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

    \368\ See, e.g., AHSAT Letter at 4.
    \369\ See Cboe Letter at 9-12; IEX Letter at 7; Nasdaq Letter IV
at 16-17; Virtu Letter at 5.
    \370\ See Cboe Letter at 10-11.
---------------------------------------------------------------------------

    Another commenter suggested that only allowing odd-lot aggregation
at one price level, instead of across price levels, would lead to fewer
protected quotes.\371\
---------------------------------------------------------------------------

    \371\ See TD Ameritrade Letter at 11.
---------------------------------------------------------------------------

    One commenter suggested that different odd-lot aggregation
methodologies between the NBBO and the PBBO would create confusion
among market participants.\372\ That commenter also suggested that
different methodologies could raise confusion from a best execution
perspective.\373\ Similarly, one commenter suggested only allowing odd-
lot aggregation at one price level, combined with the proposal to
provide all levels of depth up to the PBBO, would ``create[]
implementation difficulties.'' \374\
---------------------------------------------------------------------------

    \372\ See BlackRock Letter at 4; SIFMA Letter at 7-8 (suggesting
different odd-lot aggregation methodologies would ``rais[e]
additional technical issues'' and recommending that the Commission
should provide clarification as to how depth-of-book data is
determined, ``particularly because the aggregation process appears
to work differently for the PBBO versus the NBBO, BBO and depth-of-
book determinations'').
    \373\ See BlackRock Letter at 4.
    \374\ MEMX Letter at 4.
---------------------------------------------------------------------------

    Another commenter suggested that, given the proposal's intent to
maintain the status quo with respect to the scope of orders that are
subject to Rule 611, the Commission should consider continuing the
existing market practice, as codified in exchange rules, to aggregate
quotes at multiple price levels.\375\
---------------------------------------------------------------------------

    \375\ IEX Letter at 7.
---------------------------------------------------------------------------

    One commenter stated that if order protection were extended to all
round lots, the commenter would ``support aggregating odd lots in the
manner currently described for the PBBO.'' \376\
---------------------------------------------------------------------------

    \376\ Capital Group Letter at 4.
---------------------------------------------------------------------------

    In light of these comments, the Commission is modifying the
proposed definition of core data to require odd-lot aggregation across
multiple prices for purposes of the NBBO and protected quotations.\377\
The Commission believes that this approach will: (a) Provide a
consistent odd-lot aggregation methodology for all elements of core
data; (b) be consistent with existing practices, as some commenters
pointed out,\378\ and would avoid potential costs associated with
changing these practices; and (c) avoid unintended consequences that
could adversely affect investors, such as widening spreads or reducing
the number of protected quotes. As stated in the Proposing
Release,\379\ this methodology effectively extends order protection to
the aggregated odd-lot orders. However, as discussed above,\380\ a
majority of commenters who opined on odd-lot aggregation for protected
quotations preferred a cross-price methodology. Lastly, the comment
raised regarding the need for a consistent odd-lot aggregation
methodology for the NBBO and protected quotations is less relevant in
light of changes the Commission is adopting herein--namely, that the
new round lot NBBO will be protected.
---------------------------------------------------------------------------

    \377\ For example, if there is one 50-share bid at $25.10, one
50-share bid at $25.09, and two 50-share bids at $25.08, the adopted
cross-price odd-lot aggregation method would show a protected 100-
share bid at $25.09, while the proposed single-price odd-lot
aggregation method would show a protected 100-share bid at $25.08.
    \378\ See, e.g., BlackRock Letter at 4.
    \379\ See Proposing Release, 85 FR at 16747-50.
    \380\ See supra notes 368 through 376.
---------------------------------------------------------------------------

(c) Removing Protected Status From Certain NMS Stocks
    Some commenters stated that removing protected status for those NMS
stocks that currently have a protected quotation size of under 100
shares would potentially increase the number of locked and crossed
markets for the twelve current NMS stocks that have protected
quotations of under 100 shares.\381\ One commenter stated that the
Commission did not analyze the effects of removing order protection
from those twelve stocks.\382\
---------------------------------------------------------------------------

    \381\ See SIFMA Letter at 13-14.
    \382\ See NYSE Letter II at 6.
---------------------------------------------------------------------------

    The Commission understands these concerns regarding the possible
reduction of order protection and locked/crossed markets restrictions
for these 12 stocks in their current round lot sizes. However, as
discussed above,\383\ the Commission is not adopting the proposed
amendments to the definition of protected bid or offer, so all NMS
stocks--including the 12 that currently have non-100 round lot sizes--
would be assigned to round lot sizes based on their per share price,
and all round lot orders in these stocks would be protected quotations
subject to the trade-through prevention requirements of Rule 611 and
the locked and crossed markets restrictions of Rule 610(d).
---------------------------------------------------------------------------

    \383\ See supra Section II.E.2(a).
---------------------------------------------------------------------------

    In addition, the Commission acknowledges that, based on staff
analysis of stock prices as of September 2020, one stock will have its
round lot size increased from 10 to 40, one will have its round lot
size increased from 1 to 10, and six will have their round lot size
increased from 10 to 100. As a result, order protection pursuant to
Rule 611 and the locked/crossed markets prohibitions of Rule 610(d)
will no longer apply to some smaller orders in these stocks.\384\
However, the Commission continues to believe that determining the round
lot sizes of all stocks based upon price, without special exceptions
for certain stocks that currently have non-standard round lot sizes,
will reduce complexity and implementation costs, set consistent
expectations regarding round lot sizes among market participants,
facilitate the transition to price-based round lots, and justify any
potential costs of increasing the round lot sizes of a limited number
of stocks.\385\
---------------------------------------------------------------------------

    \384\ In addition, for four of the twelve stocks that currently
have non-100 share round lot sizes, the round lot size would not
change, and these stocks would not experience a change in terms of
the applicability of Rules 611 or 610(d) of Regulation NMS.
    \385\ See Proposing Release, 85 FR at 16749.
---------------------------------------------------------------------------

F. Definition of ``Depth of Book Data'' Under Rule 600(b)(26)

1. Proposal
    The Commission proposed to include ``depth of book data,'' defined
as follows, as an element of core data: All quotation sizes at each
national securities exchange, aggregated at each price at which there
is a bid or offer that is lower than the best bid down to the protected
bid and higher than the best offer up to the protected offer, and all
quotation sizes at each national securities exchange, aggregated at
each of the next five prices at which there is a bid that is lower than
the protected bid and offer that is higher than the protected offer.
    The Commission solicited comment on various aspects of the proposed
definition of depth of book data, including whether the definition
captures the appropriate level of depth data and whether the Commission
should include more or fewer levels of

depth or otherwise revise the definition to capture the key depth
information that would be useful to market participants.
2. Final Rule and Response to Comments
    The Commission received comments expressing support for the
proposed definition of depth of book data and comments raising various
concerns, recommendations, and requests for clarification. As discussed
in more detail below, the Commission is adopting a modified definition
of depth of book data in response to comments.
(a) Support for Five Levels of Depth
    Several commenters expressed general support for including depth of
book data in core data \386\ or specifically agreed with the
Commission's proposed five levels of depth,\387\ with some explaining
that five levels of depth is suitable for certain market participants
or trading practices.\388\ One commenter expressed general support for
the expansion of core data, including depth of book data, provided that
it does not materially increase overall latency.\389\
---------------------------------------------------------------------------

    \386\ See Angel Letter at 1-9 (stating that including depth of
book in core data is a ``great idea'' and emphasizing the importance
of depth of book data, particularly to retail investors trading in
illiquid stocks of smaller companies and using liquidity-providing
limit orders); letter from Allison Bishop, President, Proof Trading,
to Vanessa Countryman, Secretary, Commission, dated May 1, 2020,
(``Proof Trading Letter'') at 1; Healthy Markets Letter at 3; DOJ
Letter at 2-4; NovaSparks Letter at 1.
    \387\ See IEX Letter at 5; Capital Group Letter at 2-3; Fidelity
Letter at 4-5; Schwab Letter at 4; T. Rowe Price Letter at 2;
Wellington Letter at 1; Virtu Letter at 5; SIFMA Letter at 7; STANY
Letter II at 4; IntelligentCross Letter at 4. In addition, staff
conducted the same analysis of book depth that was included in the
Proposing Release but evaluated proprietary market data from a more
recent time period (the week of May 4, 2020) than was included in
the Proposing Release (July 19, 2019). The results were very similar
and confirmed the Commission's view that there is a substantial
amount of quotation volume several levels below the best bid. Staff
observed substantial quotation volume several levels below the best
bid (the offer side was not examined). On average, there is
quotation interest at every $0.01 increment at least ten levels out
for the most liquid stocks; for the least liquid stocks, there is a
large gap between the best bid and the next highest bid, and large
gaps are generally also present between the next several bid levels.
In addition, the staff review found a significant percentage of the
total notional value of all depth of book quotations for both liquid
and illiquid stocks falls within the first five price levels.
    \388\ See State Street Letter at 2-3 (stating that institutional
firms generally use up to five levels of depth for order routing);
ICI Letter at 8-9 (stating that depth of book data ``should consist
of at least five price levels, based on the typical trading needs of
funds''); Clearpool Letter at 14 (stating that five levels of depth
of book data is sufficient to improve the usefulness of core data
for most market participants and that ``five price levels typically
tend to be a sufficient level of depth for Clearpool for sweeping
multiple levels of the book in executing an order''); SIFMA Letter
at 7 (``[A] review of our institutional member firms found that
while some used less than five levels and others used more, five
levels of depth strikes an appropriate balance for the order routing
purposes of most.'').
    \389\ See Citadel Letter at 1.
---------------------------------------------------------------------------

