the addition of
the definition of SCI competing consolidator to Regulation SCI could
impact competitive dynamics in the competing consolidator market. If
the exclusive SIPs become competing consolidators, they could gain a
competitive advantage over other competing consolidators with respect
to Regulation SCI compliance because they would face lower barriers to
entry since they are currently SCI entities and already incur many of
these costs.\2461\ Comparatively, the Commission believes the costs
associated with Rule 614(d)(9), along with the costs associated with
later potentially being an SCI competing consolidator, could raise the
barriers to entry for firms seeking to become competing consolidators
who are not already exclusive SIPs.\2462\ Therefore, Rule 614(d)(9) and
the addition of the definition of SCI competing consolidator to
Regulation SCI could result in fewer firms seeking to become competing
consolidators, which could lead to less competition in the competing
consolidator market. Less competition and less innovation would reduce
the incentives of competing consolidators to reduce the costs and
improve the speed and quality of their consolidated market data
aggregation and dissemination services. Additionally, after the initial
transition period, the Commission believes that the lower burdens
associated with Rule 614(d)(9) could potentially give a competing
consolidator below the SCI competing consolidator threshold a
competitive advantage over SCI competing consolidators because it would
have lower compliance costs. However, the Commission does not believe
that this competitive advantage will be significant because a competing
consolidator with market share below the threshold that gained market
share would become an SCI competing consolidator after it crossed the
threshold.
---------------------------------------------------------------------------

    \2461\ See supra Section V.C.2(e)(ii) for a discussion of costs
related to Regulation SCI and Rule 614(d)(9). See supra Section
V.C.2(a)(i)a for additional discussion of other factors affecting
the barriers to entry for competing consolidators.
    \2462\ SROs that do not operate an exclusive SIP could also be
at a competitive disadvantage relative to an SRO that operates an
exclusive SIP that became a competing consolidator, because they
would face higher initial SCI related costs than an exclusive SIP
would if it became a competing consolidator. See supra Section
VI.C.2(a)(i)b.; supra Section V.C.2(e)(ii).
---------------------------------------------------------------------------

    The limited exemptive relief from the rule filing requirements of
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder, Section
19(d), the requirements of Section 6(b), and from Regulation SCI
provided to competing consolidators affiliated with exchanges will
reduce the regulatory burdens that would otherwise be faced by such an
entity in becoming a competing consolidator.\2463\ As a result, SROs
and their affiliates may find it less burdensome to operate a competing
consolidator, and therefore may be more likely to enter the market,
which will promote competition in the provision of consolidated market
data.
---------------------------------------------------------------------------

    \2463\ The Commission believes that competing consolidators
affiliated with exchanges will choose to operate under the
provisions of the exemption. See supra Section V.C.2(a)(i)a for
additional discussion of the impact of the limited exemptive relief
on barriers to entry.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the public disclosure of
the information in Form CC and the performance metrics and operational
information competing consolidators will provide on their websites
would enhance competition between competing consolidators.\2464\ The
public disclosure of competing consolidator fees and performance
metrics will allow market participants to more easily compare competing
consolidators and select the ones that charged the lowest fees or
offered the best performance. This could enhance competition between
competing consolidators. For example, if the public disclosures show
that certain competing consolidators have higher fees or poor
performance, it may result in those competing consolidators losing
subscribers and earning lower revenues. Similarly, competing
consolidators who display lower prices or superior system performance
may be able to attract more subscribers and earn more revenue. This, in
turn, could enhance

competition by incentivizing competing consolidators to lower fees and/
or innovate and make investments in their systems in order to improve
system performance in order to attract more subscribers. The Commission
acknowledges that the public disclosure of Form CC could harm
competition by making firms reluctant to enter the competing
consolidator market and reducing the incentives of competing
consolidators to innovate if it discloses certain information that a
competing consolidator might view as a ``trade secret'' or giving it a
competitive advantage. However, the Commission believes that these
effects are not likely to occur because the disclosures on Form CC are
not detailed enough to allow other market participants to reproduce a
competing consolidator's ``trade secret.'' \2465\ Additionally, the
delayed public disclosure of material amendments to Form CC should
prevent another competing consolidator from replicating a competing
consolidator's innovations before it has a chance to implement
them.\2466\
---------------------------------------------------------------------------

    \2464\ See supra Section V.C.3.
    \2465\ See supra Section III.C.8(e)(ii) for additional
discussion about Form CC disclosures.
    \2466\ See supra Sections III.C.7, V.C.3.
---------------------------------------------------------------------------

    The Commission recognizes that the registration process for Form CC
could create uncertainty about whether a Form CC would be declared
ineffective. This could potentially harm competition in the market for
competing consolidators by raising the barriers to entry and creating a
disincentive for entities to become competing consolidators. However,
the Commission believes that these effects will not be significant
because the Commission will not declare a Form CC ineffective without
notice and opportunity for hearing. Additionally, entities whose Form
CC is declared ineffective will still have the opportunity to file a
new Form CC with the Commission.
    The Commission considered the effect of the interaction between the
proposal and the CAT NMS Plan on competition among competing
consolidators, but believes that this interaction will not have a
significant effect on the competitive landscape. In particular, the
Commission considered two effects: First, the effect in the event that
there is a bias toward an exchange-operated competing consolidator over
other competing consolidators and second, any competitive advantage for
the competing consolidator selected for the CAT NMS Plan. In relation
to any bias, the Commission notes that the CAT NMS Plan will be only
one of many potential customers of the competing consolidator, so this
bias is not likely to affect the market unless the selection produces a
competitive advantage. In particular, a competing consolidator could
enjoy a competitive advantage only if broker-dealers believe that
market surveillances would be less likely to appear to show violations
if the broker-dealers made trading decisions using the same data used
in SRO surveillances. However, the latency differences across the
competing consolidators are likely to measure in the microseconds while
the clock synchronization requirements for industry members in the CAT
NMS Plan is 50 milliseconds for electronic order flow.\2467\ Therefore,
the Commission does not believe the CAT's choice of competing
consolidator will confer any regulatory value on the competing
consolidator or their broker dealer clients.
---------------------------------------------------------------------------

    \2467\ See CAT NMS Plan, supra note 1220, at Section 6.8.
---------------------------------------------------------------------------

    Second, the Commission believes that the expanded content and
reduced latency of consolidated market data will make it a more viable
substitute for proprietary data feeds.\2468\ The Commission believes
that this will increase competition between consolidated market data
and exchange proprietary data feeds. These competitive pressures could
lead to lower prices for proprietary data feeds and may reduce the data
costs that market participants pay, at the expense of the SROs who
charge the fees.\2469\ The Commission recognizes the risk that Rule
614(d)(9) and the extension of Regulation SCI to include competing
consolidators could lead to less competition in the competing
consolidator market,\2470\ which could reduce the incentives of
competing consolidators to reduce the cost and improve the speed and
quality of consolidated market data. However, the Commission believes
that the risk that there will be insufficient competition among
competing consolidators is low.\2471\ To the extent there is not
sufficient competition among competing consolidators, it could make
consolidated market data less of a viable substitute for proprietary
data feeds, which would reduce the competitive pressures consolidated
market data would impose on proprietary data feeds.
---------------------------------------------------------------------------

