obligations to all competing consolidators during the transition
period and to other competing consolidators below a threshold
thereafter).
---------------------------------------------------------------------------

(a) Governance Order
    On May 6, 2020, the Commission issued an order directing the SROs
to develop and file with the Commission a new effective national market
system plan that would combine the existing three Equity Data Plans
into single national market system plan, the New Consolidated Data
Plan.\1128\ The New Consolidated Data Plan was filed with the
Commission pursuant to Rule 608 on August 11, 2020, and contains
several provisions related to its governance that are not in the
existing Equity Data Plan, including establishing a new Operating
Committee structure

with non-SRO members, a new voting structure for SRO members as well as
non-SRO members, new conflicts of interest and confidentiality
policies, the retention of an independent plan administrator, and the
use of executive sessions by the Operating Committee.\1129\ The
Commission received several comments regarding commenters' views of the
relationship between the Governance Order and the Market Data
Infrastructure Proposing Release, with several commenters supporting
the Governance Order,\1130\ but others stating that the Governance
Order and the Proposing Release are contradictory or
inconsistent.\1131\ The Governance Order and the Proposing Release are
not contradictory or inconsistent. Rather, the two proposals address
distinct aspects of the exclusive SIPs and the national market system
for NMS information. The Governance Order addresses the governance
structure of the Equity Data Plans and particularly concerns about
certain conflicts of interest and the allocation of voting power with
respect to these Plans. The amendments address the content of NMS
information and the manner in which it is collected, consolidated, and
disseminated under the rules of the national market system.
---------------------------------------------------------------------------

    \1128\ See Securities Exchange Act Release No. 88827 (May 6,
2020), 85 FR 28702 (May 13, 2020) (``Governance Order'').
    \1129\ New Consolidated Data Plan Notice, supra note 40.
    \1130\ See Clearpool Letter; Fidelity Letter; MFA Letter; RBC
Letter; Schwab Letter; State Street Letter.
    \1131\ See letter from Joan C. Conley, Senior Vice President and
Corporate Secretary, Nasdaq, to Vanessa Countryman, Secretary,
Commission, dated Feb. 28, 2020, (``Nasdaq Letter I''); Cboe Letter
at 4; NYSE Letter II at 12.
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(b) Comments on the Plan's Role in Developing Fees for Data Content
Underlying Consolidated Market Data
    While the effective national market system plan(s) will no longer
operate the exclusive SIPs, the Operating Committee of the effective
national market system plan(s) for NMS stocks will continue to develop
and file with the Commission the fees associated with the NMS
information that is required to be collected, consolidated, and
disseminated, i.e., the data content underlying consolidated market
data. Specifically, the Operating Committee will need to propose the
new fees that will be charged for the quotation and transaction
information that is necessary to generate consolidated market data that
is required to be made available by the SROs under Rule 603(b) to
competing consolidators and self-aggregators.\1132\ The proposed new
fees will need to reflect the following: (i) That consolidated market
data includes additional new content (i.e., depth of book data, auction
information, and additional information on orders of sizes smaller than
100 shares); (ii) that the effective national market system plan(s) is
no longer operating the exclusive SIPs and is no longer performing
collection, consolidation, and dissemination functions; and (iii) that
the SROs are no longer responsible for the connectivity and
transmission services required for providing data to the exclusive SIPs
from the SROs' data centers.\1133\ The proposed new fees for the data
underlying consolidated market data must be fair and reasonable and not
unfairly discriminatory \1134\ and must be filed with the Commission
pursuant to Rule 608 under the Exchange Act.
---------------------------------------------------------------------------

    \1132\ The fees for the data content underlying consolidated
market data will be proposed and filed with the Commission under
Rule 608 of Regulation NMS. The effective national market system
plan(s) will not develop fees for individual SRO data. If competing
consolidators wish to receive SRO data that is beyond what is
required to be provided by the SROs pursuant to Rule 603(b), they
will have access to such data pursuant to individual SRO rules and
fees.
    \1133\ Under Rule 603(b), each SRO must provide its NMS
information, including all data necessary to generate consolidated
market data, to all competing consolidators and self-aggregators in
the same manner and using the same methods, including all methods of
access and the same format, as such SRO makes available any
information to any other person. The competing consolidators and
self-aggregators would be responsible for establishing the
connectivity and transmission services they use to connect to the
SROs.
    \1134\ See Rule 603(a) of Regulation NMS, 17 CFR 242.603(a). See
infra Section III.E.2(c) for a discussion of the statutory standards
for the data content underlying consolidated market data.
---------------------------------------------------------------------------

    Several commenters supported the proposal to retain the use of the
effective national market system plan(s) to propose fees for the data
content underlying consolidated market data in the decentralized
consolidation model.\1135\ One commenter suggested that the effective
national market system plan(s) also propose fees for connectivity ``in
order to avoid the imposition of fees that are substantially
disproportionate to the cost of providing these connectivity methods.''
\1136\
---------------------------------------------------------------------------

    \1135\ See IEX Letter at 8. See also Clearpool Letter at 3
(stating that it hoped the new governance structure of the effective
national market system plan(s) would provide additional checks into
controlling market data costs and help to ensure the reasonableness
of such fees).
    \1136\ IEX Letter at 8. This commenter also suggested
alternatives such as clarifying that the exchanges would not be
permitted to impose a separate set of connectivity fees to competing
consolidators and self-aggregators or charge fees for connectivity
that are different than those charged to proprietary data customers.
Connectivity fees will be developed by the exchanges. The SROs will
need to develop new connectivity fees for competing consolidators
and self-aggregators to receive the data necessary to generate
consolidated market data. New connectivity fees will have to reflect
that the SROs are only providing data to competing consolidators and
self-aggregators with such connectivity. Further, as discussed
below, the fees proposed by the SROs should not contain
redistribution fees for competing consolidators because this would
hinder their ability to compete.
---------------------------------------------------------------------------

    Four commenters questioned the role of the Operating Committee of
the effective national market system plan(s) in developing fees for the
data content underlying consolidated market data.\1137\ One commenter
stated that the exchanges would ``continue to have pricing power over a
fundamental component of the NMS.'' \1138\ Two commenters argued that
such a responsibility would be inconsistent with Section 19(b) of the
Exchange Act.\1139\ Specifically, one commenter stated that fees for
exchange facilities, including proprietary market data products, are
considered part of the SROs' rules and subject to the Section 19(b)
rule filing process.\1140\ The other commenter stated that the Exchange
Act authorizes the exchanges to set their own fees for market data
products.\1141\ One of the commenters further pointed out that an SRO
would run afoul of the Exchange Act if it charged certain classes of
customers a price for its proprietary products that is different from
the pricing established pursuant to its effective fee schedule.\1142\
---------------------------------------------------------------------------

    \1137\ See NYSE Letter II at 28; Nasdaq Letter IV at 34; Cboe
Letter at 27; ACTIV Financial Letter at 3. One commenter offered
suggestions as to the governance of the effective national market
system plan(s). See Better Markets Letter at 7. The Commission has
not proposed further governance changes in this release.
    \1138\ ICI Letter at 11.
    \1139\ See Cboe Letter at 27; Nasdaq Letter IV at 10.
    \1140\ The commenter stated that ``as a practical matter order-
by-order depth-of-book products are likely the only way to enable
the creation of consolidated market data.'' Cboe Letter at 28.
    \1141\ See Nasdaq Letter IV at 10.
    \1142\ See Cboe Letter at 28.
---------------------------------------------------------------------------

    The Commission believes that the effective national market system
plan(s) should continue to have an important role in the operation,
development, and regulation of the national market system for the
collection, consolidation, and dissemination of consolidated market
data. The development, and proposal under Rule 608, of the fees for the
data underlying consolidated market data, along with the other
responsibilities described above, are critical for the successful
operation of the national market system. The development of the fees
for information required to be made available by the SROs pursuant to
Rule 603(b) of Regulation NMS to competing consolidators and self-
aggregators is an integral component of the national market
system.\1143\
---------------------------------------------------------------------------

    \1143\ The Commission believes that the use of effective
national market system plan(s), along with the new governance
structure required by the Governance Order, will help to ensure
broad participation in the development, operation, and regulation of
the national market system. See infra note 1185 and accompanying
text.

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

    The Equity Data Plans have been developing fees for SIP data for
many years. It is one of their main responsibilities. The Commission
disagrees with comments that the plan(s) will be developing fees for
exchange data and that the development of fees by the plan(s) will be
inconsistent with Sections 6 and 19 of the Exchange Act. The Commission
is exercising its authority under Section 11A of the Exchange Act to
expand the content of core data to include new data elements that the
Commission believes are necessary to enhance the usefulness of the NMS
information that is disseminated within the national market system.
Therefore, the fees for data content underlying consolidated market
data, as now defined, are subject to the national market system process
that has been established--specifically the effective national market
system plan(s) will develop the fees for data content underlying
consolidated market data and seek Commission approval for such fees
pursuant to the notice and comment process under Rule 608. The amended
rules, however, do not permit the plan(s) to develop fees for
connectivity to the individual SROs. These fees must be filed by
individual SROs with the Commission and approved pursuant to Section
19(b) of the Exchange Act and Rule 19b-4 thereunder, and are subject to
the substantive requirements of Sections 6 and 15A of the Exchange Act,
respectively for exchanges and national securities associations, as
well as Section 19(b) of the Exchange Act.
    The plan(s) will not be developing fees for an SRO's proprietary
data products.\1144\ As the Commission discussed in the Proposing
Release, the SROs may continue to develop proprietary data products and
must propose fees for such products subject to the requirements of
Sections 6(b), 15A(b), and 19(b) of the Exchange Act.
---------------------------------------------------------------------------

    \1144\ One commenter stated that the Operating Committee would
be establishing fees for exchange proprietary data products, which
the commenter stated would greatly increase the power of the
Operating Committee. See Nasdaq Letter IV at 34. However, the
Operating Committee will only be developing fees for data content
underlying consolidated market data products, not the exchanges'
fees for proprietary data products.
---------------------------------------------------------------------------

    One commenter expressed concern about the ability of the SROs, some
of which may become competing consolidators, to develop fees.\1145\
This commenter noted the new governance provisions on voting but stated
that if the SROs could arbitrarily set fees charged to their
competitors and ``jam them through'' the Operating Committee then no
firm would be able to compete effectively and it would be doubtful that
any firm would become a competing consolidator without assurances that
the fees would be fair, reasonable, and do not unduly benefit one
participant.\1146\
---------------------------------------------------------------------------

    \1145\ See ACTIV Financial Letter at 3.
    \1146\ Id. See also Schwab Letter at 6 (stating that competing
consolidators would be unlikely to commit to a business without
confidence that the prices charged do not put then at a competitive
disadvantage); ICI Letter at 11.
---------------------------------------------------------------------------

    The fees for data content underlying consolidated market data will
be filed with the Commission pursuant to Rule 608. These fees will be
subject to the procedure set forth in Rule 608(b)(1) and (2), including
an opportunity for public comment and Commission approval by order
before such fees can become effective. This regulatory process set
forth in Rule 608 allows commenters to provide their views about any
proposed fee before they are charged and allows the Commission to
consider commenters' views before such fees becomes effective.\1147\
---------------------------------------------------------------------------

    \1147\ See Effective-Upon-Filing Adopting Release, supra note
17.
---------------------------------------------------------------------------

    One commenter stated that the Operating Committee would have no
experience in undertaking a cost allocation between the data underlying
consolidated market data and proprietary data.\1148\ This commenter
stated that directing the Operating Committee to engage in cost
allocation without standards is arbitrary because the Operating
Committee would be unable to predict whether its cost allocation
decisions and permissible rates of return would be consistent with the
Exchange Act.\1149\
---------------------------------------------------------------------------

    \1148\ See Nasdaq Letter IV at 34. This commenter also suggested
that the Operating Committee would reduce fees for proprietary
market data, which the commenter stated would limit access to new
proprietary data products. The commenter continued that this would
be inconsistent with Section 11A(a)(2) of the Exchange Act by
undermining the public interest and protection of investors. The
Operating Committee would not be establishing fees for proprietary
data products.
    \1149\ See Nasdaq Letter IV at 34.
---------------------------------------------------------------------------