    The Commission agrees that including depth of book data in core
data will be useful for and beneficial to a variety of market
participants and is adopting the definition of depth of book data
largely as proposed, with certain modifications.\390\ The Commission
does not believe that including depth of book data in core data will
materially increase the overall latency of core data for several
reasons. First, only five levels of depth are included, limiting the
number of quotes necessary to be processed.\391\ Moreover, the
decentralized consolidation model will result in consolidated market
data, including depth of book data, being delivered to market
participants with lower latencies.\392\ In addition, the Commission
believes that market participants that choose to receive the full set
of consolidated market data, including depth of book data, will either
leverage the existing technology that they currently use to receive
depth of book data on a proprietary basis or make the investments in
technology to receive the data so that the additional content will not
add significant latency.\393\
---------------------------------------------------------------------------

    \390\ See infra Sections II.F.2(b) through II.F.2(c).
    \391\ See infra Section II.F.2(d) (discussing comments
suggesting that full, order by order depth of book should be
included in core data and the potential latency ramifications
thereof).
    \392\ See infra Section III.B.5.
    \393\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

(b) Proposed Definition Would Include More Than Five Levels of Depth
    Some commenters stated that the proposed definition would include
five levels of depth on each exchange, which could be confusing and
costly and could add latency by increasing actual quote traffic and
information to be processed significantly beyond five levels.\394\ Some
commenters also stated that the proposal to include price levels
between the best and protected quotes could similarly include a large
number of additional data points.\395\ Some commenters recommended that
the Commission clarify how depth of book data will be determined and
made available on an individual exchange basis, particularly with
respect to how odd-lots would be aggregated at depth of book price
levels.\396\
---------------------------------------------------------------------------

    \394\ See STANY Letter II at 4; TD Ameritrade Letter at 5
(``[T]he proposal to include five levels of depth would add ten
quotes per security for every exchange, which today amounts to 130
new data points per security.'').
    \395\ See STANY Letter II at 4; TD Ameritrade Letter at 5
(``[T]the Proposal includes all price levels between the BBO and the
protected quote, which for higher priced securities could add
hundreds more data points.''); NYSE Letter II at 5 (stating that the
number of price levels between the best and protected quotes, as
proposed, could be more than five levels and could fluctuate intra-
day as quotes update).
    \396\ See SIFMA Letter at 7.
---------------------------------------------------------------------------

    The Commission believes that these comments highlight the need to
more clearly articulate the scope of data that the definition of depth
of book data includes and how this data will be attributed to
individual SROs \397\ in the consolidated market data products made
available by competing consolidators. The Commission is therefore
adopting a modified version of the definition of ``depth of book
data.''
---------------------------------------------------------------------------

    \397\ As discussed below, an indicator of the national
securities exchange or national securities association on which the
liquidity at a depth of book price level resides will be included in
the adopted definition of depth of book data.
---------------------------------------------------------------------------

    First, the revised definition of depth of book data will not
include the first clause of the proposed definition, which referred to
``all quotation sizes at each national securities exchange, aggregated
at each price at which there is a bid or offer that is lower than the
best bid down to the protected bid and higher than the best offer up to
the protected offer.'' As discussed above, the Commission is not
adopting the proposed amendments to the definition of protected bid or
protected offer, which would have required such quotations to be ``of
at least 100 shares.'' \398\ As a result, as is the case today, in the
vast majority of cases the best quotes and the protected quotes will be
the same.\399\ Therefore, the definition of depth of book data does not
need to include quotation interest between the best and protected
quotes. This modification also addresses commenters' concerns that this
aspect of the proposed definition would have

included an excessive amount of information in core data that would be
difficult to calculate and consume as prices fluctuate throughout the
trading day.
---------------------------------------------------------------------------

    \398\ See supra Section II.E.2.
    \399\ Among other things, a protected bid or offer must be an
``automated quotation,'' which means a quotation displayed by a
trading center that: (1) Permits an incoming order to be marked as
immediate-or-cancel; (2) Immediately and automatically executes an
order marked as immediate-or-cancel against the displayed quotation
up to its full size; (3) Immediately and automatically cancels any
unexecuted portion of an order marked as immediate-or-cancel without
routing the order elsewhere; (4) Immediately and automatically
transmits a response to the sender of an order marked as immediate-
or-cancel indicating the action taken with respect to such order;
and (5) Immediately and automatically displays information that
updates the displayed quotation to reflect any change to its
material terms. Rules 600(b)(6), (70) of Regulation NMS, 17 CFR
242.600(b)(6), (70). Therefore, a ``manual quotation'' that is not
automated--also known as a ``slow quote''--can sometimes be the best
quotation without being a protected quotation. Rule 600(b)(45) of
Regulation NMS, 17 CFR 242.600(b)(45).
---------------------------------------------------------------------------

    Second, in response to comments suggesting that the proposed
definition of depth of book data would require five price levels from
each exchange to be included in core data, the Commission is modifying
the second clause of the proposed definition so that it refers to the
next five prices at which there is a bid (offer) that is lower (higher)
than the national best bid (offer) rather than five price levels from
the protected bid or offer. These changes specify that the starting
points for the ``next 5 prices'' are the highest priced bid and lowest
priced offer on any exchange (i.e., the national best bid and national
best offer) rather than on each exchange. Thus, the modified definition
specifies that depth of book data includes five levels of aggregated
quotation sizes; it does not include more than five levels to account
for differences in the highest priced bid or lowest priced offer on
each exchange.
    The following example illustrates the price levels that are
included in the definition of depth of book data.
[GRAPHIC] [TIFF OMITTED] TR09AP21.000

    In this example, depth of book data would include aggregate
quotation sizes at each price level at and between $25.01 \400\ and
$24.97 because the starting point for the ``next five prices'' is
$25.02 (the best bid on Exchange A and the national best bid) rather
than $25.01 (the best bid on Exchange B) or $25.00 (the best bid on
Exchange C). Depth of book data would not include the interest at or
below $24.96, even if that interest is within the top five levels of
any given exchange, because it is not within the first five price
levels from the national best bid. A competing consolidator could
provide interest beyond the first five levels of depth across exchanges
but would have to acquire such data on a proprietary basis from the
exchanges.\401\
---------------------------------------------------------------------------

    \400\ The Commission notes that, in this example, the interest
at $25.02 would also be included in core data because the NBBO is
one of the elements of core data.
    \401\ As explained below, Rule 614(d) requires competing
consolidators to calculate, generate, and make available to
subscribers a consolidated market data product, which can contain
all elements of consolidated market data or a subset thereof, but
competing consolidators are permitted to offer custom products
containing more information as well. Competing consolidators would
compensate SROs for the data necessary to generate consolidated
market data through fees established by the effective national
market system plan(s) and would compensate SROs for data that goes
beyond consolidated market data on a proprietary basis pursuant to
individual SRO fee schedules. See infra note 1132.
---------------------------------------------------------------------------

    The Commission believes that revising the definition of depth of
book data so that the included price levels are the five prices below
the national best bid and above the national best offer, rather than
the five prices above and below the best quotes on each exchange, is
appropriate because it limits the amount of information that competing
consolidators will process and display,\402\ which mitigates concerns
raised by some commenters about adverse consequences--such as
unnecessary complexity or increased processing demands and latency--
that could result from a broader interpretation of the proposed
definition.\403\ In addition, the Commission believes, consistent with
the views expressed by various commenters, that a broad array of market
participants could use five levels of depth of book data away from the
national best bid and national best offer to trade in an informed and
effective manner.\404\
---------------------------------------------------------------------------

    \402\ See id.
    \403\ See Proposing Release, 85 FR at 16753 (stating that
defining depth of book data to include a finite number of price
levels would limit ``processing demand on systems'' and avoid
``excessive message traffic or complexity'').
    \404\ See Proposing Release, 85 FR at 16753 (stating that depth
of book data should ``enhance[ ] the utility of proposed core data
for a wide range of market participants'' rather than ``supplanting
the proprietary depth offerings of the exchanges that contain
additional content and that may be more appropriate for certain
market participants or more specialized use cases''). Market
participants in need of more depth than included in the definition
of depth of book data could purchase a custom depth product
separately from exchanges or through a competing consolidator.
---------------------------------------------------------------------------

    Third, the Commission is modifying the definition of depth of book
data to specify that, in addition to quotation sizes at the first five
price levels from the NBBO, the aggregate size at each

included price level shall be attributed to each exchange on which the
interest is available. Although the proposed definition of depth of
book data referred to quotation sizes ``at each national securities
exchange'' in order to require the price and size information in depth
of book data to be associated with the source exchange, the Commission
believes that specifying that depth of book data includes the aggregate
\405\ quotation size available at each price at each national
securities exchange and national securities association would clarify
where the liquidity resides.\406\ For instance, with respect to Example
1, depth of book data would include:
---------------------------------------------------------------------------

    \405\ For example, if the national best bid is $25.10, Exchanges
A and B have 100-share bids at $25.09, and Exchange C has two 100
share bids at $25.09, the competing consolidator would disseminate:
100 shares at Exchange A, 100 shares at Exchange B, 200 shares at
Exchange C. The Commission believes that aggregating quotation sizes
at each price level at each exchange will limit the number of
messages included in depth of book data as compared to an order by
order approach, reducing potential concerns about processing demands
on systems, latency, and operational costs. See infra Section
II.F.2(d).
    \406\ See infra Section II.F.2(c) for an explanation of why the
Commission is revising the definition of depth of book data to
include quotations on a facility of a national securities
association.