    \2468\ However, consolidated market data would not be a perfect
substitute for the proprietary data feeds because it would not
contain all the information in proprietary data feeds. For example,
the expanded core data would not include full depth of book
information or information on all odd-lots. See supra Section V.C.4.
    \2469\ See supra Section V.C.4(a).
    \2470\ For discussion of Regulation SCI requirements on
competition, see supra Section V.C.2(a)(i)a.
    \2471\ See supra Section V.C.2(a)(ii).
---------------------------------------------------------------------------

    Third, the Commission expects the new decentralized consolidation
model for consolidated market data to create competitors to market data
aggregators for two reasons. First, the potential revenues from
becoming a competing consolidator may cause new firms to enter the
market for the consolidation and distribution of market data. Second,
some market participants who currently use market data aggregators that
do not choose to become competing consolidators may switch to getting
consolidated market data products from a competing consolidator. This
could have two effects: The competition could lead to lower prices and
higher quality in the market data aggregator business, but it could
also lead to fewer market data aggregators if the competition from the
consolidated market data system makes it no longer viable for some
market data aggregators to offer their services to market participants
who still wish to use proprietary data feeds.\2472\ The latter could
lead to higher prices in the market data aggregator space.\2473\ In
addition, some of these market data aggregators may choose to become
competing consolidators, which could have two effects: It could cause
market data aggregators to leave the proprietary feed aggregation space
thereby reducing the competition in that space, or it could cause
market data aggregators to use the economies of scale and the
additional profits they may derive from being a competing consolidator
to improve their offerings as a market data aggregator of proprietary
feeds. Depending on which effect dominates, competition in the market
data aggregator space could increase or decrease, which in turn could
lead to lower or higher prices, respectively. The Commission recognizes
that subjecting competing consolidators that fall above the market data
revenue threshold to the requirements of Regulation SCI could diminish
the ability of market data aggregators who become SCI competing
consolidators to compete in the market

data aggregator space.\2474\ If a market data aggregator becomes an SCI
competing consolidator, the requirements of being an SCI entity could
also extend to their aggregation of proprietary market data.\2475\
These requirements could raise their costs, which could reduce their
ability to compete with other market data aggregators that are not
competing consolidators.
---------------------------------------------------------------------------

    \2472\ The Commission acknowledges that fewer competitors could
decrease or increase efficiency in the market data aggregator
business. On the one hand, fewer competitors could reduce the
incentives for market data aggregators to innovate, which could
reduce efficiency. On the other hand, fewer competitors could also
improve efficiency if the firms that exited the market did not
aggregate market data as efficiently as the firms that remained.
    \2473\ As discussed above, consolidated market data would not be
a perfect substitute for proprietary data feeds, so there would
still be demand for proprietary data. Since not all firms' aggregate
proprietary data themselves, there would still be a demand for
third-party aggregators to perform this function.
    \2474\ See supra Section III.F.
    \2475\ See supra Section V.C.2(e)(ii).
---------------------------------------------------------------------------

    Fourth, the Commission expects that the expanded content and
reduced latency of core market data provided by this final rule may
increase competition in the broker-dealer business by improving the
ability of some broker-dealers who currently access core data to
execute orders.\2476\ It is the Commission's understanding that some
broker-dealers that do not subscribe to all of the current proprietary
DOB feeds rely solely on the exclusive SIPs today and that this makes
them uncompetitive in the market for offering execution services to the
most transaction-cost-sensitive market participants. The new
decentralized consolidation model with expanded core data will reduce
the latency and expand the information delivered to broker-dealers who
subscribe to core data, possibly without raising data prices. This in
turn would allow broker-dealers that subscribe to consolidated data to
improve their order execution services and compete more effectively
with broker-dealers who subscribe to proprietary DOB feeds. This will
lead to greater competition between broker-dealers, which could benefit
investors by resulting in lower prices for and higher quality of
broker-dealer execution services.\2477\
---------------------------------------------------------------------------

    \2476\ See supra Section V.C.4(b).
    \2477\ See supra Sections V.B.3(e), V.C.4(b).
---------------------------------------------------------------------------

    Fifth, the Commission believes that the final rule could affect
competition between exchanges. As discussed above, the final
enhancements to core data could increase competition between
consolidated market data and proprietary data feeds, which could lead
to exchanges charging lower fees for proprietary market data.\2478\ If
these lower fees do not result in more subscribers to proprietary
market data, it would lead to a decline in revenues from proprietary
market data for SROs.\2479\ Additionally, the amendments could affect
competition in the market for exchange data connectivity. If some
current subscribers to proprietary market data decide to only receive
consolidated market data products from competing consolidators, they
could also reduce the exchange connectivity services that they
currently use. In turn, this could reduce the revenue that some
exchanges earn from connectivity services. Additionally, new
connectivity fees may be proposed for core data use cases, which could
potentially increase or decrease the revenue exchanges earn from
connectivity.\2480\ It is the Commission's understanding that revenues
from proprietary market data and connectivity services are a
substantial portion of overall revenues for many exchanges.\2481\ It is
also the case that changes to the fees set by the effective national
market system plan(s) for consolidated market data may result in lower
revenues redistributed back to the exchanges, further contributing to a
loss of revenue. It is possible that an exchange group could close some
or all of its exchanges if the revenues from consolidated market data
did not increase and revenues from proprietary market data and
connectivity services were to decline to a level that a given exchange
or exchange group is no longer able to cover operating expenses. The
Commission is unable to quantify the likelihood that an exchange will
cease operating because it would depend on the fees and revenue
allocation for consolidated market data. However, the Commission
believes that it is unlikely exchanges will be forced to leave the
market.
---------------------------------------------------------------------------

    \2478\ See supra Section V.C.4(a). One commenter stated that it
was ``not clear how such competition could occur, given that the
Proposal is to authorize the NMS Plan to set all fees, including
fees for proprietary data products, which contain core data.'' See
Nasdaq Letter IV at 48. The amendments do not authorize the
effective national market system plan(s) to set fees for proprietary
data products, but instead for the data content underlying
consolidated market data.
    \2479\ In addition to adjusting fees, SROs could also redesign
their proprietary market data product lines to try and increase
revenue. However, it is possible that demand for these new products
would not be sufficient to offset the decline in revenues from
proprietary market data.
    \2480\ See supra Section V.C.4(a).
    \2481\ See supra Section V.B.3(b).
---------------------------------------------------------------------------

    Even if an exchange were to exit, the Commission does not believe
this would significantly impact competition in the market for trading
services because the market is served by multiple competitors,
including off-exchange trading venues. Consequently, if an exchange
were to exit the market, demand is likely to be swiftly met by existing
competitors. The Commission recognizes that small exchanges may have
unique business models that are not currently offered by competitors,
but the Commission believes a competitor could create similar business
models if demand were adequate, and if they did not do so, it seems
likely new entrants would do so if demand were sufficient.
    One commenter stated that exchanges might be forced to increase
fees for trading services in order to offset losses that might result
from changes to core data fees.\2482\ The Commission does not believe
that the final amendments are likely to result in an increase in
trading service fees, because losing revenue does not necessarily make
it optimal for a firm to increase its fees. The Commission has
discussed this point in the context of lost revenue specifically in
proprietary data fees above,\2483\ and believes that the same logic
applies to the case of lost revenue from changes to core data fees as
well.
---------------------------------------------------------------------------