    The Commission disagrees with the commenter that the Operating
Committee is ill-suited to allocate costs to develop fees for the data
content underlying consolidated market data or that the exchanges
cannot develop reasonable fees for proprietary data products that
contain data content underlying consolidated market data. The Operating
Committee(s) have plenty of experience in developing fees for SIP data
that contain different cost elements, and any future Operating
Committee, which will comprise many of the same participants, should be
well-suited to develop fees for the data content underlying
consolidated market data, with the expectation that the Operating
Committee can leverage the experience and knowledge from operating
today's Equity Data Plans. The SROs and the Equity Data Plans each
develop fees for market data--the SROs develop fees for proprietary
data and the Equity Data Plans develop fees for SIP data. The Operating
Committees have to evaluate, develop, and propose SIP data fees and the
exchanges have to evaluate, develop, and propose proprietary data fees
for the proprietary data products that they decide to offer. This
dynamic will not change in the decentralized consolidation model. The
effective national market system plan(s) will develop fees for the data
content underlying consolidated market data,\1150\ and the SROs will
develop fees for proprietary data, each of which may contain some of
the same underlying data content.
---------------------------------------------------------------------------

    \1150\ As described below, the proposed new fees for the data
content underlying consolidated market data must be fair and
reasonable and not unfairly discriminatory and must be filed with
the Commission pursuant to Rule 608 under the Exchange Act. See
Section III.E.2(c).
---------------------------------------------------------------------------

    One commenter stated that the proposal to retain the use of the
effective national market system plan(s) is at odds with how the
Commission considered a competing consolidator model in the context of
adopting Regulation NMS.\1151\ Another commenter suggested that the
Commission rethink the use of effective national market system plan(s)
and instead allow the exchanges to develop their individual fees for
data content underlying consolidated market data.\1152\ This commenter
questioned the need for the effective national market system plan(s)
because the SROs would no longer be jointly operating an exclusive SIP
and therefore no longer involved in the collection, consolidation, or
dissemination of consolidated market data. The commenter stated that it
would be more efficient and would eliminate the need for the plan(s) to
determine fees for a competitor's data.\1153\
---------------------------------------------------------------------------

    \1151\ See Cboe Letter at 29.
    \1152\ See NYSE Letter II at 27.
    \1153\ Id.
---------------------------------------------------------------------------

    As to the questions about the Commission's past analysis of a
competing consolidator model that was discussed in the context of
adopting Regulation NMS, the Commission was analyzing a different
competing consolidator model--one that would have eliminated the use of
effective national market system plan(s). The

Regulation NMS competing consolidator alternative eliminated the use of
effective national market system plans, and the Commission expressed
concerns about the lack of competitive forces in setting data fees
because each SRO would be establishing its own individual fees for NMS
information. The Commission stated that payment of every SRO's fees
would be mandatory and would afford little room for competitive forces
to influence the level of fees. Further, the Commission stated that
such a model would require it to review ``at least ten separate fees''
for the individual SROs and that it was unlikely that any SRO would
voluntarily propose to lower its own fees. The Commission also had
stated that the fees established under the Equity Data Plans reflected
broad industry consensus and that such ``consensus underlying a single
fee for a Network's stream of data would be lost'' \1154\ in the
competing consolidator model that it was then analyzing.
---------------------------------------------------------------------------

    \1154\ See Securities Exchange Act Release No. 49325 (Feb. 26,
2004), 69 FR 11126, 78 (Mar. 9, 2004) (``Regulation NMS Proposing
Release'').
---------------------------------------------------------------------------

    In contrast, the decentralized consolidation model that the
Commission proposed, and as adopted, retains the effective national
market system plan structure. The Commission believes today, as it did
when it was considering Regulation NMS, that elimination of the use of
an effective national market system plan(s) would not further the goals
of the national market system because the Commission still believes
that the effective national market system plan structure is the
appropriate method for developing, operating, and regulating the
national market system. The suggestion that the Commission eliminate
the effective national market system plan(s) structure and allow the
SROs to develop individual fees for their data content that is used to
develop consolidated market data was dismissed by the Commission when
it considered the competing consolidator proposal in the context of
Regulation NMS. The Commission believes that the same shortcomings,
described above, will occur similarly today if the plan(s) were not
developing the fees for the data underlying consolidated market data.
(c) Comments on Fees for Consolidated Market Data
    There will be several fee components related to the collection,
consolidation and dissemination of consolidated market data and
consolidated market data products. The effective national market system
plan(s) will propose and file with the Commission, pursuant to Rule
608, the fees for the data content underlying consolidated market data.
The fees for the data content underlying consolidated market data must
satisfy the statutory standards of being fair, reasonable and not
unreasonably discriminatory.\1155\ As described further below, the
Commission has historically assessed fees for data such as the data
content underlying consolidated market data using a reasonably related
to cost standard.
---------------------------------------------------------------------------

    \1155\ Sections 11A(c)(1)(C) and 11A(c)(1)(D) and Rule 603(a) of
Regulation NMS.
---------------------------------------------------------------------------

    Further, the SROs will have to develop and propose their own fees
for connectivity. Individual SRO connectivity fees must be filed with
the Commission pursuant to Section 19(b) of the Exchange Act and Rule
19b-4 thereunder and satisfy the statutory requirements under Sections
6 and 15A of the Exchange Act.\1156\ Connectivity to all of the SROs
for purposes of receiving the data content underlying consolidated
market data is necessary under Rule 603(b) and the SROs are the sole
providers of such access. Because of the mandatory nature of
connectivity to all of the SROs for purposes of providing the
information necessary to generate consolidated market data,\1157\ the
Commission believes that one method for demonstrating that such fees
are fair and reasonable and not unreasonably discriminatory is by
demonstrating that they are reasonably related to costs.\1158\
---------------------------------------------------------------------------

    \1156\ See also supra note 826.
    \1157\ See Rule 603(b) of Regulation NMS.
    \1158\ Historically, the Commission has stated that one method
for assessing the fairness and reasonableness of fees charged by an
exclusive processor, as defined in Exchange Act Section 3(a)(22)(B),
is to show a reasonable relation to the costs. See Market
Information Concept Release, supra note 22, at 70627 (``[T]he fees
charged by a monopolistic provider (such as the exclusive processors
of market information) need to be tied to some type of cost-based
standard in order to preclude excessive profits if fees are too high
or underfunding or subsidization if fees are too low.''). See also
Proposing Release at 16770, note 439 and accompanying text. Several
exchanges have filed proposed connectivity fees and have provided
information about costs related to such connectivity to demonstrate
compliance with statutory standards. Cf. Securities Exchange Act
Release Nos. 86626 (Aug. 9, 2019), 84 FR 41793 (Aug. 15, 2019) (SR-
IEX-2019-07); 87875 (Dec. 31, 2019), 85 FR 770 (Jan. 7, 2020) (SR-
MIAX-2019-51); 87876 (Dec. 31, 2019), 85 FR 757 (Jan. 7, 2020) (SR-
PEARL-2019-36); 87877 (Dec. 31, 2019), 85 FR 738 (Jan. 7, 2020) (SR-
EMERALD-2019-39); 88161 (Feb. 11, 2020), 85 FR 8968 (Feb. 18, 2020)
(SR-BOX-2020-03).
---------------------------------------------------------------------------

    Finally, competing consolidators will establish fees for their
consolidated market data products. These fees will be disclosed on
Exhibit G of Form CC. Competing consolidators' fees for their services
related consolidated market data products may include fees for
aggregation and generation of consolidated market data products and
transmission of such products to subscribers. Competing consolidators'
fees may include the fees for the data content underlying consolidated
market data as well as fees for connectivity to the SROs, or the fees
for data content underlying consolidated market data may be charged
directly to the end users.
    The Commission received several comments on the anticipated fees
for the data content underlying consolidated market data.\1159\ Some
commenters stated that understanding the anticipated fees for data
content underlying consolidated market data is necessary to analyzing
the implications of the decentralized consolidation model \1160\ and
necessary to evaluating whether entities would decide to make the
business decision to act as a competing consolidator.\1161\ Two
commenters argued that the failure to describe anticipated fees
violates the APA by denying commenters the ability to assess the
proposal and impairing the Commission in its ability to conduct a cost-
benefit analysis.\1162\
---------------------------------------------------------------------------

    \1159\ See, e.g., SIFMA Letter; Nasdaq Letter IV; Cboe Letter;
NYSE Letter II; BlackRock Letter; Fidelity Letter; State Street
Letter; Schwab Letter; ICI Letter; MFA Letter; Citadel Letter; Virtu
Letter; AHSAT Letter; Proof Trading Letter; Wharton Letter; ACTIV
Financial Letter; Clearpool Letter; STANY Letter II.
    \1160\ See, e.g., STANY Letter II; NYSE Letter II; Cboe Letter;
Schwab Letter; IDS Letter I; ACTIV Financial Letter.
    \1161\ See STANY Letter II; IDS Letter I; ACTIV Financial
Letter.
    \1162\ See NYSE Letter II; Cboe Letter.
---------------------------------------------------------------------------

    The Commission disagrees. Fees proposed by the plan(s) for the data
content underlying consolidated market data will be a fixed cost that
will be imposed on all competing consolidators and self-aggregators.
These entities can develop business plans on whether to enter this
business based on other information, such as the technology that will
be necessary to aggregate, generate, and disseminate consolidated
market data, and their expected subscribers. The Commission believes
that there is sufficient information available to potential entrants to
assess the costs and benefits of acting as a competing
consolidator.\1163\
---------------------------------------------------------------------------

    \1163\ See supra note 649 and accompanying text.
---------------------------------------------------------------------------

    Further, in the Proposing Release, the Commission described the
anticipated new fees for the data underlying consolidated market data
as needing to reflect the following: (i) That consolidated market data
includes new content described above, including depth of book data,
auction information,

and additional information on orders of sizes smaller than 100 shares;
\1164\ (ii) that the effective national market system plan(s) for NMS
stocks is no longer operating an exclusive SIP and is no longer
performing aggregation and other operational functions; and (iii) that
the SROs are no longer responsible for the connectivity and
transmission services required for providing data to the exclusive SIPs
from the SROs' data centers since the exclusive SIPs will no longer be
operated by the effective national market system plan(s) for NMS
stocks.
---------------------------------------------------------------------------

    \1164\ See supra Section II.B.
---------------------------------------------------------------------------

    In addition, the Commission believes that the fees for the data
content underlying consolidated market data should not include
redistribution fees for competing consolidators.\1165\ Competing
consolidators will take the place of the exclusive SIPs in the
dissemination of consolidated market data, which today do not pay
redistribution fees for the consolidation and dissemination of SIP
data. The Commission believes imposing redistribution fees on data
content underlying consolidated market data that will be disseminated
by competing consolidators would be difficult to reconcile with
statutory standards of being fair and reasonable and not unreasonably
discriminatory in the new decentralized model.\1166\ Under the new
decentralized consolidation model, self-aggregators also will directly
receive the data content necessary for generating consolidated market
data from the SROs and, because by definition they are limited to using
the data for internal purposes, would not be subject to fees for
redistributing such consolidated market data. If the plan(s) proposed
to impose redistribution fees on the data content underlying
consolidated market data, the Commission would be concerned that
competing consolidators could be subject to unreasonable discrimination
as they would be required to pay higher fees for such data than self-
aggregators would pay for the same data. The Equity Data Plans have not
imposed redistribution fees on the exclusive SIPs and the Commission
believes that such plan(s) should not impose such fees on the entities
that will distribute consolidated market data in the decentralized
consolidation model, i.e., competing consolidators.
---------------------------------------------------------------------------

    \1165\ See AHSAT Letter (``The Commission should take care that
SROs do not design their fee structure to unduly target competing
consolidators in practice, especially when SROs are likely to
operate their own competing consolidators . . . In this way profit-
motivated SROs that are allowed to charge competing consolidators
might find ways to make them uneconomic, thereby eliminating the
competitiveness presented by the new consolidated data feeds.'').
    \1166\ See infra note 1172 and accompanying text.
---------------------------------------------------------------------------

    Several commenters stated that the Commission should scrutinize SRO
fees for market data.\1167\ Some commenters requested the Commission
review market data fees to help to ensure that they are fair and
reasonable,\1168\ while a few stated that market data fees should be
cost-based.\1169\ One commenter, however, stated that the proposal
establishes a rate-making board and would impose cost-based regulation
on the sale of consolidated market data.\1170\ This commenter stated
that the proposal failed to provide guidance on how to determine the
cost of market data especially in light of exchange practices of
allocating costs across products.\1171\
---------------------------------------------------------------------------