$25.01 (100 on Exchange A, 100 on Exchange B)
$25.00 (100 on Exchange A, 100 on Exchange B, 100 on Exchange C)
$24.99 (100 on Exchange A, 100 on Exchange B, 100 on Exchange C)
$24.98 (100 on Exchange A, 100 on Exchange B)
$24.97 (100 on Exchange A, 100 on Exchange C)

    The Commission believes that attributing the quotation size at each
price to its source national securities exchange or association can, in
many circumstances, be essential to achieving the benefits of including
depth of book data in consolidated market data. Improved placement of
liquidity-taking and liquidity providing orders, for example,\407\
requires knowledge of the exchange at which the liquidity resides so
that market participants can direct orders to that exchange.
---------------------------------------------------------------------------

    \407\ Proposing Release, 85 FR at 16754.
---------------------------------------------------------------------------

(c) Expand Definition to FINRA's Alternative Display Facility
    The proposed definition of depth of book data referred to
quotations only on national securities exchanges, but the Commission
solicited comment on whether to include the depth of book quotations of
national securities associations to account for the possibility of
quotes being reported to FINRA's Alternative Display Facility (``ADF'')
in the future.\408\ One commenter stated that while the ADF does not
currently have quoting participants, it is an actively maintained FINRA
facility and could readily add quoting participants in the future.\409\
This commenter recommended including future potential ADF quotations by
modifying the definition of depth of book data to refer to all
quotation sizes at each national securities exchange and ``on a
facility of a national securities association.'' \410\
---------------------------------------------------------------------------

    \408\ Proposing Release, 85 FR at 16756.
    \409\ FINRA Letter at 12-13.
    \410\ Id. The commenter recommended this particular formulation,
rather than a direct reference to the ADF, ``to account for the
possibility that other quotation facilities may be developed in the
future.'' Id. at 13.
---------------------------------------------------------------------------

    The Commission agrees and is modifying the proposed definition of
depth of book data so that it refers to quotation sizes on a facility
of a national securities association as well as quotation sizes on a
national securities exchange. The Commission agrees with the commenter
that any depth of book quotation activity displayed through the ADF or
similar facilities is comparable to the exchange depth of book data
that would be included as core data under the proposal and that it
should be made available on the same terms as exchange depth of book
data. To provide market participants with a more complete view of the
liquidity that may be available at depth of book price levels, the
Commission is modifying the proposed depth of book data definition so
that any future ADF depth of book quotation data--or data from similar
national securities association facilities that may be developed--would
be included in core data without the need for additional Commission
rulemaking. In addition, by modifying the definition to refer generally
to a facility of a national securities association, rather than
specifically to FINRA's ADF, the definition will include any potential
national securities association depth of book quotations.
(d) Include Full Depth of Book and Order by Order Data
    Some commenters suggested including full depth of book data in core
data rather than five levels of depth of data.\411\ One commenter
stated that the proposal could be ``counterproductive and confusing''
and recommended adding full depth of book data, including order-by-
order data across all price levels.\412\ Another commenter recommended
including complete, order-by-order depth of book data in core data,
explaining that ``the existence of proprietary data feeds alongside a
public tape creates incentives which are incompatible with promoting
fair and orderly markets.'' \413\ One commenter agreed with the
proposed five-levels of depth of book data but stated that, while not
necessary for all market participants, providing full depth of book
would not tax systems much more than providing five levels, since
ninety percent of ``quote changes'' occur at the top five price
levels.\414\ However, another commenter stated that providing complete
depth of book data is not necessary at this time, explaining that
additional data results in increased data processing, latency, and
complexity that could impair the usability of the data.\415\ Finally,
one commenter suggested that the Commission should replicate the full
depth of book curve to help subscribers of consolidated data better
understand the supply and demand imbalance of liquidity in real
time.\416\
---------------------------------------------------------------------------

    \411\ See MEMX Letter at 5; BlackRock Letter at 2.
    \412\ See MEMX Letter at 5.
    \413\ See BlackRock Letter at 2.
    \414\ See IntelligentCross Letter at 4.
    \415\ See Clearpool Letter at 14.
    \416\ See Data Boiler Letter I at 19.
---------------------------------------------------------------------------

    The Commission does not believe that the definition of depth of
book data should be expanded to include complete, order-by-order depth
of book at all price levels. As explained in the Proposing Release, the
expansion of NMS information generally, and the inclusion of depth of
book data in core data specifically, was intended to provide additional
information that would be useful to a broad cross-section of market
participants and to reduce information asymmetries between users of
proprietary data and users of SIP data.\417\ However, the Commission
explained that these objectives must be balanced against the risk of
excessive complexity, message traffic, processing demand on systems,
and associated operational costs that might result from the inclusion
of more complete depth of book information.\418\ The Commission
recognized that some market participants may need more granular and
expansive data, such as the proprietary depth of book products offered
by many exchanges, for certain use cases.\419\ Including complete depth
of book data in core data would go beyond the needs of a wide array of
market participants or standard use cases for depth of book data in
trading, and could result in additional operational costs and latency
because of increased message traffic with order by

order data at all price levels. Therefore, consistent with the views of
several commenters,\420\ the Commission continues to believe that while
five levels of depth of book data would significantly enhance the
usability of core data for many market participants, including complete
depth of book data in core data could impair the usability of core data
for many subscribers.
---------------------------------------------------------------------------

    \417\ Proposing Release, 85 FR at 16734, 53.
    \418\ Id. at 16753.
    \419\ Id.
    \420\ See, e.g., supra note 388.
---------------------------------------------------------------------------

    Moreover, while the Commission has considered the view expressed by
one commenter that providing depth of book data at all price levels
would not be overly burdensome and would not tax systems much more than
providing five levels, this commenter also acknowledged that full depth
of book data is not necessary at this time for all market
participants.\421\ The Commission shares some commenters' concern about
the processing and latency ramifications of including complete depth of
book data and therefore is not adopting a definition of depth of book
data that goes beyond five levels.\422\
---------------------------------------------------------------------------

    \421\ See IntelligentCross Letter at 4.
    \422\ Similarly, in response to the comment regarding the full
depth of book curve, see supra note 416 and accompanying text, while
full order book shape patterns may contain valuable information for
certain sophisticated computerized models, the Commission, as
discussed above, is concerned that mandating the inclusion of the
entire depth of book across all national securities exchanges would
have significant processing, latency, and cost ramifications.
---------------------------------------------------------------------------

(e) Odd-Lots at Depth and Determination of Five Price Levels
    One commenter recommended that ``depth-of-book quotations
aggregated at each of the first five price levels where a displayed
order is available to trade . . . regardless of the associated size
displayed at those prices'' be disseminated.\423\ This commenter
requested that the Commission clarify, preferably with an example, how
odd-lots would be aggregated at depth of book price levels, stating
that the proposed definition of core data requires odd-lots to be
aggregated across prices and disseminated at the least aggressive price
for purposes of depth of book data, while the proposed definition of
depth of book data provides that the required five price levels are
determined by the presence of a ``bid'' or ``offer,'' which by
definition, implies a round lot.\424\
---------------------------------------------------------------------------

    \423\ See Cboe Letter at 15.
    \424\ See id. at 16-17; see also SIFMA Letter at 7 (requesting
clarification regarding how odd-lots will be aggregated at depth of
book price levels).
---------------------------------------------------------------------------

    The Commission does not agree that all odd-lots within the first
five price levels of the NBBO should be displayed in core data or that
the five price levels included in depth of book data should be
determined by the presence of an odd-lot quotation at those price
levels. First, as explained in detail above, the inclusion of odd-lot
quotations in core data must be reasonably calibrated to include the
information that is most relevant to investors and other market
participants.\425\ While the Commission believes that information on
the most attractively priced individual odd-lots--namely, those priced
at or better than the NBBO--should be included in core data, the
inclusion of information regarding individual odd-lots at inferior
prices is not warranted because these quotations do not represent
direct and immediate opportunities for price improvement.\426\ Second,
the magnitude of the quotation size available at a particular price
level should factor in to whether that price level counts as one of the
five price levels that are included in core data. Otherwise,
particularly in cases where liquidity is widely dispersed over a number
of price levels, as is the case with many illiquid stocks, orders of
insignificant notional value could ``take up'' price levels and prevent
the dissemination of more significant interest at price levels further
away. For example, if the NBB for stock A is $25.15, and there are 1
share bids at $25.14-$25.10 and a 100 share bid at $25.09, the five
bids of relatively insignificant notional value at $25.14-$25.10 would
prevent the bid of relatively significant notional value at $25.09 from
being captured by the definition of depth of book data. For this
reason, the proposed definition of depth of book data included a
``minimum size requirement'' for depth price levels--namely, the
presence of a ``bid or offer,'' which incorporates the concept of a
``round lot.'' \427\
---------------------------------------------------------------------------

    \425\ See supra Section II.C.2(b).
    \426\ See also infra Section II.F.2(h) (explaining the relevance
of depth of book data to best execution analyses); Proposing
Release, 85 FR at 16754 (explaining how depth of book data can
enable market participants to trade in a more informed and effective
manner).
    \427\ Proposing Release, 85 FR at 16754.
---------------------------------------------------------------------------

    That said, in response to the commenter's request, the Commission
is clarifying that the requirement for the presence of a bid or offer
in determining the five price levels does not require a ``pure'' or
``unitary'' round lot consisting of only one order to be present at a
price level. Rather, odd-lots that aggregate into a round lot pursuant
to the prescribed method could also establish a price level, as long as
there is at least one round lot of interest--unitary or aggregated--on
at least one SRO. As a round lot reflects trading interest of
meaningful size to market participants, the Commission believes that
odd-lots that in the aggregate reflect size equivalent to a round lot
also represent trading interest of meaningful size and should be
included in depth of book data. The following example illustrates how
odd-lot aggregation would operate in the depth of book context.
    Example 2: Odd-Lot Aggregation at Depth