    \2482\ See, e.g., Nasdaq Letter IV at 4.
    \2483\ See supra Section V.C.4(a) for additional discussion of
the potential for trading fees to increase.
---------------------------------------------------------------------------

    A commenter stated that the Commission did not consider the impact
of ``changes to market data fees'' on SRO funding.\2484\ The Commission
acknowledges that if NMS data plan fees change such that revenue to
SROs decline, then this could be an additional source of revenue loss
to SROs from this rule. This would be in addition to the loss in
proprietary data and connectivity discussed here, and the Commission
believes the above discussion of the consequences of such losses, which
was included in the Proposing Release,\2485\ adequately analyzes the
potential effects of SROs losing revenue, including from effective
national market system plan data revenue. Furthermore, in response to
this commenter's concern that the Commission does not recognize that
there will be a ``reduction in funding from proprietary feeds,'' \2486\
this discussion of the effect of the loss of proprietary data revenue
above, which was included in the Proposing Release,\2487\ analyzes such
possibilities and their effects.
---------------------------------------------------------------------------

    \2484\ See NYSE Letter II at 22.
    \2485\ See Proposing Release, 85 FR at 16860.
    \2486\ See NYSE Letter II ant 22.
    \2487\ See Proposing Release, 85 FR at 16860.
---------------------------------------------------------------------------

    A commenter stated that the Commission failed to consider the
possibility that SROs would be unable to perform their regulatory
responsibilities if they were to lose revenue as a result of these
final amendments.\2488\ The Commission believes that this possibility
is covered in the above discussion, which was included in the Proposing
Release,\2489\ through the discussion of the potential for exchanges to
exit.
---------------------------------------------------------------------------

    \2488\ See Nasdaq Letter IV at 50.
    \2489\ See Proposing Release, 85 FR at 16860.
---------------------------------------------------------------------------

    Sixth, the Commission believes that the final rule will affect
competition

between traders.\2490\ The Commission believes that traders will be
affected differently based on the type of market data they use when
making trading decisions. For the purposes of this discussion, traders
who subscribe to different types of market data can broadly be grouped
into three categories: (1) Traders who use proprietary DOB feeds
received directly from the SROs and self-aggregate, (2) traders who use
market data aggregators to aggregate proprietary DOB feeds, and (3)
traders who use core data (currently from the exclusive SIPs and, under
the final rule, competing consolidators).\2491\ The Commission believes
that under the final rule the core data would be of higher quality, and
thus the value to traders from acquiring proprietary DOB data would
decrease.\2492\ As a result, it might be harder for traders who use
proprietary DOB feeds (both self-aggregators and traders who use market
data aggregators) to generate profits and the competition between those
traders would increase. For traders who use core data, the Commission
believes that the competition between those traders will increase
because the final amendments will reduce the latency and expand the
information included in core data, which will allow those traders to
devise better trading strategies with bigger profit potential. The
Commission believes that the most substantial change in competition
will occur between traders who use proprietary DOB feeds (both self-
aggregators and traders who use market data aggregators) and traders
who use core data. As described, the final rule expands the information
and reduces the latency of core data, thereby closing the gap between
core data and proprietary DOB feeds. This will allow traders who use
core data to compete on a more level playing field with traders who use
proprietary DOB feeds. This will lead to a transfer of profits from
traders who use proprietary DOB feeds to traders who use consolidated
market data.
---------------------------------------------------------------------------

    \2490\ In this context the term traders could refer to either
proprietary traders executing orders on their own behalf or broker-
dealers executing orders on behalf of their customers.
    \2491\ Traders who currently subscribe to proprietary DOB feeds
may also subscribe to the exclusive SIPs as part of their backup
systems. However, the Commission believes that these traders
primarily rely on proprietary DOB feeds when making trading
decisions because proprietary DOB feeds contain more information and
have lower latency than the exclusive SIPs. For additional details
and discussion about methods of market data access, see supra
Section V.B.2(c).
    \2492\ See supra Section V.C.4(a).
---------------------------------------------------------------------------

    Seventh, the Commission believes that the rule changes will affect
competition between off-exchange trading venues and exchanges in the
market for trading services. As discussed above, the Commission
believes that the amendments will reduce the latency of core
data.\2493\ This could improve the competitive positions of some off-
exchange trading venues in the market for trading services. Off-
exchange trading venues that currently rely on the exclusive SIPs to
calculate the NBBO will benefit from the latency reductions in the
distribution of core data provided by the competing
consolidators.\2494\ These venues will now receive a more timely view
of the NBBO, which could improve the execution quality of trades that
take place on these venues. This could make them more attractive venues
to trade on and they could attract more order flow, from both exchanges
and other off-exchange venues. Off-exchange trading venues that
currently subscribe to proprietary data feeds could also see their
competitive positions improve. If the new core data represents an
alternative to the proprietary data feeds for their order executions,
they could substitute core data for proprietary data, which could lower
their costs. Off-exchange trading venues might be able to pass along
these cost reductions as reduced fees to subscribers, which could
improve their competitive position relative to exchanges and other off-
exchange trading venues. Reductions in the fees charged by these off-
exchange trading venues could in turn potentially benefit investors if
broker-dealers who subscribe to these venues passed along these cost
savings by, in turn, reducing their fees.\2495\
---------------------------------------------------------------------------

    \2493\ See supra Section V.C.2(c).
    \2494\ Id.
    \2495\ Broker-dealer subscribers could potentially pass along
the cost savings from the reduction in off-exchange trading venue
fees to investors either directly, if they reduced fees for
investors who were clients of the broker-dealer, or indirectly, if
they reduced fees for institutional clients, such as mutual funds,
who, in turn, passed along the cost savings to their end investors.
---------------------------------------------------------------------------

3. Capital Formation
    The Commission believes the final rule will have a modest impact on
capital formation. However, the Commission is unable to quantify the
effects on capital formation because, as discussed above, it is unable
to quantify the additional gains from trade and the effects of
improvements in order routing that may be realized from the rule.\2496\
However, in the section below the Commission provides a qualitative
description of the effects it believes the rule will have on capital
formation.
---------------------------------------------------------------------------

    \2496\ See supra Sections V.C.1(b), V.C.1(c), V.D.1.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that the addition of
information about odd-lot quotes, depth of book, and auction
information to core data may result in more voluntary trades occurring
between market participants, which could lead to more efficient gains
from trade.\2497\ Improved gains from trade may result in a more
efficient allocation of capital, which would improve capital formation.
---------------------------------------------------------------------------

    \2497\ See supra Section V.D.1.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the final amendments
will improve order execution for market participants who currently rely
upon SIP data, which may lower their transaction costs.\2498\ Lower
transaction costs could reduce firms' cost of raising capital.\2499\
This, in turn could improve capital formation.
---------------------------------------------------------------------------

    \2498\ See supra Sections V.C.1(b), V.C.1(c), V.D.1.
    \2499\ See Yakov Amihud and Haim Mendelson, Asset Pricing and
the Bid--Ask Spread, 17 J. Fin. Econ. 223 (1986).
---------------------------------------------------------------------------