    \1167\ See BlackRock Letter; Fidelity Letter; State Street
Letter; ICI Letter; Virtu Letter; SIFMA Letter.
    \1168\ See BlackRock Letter; ICI Letter.
    \1169\ See Schwab Letter; ICI Letter; SIFMA Letter; AHSAT
Letter. One commenter argued that current market data fees have no
relationship to cost and that the proposal provided no mechanism to
connect SIP fees to cost. See Proof Trading Letter.
    \1170\ See Nasdaq Letter IV at 9, 22.
    \1171\ Id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission explained that it seeks to
ensure that consolidated market data is widely available for reasonable
fees.\1172\ The Commission must assess the proposed fees for data
content underlying consolidated market data and determine whether they
are fair and reasonable, and not unreasonably discriminatory.\1173\ To
do this, the Commission must have ``sufficient information before it to
satisfy its statutorily mandated review function''--that the fees meet
the statutory standard.\1174\ The Commission stated that fees for
consolidated SIP data can be shown to be fair and reasonable if they
are reasonably related to costs.\1175\ The Commission cited the Market
Information Concept Release, in which the Commission stated ``the fees
charged by a monopolistic provider (such as the exclusive processors of
market information) need to be tied to some type of cost-based standard
in order to preclude excessive profits if fees are too high or
underfunding or subsidization if fees are too low. The Commission
therefore believes that the total amount of market information revenues
should remain reasonably related to the cost of market information.''
\1176\ The Commission later explained in the context of approving an
SRO fee filing that, because core data must be purchased, their fees
are less sensitive to competitive forces; \1177\ therefore, a
reasonable relation to costs has since been the principal method
discussed by the Commission for assessing the fairness and
reasonableness of such fees for core data, with the recognition that
``[t]his does not preclude the Commission from considering in the
future the appropriateness of another guideline to assess the fairness
and reasonableness of core data fees in a manner consistent with the
Exchange Act.'' \1178\ The Commission then stated that the proposal did
not change the mandatory nature of the provision of the data necessary
to generate consolidated market data by the SROs.\1179\
---------------------------------------------------------------------------

    \1172\ Currently, the exclusive SIPs are subject to Exchange Act
Section 11A(c)(1)(C) (as implemented by Rule 603(a)(1)), which
requires that exclusive processors (which include the exclusive SIPs
and SROs when they distribute their own data) must assure that all
securities information processors may obtain on fair and reasonable
terms information with respect to quotations for and transactions in
securities, which includes consolidated market data. See 15 U.S.C.
78k-1(c)(1)(C). See also 17 CFR 242.603(a)(1). Section 11A(c)(1)(D),
in turn (as implemented by Rule 603(a)(2)), requires that the SROs
provide such data to broker-dealers and others on terms that are not
unreasonably discriminatory. See 15 U.S.C. 78k-1(c)(1)(D). See also
17 CFR 242.603(a)(2). As competing consolidators will be securities
information processors, Exchange Act Section 11(A)(c)(1)(C) will
continue to apply. Similarly, self-aggregators are broker-dealers,
SROs, or RIAs (i.e., others) and thus Exchange Act Section
11A(c)(1)(D) will continue to apply.
    \1173\ See 15 U.S.C. 78k-1(c). See also Rules 603(a)(1) and (2),
608 of Regulation NMS, 17 CFR 242.603(a)(1) and (2), 608; Bloomberg
Order, supra note 22, at 11-12.
    \1174\ Bloomberg Order, supra note 22, at 15; cf. 17 CFR
201.700, Rule of Practice 700 (providing that the burden of
demonstrating that a proposed rule change satisfies statutory
standards is on the self-regulatory organization that proposed the
rule change).
    \1175\ See Proposing Release, 85 FR at 16770.
    \1176\ Market Information Concept Release, supra note 22, at
70627. An ``exclusive processor'' is defined in Section 3(a)(22)(B)
of the Exchange Act and includes any national securities exchange or
registered securities association, which engages on an exclusive
basis on its own behalf, in collecting, processing, or preparing for
distribution or publication any information with respect to
quotations or transactions on or effected or made by means of any
facility of such exchange or quotations distributed or published by
means of any electronic system operated or controlled by such
association.
    \1177\ See Securities Exchange Act Release No. 59039 (Dec. 2,
2008), 73 FR 74770, 74782 (Dec. 9, 2008) (File No. SR-NYSEArca-2006-
21).
    \1178\ Bloomberg Order, supra note 22, at 15 & n. 63.
    \1179\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    These standards have been previously articulated by the Commission;
they are not new. The Commission was not proposing a ``new cost-based
regulation'' or a new ``rate-making board.'' The Equity Data Plans have
been establishing fees for SIP data for many years. The Commission
proposed to utilize the current plan mechanism for establishing fees,
subject to applicable statutory standards and

regulatory requirements.\1180\ Under Rule 603(b), the SROs are required
to make available all data that is necessary to generate consolidated
market data. The Commission has determined that it is necessary to
disseminate this data within the national market system. The Commission
believes that consolidated market data will significantly enhance the
ability of market participants to trade competitively and efficiently
and will indirectly benefit investors, even if they do not directly
consume all of the new data elements of consolidated market data, by
facilitating executing broker-dealers' access to information.
---------------------------------------------------------------------------

    \1180\ See supra notes 1173-1179 and accompanying text.
---------------------------------------------------------------------------

    One commenter cautioned the Commission to ensure that fee
structures are not designed to unduly target competing consolidators in
practice, especially if one or more SROs become competing
consolidators.\1181\ All fees for the data underlying consolidated
market data must satisfy the statutory standards, including not being
unreasonably discriminatory. A fee that unduly ``targets'' competing
consolidators in an unfair or unreasonable manner would not satisfy
statutory requirements.
---------------------------------------------------------------------------

    \1181\ See AHSAT Letter at 2.
---------------------------------------------------------------------------

    One commenter stated that it hoped that in a new competitive model
that overall costs for broker-dealers would be lower. The commenter,
however, stated that broker-dealers would still need to purchase
proprietary data to get information that is not included in
consolidated market data. Therefore, the commenter suggested that the
Commission ensure that safeguards are in place to keep exchanges from
increasing market data prices to recoup revenue lost from the
requirement to provide new core data to competing consolidators.\1182\
The Commission will analyze fees for data content underlying
consolidated market data consistent with the standards set forth above.
The new governance structure required by the Governance Order,\1183\ as
well as the recently adopted Effective-Upon-Filing Amendments,\1184\
will provide additional opportunities for interested market
participants to participate in establishing effective national market
system plan fees. In the Governance Order, the Commission stated that
``a more diverse set of perspectives from full voting members of the
operating committee of the New Consolidated Data Plan would improve the
governance structure of the SIPs and help to ensure that the
[O]perating [C]ommittee benefits from these views before it takes
action or files plan amendments with the Commission.'' \1185\ Further,
pursuant to the Effective-Upon-Filing Amendments, fees established and
proposed by the effective national market system plan(s) are no longer
effective upon filing but must be published for public comment and
approved by the Commission before they can take effect.
---------------------------------------------------------------------------

    \1182\ See Clearpool Letter at 3 (``It will therefore be
important for the Commission to ensure that robust safeguards are in
place under the new regime to control market data costs and prevent
exchanges from just increasing market data prices to make up for any
loss of revenue due to the proposed requirement to provide the new
core data to competing consolidators.'').
    \1183\ See Governance Order, supra note 1128.
    \1184\ See Effective-Upon-Filing Adopting Release, supra note
17.
    \1185\ Governance Order, supra note 1128.
---------------------------------------------------------------------------

    Several commenters discussed whether market data fees would be
lower in a decentralized consolidation model.\1186\ One commenter
suggested that if competitive forces fail to materialize and drive fees
for consolidated market data down that the Commission should adopt a
rule to enable it to review consolidated market data fees for fairness,
reasonableness, and non-discriminatory pricing.\1187\ Another commenter
stated that the New Consolidated Data Plan, the Effective-Upon-Filing
Amendments,\1188\ the Commission's continued scrutiny of exchange fee
proposals, and public disclosure of SRO costs were necessary predicates
to control market data costs.\1189\ Fees for the data content
underlying consolidated market data must be filed with the Commission
pursuant to Rule 608 and must satisfy statutory standards.
---------------------------------------------------------------------------

    \1186\ See Clearpool Letter; Schwab Letter; Fidelity Letter;
Nasdaq Letter IV; Citadel Letter.
    \1187\ See Schwab Letter at 6.
    \1188\ See Effective-Upon-Filing Adopting Release, supra note
17.
    \1189\ See Fidelity Letter at 8.
---------------------------------------------------------------------------

    In addition, one commenter stated that the Commission failed to
analyze how exchanges have incentives to cut trading fees in order to
win market share and increase market data revenues. The commenter
stated that the proposal would eliminate the incentive to reduce
trading fees. Further, this commenter argued that the Commission failed
to consider the all-in price of trading.\1190\ However, another
commenter stated that market data fees comprise ``a larger-than-ever
share'' of overall transaction costs and urged the Commission to ensure
that any new fees are consistent with the Exchange Act.\1191\
---------------------------------------------------------------------------

    \1190\ See Nasdaq Letter IV at 29.
    \1191\ ICI Letter at 11.
---------------------------------------------------------------------------

    The Commission is not considering the proposed fees for data
content underlying consolidated market data in this release; they have
not been developed or filed with the Commission, as required pursuant
to Rule 608. The effective national market system plan(s) will have to
develop and file such proposed fees with the Commission pursuant to
Rule 608 within 150 days of the effectiveness of Rule 614, as noted
above \1192\ and they must satisfy statutory standards.\1193\
---------------------------------------------------------------------------

    \1192\ See infra Section III.H.2.
    \1193\ See supra note 1172 and accompanying text. In the Market
Information Concept Release, the Commission said that ``the total
amount of market information revenues should remain reasonably
related to the cost of market information.'' Market Information
Concept Release, supra note 22, at 28.
---------------------------------------------------------------------------

    As discussed above, the Commission believes that there will be
downward pressure on the fees for the data content underlying
consolidated market data as compared to fees for proprietary data. The
proposed new fees for the data content underlying consolidated market
data, while needing to reflect additional new content, will be
evaluated by the Commission for compliance with statutory standards and
one way to assess compliance is to show they are reasonably related to
costs.\1194\ In addition, proposed SRO connectivity fees will have to
satisfy statutory standards in a similar manner to reflect the
mandatory nature of such connectivity. Finally, the fees established by
competing consolidators for their consolidated market data products
will be subject to competitive market forces in the aggregation and
transmission of such data.
---------------------------------------------------------------------------

    \1194\ See Proposing Release, 85 FR at 16770; supra note 1172
and accompanying text. See also supra note 1158.
---------------------------------------------------------------------------

    One commenter stated its ``strong opinion'' that ``the regulated
privilege of order protection [pursuant to Rule 611] be accompanied by
a requirement to openly disseminate information regarding those orders
at no revenue to the SRO or liquidity provider.'' \1195\ This commenter
stated that this could lead to ``higher net transaction fees or even
order placement fees,'' but the commenter said that ``competitive
forces are working better with respect to net transaction fees than
market data fees.'' \1196\ In the alternative, the commenter suggested
that competing consolidators pay the SROs their marginal cost to
disseminate data but also acknowledged that marginal costs may be
difficult to calculate. Further, the commenter stated that ``[t]he
marginal cost is likely to strictly focus on the modest networking
costs of an additional multicast recipient, and to

exclude SRO software development or broader marketplace costs.'' \1197\
---------------------------------------------------------------------------

    \1195\ AHSAT Letter at 2.
    \1196\ Id.
    \1197\ Id.
---------------------------------------------------------------------------

    This comment relates to a future proposed fee amendment. The
Commission has not proposed to modify the revenue formula or set fees
for data content underlying consolidated market data.
(d) Comments on Transparency of Market Data Fees
    Several commenters stated that there should be enhanced
transparency around market data fees.\1198\ One commenter suggested
that the Commission require exchanges to publicly disclose, on a
periodic basis, the cost of the equity market data content that they
sell to competing consolidators in order to allow the Commission and
the public to ensure that the fees for this data are fair and
reasonable.\1199\
---------------------------------------------------------------------------

    \1198\ See Fidelity Letter; State Street Letter; Schwab Letter;
SIFMA Letter; Committee on Capital Markets Letter; ACTIV Financial
Letter at 3.
    \1199\ See Committee on Capital Markets Regulation Letter at 3.
---------------------------------------------------------------------------

    The Commission has reviewed these comments and reiterates that any
fees for data content underlying consolidated market data, including
subsets of consolidated market data, will be set pursuant to fees that
will be proposed and filed by the effective national market system
plan(s) pursuant to Rule 608.\1200\
---------------------------------------------------------------------------