----------------------------------------------------------------------------------------------------------------
                                                               Number of shares bid for stock X
                    Price                    -------------------------------------------------------------------
                                                          Exchange A                Exchange B      Exchange C
----------------------------------------------------------------------------------------------------------------
$25.50......................................  100 (NBB).........................               0               0
25.49.......................................  0.................................             100               0
25.48.......................................  0.................................               0              50
25.47.......................................  60................................               0              50
25.46.......................................  0.................................               0               0
25.45.......................................  60................................               0               0
25.44.......................................  0.................................              25               0
25.43.......................................  0.................................              75               0
25.42.......................................  100...............................               0               0
25.41.......................................  0.................................               0               2
25.40.......................................  0.................................               5               0
25.39.......................................  0.................................               0             100
----------------------------------------------------------------------------------------------------------------

    Here, the first five prices at which there is a bid that is lower
than the NBB--measured in terms of the presence of at least one
singular or aggregated round lot on at least one SRO--are $25.49 (100
shares on Exchange B), $25.47 (50 shares at $25.48 and 50 shares at
$25.47 on Exchange C, aggregated and displayed at the less aggressive
price), $25.45 (60 shares at $25.47 and 60 shares at $25.45 on Exchange
A, aggregated and displayed at the less aggressive price), $25.43 (25
shares at $25.44 and 75 shares at $25.43 on Exchange B, aggregated and
displayed at the less aggressive price), and $25.42 (100 shares on
Exchange A). Hence, in Example 2, depth of book data would include: 100
shares at $25.49, $25.47, $25.45, $25.43, and $25.42 (with attribution
to the relevant SRO, as explained above).
    One commenter argued that allowing aggregation across multiple
price levels to determine whether there is a round lot bid or offer at
a particular depth of book price level could create significant
computational issues, particularly when orders are cancelled and the
five price levels would have to be redetermined, possibly resulting in
diminished competing consolidator performance and higher capacity
requirements for downstream users of the data. This commenter also
argued that displaying depth of book price levels in this manner could
potentially lead to a deceptive view of market activity at prices that
are nowhere near current market prices, raising concerning issues
related to investor protection.\428\
---------------------------------------------------------------------------

    \428\ CBOE Letter at 19.
---------------------------------------------------------------------------

    The Commission acknowledges that aggregating odd-lots to determine
depth of book price levels will require computation by competing
consolidators and that new orders or order cancelations and
modifications could require the five levels to be redetermined.
However, alternatives such as the inclusion of all odd-lots at inferior
prices would require more outbound message traffic from competing
consolidators to subscribers and would therefore raise similar concerns
about system performance and the capability of subscribers to consume
the data.\429\ In addition, as explained below and in the Proposing
Release, the decentralized consolidation model will foster a
competitive environment for the provision of consolidated market data,
and the Commission believes that this will lead to improvements in the
use of more competitive, low-latency aggregation and transmission
technologies, mitigating concerns about computational and performance
issues related to the generation and dissemination of depth of book
data.\430\ Competing consolidator subscribers also have the option of
consuming varying levels of depth of book data, depending on their
needs, and could determine that the latency costs of consuming several
levels of depth exceed the benefits. Furthermore, the Commission does
not believe that aggregating odd-lots across prices will lead to a
deceptive view of market activity or mislead investors because
exchanges currently aggregate odd-lots across price levels to form
round lots and provide their best bids and offers to the exclusive SIPs
at the least aggressive price of all such odd-lots. In addition,
Commission rules, which will include this methodology, will provide
transparency to market participants regarding the inclusion in core
data of odd-lots at depth of book price levels aggregated pursuant to
this methodology, which addresses the concern that cross-price odd-lot
aggregation would lead to a deceptive view of market activity or
mislead investors.
---------------------------------------------------------------------------

    \429\ As discussed above, other alternatives presented by
commenters, such as including five price levels of depth of book
information without regard to whether those price levels are round
lots, have other drawbacks. See supra notes 423-427 and accompanying
text.
    \430\ See Proposing Release, 85 FR at 16768; infra Section
III.B.5.
---------------------------------------------------------------------------

(f) Insufficient Justification for Inclusion of Depth of Book Data in
Core Data
    Some commenters questioned whether there is sufficient need among
market participants for depth of book data to be included in core
data.\431\ One commenter stated that depth of book data is for
``serious traders'' and is already available on a proprietary basis for
anyone who needs it, and that it is not clear whether there would be
demand for the ``truncated'' set of information reflected in the
proposed definition of depth of book from any particular set of market
participants.\432\ In a subsequent letter, this commenter stated that
the Commission's depth of book data proposal ``lacks data driven
analysis'' and that the Commission ``released no independent studies or
research analyzing the impact of this proposal or addressing the five
price level demarcation.'' \433\ Similarly, another commenter stated
that depth of book data is not ``necessary or helpful for all
investors'' and that its inclusion in core data would increase core
data costs unnecessarily and create confusion as to what is necessary
for regulatory compliance.\434\
---------------------------------------------------------------------------

    \431\ See Nasdaq Letter IV at 33; TD Ameritrade Letter at 5;
NYSE Letter II at 3-4.
    \432\ See Nasdaq Letter IV at 33.
    \433\ See Nasdaq Letter V at 5.
    \434\ See TD Ameritrade Letter at 5.
---------------------------------------------------------------------------

    The Commission disagrees with these comments. As evidenced by the
support for including five levels of depth of book data expressed by a
wide range of commenters--including exchange, buy-side, and sell-side
market participants, many of whom explained with specificity why five
levels of depth of book would meet their needs \435\--the Commission
believes there is demand for core data that includes depth of book
data, including the definition of depth of book data, as modified and
adopted herein. The Commission also believes that including depth of
book data in core data would promote a broader distribution of this
data among market participants, particularly those who do not currently
subscribe to the proprietary depth of book products offered by the
exchanges.\436\ Nevertheless, the Commission acknowledges that depth of
book data may not be ``necessary or helpful for all investors'' \437\
in a direct sense, but even investors who do not directly consume depth
of book data will benefit from it indirectly,\438\ since many of their
broker-dealer intermediaries would likely use depth of book data for
improved order placement,\439\ which ultimately will improve the
execution quality of customer orders.\440\ Furthermore, the Commission
has explained the implications of these amendments on best execution
obligations in detail.\441\ Therefore, the inclusion of depth of book
data in core data should not ``cause confusion as to what may be
required for regulatory compliance.'' \442\ Finally, the Commission
disagrees that the definition of depth of book data is unsupported by
``data driven analysis'' because the Commission considered staff
analyses of depth of book data in both proposing \443\ and adopting
\444\ the definition.
---------------------------------------------------------------------------

    \435\ See supra note 388.
    \436\ See infra note 1974 and accompanying text.
    \437\ See TD Ameritrade Letter at 5.
    \438\ See supra Section II.C.2(a).
    \439\ See infra note 879 and accompanying text.
    \440\ These indirect benefits would accrue to customer orders
executed by broker-dealers that do not currently use proprietary
depth of book data but that would use the depth of book data as
adopted and as included in core data.
    \441\ See supra Section I.E (discussing the implications of
these amendments generally for best execution obligations); infra
Section II.F.2(h) (discussing best execution obligations in the
context of depth of book data).
    \442\ See TD Ameritrade Letter at 5.
    \443\ See Proposing Release, 85 FR at 16754.
    \444\ See supra note 387.

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

(g) Need for Competing Consolidators To Offer Depth of Book
    Some commenters supported requiring SROs to provide depth of book
information to competing consolidators but opposed requiring competing
consolidators to include depth of book in the products offered to their
subscribers \445\ or emphasized that competing consolidators should be
provided with enough raw data to be competitive with proprietary
offerings but permitted to offer a range of products due to investors'
diverse market data needs.\446\
---------------------------------------------------------------------------

    \445\ See BestEx Research Letter at 2, 5 (``Given that exchanges
have zero competition in providing their own market data feeds, we
welcome the Commission's proposed mandate that exchanges provide
depth of book information and auction information to competing SIP
vendors, thus reducing information asymmetry among market
participants. However, we believe that SIP providers should not be
required to include that information in their products.'').
    \446\ See BlackRock Letter at 2-3.
---------------------------------------------------------------------------

    The Commission agrees that competing consolidators should be
permitted to offer customers a range of products, including customized
depth of book products that include more or less depth of book
information than set forth in the definition of depth of book data.
Modifying the requirements of Rule 614 so that competing consolidators
will only be required to generate and offer one or more consolidated
market data products, which can contain some or all of the elements of
consolidated market data, will enable competing consolidators to
specialize in different products to address their subscribers' market
data needs.\447\ Competing consolidators that receive proprietary data
products from SROs to create products that go beyond consolidated
market data (e.g., full depth of book data), would compensate SROs for
this use pursuant to individual SRO fee schedules, while competing
consolidators that limit their use of SRO data to the creation of
products that include consolidated market data or a subset thereof
would be charged pursuant to the effective national market system
plan(s) fee schedules. If the effective national market system plan(s)
establishes fees for data content underlying consolidated market data
offerings that use subsets of consolidated market data, the competing
consolidator would have the option of providing customized products
that do not, for example, include all five levels of depth of book
data, including products providing only the NBBO and/or the top of book
quotes of exchanges.\448\
---------------------------------------------------------------------------

    \447\ See infra Sections III.C.1(b); III.C.8(a).
    \448\ See infra Section III.E.2(e).
---------------------------------------------------------------------------