E. Alternatives

    The Commission considered potential alternatives to the adopted
rules that broadly fall into two categories: Introduce the
decentralized consolidation model and make alternative changes to the
core data definition, and maintain the new core data definition in the
adopted rules and consider alternative models of SIP competition.
1. Introduce Decentralized Consolidation Model With Addition of Full
Depth of Book to Core Data Definition
    The Commission considered an alternative that would introduce the
decentralized consolidation model and expand core data more than the
adopted rules to include information on quotations and aggregate size
at all prices in the limit order book (``full depth of book''),
including information on aggregated odd-lot sizes at each depth of book
level, instead of the depth of book information contained in the
adopted rule, i.e., five round lot price levels from the NBBO.\2500\
Under this alternative, the definition of a round lot would remain the
same as in the adopted rules, which means the costs and benefits
associated with the changes in the round lot definition, including
changes in the NBBO would be similar to the adopted rule.\2501\
---------------------------------------------------------------------------

    \2500\ See supra Section II.F.1.
    \2501\ See supra Section II.D.
---------------------------------------------------------------------------

    Relative to the adopted rule, full depth of book information would
provide market participants who currently do not access proprietary DOB
feeds, as well as market participants

who currently access proprietary DOB feeds and would have switched to
using consolidated market data under the adopted rule, with additional
information on liquidity provision across more price levels. To the
extent that these market participants can utilize full depth of book
information, the Commission believes that this alternative could result
in increased benefits to such market participants relative to the
adopted rule.\2502\ Certain commenters on the Roundtable stated that
without full depth of book information, broker-dealers may not be able
to provide best execution to their clients,\2503\ indicating that full
depth of book information would provide valuable information to market
participants. However, as discussed above, the Commission believes that
the marginal benefit of including additional information on price
levels further away from the best quotes may decrease as the price
level moves away from the best quote because orders at these price
levels are less likely to execute.\2504\
---------------------------------------------------------------------------

    \2502\ This alternative could increase costs relative to the
adopted rule for market participants that access full depth of book
information and execute trading that earn profits at the expense of
other market participants who do not access this information. As
discussed above, this cost would represent a partial transfer from
traders who currently have access to depth of book to those who do
not. See supra Section V.C.1(c)(iv).
    \2503\ See Proposing Release, 85 FR at n. 284-85.
    \2504\ See supra Section V.C.1(c)(ii).
---------------------------------------------------------------------------

    Relative to the adopted rules, the inclusion of full depth of book
information in core data would increase the ability of market
participants to use it as a substitute for proprietary DOB feeds.\2505\
Currently, market participants interested in full depth of book data
rely on proprietary DOB feeds offered by exchanges, which provide
varying degrees of the depth of book information. To the extent that
there are market participants who utilize full depth of book
information via proprietary DOB feeds in trading, this alternative
could increase the benefits for some of these market participants
relative to the adopted rules by potentially reducing their data costs
if they would switch to using core data under this alternative but
would not have done so under the adopted rules. Subscribers of
proprietary DOB feeds would realize these cost savings if they switched
to receiving consolidated market data through a competing consolidator
product or if they registered as a self-aggregator.\2506\
---------------------------------------------------------------------------

    \2505\ Including full depth of book information in core data
would not make it a perfect substitute for all proprietary DOB
feeds. For example, some proprietary DOB feeds contain more detailed
information than full depth of information, such as messages on
individual orders.
    \2506\ See supra Section V.C.2(b).
---------------------------------------------------------------------------

    The Commission believes that the alternative to include full depth
of the book in core data would result in greater costs for exchanges
than would the adopted rules. To the extent that the alternative
results in fewer market participants subscribing to proprietary DOB
data or purchasing connectivity services from the exchanges than under
the adopted rules, exchanges' business for their proprietary feeds and
connectivity services could be less profitable.\2507\ Additionally, to
the extent that not all exchanges sell full depth of book, certain
exchanges would incur additional costs to set up systems and produce
full depth of book information to be included in the core data.
However, the Commission is unable to quantify this cost because it
lacks information on the modifications exchanges would need to make to
their systems in order to provide full depth of book information.
---------------------------------------------------------------------------

    \2507\ More broadly, this could have differential effects
between exchanges who derive significant revenue from proprietary
data feeds and those who derive significant revenue primarily from
SIP revenue. These effects would also depend on the effective
national market system plan(s) fees for consolidated market data
offerings as well as their method for allocating revenue received
from consolidated market data among the SROs. See supra Section
V.C.4(a).
---------------------------------------------------------------------------

    Compared to the adopted amendments, this alternative could result
in additional costs for competing consolidators to create
infrastructure and expand capacity to distribute full depth of book
information.\2508\ The costs are likely to vary substantially according
to the existing infrastructure of the entity seeking to be a competing
consolidator. The Commission believes that these incremental costs for
market data aggregators and existing exclusive SIPs will be small,
because they already work with proprietary DOB data.
---------------------------------------------------------------------------

    \2508\ See supra Section V.C.2(d).
---------------------------------------------------------------------------

    Additionally, including full depth of book information would
require market participants who subscribed to core data and wished to
receive the additional depth of book information to make more extensive
upgrades to their systems than under the adopted rules. However, the
Commission is unable to estimate the associated costs because it does
not have access to information about the infrastructure expenses a
market participant incurs to process market data and because of the
likelihood that such costs vary substantially according to the existing
infrastructure of the market participant. To the extent that some
market participants who subscribe to the exclusive SIPs do not need
full depth of book information, they would not need to expand their own
proprietary technology or that of a third-party vendor to process the
full depth of the book data. Therefore, this alternative would not
result in additional costs for these market participants compared to
the adopted rules.
2. Introduce Changes in Core Data and Introduce a Distributed SIP Model
    The Commission considered an alternative that would expand the core
data as proposed and would introduce a distributed SIP model whereby
the current exclusive SIP processors would establish multiple instances
of their systems in multiple data centers.\2509\ As the Roundtable
panelists \2510\ stated this alternative would achieve a similar
reduction in exclusive SIP geographic latency to the adopted rule by
allowing firms to consume data under the current structure without
making any changes or to consume data at the nearest exclusive SIP
instance depending on the firms' latency concerns.\2511\ However, this
alternative would still provide exclusive rights to one operator to
provide exclusive SIP services for a given tape.
---------------------------------------------------------------------------

    \2509\ See also Proposing Release, 85 FR at Section IV.C.2 for a
discussion about a single SIP alternative.
    \2510\ See Proposing Release, 85 FR at Section IV.C.1(a).
    \2511\ Several commenters agreed. See, e.g., NYSE Letter II at
26; Nasdaq IV Letter at 36, 49; Cboe Letter at 25 for a discussion
on the advantages of the distributed SIP alternative and how the
commenters believe the Commission did not properly consider it.
---------------------------------------------------------------------------

    The Commission believes that this alternative would produce lower
benefits compared to the decentralized consolidation model.\2512\ The
Commission believes that under this alternative, the exclusive SIPs
would not be subject to the same competitive forces that competing
consolidators may be subject to under the decentralized consolidation
model.\2513\ This lack of competition would reduce the incentives to
innovate and would not improve efficiency or reduce the transmission
and aggregation latencies of core data as much as the proposal. If core
data does not achieve the same overall latency reduction as under the
adopted rule, then market participants would be less likely to
substitute using core data for proprietary data than they would be
under the adopted rule. This could mean that the potential decline in
profits from exchanges' proprietary data

fees may not be as large as they would be under the proposal.\2514\
---------------------------------------------------------------------------