    \1200\ See supra note 1174 and accompanying text.
---------------------------------------------------------------------------

(e) Comments on Fees for Different Consolidated Market Data Offerings
    In the Proposing Release, the Commission stated that the plan(s)
would develop and file with the Commission fees for SRO data content
required to be made available by each SRO to competing consolidators
and self-aggregators for the creation of proposed consolidated market
data and could also develop fees for data content underlying other
consolidated market data offerings that contain subsets of the
components of consolidated market data.\1201\ The Commission believed
that the effective national market system plan(s) could develop
different fees for data content underlying market data offerings that
contain subsets of the data content underlying consolidated market data
based upon the needs of market participants and cited a NYSE proposal
to develop different levels of SIP data products.\1202\ Thus, in
addition to developing a fee for data content underlying a consolidated
market data offering that contains all of the data content underlying
consolidated market data,\1203\ the plan could develop a fee for data
content underlying a consolidated market data offering that contains
only TOB information, regulatory data, and administrative data, or the
plan could develop a fee for depth of book data, regulatory data, and
administrative data but not auction information. As described, the
proposed new fee schedule would include proposed new fees for the data
content underlying consolidated market data, as well as any proposed
new fees for consolidated market data offerings that reflect only a
subset of consolidated market data.
---------------------------------------------------------------------------

    \1201\ See Proposing Release, 85 FR at n. 616 and accompanying
text.
    \1202\ See, e.g., NYSE Equities Insights, Stock Quotes and Trade
Data: One Size Doesn't Fit All (Aug. 22, 2019), available at https://www.nyse.com/data-insights/stock-quotes-and-trade-data-one-size-doesnt-fit-all. The NYSE proposed offering different levels of
services based on the needs of market participants (``NYSE SIP Tiers
Proposal''). The Operating Committee could develop different
products that utilize consolidated market data components and
propose the relevant fees for such products. See also Feb. NYSE
Letter.
    \1203\ As described above, the Commission is adopting a new
definition of consolidated market data products, which will allow
competing consolidators to develop market data product offerings
that contain all consolidated market data or subset thereof. See
Rule 600(b)(20); Section II.B.2.
---------------------------------------------------------------------------

    One commenter challenged the view that the plan(s) would develop
different fees for different subsets of the data content underlying
consolidated market data.\1204\ The commenter stated that the
Commission could not assume that the Operating Committee would develop
such fees.\1205\ The Commission notes that this commenter had developed
a proposal similar to the suggestion for SIP data.\1206\ The commenter
had acknowledged in its proposal that a ``one-size-fits-all'' SIP data
product was not meeting the needs of market participants \1207\ and
recommended that the Operating Committee establish different content
products that would be designed to serve the needs to specific types of
investors.\1208\ The Commission believes that the Operating Committee
will consider the needs of investors and the different use cases for
consolidated market data when developing the proposed fees for the data
content underlying consolidated market data. The Commission recently
has taken steps to help to ensure that the needs of investors are
considered in the national market system in addition to the adopted
rules. For example, the New Consolidated Data Plan is required to
contain a new governance structure that has a broader representation of
market participants involved in the operation of the plan,\1209\ and
the Commission adopted amendments to the filing and review process for
plan fees.\1210\
---------------------------------------------------------------------------

    \1204\ See NYSE Letter II at 4.
    \1205\ See id.
    \1206\ See NYSE SIP Tiers Proposal, supra note 1202.
    \1207\ Id.
    \1208\ Id.
    \1209\ See Governance Order, supra note 1128.
    \1210\ See Effective-Upon-Filing Adopting Release, supra note
17.
---------------------------------------------------------------------------

    One commenter, however, suggested that competing consolidators, not
the Operating Committee, should be able to develop competing products
that contain consolidated market data.\1211\ This commenter said that
competing consolidators could develop products to satisfy the needs of
market participants.\1212\ Competing consolidators will develop
consolidated market data products that their end users desire. However,
the Commission believes that the Operating Committee of the effective
national market system plan(s) needs to develop the fees associated
with the data content underlying any consolidated market data product
or subset thereof. The Operating Committee is well-situated to develop
and propose such fees. However, competing consolidators could convey
their subscribers' market data needs to the Operating Committee and
suggest new offerings as necessary, as could any person. Further,
competing consolidators could communicate via the public comment
process for effective national market system plan(s)' proposed data
content underlying consolidated market data fees that must be filed
with the Commission pursuant to Rule 608.
---------------------------------------------------------------------------

    \1211\ See MEMX Letter at 8.
    \1212\ See id.
---------------------------------------------------------------------------

(f) Comments on Collection of Fees for Data Content Underlying
Consolidated Market Data and Allocation of Revenues
    The effective national market system plan(s) would be responsible
for collecting the fees for the data content underlying consolidated
market data and underlying any consolidated market data offerings that
contain subsets of the components of consolidated market data. The
effective national market system plan(s) also would be responsible for
allocating revenues among the SRO participants.
    One commenter stated that the Commission failed to address the
revenue allocation formula in the Proposing Release and how it would
work under the decentralized consolidation model, if at all.\1213\ The

commenter stated these issues are needed to evaluate the proposed rules
and that failure to address the revenue allocation formula was
arbitrary and capricious. The revenue allocation formula was adopted in
Regulation NMS, and the Commission stated that ``the language added to
the Plans by the Allocation Amendment can be adjusted in the future
pursuant to the normal process of Commission approved amendments.''
\1214\ The Commission believes that the Operating Committee is best
placed to evaluate whether and, if so, how the revenue allocation
formula needs to be amended to reflect the new content of data that is
included in the definition of consolidated market data as well as the
new responsibilities of the primary listing exchanges in collecting and
calculating Regulatory Data. Any plan amendment would be developed by
the Operating Committee and filed with the Commission pursuant to Rule
608.
---------------------------------------------------------------------------

    \1213\ See Nasdaq Letter IV at 37. See also id. at 39-40 and 60,
n. 149 (stating that the proposal fails to address how the revenue
allocation formula adopted as part of Regulation NMS and the new
framework for disseminating and pricing market data would work
together, and that abandoning the revenue allocation formula would
be arbitrary and capricious and therefore violate the APA).
    \1214\ Regulation NMS Adopting Release, supra note 7, at 37561-
62.
---------------------------------------------------------------------------

(g) Comments on Accounts and Audits
    As proposed, the plan(s) would be responsible for overseeing
accounts and conducting audits for purposes of billing, among other
things. The plan(s) generally would also have to develop a harmonized
approach to data billing protocols, including with respect to any
unified MISU policy.\1215\
---------------------------------------------------------------------------

    \1215\ See supra note 1124.
---------------------------------------------------------------------------

    One commenter stated that the proposal did not specify how
contracting for data would occur under the plan(s), including who would
enter into contracts with, collect fees from, and resolve disputes with
customers.\1216\ This commenter questioned whether ``(a) the SROs would
charge data fees to the competing consolidators and then the competing
consolidators would pass through the cost of data to their customers,
(b) the SROs would charge competing consolidators' customers directly
for the SROs data, or (c) the NMS Plans would charge data fees to the
competing consolidators and their customers.'' \1217\
---------------------------------------------------------------------------

    \1216\ See IDS Letter I at 12.
    \1217\ Id.
---------------------------------------------------------------------------

    As stated in the Proposing Release, the effective national market
system plan(s) would charge the fees for the data content underlying
consolidated market data, collect the revenue, oversee accounts and
billing, and develop billing protocols, including any MISU policies.
The proposal set forth the responsibilities of the effective national
market system plan(s) as to billing. The SROs would not be responsible
for charging competing consolidators or their customers directly for
consolidated market data.
    The Commission believes that the licensing, billing, and audit
processes under the decentralized consolidation model could be similar
to existing processes that are in place under the Equity Data Plans.
For example, while today the Equity Data Plans provide a data feed to
market participants, the fees and billing for that data are not based
simply upon the receipt of the data feed. Rather, broker-dealers and
other market participants who receive SIP data are billed based upon
both the type of user (e.g., professional vs. non-professional) and
specific use cases for the data (e.g., display vs. non-display).
Purchasers of SIP data provide the administrator of the Equity Data
Plans with information and attestations about the number and type of
users and specific use cases, and the administrator (or its auditor)
audit and assess this information to determine appropriate billing for
SIP data purchasers.
    As discussed above, the SROs can comply with their obligation under
Rule 603(b) to make all data necessary to generate consolidated market
data available by providing their existing proprietary data feeds that
contain this information to competing consolidators and self-
aggregators.\1218\ These data feeds may contain information that goes
beyond what is necessary to generate consolidated market data, but
competing consolidators and self-aggregators will not be billed based
upon the data feed that they receive. Similar to the current billing,
reporting and audit processes, the administrator of the effective
national market system plan(s) could be expected to license and bill
and, when required, employ an audit process to assess the usage of the
data content made available to competing consolidators and self-
aggregators under Rule 603(b) for billing purposes.\1219\
---------------------------------------------------------------------------

    \1218\ See supra Section III.B.9(b).
    \1219\ See supra Section III.E.2(e).
---------------------------------------------------------------------------

(h) Comments on Timestamps
    As proposed, Rule 614(e)(1)(ii) required that the amendment to the
effective national market system plan(s) for NMS stocks include
provisions requiring the application of timestamps by the SRO
participants on all consolidated market data, at the time the
consolidated market data component was generated by the SRO participant
and at the time the SRO participant made the consolidated market data
available to competing consolidators and self-aggregators.\1220\
---------------------------------------------------------------------------

    \1220\ The SROs currently submit timestamped data under the
Equity Data Plans and the National Market System Plan Governing the
Consolidated Audit Trail (``CAT NMS Plan''). See, e.g., CTA Plan,
supra note 10, at Section VI.(c); Nasdaq UTP Plan, supra note 10, at
Section VIII; CAT NMS Plan at Sections 6.3(d), 6.8, available at
https://www.catnmsplan.com/sites/default/files/2020-02/CAT-2.0-Consolidated-Audit-Trail-LLC%20Plan-Executed_%28175745081%29_%281%29.pdf (last accessed Nov. 27, 2020).
See also 17 CFR 242.613; Securities Exchange Act Release No. 78318
(Nov. 15, 2016), 81 FR 84696, (Nov. 23, 2016) (``CAT NMS Plan
Approval Order''). The CAT NMS Plan was Exhibit A to the CAT NMS
Plan Approval Order. However, the limited liability company
agreement of a new limited liability company named Consolidated
Audit Trail, LLC now serves as the CAT NMS Plan. See Securities
Exchange Act Release No. 87149 (Sept. 27, 2019), 84 FR 52905 (Oct.
3, 2019).
---------------------------------------------------------------------------

    One commenter stated that the proposal would require the effective
national market system plan(s) participants to apply timestamps to
consolidated market data even though they were not consolidating and
disseminating consolidated market data.\1221\ The Commission has
modified the language of Rule 614(e)(1)(ii) to require the SRO
participants to apply timestamps to all information with respect to
quotations for and transactions in NMS stocks that is necessary to
generate consolidated market data and not to consolidated market data
as the proposed rule required. Specifically, the timestamps applied by
the SROs must be to the individual components of data content
underlying consolidated market data, i.e., all of the individual
components of data content underlying core data, regulatory data,
administrative data, self-regulatory organization-specific program
data, and additional elements defined as ``consolidated market data.''
---------------------------------------------------------------------------

    \1221\ See NYSE Letter II at 21.
---------------------------------------------------------------------------

    This commenter also criticized the proposal for underestimating the
burdens of adding timestamps.\1222\ The Commission disagrees with the
commenter regarding the burden of adding timestamps. The SROs currently
add timestamps to all elements of consolidated market data and thus,
the Commission does not believe that ensuring that timestamps are
applied in a consistent manner going forward would impose significant,
if any, costs to the SROs. Timestamps are important for market
participants as they provide the ability to measure latency and ensure
accurate sequencing of data. The application of timestamps may also
incentivize the SROs to make available their consolidated market data
as quickly as possible. Therefore, the

application of timestamps needs to be consistent and reliable.\1223\
---------------------------------------------------------------------------