(h) Best Execution Obligations Regarding Depth of Book Data
    Some commenters discussed market participants' duty of best
execution in light of the inclusion of depth of book data in core data.
Some commenters noted that including depth of book data in core data
would assist market participants in fulfilling their best execution
requirements.\449\ Others went further and stated that depth of book
data is currently necessary to fulfill their best execution
obligations.\450\ However, one commenter stated that ``[s]upplementing
core market data with depth-of-book data would confound market
participants in fulfilling their best execution obligations.'' \451\
---------------------------------------------------------------------------

    \449\ See, e.g., RBC Letter at 4; SIFMA Letter at 3-4; T. Rowe
Price Letter at 1; Clearpool Letter at 1, 11 (stating that data
content currently available only in proprietary feeds is necessary
for best execution); Capital Group Letter at 2; McKay Letter at 1;
Better Markets Letter at 1-2; DOJ Letter at 4.
    \450\ See State Street Letter at 2; IEX Letter at 5.
    \451\ Nasdaq Letter IV at 7. See also FINRA Letter at 7 (stating
generally that the proposed changes to the content of consolidated
market data and the manner in which it would be disseminated raise
questions regarding best execution requirements and that the
Commission should consider providing best execution guidance for
broker-dealers).
---------------------------------------------------------------------------

    As explained above, these amendments do not change the duty of best
execution.\452\ Rather, the availability of additional data content as
core data--including depth of book data--may be relevant to a broker-
dealer's ability to achieve and analyze best execution, and broker-
dealers should consider the availability of this information in
connection with their best execution obligations.\453\ However, for the
reasons stated above, the Commission is not setting forth minimum data
elements needed to achieve best execution or specifying the data
elements that may be relevant to any specific situation or
customer.\454\ In addition, the Commission has explained the
implications of these amendments on best execution obligations in
detail,\455\ and does not agree that market participants will be
``confounded'' in fulfilling their best execution obligations by the
addition of depth of book data to core data.\456\
---------------------------------------------------------------------------

    \452\ See supra Section I.E.
    \453\ See id.
    \454\ See id.
    \455\ See id.
    \456\ See supra note 451 and accompanying text. See also supra
note 92.
---------------------------------------------------------------------------

G. Definition of ``Auction Information'' Under Rule 600(b)(5)

1. Proposal
    The Commission proposed to define ``auction information'' as an
element of core data. Specifically, ``auction information'' would be
defined as all information specified by national securities exchange
rules or effective national market system plans that is generated by a
national securities exchange leading up to and during an auction--
including opening, reopening, and closing auctions--and disseminated
during the time periods and at the time intervals provided in such
rules and plans. Auctions have become increasingly important liquidity
events in recent years and have come to represent a significant
proportion of overall trading volume. The Commission proposed to
include auction information in core data to promote more informed and
effective trading in auctions, which could also facilitate price
formation and improve execution quality for more traders and
investors.\457\ The Commission solicited comment on the proposed
definition of auction information, including the scope of auction-
related information that should be included in the definition.\458\
---------------------------------------------------------------------------

    \457\ See Proposing Release, 85 FR at 16759.
    \458\ See id.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    Many commenters favored including auction information in core data,
but some opposed doing so. The Commission is adopting the definition of
auction information, as proposed, with one modification.\459\
Specifically, the Commission is adding the word ``publicly'' before
``disseminated'' to specify that only auction information that is
publicly disseminated on an exchange's proprietary feeds is included in
the definition of auction information and hence as an element of core
data. The Commission believes that this modification will help ensure
that all auction information that an exchange includes in its
proprietary feeds will be included in core data, addressing the
information asymmetries that currently exist between users of SIP data
and proprietary data and facilitating the ability of core data
subscribers to participate in auctions in an informed

and effective manner.\460\ This modification would also clarify that
auction information does not include auction-related information that
is made available to a limited group of market participants under
certain exchange models, but not made publicly available.\461\
---------------------------------------------------------------------------

    \459\ The adopted definition of auction information also
includes one technical change from the proposed definition--using
the plural ``auctions'' rather than the singular ``an auction'' in
the phrase ``generated by a national securities exchange leading up
to and during auctions.'' The plural form is more consistent with
the use of ``auctions'' in the next clause of the definition. See
infra Section VIII.
    \460\ See Proposing Release, 85 FR at 16758-59.
    \461\ See NYSE Rule 123C(6)(b) (relating to the dissemination of
certain auction-related information to floor brokers).
---------------------------------------------------------------------------

(a) Support for Inclusion of Auction Information in Core Data
    Many commenters supported the inclusion of auction information in
core data, emphasizing the importance of this information in light of
the increasing proportion of transaction volume that takes place during
opening and closing auctions.\462\ One commenter stated that including
auction information in core data would eliminate proprietary data costs
as a barrier to auction trading and encourage a broader range of market
participants to submit trading interest into auctions, enhancing market
liquidity and price discovery.\463\ Another commenter cited recent
market wide circuit breaker halts and the consequent re-opening
auctions as reasons for its support of including auction information in
core data.\464\ Another commenter stated that retail investors should
be properly informed with appropriate information about the indicative
auction price and the trading imbalance.\465\
---------------------------------------------------------------------------

    \462\ See IEX Letter at 6; MEMX Letter at 5-6; Cboe Letter at
21; BlackRock Letter at 2; Fidelity Letter at 5; Schwab Letter at 5;
State Street Letter at 2-3; T. Rowe Price Letter at 2; Capital Group
Letter at 2; ICI Letter at 9-10; SIFMA Letter at 7; Citadel Letter
at 1 (supporting the inclusion of auction information in core data
as long as it does not materially increase latency); Virtu Letter at
5; IntelligentCross Letter at 4; STANY Letter II at 4; BestEx
Research Letter at 5 (stating that competing consolidators should be
able to determine whether or not to include auction information in
the products offered to subscribers); Healthy Markets Letter at 3;
Clearpool Letter at 15; Wellington Letter at 1; Proof Trading Letter
at 1 (stating that auction information could be useful for agency
trading); NovaSparks Letter at 1.
    \463\ See ICI Letter at 9-10 (``Doing so also would eliminate
proprietary data costs as a barrier to auction trading and encourage
a broader range of market participants to submit trading
interest.''); see also SIFMA Letter at 7.
    \464\ See RBC Letter at 5.
    \465\ See Angel Letter at 8.
---------------------------------------------------------------------------

    The Commission agrees with these comments on the growing
significance of auctions and auction information to investors and other
market participants. As the Commission stated in the Proposing Release,
opening and closing auctions conducted by the exchanges have become
increasingly important liquidity events and represent a significant
proportion of overall trading volume.\466\ The growth of passive,
index-tracking investment strategies through mutual funds, ETFs, and
similar products has contributed to the higher concentration of trading
in closing auctions.\467\
---------------------------------------------------------------------------

    \466\ See Proposing Release, 85 FR at 16756 (stating that
auctions account for approximately 7% of daily equity trading volume
based on data available on Cboe's website from November 2019). Staff
conducted the same analysis of auction data that was included in the
Proposing Release but for a more recent time period (the month of
June 2020) and observed that auctions account for approximately 7%
of daily equity trading volume. Staff also observed that auctions
accounted for more than 20% of total volume on two days (June 19 and
June 26). See Cboe: U.S. Equities Market Volume Summary, available
at https://markets.cboe.com/us/equities/market_share/ (last accessed
Aug. 30, 2020).
    \467\ See Proposing Release, 85 FR at 16756-57.
---------------------------------------------------------------------------

    For these reasons, the Commission believes that auction information
should be included in core data to promote more informed and effective
participation in auctions by market participants and to potentially
broaden the range of market participants who participate in auctions,
enhancing auction liquidity and price discovery. Specifically, the
Commission believes that auction information, such as order imbalances
and indicative prices, helps market participants determine whether to
participate in auctions, how to trade leading up to an auction, and how
to best place their trading interest into an auction.\468\ Finally, the
Commission agrees that recent market wide circuit breaker halts, which
occurred after the Commission's issuance of the Proposing Release,
further underscore the need for auction information to be included in
core data so that information related to the reopening auctions that
occur after such halts is broadly disseminated to market participants,
promoting more informed participation in these auctions.
---------------------------------------------------------------------------

    \468\ See id. at 16826-27.
---------------------------------------------------------------------------

(b) Asserted Violation of Intellectual Property Rights
    One commenter stated that it ``possesses copyright rights in its
auction data as a compilation . . .'' and the proposal would require
that it ``forfeit these copyrights rights.'' \469\ The commenter noted
that there have been ``auctions of financial instruments for hundreds
of years,'' and that it ``has developed a unique approach to auctions
that includes a creative selection and arrangement of auction data.''
\470\ The commenter stated that it ``has the exclusive right to
reproduce its compilation in copies, to prepare derivative works based
on the compilation, and to distribute copies of the compilation.''
\471\ The commenter further stated that the proposal would ``force
Nasdaq to surrender these rights, robbing Nasdaq of its ability as
copyright owner to obtain fair market value of licenses for its
intellectual property.'' \472\
---------------------------------------------------------------------------