    \2512\ See supra Section V.C.2(c). See also Proposing Release,
85 FR at Section IV.C.1.
    \2513\ One commenter agreed. See MEMX Letter at 8. See also
supra Sections V.C.2, V.D.2.
    \2514\ See supra Section V.C.4(a).
---------------------------------------------------------------------------

    Under this alternative, the exclusive SIPs would still need to make
upgrades to their systems to account for the expansion of core data and
would still need to install systems in multiple data centers. The
Commission believes that the costs of these SIP system upgrades would
be similar to those under the adopted rule for the exclusive SIPs that
registers to become a competing consolidator.\2515\ However, under this
alternative, market participants may experience higher costs to access
consolidated market data compared to the adopted rule. Instead of
having the option to receive all consolidated market data from one
competing consolidator, as they would under the adopted rule, market
participants would still need to receive data from both exclusive SIP
plan processors.\2516\ This means that under this alternative, the
total price market participants would pay to access consolidated market
data may be greater than under the adopted rule because it would
include the costs of the two plan processors to aggregate and transmit
the data. Under the adopted rule, the total price market participants
would pay to receive consolidated market data may only include the
costs of one processor, because market participants would have the
option to receive all of their consolidated market data products from
one competing consolidator.\2517\
---------------------------------------------------------------------------

    \2515\ See supra Section V.C.2(d).
    \2516\ See supra Section V.B.2.
    \2517\ See supra Section V.C.2(c).
---------------------------------------------------------------------------

    One commenter stated that the Commission relies on a limited set of
information when examining potential solutions to the latency
differential between the proprietary and SIP data feeds and ``does not
consider any other approaches to resolving its latency concerns.''
\2518\ Commenters also emphasized that a distributed SIP alternative
would introduce much less regulatory disruption and would create a more
resilient market than the one with competing consolidators.\2519\ The
Commission disagrees with the first comment because the Commission
considered a Distributed SIP alternative in its Proposing Release.
However, as mentioned above, the Commission believes this alternative
would produce lower benefits compared to the decentralized
consolidation model because it lacks the competitive incentives
achieved in the decentralized consolidation model. Additionally, the
Commission disagrees with the second comment and believes that the
decentralized consolidation model will increase market resiliency, as
discussed above.\2520\
---------------------------------------------------------------------------

    \2518\ See Nasdaq Letter IV at 45.
    \2519\ See, e.g., Cboe Letter at 25; Nasdaq Letter IV at 36;
Data Boiler Letter I at 66-67.
    \2520\ See supra Section V.C.2(c)(iv) for a discussion on the
resiliency benefits of the decentralized consolidation model.
---------------------------------------------------------------------------

3. Require Competing Consolidators' Fees Be Subject to the Commission's
Approval
    The Commission considered an alternative to the decentralized
consolidation model that would require competing consolidators' fees to
be subject to the Commission's regulatory approval. Some commenters
supported this alternative \2521\ and one commenter stated its
recommendation ``that the Commission should scrutinize competing
consolidator fees, and fee changes, in a manner similar to the process
for review and approval of proposed rule changes currently filed by
SROs.'' \2522\
---------------------------------------------------------------------------

    \2521\ See, e.g., Clearpool Letter at 4; ACS Execution Services
Letter at 5-6.
    \2522\ See Clearpool Letter at 4.
---------------------------------------------------------------------------

    The Commission believes that, relative to the adopted rule, this
alternative would potentially reduce the risk and uncertainty
surrounding the total price of consolidated market data. This
alternative would provide for Commission review and approval of the
fees of competing consolidators. Therefore, compared to the amendments,
this alternative could reduce the risk that market participants are
exposed to unreasonably high fees, which could reduce the risk that
some market participants or data vendors would no longer provide
services in the equity market because the price of consolidated market
data products becomes too high.\2523\
---------------------------------------------------------------------------

    \2523\ See supra Section V.C.2(b).
---------------------------------------------------------------------------

    The Commission believes, however, that this alternative would
impose additional regulatory burdens on the competing consolidator
business compared to the adopted rule, and may inhibit competing
consolidators from being able to respond effectively and quickly to
free market forces. These burdens would reduce the incentive for firms
to become competing consolidators and lead to less robust competition
in the decentralized consolidation model than under the adopted
rule.\2524\ With less competitive forces to discipline competing
consolidators' service fees, competing consolidators would have less
incentive to innovate in their consolidating business. Moreover, less
competing consolidators in the market would reduce the extent to which
the pricing is based on market forces. Finally, the Commission believes
that under the amendments, there will be a competitive market for
consolidated market data products with several competing consolidators
operating. Thus, competitive forces will constrain the prices competing
consolidators can charge without the need to impose additional
regulatory burdens on the competing consolidator business.
---------------------------------------------------------------------------

    \2524\ See supra Section V.C.2(a).
---------------------------------------------------------------------------

4. Do Not Extend Regulation SCI To Include Competing Consolidators
    The Commission considered an alternative that would not extend
Regulation SCI to include SCI competing consolidators.\2525\ Under this
alternative, there would be no SCI competing consolidators and the
Commission would have required all competing consolidators to be
subject to the provisions of Rule 614(d)(9).\2526\ The Commission
believes that this alternative would reduce some of the benefits as
well as some of the costs compared to the adopted rules.\2527\
---------------------------------------------------------------------------

    \2525\ One commenter preferred a similar alternative to the
proposed requirement that all competing consolidators be SCI
entities. This commenter believed that even if a firm's systems met
the standards of Regulation SCI, demonstrating compliance with
Regulation SCI would be costly and overly burdensome and act as a
barrier to entry for firms seeking to become competing
consolidators. See ACTIV Financial Letter at 2. As discussed above,
the Commission agrees that the costs of Regulation SCI would serve
as a barrier to entry to new competing consolidators. As discussed
above, the Commission has adopted Rule 614(d)(9) that will apply to
all competing consolidators during the initial one year transition
period and competing consolidators below a threshold thereafter. The
Commission believes that Rule 614(d)(9) will be less costly than
Regulation SCI and will lower the barriers to entry for new
competing consolidators. See supra Section III.F and Section
V.C.2(e)(i).
    \2526\ Under this alternative, the Commission would also exempt
competing consolidators affiliated with exchanges from the
requirements of Regulation SCI if they complied with the provisions
of Rule 614(d)(9), so they would not face higher regulatory burdens
and be placed at a competitive disadvantage relative to competing
consolidators that are not affiliated with exchanges.
    \2527\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