    \1222\ See id.
    \1223\ SRO timestamps will also assist market participants in
their ability to assess latencies in the provision of consolidated
market data. Under Rule 614(d)(3), competing consolidators are
required to make available consolidated market data products that
include timestamps assigned by the SROs as well as competing
consolidators. Competing consolidators will be required to timestamp
the data underlying consolidated market data at specific intervals:
(1) Upon receipt from an SRO at the SRO data center, (2) upon
receipt at its aggregation mechanism, and (3) upon dissemination of
consolidated market data to customers. See supra Section III.C.8(a)
and the discussion of Rule 614(d)(4).
---------------------------------------------------------------------------

(i) Comments on Annual Assessment
    As proposed, Rule 614(e)(1)(iii) required the amendment to the
effective national market system plan(s) for NMS stocks to reflect that
the participants are required to conduct an annual assessment of the
overall performance of competing consolidators--including speed,
reliability, and cost of data provision--and provide the Commission
with a report of such assessment on an annual basis. The Equity Data
Plans play an important role in governing the operation of the national
market system. The Commission believes that the effective national
market system plan(s) for NMS stocks should continue in this important
role by monitoring the overall performance of the provision of
consolidated market data by competing consolidators to seek to ensure
that the decentralized consolidation model is operating soundly and is
therefore adopting this provision, as proposed, with one modification.
    As described in the Proposing Release, the plan must assess several
key factors of the operation of the decentralized consolidation model,
including: (1) The speed of competing consolidators in receiving,
calculating, and disseminating consolidated market data products; (2)
the reliability of the transmission of consolidated market data
products; and (3) a detailed cost analysis of the provision of
consolidated market data products. The effective national market system
plan(s) would base their assessments on the information made publicly
available by competing consolidators, including the information that
each competing consolidator is required to make available under Rule
614.
    One commenter supported requiring the filing of a proposed plan
amendment to mandate an annual assessment and suggested that the annual
assessment be made public to further assist broker-dealers in selecting
competing consolidators.\1224\ One commenter stated that ``the Proposal
does not indicate whether the results of particular assessments will be
made publicly available to firms and what, if any, actions broker-
dealers will be required to make in response to such assessments.''
\1225\ One commenter suggested that the annual report not review
individual competing consolidator performance ``in silo'' by also
reviewing at the competition.\1226\
---------------------------------------------------------------------------

    \1224\ See Clearpool Letter at 9.
    \1225\ TD Ameritrade Letter at 13. This commenter asked several
questions about the expectations on broker-dealers in response to
the annual report. See id. at 13-14. As discussed above, the annual
report will not be a report on individual competing consolidators
but rather a report on the operational status of the whole
decentralized consolidation model.
    \1226\ See Data Boiler Letter I at 64 (``How CC beat their
competition among peers, and the overall industry rely less on
Exchanges' PP and SAs' services are the best key performance
indicators (KPIs).'').
---------------------------------------------------------------------------

    The Commission is adopting the rule, with the addition that the
annual report would be made publicly available by the Commission. The
Commission believes that the annual report should be made publicly
available to provide transparency to investors as to the operation of
the national market system. The Commission believes that the annual
report can assist the Commission in monitoring and evaluating the
operation of the national market system and decentralized consolidation
model. The annual report, however, is not an assessment of individual
competing consolidators but of the overall performance of the provision
of consolidated market data by competing consolidators. Market
participants that want to evaluate the individual performance of a
competing consolidator can utilize the individual competing
consolidator's disclosures on its Form CC and the monthly performance
metrics published by each competing consolidator.
    Another commenter stated that the SROs would incur costs associated
with assessing competing consolidators although the effective national
market system plan(s) would not have a role in selecting or monitoring
competing consolidators.\1227\ The SROs currently incur costs in
overseeing the national market system and some of these costs may
change in the decentralized consolidation model, including the new
costs associated with conducting an assessment and developing the
annual report. The Commission does not believe that the costs should be
overly burdensome. As stated above, the Operating Committee can use
public reports of competing consolidator performance as well as any
pertinent information that the plan(s) believe would be useful to
assess competing consolidators and develop the annual report. Further,
the Commission believes that the Operating Committee is well-suited to
perform this assessment. The SROs will be making the data content
underlying consolidated market data available to competing
consolidators and establishing the necessary connectivity to competing
consolidators, and as stated, the effective national market system
plan(s) will continue to have important responsibilities in developing,
operating, and regulating the national market system. The Commission
believes that the Operating Committee should develop the annual report
as a means to monitor the overall performance of competing
consolidators and to seek to ensure that the national market system is
operating soundly.
---------------------------------------------------------------------------

    \1227\ See NYSE Letter II at 28.
---------------------------------------------------------------------------

(j) Comments on List of Primary Listing Exchanges
    Finally, proposed Rule 614(e)(1)(iv) required the amendment to the
effective national market system plan(s) for NMS stocks to include a
list of the primary listing exchanges for each NMS stock.\1228\ The
primary listing exchanges will be required to collect, calculate, and
make available regulatory data to competing consolidators and self-
aggregators. Therefore, each primary listing exchange must be
identified to determine who is responsible for collecting, calculating,
and making regulatory data available. One commenter agreed with
developing a list identifying the primary listing exchange.\1229\ One
commenter suggested that the Commission develop this list.\1230\ The
Commission believes that the plan(s) are best suited to develop the
list and to ensure that it is kept current and readily accessible. The
Commission is modifying the language of Rule 614(e)(1)(iv) to require
that the plan(s) develop, maintain, and publish the list. The
Commission believes that the list of primary listing exchanges should
be maintained and published so that market participants will know which
exchange is responsible for providing regulatory data. Further,
competing consolidators and self-aggregators will need to know which
exchange will be making regulatory data available.
---------------------------------------------------------------------------

    \1228\ The term ``primary listing exchange'' is defined in Rule
600(b)(68).
    \1229\ See Data Boiler Letter I at 64.
    \1230\ See NYSE Letter II at 28.
---------------------------------------------------------------------------

(k) Regulation SCI
    The Commission is modifying Rule 614(e) to accommodate the new
definition of SCI competing

consolidator classification under Regulation SCI. Specifically, new
paragraph (v) of Rule 614(e) will require the participants to the
effective national market system plan(s) for NMS stocks to file with
the Commission an amendment that requires the plan(s) to calculate and
publish on a monthly basis the consolidated market data gross revenues
for NMS stocks as specified by: (1) Listed on the NYSE; (2) listed on
Nasdaq; and (3) listed on exchanges other than NYSE or Nasdaq. The
Commission believes that the plan(s) are best suited to calculate and
publish this information because, as noted above, the effective
national market system plan(s) will charge the fees for the data
content underlying consolidated market data, collect the revenue, and
oversee accounts and billing. Competing consolidators will use the
calculation and publication of consolidated market data gross revenues
to assess whether they have reached the 5% threshold described in Rule
1000 for SCI competing consolidators. As discussed below, the
Commission believes that competing consolidators that reach these
thresholds should be held to higher systems resiliency and integrity
standards as required under Regulation SCI than competing consolidators
that are below this threshold.\1231\
---------------------------------------------------------------------------

    \1231\ See infra Section III.F.
---------------------------------------------------------------------------

F. Systems Capability: Amendment to Rule 1000 of Regulation SCI To
Expand ``SCI Entities'' Definition To Include ``SCI Competing
Consolidator''; Adoption of Rule 614(d)(9): Systems Integrity

    In the Proposing Release, the Commission stated its preliminary
belief that competing consolidators should be subject to the
requirements of Regulation SCI.\1232\ The Commission adopted Regulation
SCI in November 2014 to strengthen the technology infrastructure of the
U.S. securities markets, reduce the occurrence of systems issues in
those markets, improve their resiliency when technological issues
arise, and establish an updated and formalized regulatory framework,
thereby helping to ensure more effective Commission oversight of such
systems.\1233\ The key market participants that are currently subject
to Regulation SCI are called ``SCI entities'' and include certain SROs
(including stock and options exchanges, registered clearing agencies,
FINRA, and the Municipal Securities Regulatory Board) (``SCI SROs'');
alternative trading systems that trade NMS and non-NMS stocks exceeding
specified volume thresholds (``SCI ATSs''); the exclusive SIPs (``plan
processors''); and certain exempt clearing agencies.\1234\
---------------------------------------------------------------------------

    \1232\ See Proposing Release, 85 FR at 16785-89.
    \1233\ See Securities Exchange Act Release No. 73639 (Nov. 19,
2014), 79 FR 72252 (Dec. 5, 2014) (``SCI Adopting Release''), at
72252-56 for a discussion of the background of Regulation SCI.
    \1234\ See Rule 1000.
---------------------------------------------------------------------------

    As the Commission stated in the Proposing Release, competing
consolidators, as sources of consolidated market data, would serve an
important role in the national market system. The Commission explained
that, as it had stated when adopting Regulation SCI, ``both
consolidated and proprietary market data systems are widely used and
relied upon by a broad array of market participants, including
institutional investors, to make trading decisions, and . . . if a
consolidated or a proprietary market data feed became unavailable or
otherwise unreliable, it could have a significant impact on the trading
of the securities to which it pertains, and could interfere with the
maintenance of fair and orderly markets.'' \1235\ For these reasons,
Regulation SCI applies to both the exclusive providers of consolidated
market data (i.e., the plan processors) and to proprietary market data
systems, and is not limited to applicable systems of plan processors,
but rather also includes the market data systems of any SCI entity,
including SCI SROs. Taking into consideration the role of competing
consolidators as providers of consolidated market data feeds that are
likely to be widely used and relied upon by market participants, the
Commission proposed to apply Regulation SCI to competing consolidators
by including them within the definition of ``SCI entity'' and requested
public comment.\1236\ In particular, among other things, the Commission
requested comment on whether all of the obligations set forth in
Regulation SCI should apply to competing consolidators or whether only
certain requirements should be imposed, such as those requiring written
policies and procedures, notification of systems problems, business
continuity and disaster recovery testing (including testing with
participants/subscribers of a competing consolidator), and penetration
testing.\1237\
---------------------------------------------------------------------------

    \1235\ See Proposing Release, 85 FR at 16786 (quoting SCI
Adopting Release, supra note 1233, at 72275).
    \1236\ In addition, the Commission proposed to revise the
definition of ``critical SCI system'' to account, among other
things, for the systems of OPRA's plan processor, since the
competing consolidator model will not apply with respect to trading
in options. See Proposing Release, 85 FR at 16786-87. The Commission
is adopting the revision to the definition of ``critical SCI
system'' as proposed. See infra notes 1315-1316 and accompanying
text.
    \1237\ See Proposing Release, 85 FR at 16789.
---------------------------------------------------------------------------

    A number of commenters supported applying the requirements of
Regulation SCI to competing consolidators in some form.\1238\ In
particular, a few commenters supported application of Regulation SCI to
competing consolidators as proposed.\1239\ Others argued that competing
consolidators should be considered to have ``critical SCI systems''
like the exclusive SIPs and thus subject to higher requirements than
proposed.\1240\ Some commenters, however, expressed concern that the
costs of SCI compliance would be a barrier to entry and could deter
entities from seeking to become competing consolidators.\1241\
Similarly, several commenters, although not citing Regulation SCI
specifically, expressed general skepticism about the ability to attract
new entrants to register as competing consolidators, citing among other
factors, potential lack of economic incentives.\1242\
---------------------------------------------------------------------------

    \1238\ See Cboe Letter at 26; Nasdaq Letter IV at 35-36; Data
Boiler Letter I at 57; STANY Letter II at 6; FINRA Letter at 4, n.
14; MEMX Letter at 8; Fidelity Letter at 3, 10; Clearpool Letter at
9.
    \1239\ See FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity
Letter at 3, 10. See also Clearpool Letter at 9; STANY Letter II at
6.
    \1240\ See Cboe Letter at 26; Nasdaq Letter IV at 35-36; Data
Boiler Letter I at 57; STANY Letter II at 6.
    \1241\ See NYSE Letter II at 15; ACTIV Financial Letter at 2;
IDS Letter I at 13; STANY Letter II at 6-7; Angel Letter at 19-21.
See also TD Ameritrade Letter at 13; Nasdaq Letter III at 4.
    \1242\ See also supra notes 626-629 and 641-649 and accompanying
text (discussing commenters' views that a lack of sufficient
economic incentives for potential competing consolidators and the
costs to become a competing consolidator outweigh the benefits).
---------------------------------------------------------------------------