    \469\ Nasdaq Letter IV at 51.
    \470\ See id. (``When performing an opening or closing auction,
Nasdaq receives orders and disseminates (via NOII messages) the
results of those simulations. The frequency at which the NOII is
disseminated changes over the course of an auction; for example, in
the closing auction, the NOII is disseminated every ten seconds for
the first five minutes of the auction, and then every second for the
final five minutes of the auction. The NOII includes a number of
data fields, including: Symbol (indicating the security to which the
NOII relates); Near Indicative Price (which is based on orders in
both the closing and continuous books); Far Indicative Price (which
is based on orders solely in the closing book); Current Reference
Price (which is based solely on orders in the continuous book);
Paired Shares (indicating how many shares would execute at the
Current Reference Price); Imbalance Shares (indicating the number of
shares that would remain after execution at the Current Reference
Price); and Imbalance Side (indicating whether the Imbalance Shares
relate to buy orders or sell orders). The three prices in the NOII
are not simply based on executed transactions, but rather they are
simulations of what the price ``would be'' if the auction were to
execute at that moment, based on different inputs. Each day, Nasdaq
generates over 400 simulations of these three prices for each
security. As there are over 3000 securities traded on Nasdaq each
day, this means that Nasdaq compiles more than 1.2 million NOII
records each day. The selection and arrangement of the NOII data
fields are original and reflect Nasdaq's creative judgment; Nasdaq
did not copy this selection of auction data, and there is no
precedent for this unique and creative assembly of auction data
fields. . . .'').
    \471\ Id.
    \472\ Id.
---------------------------------------------------------------------------

    Some commenters disagreed.\473\ One commenter stated that viewing
auction information (or depth of book data) as the intellectual
property of the exchanges would ignore the fact that the broker-dealers
who submit the orders and the investors who generate the orders are the
source of this data and would contravene broker-dealers and investors'
ownership rights in the underlying data.\474\
---------------------------------------------------------------------------

    \473\ See Fidelity Letter at 5; SIFMA Letter at 7.
    \474\ See SIFMA Letter at 7.
---------------------------------------------------------------------------

    The Commission does not agree that the definition of auction
information or its inclusion in core data would violate any copyright
interests of the commenter. The Commission has the authority to
determine the content of the quotation and transaction information made
available under the national market system rules, including information
related to exchange auctions.\475\ In addition, other Commission rules
require the public disclosure or provision of information that must be
compiled, such as Rules 601 (transaction reports), 602 (quotations),
605 (order execution

information), and 606 (order routing information) of Regulation NMS and
17 CFR 240.15c2-12 (Exchange Act Rule 15c2-12) (credit rating and audit
information related to municipal securities).\476\
---------------------------------------------------------------------------

    \475\ See supra note 114.
    \476\ See also Securities Exchange Act Release No. 74244 (Feb.
11, 2015), 80 FR 14564, 14669-70 (Mar. 19, 2015) (Regulation SBSR--
Reporting and Dissemination of Security-Based Swap Information
Adopting Release) (``Under the federal securities laws, the
Commission imposes a number of requirements that compel the
provision of information to the Commission itself or to the public.
. . . Businesses that operate in an industry with a history of
regulation have no reasonable expectation that regulation will not
be strengthened to achieve established legislative ends.'').
---------------------------------------------------------------------------

    Moreover, auction information, such as order imbalances and
indicative pricing, pertains to certain outputs of an exchange's
auction process. Such auction information does not require the
disclosure of any details about the process of the auction or require
the exchanges to ``reproduce'' their compilations. Rather, the
exchanges can comply with the requirement to make information related
to their auctions available to competing consolidators and self-
aggregators without using their existing compilation systems; they are
free to collect and publish the factual information required by the
amendments to be made public by any means they choose in a manner that
does not utilize any copyrightable format or collection methodology.
Therefore, to the extent that any intellectual property rights attach
to exchange auction processes themselves, these amendments do not
violate those rights.\477\
---------------------------------------------------------------------------

    \477\ For example, the dissemination of auction information as
required by these amendments does not violate any patents that the
commenter has identified, as these amendments do not compel the
disclosure of the process of how the auction prices are derived. See
Rule 600(b)(5) of Regulation NMS (defining ``auction information,''
by reference to information specified in exchange rules, which do
not disclose how auction prices are derived). Rather, these
amendments require exchanges to make auction information available
to competing consolidators and self-aggregators so that market
participants may submit trading interest into auctions in a more
informed manner.
---------------------------------------------------------------------------

    Furthermore, exchanges will continue to be compensated for making
auction information available to competing consolidators and self-
aggregators through fees established by the effective national market
system plan(s). The Operating Committee of the effective national
market system plan(s) will propose fees for the data content underlying
consolidated market data, including auction information, as well as
updates to the formula for allocating revenues from this data among the
SROs.\478\ In so doing, the Commission expects the Operating Committee
to assess the impact of the inclusion of auction information in
consolidated market data on the fees to be charged for the data content
underlying consolidated market data, as well as how exchanges that
contribute auction information should be compensated for this data
through the allocation formula.
---------------------------------------------------------------------------

    \478\ Auction data for a particular NMS stock will likely be
generated by a single exchange, namely the primary listing exchange
for that stock. However, all data elements that make up consolidated
market data, such as individual quotes and trades or regulatory
data, originate from a single SRO, and, as explained below, the
Operating Committees of the effective national market system plans
historically have determined how best to allocate consolidated
market data revenues among the SROs to fairly reflect their
individual contributions. See infra Sections III.E.2(b), III.E.2(f).
In addition, certain NYSE auction data is currently included in Tape
A. See Proposing Release, 85 FR at 16757.
---------------------------------------------------------------------------

(c) Assertion of Insufficient Justification for Inclusion of Auction
Information in Core Data
    One commenter characterized auction information as ``esoteric'' and
``designed to assist sophisticated market participants,'' arguing that
anyone who needs this information can buy it now, that it is likely to
be ``useless'' to anyone who does not currently buy it, and that
including it in core data will not make it ``any more or less
available.'' \479\ Similarly, another commenter stated that auction
information is not ``necessary or helpful for all investors'' and that
its inclusion in core data would increase core data costs unnecessarily
and create confusion as to what is necessary for regulatory
compliance.\480\
---------------------------------------------------------------------------

    \479\ See Nasdaq Letter IV at 33.
    \480\ See TD Ameritrade Letter at 5.
---------------------------------------------------------------------------

    A variety of commenters--including exchange, buy-side, and sell-
side market participants--stated, and the Commission agrees, that
auction information is not ``esoteric'' information that would be of
use only to some small subset of ``sophisticated'' market
participants.\481\ Rather, the Commission continues to believe that
auction information would be useful or beneficial to a broad cross-
section of market participants--including retail investors, according
to one commenter \482\--and would enable these market participants to
participate in auctions, and to trade leading up to auctions, in a more
informed manner.\483\ Furthermore, as explained above, even market
participants that do not directly acquire all elements of core data,
including auction information, will still indirectly benefit from the
inclusion of auction information in core data. The inclusion of auction
information in core data will facilitate greater access to this
information among a broader group of executing broker-dealers and will
enable them to place orders into auctions more effectively and to
achieve better executions for their customer orders.\484\ As commenters
stated, proprietary data costs may discourage some market participants
from participating in auctions.\485\ The Commission is sensitive to
these concerns and believes that including auction information in core
data would help facilitate its broader dissemination.\486\ Finally, the
Commission is not mandating the consumption of auction information and
has explained the implications of these amendments on best execution
obligations above.\487\ The Commission believes the inclusion of
auction information in core data will not create confusion as to
regulatory requirements, as one commenter stated might happen.\488\
---------------------------------------------------------------------------

    \481\ See supra note 462.
    \482\ See Angel Letter at 8.
    \483\ See supra note 468.
    \484\ See supra Section II.C.2(a); infra Sections V.C.1(c)(iii)
(discussing how the amendments will affect access to auction
information); III.E.2(c); V.C.2(b)(i)a (discussing how the
amendments will affect data content fees).
    \485\ See ICI Letter at 9-10 (``Including auction information in
the consolidated feed would enhance transparency into market
activity. Doing so also would eliminate proprietary data costs as a
barrier to auction trading and encourage a broader range of market
participants to submit trading interest.''); SIFMA Letter at 7
(``Adding this [auction] data to the definition of core data would
assist with alleviating some of the discrepancies in content between
the exchange proprietary feeds and the current SIP feeds and provide
market participants with the ability to rely on SIP feeds rather
than incurring the substantial costs in being forced to purchase
both the proprietary data and the SIP data.'').
    \486\ See supra note 484.
    \487\ See supra Section I.E.
    \488\ TD Ameritrade Letter at 4.
---------------------------------------------------------------------------

(d) Include Competing Crosses in Auction Information
    One commenter recommended expanding the proposed definition of
auction information to include data on competing crosses offered by
national securities exchanges other than the listing market, such as
one of the commenter's products (the Cboe Market Close product), so
that investors have a full view of exchange trading in other mechanisms
through which investors can seek to have their orders executed at
official opening or closing prices.\489\
---------------------------------------------------------------------------

    \489\ See Cboe Letter at 21.
---------------------------------------------------------------------------

    The Commission does not believe that information on competing
crosses should be included in core data at this time. Auctions are held
pursuant to exchange rules at specified periods during the trading day
(e.g., at the open, at the close, or during the day to reopen a stock
that has been halted) when continuous trading is not occurring.