    The Commission believes that this alternative could result in
larger competing consolidators, that would have met the threshold for
SCI competing consolidators under the adopted rules, producing systems
that would be less secure and resilient than they would be under the
adopted rules because they would not be subject to all of the
requirements of being an SCI competing consolidator.\2528\ If these

competing consolidators produce less secure and resilient systems
compared to if they were SCI competing consolidators, then there could
be a greater risk of more market disruptions due to systems issues in
competing consolidators compared to the adopted rules.\2529\
Additionally, if one of these competing consolidators does experience a
systems issue, it could result in more severe and longer disruptions
compared to the adopted rules. However, the increase in competing
consolidator systems issues compared to the adopted rules may not be
significant. Under this alternative, competing consolidators would
still be subject to the requirements of Rule 614(d)(9) and would need
to establish policies and procedures to ensure that their systems have
levels of capacity, integrity, resiliency, availability, and security
adequate to maintain operational capability. They would also still need
to post information on systems issues on their websites as well as
monthly reports containing statistics on their capacity and systems
availability.\2530\ This would place competitive pressure on competing
consolidators to ensure that their systems are reliable and resilient.
Otherwise, they could lose subscribers to competing consolidators that
had more reliable and resilient systems.
---------------------------------------------------------------------------

    \2528\ For example, under this alternative, larger competing
consolidators would not have the requirements to have geographically
diverse back-up and recovery capabilities. See supra Sections III.F
and V.C.2(e)(i).
    \2529\ Id.
    \2530\ See supra Section V.C.3(a).
---------------------------------------------------------------------------

    The Commission believes that this alternative would result in lower
costs for larger competing consolidators compared to the adopted rule.
Under this alternative, these competing consolidators would not incur
the costs that are associated with being an SCI competing consolidator
that are discussed above.\2531\ Instead, these competing consolidators
would have to bear the lower costs associated with Rule
614(d)(9).\2532\
---------------------------------------------------------------------------

    \2531\ See supra Section V.C.2(e)(ii).
    \2532\ See id.
---------------------------------------------------------------------------

    The Commission believes that these lower costs could result in more
firms becoming competing consolidators and could increase competition
in the competing consolidator market compared to the adopted rules.
Although, under the adopted rules, competing consolidators will
initially be subject to the lower costs of Rule 614(d)(9), the
Commission believes that many competing consolidators will eventually
meet the market data revenue threshold for SCI competing consolidators
and be subject to the higher costs associated with Regulation SCI. The
lower costs under this alternative may result in more firms becoming
competing consolidators compared to the adopted rules, which could
increase competition. An increase in competition may increase the
benefits from the decentralized consolidation model. However, these
effects may not be significant because the Commission believes that the
risk under the adopted rules that the anticipated benefits of the
decentralized consolidation model will not materialize because of
insufficient competition among competing consolidators is low.\2533\ To
the extent these effects do occur, it could lower the costs and
increase the speed and quality of consolidated market data products
compared to the adopted rule. This, in turn, could make consolidated
market data products a more viable substitute for proprietary data
feeds and result in greater competition between consolidated market
data and proprietary data feeds compared to the adopted rules.
---------------------------------------------------------------------------

    \2533\ See supra Section V.C.2(a)(ii).
---------------------------------------------------------------------------

5. Require Competing Consolidators To Submit Form CC in the EDGAR
System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing
consolidators to submit Form CC using the Commission's EDGAR system and
using the Inline XBRL format.\2534\ Relative to the adopted rules,
these requirements could benefit market participants by facilitating
retrieval, aggregation, and comparison of disclosed information across
competing consolidators. The requirements could also allow a competing
consolidator to efficiently benchmark key aspects of its operations
(e.g., operational capabilities or fee structures) against the rest of
the potential competing consolidator population.
---------------------------------------------------------------------------

    \2534\ One commenter stated that an XBRL requirement would be
acceptable, as would the proposed EFFS filing location. See Data
Boiler Letter I at 96 (``We are good with XBRL if that is needed.'')
and 50 (``EFFS is fine, no further comment.'').
---------------------------------------------------------------------------

    However, many potential competing consolidators may not be familiar
with Inline XBRL and thus could incur increased costs if they were
required to learn Inline XBRL and apply Inline XBRL tags to their Form
CC disclosures, compared to the adopted rules' requirement to submit
Form CC and various exhibits through EFFS--a system with which some of
the competing consolidators subject to Form CC filing requirements may
already be familiar.\2535\ For the reasons discussed above, the
Commission is requiring Form CC to be filed through EFFS.\2536\
---------------------------------------------------------------------------

    \2535\ The Commission estimates that 3 of the estimated 8
competing consolidators that will be subject to Form CC filing
requirements under Rule 614(a)(1) under the adopted rules are
already SCI entities. See supra Section IV.G.3. These entities
currently use EFFS to file Form SCI.
    \2536\ See supra Section III.C.7(b).
---------------------------------------------------------------------------

6. Require Competing Consolidators To Submit Monthly Disclosures in the
EDGAR System Using the Inline XBRL Format
    The Commission considered the alternative of requiring competing
consolidators to submit their monthly performance metrics and
operational information using the Commission's EDGAR system and using
the Inline XBRL format.\2537\ Relative to the adopted rules, this
alternative could benefit market participants by having the monthly
information of each competing consolidator in a centralized location.
Additionally, the alternative could facilitate retrieval, aggregation,
and comparison of disclosed information across competing consolidators
and time periods.
---------------------------------------------------------------------------

    \2537\ One commenter expressed that XBRL would be acceptable,
but also stated that website publication would be acceptable. See
Data Boiler Letter I at 96 (``We are good with XBRL if that is
needed.'') and 53 (``We are okay with the publishing
requirement.'').
---------------------------------------------------------------------------

    However, competing consolidators would incur increased costs to
file the information with the Commission compared to the adopted rules'
requirement to post the monthly information on the competing
consolidator's website without a format requirement. The difference in
costs would likely vary across competing consolidators, depending on
the systems and processes they currently have in place, such as for
internal reporting, posting of website updates, and submission of
regulatory filings, and the manner in which competing consolidators
currently maintain data required for the additional disclosures. In
addition, similar to submitting Form CC information on EDGAR using the
Inline XBRL format, competing consolidators would be required to incur
the additional costs of learning Inline XBRL under the alternative when
compared to the adopted rules. For the reasons discussed above, the
Commission is requiring monthly disclosures to be posted on competing
consolidator websites without a format requirement.\2538\
---------------------------------------------------------------------------

    \2538\ See supra Section III.C.8(c).
---------------------------------------------------------------------------

7. Prescribing the Format of NMS Information
    The Commission considered an alternative in which it would
prescribe a single format that SROs would use to provide NMS
information to competing

consolidators and self-aggregators. Each SRO would still be required to
make all methods of access available to competing consolidators and
self-aggregators as such SRO makes available to any other person.\2539\
Each SRO would still be able to offer proprietary data products in
other formats.
---------------------------------------------------------------------------

    \2539\ See Proposing Release, 85 FR at n. 428.
---------------------------------------------------------------------------

    By prescribing the format, the Commission could better ensure
consistency of the data. Compared to the adopted rule, a standard
format could reduce the costs for competing consolidators and self-
aggregators to aggregate the data to create consolidated market data.
However, the Commission believes that these costs may not be
significantly reduced. As discussed above, the SROs currently use a
variety of formats for their proprietary data feeds and some broker-
dealers, market data aggregators, and the exclusive SIPs are already
adept and experienced in aggregating and normalizing the data across
different formats.\2540\ Therefore, some potential competing
consolidators and self-aggregators may not experience significant cost
reductions relative to the adopted rule if the Commission required that
SROs provide NMS information in a prescribed format.
---------------------------------------------------------------------------