    The Commission continues to believe that competing consolidators,
as providers of consolidated market data products, will serve an
important role in the national market system. Thus, consistent with the
views of many commenters, the Commission believes that it is important
to impose requirements to help ensure that the technology systems of
competing consolidators are reliable and resilient, consistent with the
policy goals of Regulation SCI.\1243\ The Commission is cognizant that
Regulation SCI entails compliance burdens for new entrants \1244\ and,
in particular, that

those costs could serve as a barrier to entry for potential competing
consolidators and deter some potential entities from becoming competing
consolidators, as noted by several commenters.\1245\ The Commission is
adopting a two-pronged approach to competing consolidators with respect
to Regulation SCI, as described more fully below. The Commission
estimates that under this approach, due to the threshold levels being
adopted, the requirements of Regulation SCI \1246\ will apply to most
competing consolidators following an initial transition period.\1247\
In addition, the Commission is adopting a tailored set of operational
capability and resiliency obligations designed to help ensure that the
provision of consolidated market data products is prompt, accurate, and
reliable, that is applicable to all competing consolidators during the
transition period and to competing consolidators that are below the
adopted threshold thereafter.
---------------------------------------------------------------------------

    \1243\ See supra note 1233 and accompanying text; Cboe Letter at
26; Nasdaq Letter IV at 35-36; Clearpool Letter at 9; Data Boiler
Letter I at 57; FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity
Letter at 10. See also IntelligentCross Letter at 5, BlackRock
Letter at 5; ACS Execution Services Letter at 5; Temple University
Letter at 1-2.
    \1244\ See Proposing Release, 85 FR at 16808-09, 16836-38,
16845-48 (discussing paperwork burdens, costs, and benefits of
complying with Regulation SCI). See also Nasdaq Letter III at 4;
NYSE Letter II at 15; Schwab Letter at 7; TD Ameritrade Letter at
13; ACTIV Financial Letter at 2; IDS Letter I at 13; STANY Letter II
at 6-7; Angel Letter at 19-21.
    \1245\ See Nasdaq Letter III at 4; NYSE Letter II at 15; Schwab
Letter at 7; TD Ameritrade Letter at 13; ACTIV Financial Letter at
2; IDS Letter I at 13; Angel Letter at 19-21.
    \1246\ As discussed in the Proposing Release, Regulation SCI
would, among other things, require SCI entities, which would now
include SCI competing consolidators (as discussed below), to
establish, maintain, and enforce written policies and procedures
reasonably designed to ensure that their key automated systems have
levels of capacity, integrity, resiliency, availability, and
security adequate to maintain their operational capability and
promote the maintenance of fair and orderly markets, and that such
systems operate in accordance with the Exchange Act and the rules
and regulations thereunder and the entities' rules and governing
documents, as applicable. See 17 CFR 242.1001 (Rule 1001) of
Regulation SCI. Broadly speaking, Regulation SCI also requires SCI
entities to take appropriate corrective action when systems issues
occur; provide certain notifications and reports to the Commission
regarding systems problems and systems changes; inform members and
participants about systems issues; conduct business continuity and
disaster recovery testing and penetration testing; conduct annual
reviews of their automated systems; and make and keep certain books
and records. See Rules 1002-1007 of Regulation SCI.
    \1247\ See infra Section III.H for a discussion of the initial
transition period.
---------------------------------------------------------------------------

    First, the Commission believes that the inclusion of certain
competing consolidators in the definition of ``SCI entity'' is
appropriate. Several commenters supported the Commission's proposal to
apply the requirements of Regulation SCI to all competing
consolidators, emphasizing the importance of ensuring the resiliency
and reliability of the infrastructure for market data
dissemination.\1248\ However, in recognition of the more limited role
that certain competing consolidators may play in the securities markets
and to address the concerns of other commenters who believed that the
compliance costs of Regulation SCI would be burdensome to potential
competing consolidators and could pose a significant barrier to entry
for some potential competing consolidators, the Commission has made
certain modifications from the proposal.\1249\
---------------------------------------------------------------------------

    \1248\ See FINRA Letter at 4, n. 14; MEMX Letter at 8; Fidelity
Letter at 3, 10. See also Clearpool Letter at 9; STANY Letter II at
6.
    \1249\ See supra notes 1244-1245 and accompanying text.
---------------------------------------------------------------------------

    The Commission is adopting a definition of ``SCI competing
consolidator'' that will subject competing consolidators to Regulation
SCI, after a one-year transition period (as discussed below) (``SCI CC
Phase-In Period''),\1250\ if they are above the adopted
threshold.\1251\ This approach is similar to that taken regarding the
definition of ``SCI ATS,'' which applies Regulation SCI to those ATSs
that meet certain volume thresholds and thus were determined by the
Commission to play a significant role in the securities markets.\1252\
---------------------------------------------------------------------------

    \1250\ See infra note 1268 and accompanying text (discussing
that SCI competing consolidators will not be required to comply with
Regulation SCI until one year after the compliance date of Rule
614(d)(3)).
    \1251\ The definition of ``SCI entity'' under Rule 1000 of
Regulation SCI would be amended to include ``SCI competing
consolidators.''
    \1252\ See Rule 1000 of Regulation SCI (definition of ``SCI
ATS''). As discussed further below, for those competing
consolidators, that are either (i) newly registered and operating
during the initial transition period, or (ii) do not otherwise
satisfy the SCI entity definition (because they are below the five
percent threshold for an SCI competing consolidator), a more
tailored set of safeguards would apply.
---------------------------------------------------------------------------

    Specifically, an ``SCI competing consolidator'' will be defined in
Rule 1000 of Regulation SCI to mean ``any competing consolidator, as
defined in Sec.  242.600 which during at least four of the preceding
six calendar months, accounted for five percent (5%) or more of
consolidated market data gross revenue paid to the effective national
market system plan or plans required under Sec.  242.603(b) for NMS
stocks (1) listed on the New York Stock Exchange LLC, (2) listed on The
Nasdaq Stock Market LLC, or (3) listed on national securities exchanges
other than the New York Stock Exchange LLC or The Nasdaq Stock Market
LLC, as reported by such plan or plans pursuant to the terms thereof.''
\1253\
---------------------------------------------------------------------------

    \1253\ See Rule 1000 of Regulation SCI.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission requested comment on
whether it would be appropriate to set a threshold to determine which
competing consolidators should be subject to Regulation SCI.\1254\ The
Commission received one comment addressing the threshold inquiries,
which expressed support for the adoption of a threshold.\1255\ The
Commission believes that adopting a threshold to determine which
competing consolidators are subject to Regulation SCI is responsive
both to commenters who emphasized the importance of ensuring the
resiliency, reliability, and integrity of the infrastructure for market
data dissemination, as well as commenters that expressed concerns about
barriers to entry. In adopting a threshold in the definition of ``SCI
competing consolidator,'' the Commission believes it is establishing a
reasonable scope for the application of Regulation SCI to competing
consolidators.
---------------------------------------------------------------------------

    \1254\ See Proposing Release, 85 FR at 16789 (requesting comment
on whether a threshold test would be appropriate for competing
consolidators subject to Regulation SCI and, if so, what such a
threshold test should be).
    \1255\ See Data Boiler Letter I at 57 (arguing that because
compliance with Regulation SCI would be a possible barrier to entry,
the Commission should adopt a threshold of ten percent for requiring
compliance and arguing also that those below the threshold should be
encouraged to voluntarily adopt SCI as ``best practices''). See also
infra note 1263 and accompanying text.
---------------------------------------------------------------------------

    The adopted threshold level is designed to identify those entities
which, if they were to experience a systems issue, could potentially
affect a substantial number of market participants and impact a broad
swath of the national market system.\1256\ The Commission believes that
the 5% threshold level is reasonable for assessing materiality both
generally and in the context of competing consolidated market data
providers.\1257\ Specifically, the Commission believes that the adopted
threshold level is not

so high so as to exclude competing consolidators for which a systems
issue could have a significant impact on market participants or the
national market system as a whole and, at the same time, provides an
opportunity for a competing consolidator to enter and grow its business
prior to incurring the costs of compliance with Regulation SCI if it
were to exceed the threshold level.\1258\ Notably, during this time
competing consolidators will be subject to the requirements of Rule
614(d)(9) of Regulation NMS, as discussed below. The Commission
recognizes that this threshold ultimately represents a matter of
judgment by the Commission relating to the application of Regulation
SCI to a new decentralized consolidation model and a new category of
regulated entity. In the exercise of this judgment, the Commission has
sought to identify a threshold level designed to ease barriers to entry
for competing consolidators during the SCI CC Phase-In Period and for
new competing consolidators thereafter.\1259\
---------------------------------------------------------------------------

    \1256\ Further, while the Commission believes that the competing
consolidator model is designed to result in multiple viable sources
of consolidated market data, the Commission believes that adopting a
threshold will ensure that, if the market is largely reliant on a
small number of competing consolidators for the distribution of
consolidated market data, such competing consolidators will be
subject to the safeguards of Regulation SCI. The Commission believes
that this could arise if only a small number of entities register as
competing consolidators, if certain competing consolidators dominate
the market, or if competing consolidators subsequently exit the
market resulting in a concentration of competing consolidators. See
also infra notes 1315-1316 and accompanying text (discussing
``critical SCI systems'' and competing consolidators).
    \1257\ The adopted five percent threshold is consistent with the
threshold level in the ``Fair Access'' rule (Rule 301(b)(5)) of
Regulation ATS, as well as one of the volume threshold levels in the
definition of SCI ATS in Rule 1000 of Regulation SCI.
    \1258\ Basing the threshold on a measure of the consolidated
market data gross revenue paid to the plan, rather than number of
subscribers, will reflect the value of the consolidated market data
as determined by the plan's fees and thus account for those
competing consolidators that may have fewer subscribers but pay
higher fees due to having mainly professional subscribers who
typically trade at significantly higher volumes than retail
customers, as well as those competing consolidators that may have a
relatively high number of retail subscribers that pay lower fees.
    \1259\ Competing consolidators not subject to Regulation SCI
will be subject to Rule 614(d)(9), as discussed below.
---------------------------------------------------------------------------

    The adopted thresholds describe plan revenues by reference to
current Tapes A, C, and B, respectively.\1260\ Although it is possible
that the existing definition of tapes may be modified post-
implementation, the thresholds acknowledge that listing exchange status
has been, and may continue to be, relevant as the plan(s) develop
pricing for data content underlying consolidated market data because
Tape A, C, and B encompass securities listed on NYSE, Nasdaq, and
national securities other than NYSE and Nasdaq, respectively.\1261\
Accordingly, this threshold is designed to help ensure that any
competing consolidator that might have material market share for the
securities in current Tapes A, B, or C (where a significant number of
market participants rely on it for such market data, for example, if a
competing consolidator were to focus or specialize in stocks listed on
a particular exchange), is subject to the requirements of Regulation
SCI, even if its market share in stocks listed across all national
securities exchanges is not as significant.\1262\
---------------------------------------------------------------------------

    \1260\ As discussed below, the Commission is also requiring the
amendment to the effective national market system plan(s) to include
a provision that requires the plan(s) to calculate and publish
information relating to the consolidated market data gross revenues
on a monthly basis.
    \1261\ Should pricing for consolidated market data become more
granular than exists today (e.g., by moving from a per-tape basis to
a per-listing exchange basis), reconsideration of the adopted
thresholds may be appropriate.
    \1262\ For context, annual tape revenues reported by the CTA and
Nasdaq UTP plans in 2019 were as follows: $162.9 million, $95.8
million, and $130.7 million, Tapes A, B, C, respectively. Thus, Tape
A accounted for 41.8% of total revenues, Tape B accounted for 24.6%
of total revenues, and Tape C accounted for 33.6% of total revenues.
Five percent of these annual figures divided by 12 (i.e., per month)
yield monthly figures as follows: $679,000, $399,000, and $545,000,
for Tapes A, B, and C, respectively. As illustrated by these
figures, the notional value of the threshold level in the definition
of SCI competing consolidator will vary for NMS stocks (i) listed on
the NYSE, (ii) listed on Nasdaq, or (iii) listed on national
securities exchanges other than the NYSE or Nasdaq. However, based
on these 2019 figures, the threshold level for each tape represents
over 1% of total monthly revenues across all tapes ($324,500).
Specifically, the threshold for Tape A represents approximately 2.1%
of total monthly revenues, the threshold for Tape B represents
approximately 1.2% of total monthly revenues, and the threshold for
Tape C represents approximately 1.7% of total monthly revenues. See
CTA, SIP Revenue Allocation Summary, Q1 2020 Quarterly Revenue
Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_1Q2020.pdf (last accessed Nov. 27,
2020); UTP, SIP Revenue Allocation Summary, Q1 2020 Quarterly
Revenue Disclosure, available at http://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q12020.pdf (last accessed Nov. 27, 2020).
---------------------------------------------------------------------------