During auctions, buy and sell orders generally interact at the single
price, within limits, that maximizes the trading volume that can be
executed.\490\ For example, a closing auction generally is held at the
end of regular trading hours on the primary listing exchange pursuant
to a process set forth in the primary listing exchange's rules to
determine a security's official closing price.\491\
---------------------------------------------------------------------------

    \490\ See, e.g., NYSE Rule 123C(8). See also Proposing Release,
85 FR at 16756.
    \491\ See, e.g., NYSE Rule 123C(1)(e). See also Proposing
Release, 85 FR at 16756.
---------------------------------------------------------------------------

    While the Cboe Market Close process seeks to provide executions on
Cboe BZX Exchange at the official closing price published by the
primary listing exchange, which is typically determined through an
auction, it is not itself an auction process that establishes
pricing.\492\ In proposing to include auction information in core data,
the Commission was responding to the growing importance of auctions
themselves rather than competing cross processes that leverage auction-
based pricing. Because competing cross processes are a derivative of
the underlying auctions that establish prices, the Commission does not
believe that including information regarding Cboe Market Close or
similar competing cross processes would further the objective of
promoting more informed participation in auctions. The Commission's
decision does not preclude the dissemination of information related to
such processes on a proprietary basis or prevent competing
consolidators from acquiring and providing this information to their
subscribers. Additionally, self-regulatory organization-specific
program information can also be required to be included in consolidated
market data pursuant to the national market system plan or plans
required under Section 242.603(b) or amendments thereto that are
approved by the Commission.\493\
---------------------------------------------------------------------------

    \492\ Securities Exchange Act Release No. 88008 (Jan. 21, 2020),
85 FR 4726 (Jan. 27, 2020). Through Cboe Market Close, buy and sell
market on close orders for stocks not listed on Cboe are matched
together and executed at the closing price of the stock's primary
listing exchange. Because the Cboe Market Close process is using the
primary listing exchange's closing price as the execution price, the
Cboe process is not independently discovering a closing price
different than the primary listing exchange. Id. at 4727, 4738
(``The Commission finds that . . . Cboe Market Close should not
disrupt the price discovery process in the closing auctions of the
primary listing exchanges. Importantly, Cboe Market Close will only
accept, match, and execute unpriced MOC orders with other unpriced
MOC orders (i.e., paired-off MOC orders). Contrary to some
commenters' assertions that MOC orders contribute to the
determination of the official closing price, the Commission believes
that paired-off MOC orders, which do not specify a price but instead
seek to be executed at whatever closing price is established via the
primary listing exchange's closing auction, do not directly
contribute to setting the official closing price of securities on
the primary listing exchanges but, rather, are inherently the
recipients of price formation information.'').
    \493\ See supra Section II.B.2; infra Section II.K.2.
---------------------------------------------------------------------------

(e) Classification of Auction Information
    One commenter stated that auction information (along with odd-lots
and depth of book data) should be part of the consolidated market data,
rather than core data, and expressed its doubt that firms would have an
option to receive only a portion of core data.\494\ Another commenter
stated that auction information should be further split into three
products: (1) Core data that has no auction data but includes Cboe
Market Close orders in order not to drag the processing speed of normal
data distribution; (2) separate subscription for auction imbalance
information (matched quantity, imbalance size, near price, far price,
paired shares, and imbalance shares); and (3) integrated auction data
in a combined feed, the speed of which may be slower than (1) and
(2).\495\
---------------------------------------------------------------------------

    \494\ See TD Ameritrade Letter at 6 (``Inclusion under the
broader Consolidated Market Data definition would still require for
the collection, aggregation, and dissemination of the data to make
it available to self-aggregators and competing consolidators but
would avoid future confusion about what is required of end users for
regulatory purposes in the future.'').
    \495\ See Data Boiler Letter I at 20.
---------------------------------------------------------------------------

    The Commission believes that auction information should be part of
core data. Core data includes elements that the Commission has
determined to be useful to inform trading decisions by today's
investors. Auction information is important to investors who wish to
participate in the opening, reopening, and closing auctions, which make
up an increasing proportion of overall trading volume. However, as
discussed above,\496\ the Commission is not creating any new regulatory
obligation to consume auction information.\497\ Furthermore, the
Operating Committee of the effective national market system plan(s)
could set separate fees for different data content subsets, and
competing consolidators could offer a variety of customized market data
products to meet their subscribers' the diverse needs. This would help
ensure that market participants pay for only the data that they consume
and addresses the commenter's recommendation to provide for product
differentiation and customer choice with respect to auction data.
---------------------------------------------------------------------------

    \496\ See supra Section II.C.2(a).
    \497\ See supra Section I.E. These amendments do not mandate the
consumption of auction information, regardless of whether auction
information is defined as core data or consolidated market data,
contrary to what one commenter suggested. See supra note 494 and
accompanying text.
---------------------------------------------------------------------------

H. Definition of ``Regulatory Data'' Under Rule 600(b)(78)

1. Proposal
    The Commission proposed defining regulatory data as follows: (1)
Information required to be collected or calculated by the primary
listing exchange for an NMS stock and provided to competing
consolidators and self-aggregators pursuant to the effective national
market system plan or plans required under Rule 603(b), including, at a
minimum: (A) Information regarding Short Sale Circuit Breakers pursuant
to Rule 201 of Regulation SHO; (B) information regarding Price Bands
required pursuant to the LULD Plan; (C) information relating to
regulatory halts or trading pauses (news dissemination/pending, LULD,
and market wide circuit breakers (``MWCBs'')) and reopenings or
resumptions; (D) the official opening and closing prices of the primary
listing exchange; and (E) an indicator of the applicable round lot
size; and (2) information required to be collected or calculated by the
national securities exchange or national securities association on
which an NMS stock is traded and provided to competing consolidators
and self-aggregators pursuant to the effective national market system
plan(s) required under Rule 603(b), including, at a minimum: (A)
Whenever such national securities exchange or national securities
association receives a bid (offer) below (above) an NMS stock's lower
(upper) LULD price band, an appropriate regulatory data flag
identifying the bid (offer) as non-executable; and (B) other regulatory
messages including sub-penny execution and trade-though exempt
indicators. For purposes of item (1)(C) of the proposed definition, the
primary listing exchange that has the largest proportion of companies
included in the S&P 500 Index shall monitor the S&P 500 Index
throughout the trading day; determine whether a Level 1, Level 2, or
Level 3 decline, as defined in self-regulatory organization rules
related to Market-Wide Circuit Breakers, has occurred; and immediately
inform the other primary listing exchanges of all such declines (so
that the primary listing exchange can initiate trading halts, if
necessary).
2. Final Rule and Response to Comments
    The Commission received several comments regarding the definition
of

regulatory data.\498\ Some commenters supported including regulatory
data in consolidated market data and did not comment on the substance
of the definition of regulatory data.\499\ Other commenters pointed out
difficulties or unintended consequences that they believed would result
from the proposed definition.\500\
---------------------------------------------------------------------------

    \498\ See FINRA Letter at 9; NYSE Letter II at 21; MFA Letter at
9; Capital Group Letter at 2; TD Ameritrade Letter at 3.
    \499\ See Capital Group Letter at 2; TD Ameritrade Letter at 3;
MFA Letter at 9 (recommending that competing consolidators should be
allowed to provide a regulatory data only feed and/or exchanges
should be allowed to provide regulatory data on proprietary feeds);
Data Boiler Letter I at 33; MEMX Letter at 6.
    \500\ See FINRA Letter at 7; NYSE Letter II at 21.
---------------------------------------------------------------------------

    The Commission is adopting the definition of regulatory data as
proposed. As discussed below, the Commission believes that the
information in the definition of regulatory data should help market
participants meet their regulatory obligations and be informed of
trading halts, price bands, or other market conditions that may affect
their trading decisions.
(a) Complexity of Shifting Responsibilities to Primary Listing
Exchanges
    One commenter stated that shifting the dissemination of LULD and
Short Sale Circuit Breaker information from the exclusive SIPs to
multiple primary listing exchanges would lead to these key market
functions becoming disaggregated, more expensive, more prone to errors,
and more complex due to multiple calculation methodologies and the need
to uniformly adapt to change requests that impact the
calculations.\501\ Another commenter stated that the Commission did not
consider how a primary listing exchange responsible for calculating and
disseminating regulatory data would obtain the information needed to
perform these calculations from the other exchanges and failed to
account for the financial costs, competitive implications, and latency
impacts of this design.\502\
---------------------------------------------------------------------------

    \501\ See FINRA Letter at 7.
    \502\ See NYSE Letter II at 21.
---------------------------------------------------------------------------

    The Commission does not believe that the proposal would
significantly increase the cost, complexity, or error rate of
regulatory data such as LULD or Short Sale Circuit Breakers
information. With respect to LULD information, just as the primary
listing exchanges provide trading pause and reopening auction messages
to the two exclusive SIPs today, the primary listing exchanges will
provide this same information to competing consolidators and self-
aggregators under the decentralized consolidation model. Similarly,
with respect to Rule 201 information, the primary listing exchange
currently determines whether a Short Sale Circuit Breaker has been
triggered and notifies the exclusive SIPs; under the decentralized
consolidation model, the primary listing exchange will notify competing
consolidators and self-aggregators. The Commission does not believe the
incremental cost of providing this data to additional entities--i.e.,
competing consolidators and self-aggregators--will be substantial.
Further, the Commission does not believe that the competing
consolidator model would significantly increase complexity because the
primary listing exchanges today already disseminate regulatory messages
to the two exclusive SIPs. Finally, the Commission does not believe
that shifting the calculation of regulatory data to primary listing
exchanges would lead to more errors as the commenter suggested, since
primary listing exchanges are capable of generating regulatory messages
accurately and already generate many of these messages today.
    Moreover, the primary listing exchanges, and not only those that
oversee the operation of exclusive SIPs, are qualified and capable to
calculate LULD price bands, as the exclusive SIPs do today. The
Commission does not agree with the commenter that the costs of
performing these calculations at the primary listing exchange would be
greater than the costs of doing so at the exclusive SIPs because the
mechanical nature of these calculations would not introduce variable
costs depending upon the entity performing the calculation.
Furthermore, the Commission anticipates that the Operating Committee of
the effective national market system plan(s) could reimburse these
costs from plan revenue prior to allocation. In addition, as discussed
below, the Commission believes that various factors would exert a
downward pressure on the fees for the data content underlying
consolidated market data, including regulatory data.\503\ Because the
primary listing exchanges already calculate ``synthetic'' LULD price
bands after reopening prices are disseminated but before the
``official'' price bands are sent by the SIPs,\504\ any costs of
requiring them to do so pursuant to the definition of regulatory data
and the decentralized consolidation model should be limited. Finally,
with respect to the comment that the Commission did not account for the
financial costs of its regulatory data proposal, the Commission
provided an estimate of the burdens and costs of providing competing
consolidators and self-aggregators with the data necessary to generate
consolidated market data, including regulatory data, and solicited
comment on this estimate.\505\
---------------------------------------------------------------------------