    \2540\ See supra Section V.B.2(b).
---------------------------------------------------------------------------

    Requiring a single format for SROs to deliver NMS information to
competing consolidators and self-aggregators would also increase the
costs to SRO's compared to the adopted rule. SROs would incur a greater
cost to conform their existing data to a format they do not already
use. It could also increase the costs of exchanges making future
changes to their data because they may need to make alterations to both
their proprietary data products and to data in the standard format they
would supply to competing consolidators and self-aggregators, assuming
the changes would need to be included in consolidated market data.
Additionally, compared to the adopted rule, this increased cost could
reduce the likelihood that the effective national market systems
plan(s) for NMS stocks or SROs introduce additional elements into
consolidated data in the future.\2541\
---------------------------------------------------------------------------

    \2541\ See Proposing Release, 85 FR at Sections III.C, III.D.
---------------------------------------------------------------------------

    Requiring the SROs to deliver data to competing consolidators and
self-aggregators in a single format could also impact the latency
between consolidated market data and aggregated proprietary DOB feeds.
On one hand, receiving all of the data in a single format should
expedite the aggregation and normalization process for consolidated
data. This could potentially reduce the latency differential between
consolidated market data and aggregated proprietary data feeds compared
to the adopted rule. However, it is possible that the format of certain
proprietary data feeds may allow for faster aggregation initially than
the single format specified by the Commission because of certain SROs'
existing familiarity with its format. If this occurred, it could
increase the latency differential compared to the amendments.
    In addition, if the SROs are required to transform their existing
data to a different format, it could hinder the timeliness of the data
competing consolidators receive compared to data delivered via the
proprietary feeds. Any changes in the timeliness with which the
competing consolidators receive the data or any difference in latency
between consolidated core data and proprietary data feeds would affect
the viability of consolidated core data as a substitute for proprietary
data feeds and affect many of the benefits of the decentralized
consolidation model.\2542\ If the latency differential is reduced, more
market participants may substitute consolidated market data for
proprietary data feeds and the benefits of the decentralized
consolidation model could increase compared to the amendments. If
competing consolidators receive less timely data or the latency
differential increases, fewer market participants would switch to
consolidated market data and the benefits would be smaller than under
the adopted rule.
---------------------------------------------------------------------------

    \2542\ See supra Section V.C.2(c).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Certification

    The Regulatory Flexibility Act (``RFA'') \2543\ requires Federal
agencies, in promulgating rules, to consider the impact of those rules
on small entities. Section 603(a) \2544\ of the Administrative
Procedure Act,\2545\ as amended by the RFA, generally requires the
Commission to undertake a regulatory flexibility analysis of all
proposed rules to determine the impact of such rulemaking on ``small
entities.'' \2546\ Section 605(b) of the RFA states that this
requirement shall not apply to any proposed rule or proposed rule
amendment which, if adopted, would not have a significant economic
impact on a substantial number of small entities. The Commission
certified in the Proposing Release, pursuant to Section 605(b) of the
RFA, that the proposed rules would not, if adopted, have a significant
economic impact on a substantial number of small entities.\2547\ The
Commission received no comments on this certification.
---------------------------------------------------------------------------

    \2543\ 5 U.S.C. 601 et seq.
    \2544\ 5 U.S.C. 603(a).
    \2545\ 5 U.S.C. 551 et seq.
    \2546\ Although Section 601(b) of the RFA defines the term
``small entity,'' the statute permits agencies to formulate their
own definitions. The Commission has adopted definitions for the term
``small entity'' for purposes of Commission rulemaking in accordance
with the RFA. Those definitions, as relevant to this proposed
rulemaking, are set forth in 17 CFR 240.0-10 (Rule 0-10).
    \2547\ See 5 U.S.C. 605(b).
---------------------------------------------------------------------------

    The amendments to Rules 600 and 603 and the new Rule 614 apply to
national securities exchanges registered with the Commission under
Section 6 of the Exchange Act, national securities associations
registered with the Commission under Section 15A of the Exchange Act,
and competing consolidators. None of the exchanges registered under
Section 6 that will be subject to the proposed amendments are ``small
entities'' for the purposes of the RFA.\2548\ There is only one
national securities association, and the Commission has previously
stated that it is not a small entity as defined by 13 CFR
121.201.\2549\ For purposes of the Commission rulemaking in connection
with the RFA\2550\ as it relates to competing consolidators, a small
entity includes a SIP that (1) Had gross revenues of less than $10
million during the preceding fiscal year (or in the time it has been in
business, if shorter); (2) Provided service to fewer than 100
interrogation devices or moving tickers at all times during the
preceding fiscal year (or in the time that it has been in business, if
shorter); and (3) Is not affiliated with any person (other than a
natural person) that is not a small business or small organization
under this section.\2551\
---------------------------------------------------------------------------

    \2548\ See 17 CFR 240.0-10(e). Paragraph (e) of Rule 0-10 states
that the term ``small business,'' when referring to an exchange,
means any exchange that has been exempted from the reporting
requirements of Rule 601 of Regulation NMS, 17 CFR 242.601, and is
not affiliated with any person (other than a natural person) that is
not a small business or small organization as defined in Rule 0-10.
Under this standard, none of the exchanges subject to the amendments
to Rule 600 or 603(b) or to Rule 614 are ``small entities'' for the
purposes of the RFA. See Proposing Release, 85 FR at n. 1219.
    \2549\ See, e.g., Securities Exchange Act Release No. 62174 (May
26, 2010), 75 FR 32556, 32605 n. 416 (June 8, 2010) (``FINRA is not
a small entity as defined by 13 CFR 121.201.'').
    \2550\ See supra note 2546.
    \2551\ 17 CFR 240.0-10(g).
---------------------------------------------------------------------------

    Based on the Commission's information about the 10 potential
entities the Commission estimates may become competing consolidators,
the Commission believes that all such entities will exceed the
thresholds defining ``small entities'' set out above. Competing
consolidators will be participating in a sophisticated business

that requires significant resources to compete effectively. For
example, as noted above, the Commission estimates that new entrants to
the competing consolidator market--entities without prior experience in
the business of collecting, consolidating, and disseminating market
data--will incur initial startup costs of $2,683,000,\2552\ and each
competing consolidator will incur total ongoing annual costs of
$5,141,895 per entity.\2553\ While other competing consolidators may
emerge and seek to register as competing consolidators with the
Commission, the Commission does not believe that any such entities
would be ``small entities'' as defined in 17 CFR 240.0-10(g).
Accordingly, the Commission believes that any such registered competing
consolidators will exceed the thresholds for ``small entities'' set
forth in 17 CFR 240.0-10.
---------------------------------------------------------------------------

    \2552\ See supra note 1491 and accompanying text.
    \2553\ See supra note 1526 and accompanying text.
---------------------------------------------------------------------------

    For the reasons described above, the Commission certifies that the
amendments to Rules 600 and 603 and the new Rule 614 will not have a
significant economic impact on a substantial number of small entities.