    Although one commenter suggested that the Commission adopt a ten
percent threshold for compliance with Regulation SCI,\1263\ the
Commission believes that such a threshold could exclude competing
consolidators for which a systems issue or cybersecurity incident could
have a significant impact on market participants or the national market
system as a whole. As noted above, the numerical thresholds in the
definition of ``SCI competing consolidator'' reflect an assessment by
the Commission of the likely economic consequences of the specific
numerical threshold included in the definition.
---------------------------------------------------------------------------

    \1263\ See Data Boiler Letter I at 57 (arguing that those below
the threshold should be encouraged to voluntarily adopt SCI as
``best practices''). The commenter did not provide further detail as
to how it believed this threshold should be measured (e.g., total
subscribers) or provide any rationale as to why this would be an
appropriate threshold level.
---------------------------------------------------------------------------

    The Commission believes that the time measurement period for
calculating the threshold (``during at least four of the preceding six
calendar months''), is appropriate for evaluating the market share of a
competing consolidator, because it provides a new entrant time to
develop their business prior to having to incur the costs of complying
with Regulation SCI,\1264\ and it provides a long enough period of data
on revenue and subscriber levels to evaluate reasonably a competing
consolidator's significance to the market.\1265\ It also mitigates a
possible barrier to entry for some new competing consolidators.
Further, the Commission believes that this time measurement period will
help to ensure that competing consolidators meeting the definition of
SCI competing consolidator are those that have sustained gross revenue
levels at the threshold warranting the protections of Regulation SCI
and is less likely to result in competing consolidators moving in and
out of the scope of the definition than if the Commission were to adopt
a shorter measurement period.
---------------------------------------------------------------------------

    \1264\ See infra note 1271 (discussing the time period before a
competing consolidator would be subject to Regulation SCI).
    \1265\ This time measurement period is drawn from the current
measurement period in the definition of ``SCI ATS.'' See Rule 1000
of Regulation SCI (definition of ``SCI ATS''). This measurement
period is also consistent with the measurement period in 17 CFR
242.301(b)(6) (Rule 301(b)(6) of Regulation ATS).
---------------------------------------------------------------------------

    The adopted definition of ``SCI competing consolidator'' also
provides that consolidated market data gross revenue paid to the
effective national market system plan or plans required under Sec.
242.603(b) for NMS stocks (1) listed on the NYSE; (2) listed on Nasdaq;
or (3) listed on exchanges other than NYSE or Nasdaq will be ``as
reported by such plan or plans pursuant to the terms thereof.''
Competing consolidators will need information regarding the
consolidated market data gross revenues to assess whether they meet the
5% threshold and are required to comply with Regulation SCI.
Accordingly, as discussed above, Rule 614(e) will provide that the
amendment to the effective national market system plan(s) will have to
include a provision that requires the plan(s) to calculate and publish
total consolidated market data gross revenues for NMS stocks (1) listed
on the NYSE, (2) listed on Nasdaq, and (3) listed on national
securities exchanges other than the NYSE or Nasdaq, on a monthly
basis.\1266\
---------------------------------------------------------------------------

    \1266\ See supra Section III.E.
---------------------------------------------------------------------------

    As noted above, the requirements of Regulation SCI will not apply
to any competing consolidator \1267\ during an

initial period of one year after the compliance date of Rule 614(d)(3)
of Regulation NMS.\1268\ Instead, during this SCI CC Phase-In Period,
competing consolidators will be subject to the requirements adopted in
Rule 614(d)(9) of Regulation NMS, as discussed below, which includes
requirements similar to some of the key provisions of Regulation SCI.
The Commission believes that this phase-in period will mitigate the
concerns raised by some commenters regarding potential barriers to
entry by allowing potential competing consolidators to enter the market
and develop their business and subscriber base, without requiring them
to immediately shoulder the costs and burdens of Regulation SCI as SCI
entities. At the same time, applying the requirements of Rule 614(d)(9)
of Regulation NMS provides that competing consolidators are immediately
subject to certain obligations to help ensure the reliability and
resiliency of their systems during the SCI CC Phase-In Period. In
addition, during this initial period, the plan processors would still
be required to operate and would be SCI entities, subject to the
requirement of Regulation SCI.\1269\
---------------------------------------------------------------------------

    \1267\ National securities exchanges are subject to the
requirements of Regulation SCI because they are SCI entities. See
Rule 1000 of Regulation SCI. As discussed above, an exchange
affiliated competing consolidator may qualify for a conditional
exemption from certain requirements otherwise applicable to national
securities exchanges. See supra Section III.C.7(a)(iv). If an
exchange qualifies for such an exemption, during the SCI CC Phase-In
Period and, subsequent to such period, if it does not exceed the
threshold in the definition of ``SCI competing consolidator'' in
Rule 1000 of Regulation SCI, its exchange-affiliated competing
consolidator would be subject to the requirements of Rule 614(d)(9)
of Regulation NMS and not subject to the requirements of Regulation
SCI.
    \1268\ Rule 614(d)(3) requires competing consolidators to make
consolidated market data products available to subscribers on a
consolidated basis on terms that are not unreasonably
discriminatory. See infra note 1356 and accompanying text.
    \1269\ See infra Section III.H (discussing the transition period
and compliance dates).
---------------------------------------------------------------------------

    In addition, the Commission believes that it is appropriate to
provide competing consolidators who enter the market after the SCI CC
Phase-In Period and meet the revenue threshold in the definition of
``SCI competing consolidators'' for the first time, a period of time
before they are required to comply with the requirements of Regulation
SCI. Thus, Rule 1000 provides that an SCI competing consolidator will
not be required to comply with the requirements of Regulation SCI until
six months after satisfying the threshold in the definition of SCI
competing consolidator for the first time.\1270\ The Commission
believes that this six-month ``grace'' period is appropriate and
necessary to allow an SCI competing consolidator the time needed to
take steps to meet the requirements of the rules, rather than requiring
compliance immediately upon meeting the threshold level. The Commission
also believes that this additional period for compliance should give a
new competing consolidator entrant the opportunity to initiate and
develop its business by allowing additional time before a new competing
consolidator must incur the costs associated with compliance with the
requirements of Regulation SCI.\1271\
---------------------------------------------------------------------------

    \1270\ See Rule 1000 of Regulation SCI (paragraph (b) of
definition of ``SCI competing consolidator'').
    \1271\ After the SCI CC Phase-In Period discussed above has
passed (i.e., after which paragraph (c) of the definition of SCI
competing consolidator will no longer apply), any new competing
consolidator would have at least ten months, at a minimum, before it
would be subject to Regulation SCI, because the time measurement
period within paragraph (a) of the definition of SCI competing
consolidator (that a competing consolidator will be subject to
Regulation SCI only if they meet the numerical threshold ``during at
least four of the preceding six calendar months'') would occur prior
to the start of the six-month ``grace'' period. For example, if a
competing consolidator began operating in January of a year after
the initial one-year SCI CC Phase-In Period, the earliest it would
satisfy the thresholds in paragraph (a) of the definition of SCI
competing consolidator for the first time would be May 1st of that
year (i.e., if such competing consolidator satisfied the threshold
requirement in each of January, February, March and April). It would
then have six months from that time to become fully compliant with
Regulation SCI, and thus would have to comply with the requirements
of Regulation SCI by November 1st.
---------------------------------------------------------------------------

    Some commenters argued that competing consolidators should not only
be subject to the standard requirements of Regulation SCI but should be
held to the heightened requirements imposed on ``critical SCI
systems.'' \1272\ As the Commission stated in the Proposing Release,
under the current consolidation model, because the exclusive SIPs
represent single points of failure, they are all subject to heightened
requirements as ``critical SCI systems.'' \1273\ However, the competing
consolidator model is designed to result in multiple viable sources of
consolidated market data, and the competing consolidator model would
not be initiated until a transition period is complete. Accordingly,
the Commission believes that including systems of such competing
consolidators within the scope of ``critical SCI systems'' is
unnecessary, because any individual competing consolidator would no
longer be the sole source of a consolidated market data product, as
each SIP is today for its respective securities.\1274\ Some commenters
argued that, even with multiple competing consolidators, due to product
differentiation, certain consolidators would become uniquely important
to market participants and such participants would not be able to
readily switch to another competing consolidator in the event of a
systems issue.\1275\ As such, commenters argued that each competing
consolidator could become a single point of failure for its
customers.\1276\ However, in adopting the definition of ``critical SCI
systems,'' the Commission explained that the definition is designed to
``identify those SCI systems that are critical to the operation of the
markets, including those systems that represent single points of
failure in the securities markets,'' and that the systems included in
this category are those that, if they were to experience systems issues
``would be the most likely to have a widespread and significant impact
on the securities markets.'' \1277\ The Commission does not dispute
that a systems issue at an individual SCI competing consolidator could
have a significant impact on its subscribers, but the Commission does
not believe that such a systems issue would have the same type of
widespread impact on the national market system that the Commission had
contemplated in its definition of ``critical SCI system.'' \1278\
---------------------------------------------------------------------------

    \1272\ See Cboe Letter at 25-26; Nasdaq Letter IV at 35-36; Data
Boiler Letter I at 57; STANY Letter II at 6.
    \1273\ See Proposing Release, 85 FR at 16786.
    \1274\ Id. at 16786-87.
    \1275\ See Nasdaq Letter IV at 35-36; Cboe Letter at 25-26. See
also Nasdaq Letter IV at 8.
    \1276\ See Nasdaq Letter IV at 35-36; Cboe Letter at 25-26; see,
however, e.g., Committee on Capital Markets Regulation Letter at 3
(``[W]ith multiple competing consolidators, there will no longer be
a single point for failure capable of inducing stock market-wide
paralysis, strengthening market resiliency.''). See also NYSE Letter
II at 24; FINRA Letter at 4.
    \1277\ SCI Adopting Release at 72277.
    \1278\ Some commenters also argued that the Commission's
proposal not to apply the standards for critical SCI systems to
competing consolidators was based on the assumption that there will
be multiple competing consolidators that enter the market. These
commenters expressed doubt as to whether this would be the case. See
Nasdaq Letter IV at 35-36; Cboe Letter at 25. See also Angel Letter
at 20-21. However, the Commission notes that the second prong of the
definition of ``critical SCI systems'' provides a catch-all for
systems that ``[p]rovide functionality to the securities markets for
which the availability of alternatives is significantly limited or
nonexistent and without which there would be a material impact on
fair and orderly markets.'' See Rule 1000 of Regulation SCI
(definition of ``critical SCI system''). As discussed above, the
competing consolidator model is designed to result in multiple
viable sources of consolidated market data, would not be initiated
until a transition period is complete, and thus should not result in
a single point of failure. However, the second prong of the
definition of ``critical SCI systems'' would apply in the event that
availability of alternatives were significantly limited or
nonexistent in the future.
---------------------------------------------------------------------------

    Second, during the one-year SCI CC Phase-In Period and,
subsequently, for competing consolidators that are not SCI competing
consolidators, the Commission believes that a more tailored approach is
appropriate, and is adopting a framework that imposes requirements
similar to some of the key provisions of Regulation SCI on these

entities. The Commission believes that this two-pronged approach will
help ensure that the automated systems of competing consolidators have
adequate levels of capacity, integrity, resiliency, availability, and
security to maintain operational capability, while at the same time
allowing all competing consolidators to grow their business for an
initial transition period and subsequently, affording new entrants a
similar opportunity to do so, taking into consideration their
functions, potential risks, and the costs and burdens associated with
the various requirements of Regulation SCI.\1279\
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    \1279\ See supra note 1271 and accompanying text. While one
commenter suggested that competing consolidators that do not meet
the threshold level should be encouraged to voluntarily adopt SCI as
``best practices,'' see Data Boiler Letter I at 56, the Commission
believes that because of the importance of ensuring the reliable
delivery of core market data to market participants in the
securities markets, a more appropriate approach is to include in
Rule 614(d)(9) requirements similar to some of the core provisions
of Regulation SCI for competing consolidators that are not SCI
competing consolidators.
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    For those competing consolidators that (i) are newly registered and
operating during the initial SCI CC Phase-In Period, or (ii)
subsequently, do not satisfy the SCI entity definition because they are
below the five percent SCI competing consolidator threshold, new
paragraph (d)(9) of Rule 614 will apply. The provisions of Rule
614(d)(9) will subject competing consolidators that are not SCI
competing consolidators to certain, but not all, obligations that are
similar to those that apply to SCI entities.\1280\ Paragraph (d)(9)(i)
of Rule 614 contains certain definitions applicable to Rule 614(d)(9),
which are discussed below.\1281\ Paragraph (d)(9)(ii) of Rule 614
relates to the obligations of competing consolidators with respect to
policies and procedures. Specifically, competing consolidators will be
required to establish, maintain, and enforce written policies and
procedures reasonably designed to ensure: That their systems involved
in the collection and consolidation of consolidated market data, and
dissemination of consolidated market data products, have levels of
capacity, integrity, resiliency, availability, and security adequate to
maintain the competing consolidator's operational capability and
promote the maintenance of fair and orderly markets; and the prompt,
accurate, and reliable dissemination of consolidated market data
products.\1282\ Paragraph (d)(9)(ii)(A)(1) of Rule 614 mirrors the
broad policies and procedures obligation relating to capacity,
integrity, resiliency, availability, and security in Rule 1001(a)(1) of
Regulation SCI, which is core to ensuring the operational capability
and resiliency of competing consolidators.\1283\
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    \1280\ Although competing consolidators that are not SCI
entities would not be subject to the requirements of Regulation SCI,
because of the similarities between the provisions of Rule 614(d)(9)
and certain parallel provisions in Regulation SCI (as described
herein), the Commission notes that competing consolidators can look
to the Regulation SCI Adopting Release in certain cases for further
explanation and guidance regarding these provisions. See generally
SCI Adopting Release, supra note 1233. See also SCI Adopting Release
at 72289-92 (for a discussion of 17 CFR 242.1001(a)(1) (Rule
1001(a)(1)) of Regulation SCI).
    \1281\ See infra notes 1295-1297 and accompanying text
(discussing the definitions of systems disruption and systems
intrusion).
    \1282\ See 17 CFR 242.614(d)(9)(ii)(A)(1) (Rule
614(d)(9)(ii)(A)(1)) of Regulation NMS.
    \1283\ In assessing whether its consolidated market data systems
meet the security standard of Rule 614(d)(9)(ii)(A)(1), a relevant
consideration would be whether any other systems provide vulnerable
points of entry to a competing consolidator's consolidated market
data systems, heightening the risk of a systems intrusion.
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    This rule does not follow the Regulation SCI approach of requiring
minimum elements that are required for the operational capability
policies and procedures of SCI entities.\1284\ For competing
consolidators that do not meet the definition of SCI competing
consolidator and pose less risk to the markets as discussed above, the
Commission believes it is appropriate to take a more flexible approach
for the required policies and procedures under 17 CFR 242.614(d)(9)(ii)
(Rule 614(d)(9)(ii)). The rule affords these competing consolidators
the flexibility to design and tailor their policies and procedures
based on their own assessment of their policies and procedures
obligations relating to capacity, integrity, resiliency, availability,
and security in paragraph (d)(9)(ii)(A)(1). Importantly, paragraph
(d)(9)(ii)(A)(1) of Rule 614 incorporates into the general policies and
procedures provision the requirement that a competing consolidator's
policies and procedures be reasonably designed to ensure the ``prompt,
accurate, and reliable dissemination of consolidated market data
products.'' \1285\
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    \1284\ However, as discussed below, the Commission is
incorporating into the general policies and procedures requirement
the minimum element that relates directly to market data in 17 CFR
242.1001(a)(2)(v) (Rule 1001(a)(2)(v)) of Regulation SCI.
    \1285\ 17 CFR 242.614(d)(9)(ii)(A)(1). See also 17 CFR
242.1001(a)(2)(vi) (Rule 1001(a)(2)(vi)) of Regulation SCI.
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    Rule 1001(a)(2)(v) of Regulation SCI, which relates to BC/DR plans,
specifically requires SCI entities to have BC/DR plans that ``include
maintaining backup and recovery capabilities sufficiently resilient and
geographically diverse and that are reasonably designed to achieve next
business day resumption of trading and two-hour resumption of critical
SCI systems following a wide-scale disruption.'' \1286\ Like the other
minimum elements enumerated in Rule 1001(a)(2) of Regulation SCI, the
Commission is not adopting this requirement for competing consolidators
who do not meet the thresholds in the definition of SCI competing
consolidator.
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    \1286\ Rule 1001(a)(2)(v) of Regulation SCI.
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    Some commenters noted the impact that the impairment of a competing
consolidator's data could have on its subscribers and stated the
importance for subscribers to retain backup competing
consolidators.\1287\ Competing consolidators that are not SCI entities
may choose to adhere voluntarily with the provisions in Regulation SCI
related to BC/DR plans. Many market participants that receive
consolidated market data products from a competing consolidator,
whether an SCI competing consolidator or not, will take steps to assess
the reliability and resilience of the competing consolidator, such as
understanding the backup capabilities of a competing consolidator, as
well as reviewing contract terms, due diligence, and monitoring. After
such an assessment and evaluating the needs of their business and their
customers, some market participants may choose to maintain connections
to backup competing consolidators (i.e., from a secondary source) that
would be able to immediately provide such market participants with
consolidated market data if their primary competing consolidator was
unable to do so.
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    \1287\ See, e.g., FINRA Letter at 4.
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    Paragraph (d)(9)(ii)(A)(2) of Rule 614 provides that the policies
and procedures under paragraph (d)(9)(ii)(A)(1) will be deemed to be
reasonably designed if they are consistent with current industry
standards, which would be comprised of information technology practices
that are widely available to information technology professionals in
the financial sector and issued by an authoritative body that is a U.S.
governmental entity or agency, association of U.S. governmental
entities or agencies, or widely recognized organization. Compliance
with such current industry standards, however, will not be the
exclusive means to comply with the requirements of paragraph
(d)(9)(ii)(A) of Rule 614.\1288\ This provision mirrors the safe harbor
relating to industry

standards in 17 CFR 242.1001(a)(4) (Rule 1001(a)(4)) of Regulation
SCI.\1289\
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    \1288\ See 17 CFR 242.614(d)(9)(ii)(A)(2) (Rule
614(d)(9)(ii)(A)(2)) of Regulation NMS.
    \1289\ See SCI Adopting Release at 72298-03 (discussing Rule
1001(a)(4) of Regulation SCI). Concurrent with the adoption of
Regulation SCI, Commission staff issued guidance providing examples
of industry standards. See Staff Guidance on Current SCI Industry
Standards (Nov. 19, 2014), available at http://www.sec.gov/rules/final/2014/staff-guidance-current-sci-industry-standards.pdf.
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    Competing consolidators will also be required to review
periodically the effectiveness of the policies and procedures required
by paragraph (d)(9)(ii)(B) of Rule 614 and take prompt action to remedy
deficiencies in such policies and procedures.\1290\ This requirement in
paragraph (d)(9)(ii)(B) of Rule 614 mirrors the requirement for
periodic review found in 17 CFR 242.1001(a)(3) (Rule 1001(a)(3)) of
Regulation SCI.\1291\
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    \1290\ See 17 CFR 242.614(d)(9)(ii)(B) (Rule 614(d)(9)(ii)(B))
of Regulation NMS.
    \1291\ See SCI Adopting Release at 72291-92 (discussing Rule
1001(a)(3) of Regulation SCI).
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    In addition, competing consolidators will be required to establish,
maintain, and enforce reasonably designed written policies and
procedures that include the criteria for identifying responsible
personnel, the designation and documentation of responsible personnel,
and escalation procedures to inform quickly responsible personnel of
potential systems disruptions and systems intrusions; and periodically
review the effectiveness of the policies and procedures, and take
prompt action to remedy deficiencies.\1292\ This paragraph
(d)(9)(ii)(C) of Rule 614 maintains the framework found in 17 CFR
242.1001(c) (Rule 1001(c)) of Regulation SCI that requires an SCI
entity to have policies and procedures, including escalation
procedures, for identifying and designating responsible personnel who
are responsible for assessing whether systems disruptions or systems
intrusions have in fact occurred.\1293\
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    \1292\ See Rule 614(d)(9)(ii)(B) of Regulation NMS. The
Commission notes that Rule 614(d)(9) does not define responsible
personnel, as it believes it is likely that a competing consolidator
would define this and other key terms in its policies and
procedures, which pursuant to paragraph (d)(9)(ii)(A)(1) must be
reasonably designed. The Commission also notes that competing
consolidators may look to the definitions of this and other terms in
Rule 1000 of Regulation SCI as guidance in developing their own
definitions.
    \1293\ See SCI Adopting Release at 72314-16 (discussing Rule
1001(c) of Regulation SCI).
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    Paragraph (d)(9)(iii) of Rule 614 relates to the obligations of
competing consolidators with respect to systems disruptions and systems
intrusions.\1294\ These provisions are similar to the SCI event
obligations found in 17 CFR 242.1002 (Rule 1002) of Regulation SCI,
with certain changes as discussed below. Systems disruption is defined
in 17 CFR 242.614(d)(9)(i) (Rule 614(d)(9)(i)) to mean an event in a
competing consolidator's systems involved in the collection and
consolidation of consolidated market data, and dissemination of
consolidated market data products, that disrupts, or significantly
degrades, the normal operation of such systems.\1295\ Systems intrusion
is defined in Rule 614(d)(9)(i) to mean any unauthorized entry into a
competing consolidator's systems involved in the collection and
consolidation of consolidated market data and dissemination of
consolidated market data products.\1296\ These definitions mirror the
definitions of those terms in Regulation SCI but are narrower in that
they only focus on a competing consolidator's consolidated market data
systems.\1297\
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    \1294\ See Rule 614(d)(9)(iii) of Regulation NMS.
    \1295\ See Rule 614(d)(9)(i) of Regulation NMS.
    \1296\ See id.
    \1297\ See Rule 1000 of Regulation SCI.
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    As a general matter, Rule 614(d)(9)(iii) only covers systems
disruptions and systems intrusions and, unlike Rule 1002 of Regulation
SCI, does not cover systems compliance issues. The Commission believes
that this is appropriate as the regulatory framework for competing
consolidators is largely limited to broad operational principles and
targeted disclosures. One of the goals of imposing obligations related
to systems compliance issues on SCI entities was to address past
instances in which self-regulatory rule filings filed by some SCI
entities were inconsistent with how their technology systems operated
in practice.\1298\ Systems compliance issues were included within the
scope of Regulation SCI to help ensure an SCI entity's operational
compliance with its own rules and governing documents (i.e., to prevent
systems from operating in a manner inconsistent with the rules and
governing documents of an entity).\1299\ In contrast, competing
consolidators will not have similar requirements (e.g., to file
detailed rule filings) with respect to the operation of their automated
systems.
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    \1298\ See Securities Exchange Act Release No. 69077 (Mar. 8,
2013), 78 FR 18084, 03 (Mar. 25, 2013) (Regulation SCI Proposing
Release describing examples of systems compliance issues).
    \1299\ See SCI Adopting Release at 72287 (describing the
definition of ``systems compliance issue), 72304 (discussing the
requirement to have policies and procedures to achieve systems
compliance).
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    Under paragraph (d)(9)(iii)(A) of Rule 614, competing consolidators
will be required to, upon responsible personnel having a reasonable
basis to conclude that a systems disruption or systems intrusion of
consolidated market data systems has occurred, begin to take
appropriate corrective action which must include, at a minimum,
mitigating potential harm to investors and market integrity resulting
from the event and devoting adequate resources to remedy the event as
soon as reasonably practicable.\1300\ This provision mirrors the
corrective action obligations of SCI entities found in 17 CFR
242.1002(a) (Rule 1002(a)) of Regulation SCI, including the obligations
of responsible personnel in assessing whether or not a systems issue
has occurred.\1301\
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    \1300\ See 17 CFR 242.614(d)(9)(iii)(A) (Rule 614(d)(9)(iii)(A))
of Regulation NMS.
    \1301\ See SCI Adopting Release at 72316-17 (discussing Rule
1002(a) of Regulation SCI). See also SCI Adopting Release at 72315-
16 (discussing the triggering standard for SCI event obligations).
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    In addition, promptly upon responsible personnel having a
reasonable basis to conclude that a systems disruption (other than a
system disruption that has had, or the competing consolidator
reasonably estimates would have, no or a de minimis impact on the
competing consolidator's operations or on market participants) has
occurred, a competing consolidator will be required to disseminate
publicly information relating to the event (including the system(s)
affected and a summary description); and, when known, promptly publicly
disseminate additional information relating to the event (including a