VII. Other Matters

    Pursuant to the Congressional Review Act,\2554\ the Office of
Information and Regulatory Affairs has designated these rules as a
``major rule,'' as defined by 5 U.S.C. 804(2). If any of the provisions
of these final rules, or the application thereof to any person or
circumstance, is held to be invalid, such invalidity shall not affect
other provisions or application of such provisions to other persons or
circumstances that can be given effect without the invalid provision or
application.
---------------------------------------------------------------------------

    \2554\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

VIII. Statutory Authority

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

List of Subjects

17 CFR Part 240

    Brokers, Dealers, Registration, Securities.

17 CFR Parts 242 and 249

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of the Amendments

    For the reasons stated in the preamble, the Commission is amending
title 17, chapter II of the Code of Federal Regulations as follows:

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

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

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

Sec.  240.3a51-1  [Amended]

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

Sec.  240.13h-l   [Redesignated as Sec.  240.13h-1 and Amended]

0
3. Section 240.13h-l is redesignated as Sec.  240.13h-1 and amended in
paragraph (a)(5) by removing the text ``Section 242.600(b)(47)'' and
adding in its place ``Sec.  242.600(b)(54)''.

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

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

    Authority:  15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78g(c)(2),
78i(a), 78j, 78k-1(c), 78l, 78m, 78n, 78o(b), 78o(c), 78o(g),
78q(a), 78q(b), 78q(h), 78w(a), 78dd-1, 78mm, 80a-23, 80a-29, and
80a-37.

Sec.  242.105  [Amended]

0
5. Amend Sec.  242.105 by:
0
a. In paragraph (b)(1)(i)(C), removing the text ``Sec.
242.600(b)(23)'' and adding in its place ``Sec.  242.600(b)(30)''; and
0
b. In paragraph (b)(1)(ii), removing the text ``Sec.  242.600(b)(68)''
and adding in its place ``Sec.  242.600(b)(77)''.

Sec.  242.201   [Amended]

0
6. Amend Sec.  242.201 by:
0
a. In paragraph (a)(1), removing the text ``Sec.  242.600(b)(48)'' and
adding in its place ``Sec.  242.600(b)(55)'';
0
b. In paragraph (a)(2), removing the text ``Sec.  242.600(b)(23)'' and
adding in its place ``Sec.  242.600(b)(30)'';
0
c. In paragraph (a)(3), removing the text ``the term ``listing market''
as defined in the effective transaction reporting plan for the covered
security'' and adding in its place ``the term ``primary listing
exchange'' as defined in Sec.  242.600(b)(68)'';
0
d. In paragraph (a)(4), removing the text ``Sec.  242.600(b)(43)'' and
adding in its place ``Sec.  242.600(b)(50)'';
0
e. In paragraph (a)(5), removing the text ``Sec.  242.600(b)(51)'' and
adding in its place ``Sec.  242.600(b)(58)'';
0
f. In paragraph (a)(6), removing the text ``Sec.  242.600(b)(59)'' and
adding in its place ``Sec.  242.600(b)(67)'';
0
g. In paragraph (a)(7), removing the text ``Sec.  242.600(b)(68)'' and
adding in its place ``Sec.  242.600(b)(77)'';
0
h. In paragraph (a)(9), removing the text ``Sec.  242.600(b)(82)'' and
adding in its place ``Sec.  242.600(b)(95)'';
0
i. In paragraph (b)(1)(ii), removing the text ``by a plan processor'';
and
0
j. In paragraph (b)(3):
0
i. Removing the text ``notify the single plan processor responsible for
consolidation of information for the covered security pursuant to Sec.
242.603(b)'' and adding in its place ``make such information available
as provided in Sec.  242.603(b)''.
0
ii. Removing the last sentence of the paragraph.

Sec.  242.204  [Amended]

0
7. In Sec.  242.204, paragraph (g)(2) is amended by removing the text
``Sec.  600(b)(68) of Regulation NMS (17 CFR 242.600(b)(68))'' and
adding in its place ``Sec.  242.600(b)(77) (Rule 600(b)(77) of
Regulation NMS)''.

0
8. Amend Sec.  242.600 by:
0
a. Redesignating paragraphs (b)(73) through (87) as paragraphs (b)(86)
through (100);
0
b. Adding new paragraph (b)(85);
0
c. Redesignating paragraph (b)(72) as paragraph (b)(84);
0
d. Adding new paragraphs (b)(82) and (83);
0
e. Redesignating paragraphs (b)(69) through (71) as paragraphs (b)(79)
through (81);
0
f. Adding new paragraph (b)(78);
0
g. Redesignating paragraphs (b)(60) through (68) as paragraphs (b)(69)
through (77);
0
h. Revising newly redesignated paragraph (b)(70);
0
i. Adding new paragraph (b)(68);
0
j. Redesignating paragraphs (b)(52) through (59) as paragraphs (b)(60)
through (67);
0
k. Adding new paragraph (b)(59);

0
l. Redesignating paragraphs (b)(20) through (51) as paragraphs (b)(27)
through (58);
0
m. Revising newly redesignated paragraph (b)(50);
0
n. Adding new paragraph (b)(26);
0
o. Redesignating paragraphs (b)(16) through (19) as paragraphs (b)(22)
through (25);
0
p. Adding new paragraphs (b)(19), (20), and (21);
0
q. Redesignating paragraphs (b)(14) and (15) as paragraphs (b)(17) and
(18);
0
r. Adding new paragraph (b)(16);
0
s. Redesignating paragraphs (b)(4) through (13) as paragraphs (b)(6)
through (15);
0
t. Adding new paragraph (b)(5);
0
u. Redesignating paragraphs (b)(2) and (3) as paragraphs (b)(3) and
(4); and
0
v. Adding new paragraph (b)(2).
    The additions and revisions read as follows:

Sec.  242.600  NMS security designation and definitions.

    (b) * * *
    (2) Administrative data means administrative, control, and other
technical messages made available by national securities exchanges and
national securities associations pursuant to the effective national
market system plan or plans required under Sec.  242.603(b) or the
technical specifications thereto as of April 9, 2021.
* * * * *
    (5) Auction information means all information specified by national
securities exchange rules or effective national market system plans
that is generated by a national securities exchange leading up to and
during auctions, including opening, reopening, and closing auctions,
and publicly disseminated during the time periods and at the time
intervals provided in such rules and plans.
* * * * *
    (16) Competing consolidator means a securities information
processor required to be registered pursuant to Sec.  242.614 (Rule
614) or a national securities exchange or national securities
association that receives information with respect to quotations for
and transactions in NMS stocks and generates a consolidated market data
product for dissemination to any person.
* * * * *
    (19) Consolidated market data means the following data,
consolidated across all national securities exchanges and national
securities associations:
    (i) Core data;
    (ii) Regulatory data;
    (iii) Administrative data;
    (iv) Self-regulatory organization-specific program data; and
    (v) Additional regulatory, administrative, or self-regulatory
organization-specific program data elements defined as such pursuant to
the effective national market system plan or plans required under Sec.
242.603(b).
    (20) Consolidated market data product means any data product
developed by a competing consolidator that contains consolidated market
data or data components of consolidated market data. For purposes of
this paragraph (b)(20), data components of consolidated market data
include the enumerated elements, and any subcomponent of the enumerated
elements, of consolidated market data in paragraph (b)(19) of this
section. All consolidated market data products must reflect data