    \503\ See infra Sections III.E.2(c); V.C.2(b)(i)a (discussing
how the amendments will affect data content fees).
    \504\ See Nasdaq, Equity Trader Alert #2016-79: NASDAQ Announces
Improved Protections for Equity Markets Coming Out of Halts (``Leaky
Bands'') (Apr. 12, 2016), available at https://www.nasdaqtrader.com/TraderNews.aspx?id=ETA2016-79; NYSE, Trader Update: NYSE and NYSE
MKT: Enhanced Limit Up Limit Down Procedures (Aug. 1, 2016),
available at https://www.nyse.com/trader-update/history#110000029205; Securities Exchange Act Release No. 34-78435
(July 28, 2016), 81 FR 51239 (Aug. 3, 2016) (SR-FINRA-2016-028).
    \505\ Proposing Release, 85 FR at 16807-09.
---------------------------------------------------------------------------

    With respect to the comment regarding how primary listing exchanges
would obtain the information needed to calculate and disseminate
regulatory data from the other exchanges, the Commission observes that
many primary listing exchanges already subscribe to the proprietary
feeds of many other exchanges and will continue to have this option
under the decentralized consolidation model.\506\ Like many other
market participants, the primary listing exchanges do so to calculate
their own NBBOs based on data from across the national market system
and use the proprietary feeds, rather than the SIP feeds, for their
matching engines.\507\ Furthermore, the Commission is adopting rules to
allow the primary listing exchanges the option of obtaining the data
from other exchanges necessary to perform these calculations through
self-aggregation.\508\
---------------------------------------------------------------------------

    \506\ See, e.g., NYSE Rule 7.37(e) (showing the data feeds for
handling, execution, and routing of orders and subscribing to the
direct feeds for all national securities exchanges except three
exchanges (Investors' Exchange, LLC, Long-Term Stock Exchange, Inc.,
and MEMX LLC)); Nasdaq Rule 4759 (showing the data feeds for
handling, routing, and execution of orders and subscribing to the
direct feeds for all national securities exchanges except six
exchanges (NYSE National, MIAX Pearl, Long-Term Stock Exchange, NYSE
Chicago, MEMX, and IEX)).
    \507\ Id.
    \508\ See infra Section III.D.2(a). The exchanges today perform
with proprietary data many functions that are similar to self-
aggregation, such as calculating the best bid and offer to decide
where to route routable orders. The Exchanges would continue to have
the option to self-aggregate under the adopted rules, allowing the
exchanges to perform many of the functions they do today, including,
among other things, routing of orders and compliance with the order
protection rule. See also supra note 503 (regarding the Commission's
expectations with respect to the fees for data content, including
regulatory data).
---------------------------------------------------------------------------

    In addition, the Commission does not believe the proposal will
introduce

unwarranted complexity or inconsistency in the dissemination of
regulatory data. While each primary listing exchange will calculate
LULD price bands, the primary listing exchanges are not permitted to
apply ``separate calculation methodologies'' as suggested by the
commenter, since the reference price calculation methodology is set
forth in the LULD Plan and not subject to deviations.\509\ The
definition of regulatory data that the Commission is adopting assigns a
single entity, the primary listing exchange, with the responsibility to
calculate regulatory data such as LULD price bands or to monitor the
S&P 500 for purposes of sending MWCB alerts in order to avoid the
complexity and confusion that could result from having multiple
entities--competing consolidators and self-aggregators--performing
these functions.
---------------------------------------------------------------------------

    \509\ LULD Plan Section V(A).
---------------------------------------------------------------------------

    Finally, the Commission does not believe these additional
requirements would impose any competitive disadvantages on primary
listing exchanges. Listing securities already entails significant
regulatory obligations, including, as discussed above, the provision of
certain regulatory data to the exclusive SIPs, as well as other
regulatory functions that are required of a listing SRO to regulate its
listed securities and the issuing companies. The Commission estimates
that the incremental burdens imposed by the amendments, including the
calculations required to disseminate the elements of regulatory data,
and costs, if any, necessary to obtain the data underlying those
calculations, would be minimal, particularly because the primary
listing exchanges already perform many of these functions today.\510\
---------------------------------------------------------------------------

    \510\ In addition, the Operating Committee of the effective
national market system plan(s) could consider the costs of providing
competing consolidators and self-aggregators with regulatory data in
proposing fees for consolidated market data and could propose
adjustments to the revenue allocation formula to compensate primary
listing exchanges in particular.
---------------------------------------------------------------------------

(b) Geographic Latency of Regulatory Data
    One commenter stated that as a result of competing consolidators
being positioned at different locations, listing exchanges are likely
to experience a delay in identifying the moment a LULD halt or a
Regulation SHO restriction is triggered, which may result in executed
trades that violate the LULD Plan and Regulation SHO, and that such
latency issues will make it difficult for SROs to surveil and determine
with certainty that a market participant intentionally violated a LULD
or Regulation SHO rule.\511\
---------------------------------------------------------------------------

    \511\ See Letter from Anthony J. Albanese, Chief Regulatory
Officer, NYSE, et al. dated June 15, 2020 (``Joint CRO Letter'') at
3.
---------------------------------------------------------------------------

    The Commission acknowledges that competing consolidators would be
in different locations, likely co-located at the exchanges' primary
data centers currently in Mahwah, Carteret, Secaucus, and Weehawken,
New Jersey. However, the Commission does not believe that the different
locations would make it more difficult for SROs to conduct their market
surveillance with respect to LULD and Regulation SHO. Currently, the
SROs develop surveillance systems using the data sources that allow
them to perform their regulatory obligations.\512\ As discussed
below,\513\ the varying distances between the existing SIPs and the
locations of different exchanges ensure that SIP-provided regulatory
messages will arrive at different times today, measured in microseconds
or finer increments of time. The Commission believes that, in fact,
there will be less of a latency differential experienced under the
decentralized consolidation model because it eliminates other material
geographic latencies in the consolidation and regulatory message
generation process.\514\
---------------------------------------------------------------------------

    \512\ See infra note 771 and accompanying text. In addition,
time stamps will be added to all consolidated market data, including
regulatory data, by the SROs as well as competing consolidators. See
infra Sections III.C.8(b); III.E.2(h). These timestamps will help
identify when LULD halts and Regulation SHO restrictions were
triggered and communicated.
    \513\ See infra Section III.B.5.
    \514\ See id.
---------------------------------------------------------------------------

    One commenter stated that assigning responsibility to the primary
listing exchanges to produce regulatory information such as LULD bands,
market-wide circuit-breaker information, and Regulation SHO thresholds
underscores the importance of the Governance Order \515\ and having a
single effective national market system plan and a single, independent
plan administrator and of ``standing up the governance regime quickly''
prior to the launch of the competing consolidator model.\516\ The
Commission believes that ascribing the responsibility for calculating
and providing regulatory data to primary listing exchanges pursuant to
these amendments is not dependent on the changes contemplated in the
Governance Order,\517\ such as the submission of a single consolidated
data plan. Independent of issues related to the governance of the
effective national market system plan(s), the primary listing markets,
which are already performing many of these functions, are well-situated
to calculate and provide regulatory data under the decentralized
consolidation model.\518\
---------------------------------------------------------------------------

    \515\ See infra note 1128.
    \516\ RBC Letter at 7.
    \517\ See infra note 1127.
    \518\ See Proposing Release, 85 FR at 16759.
---------------------------------------------------------------------------

    One commenter recommended that the Commission should require
competing consolidators, not the effective national market system
plan(s) participants, to make available a regulatory-data-only feed at
a fair and reasonable price because this information is a public good,
or, alternatively should allow exchanges to provide regulatory market
data through their proprietary feeds.\519\
---------------------------------------------------------------------------

    \519\ See MFA Letter at 9 (``The Commission should require
competing consolidators to provide a regulatory data-only feed at a
fair and reasonable price relative to the cost of that subset of
consolidated market data. Alternatively, we believe the Commission
should explicitly permit exchanges to provide regulatory data
through their proprietary market data feeds.'').
---------------------------------------------------------------------------

    Regulatory data is essential for the investing public and necessary
for market participants to fulfill regulatory obligations. The fees for
regulatory data must be fair and reasonable and not unreasonably
discriminatory.\520\ As discussed below, the Commission believes that
the introduction of competitive forces and other factors will constrain
regulatory data fees. Moreover, these amendments permit the Operating
Committee of the effective national market system plan(s) to propose
fees for data content underlying different consolidated market data
offerings, including consolidated market data offerings that use a
subset of consolidated market data, and permit competing consolidators
to offer a variety of products--including, potentially, a regulatory-
data-only product--suited to the needs of their subscribers. Therefore,
the Commission is adopting the proposal without any changes.
---------------------------------------------------------------------------

    \520\ See infra Section III.E.2(c).
---------------------------------------------------------------------------

I. Regulation SHO: Conforming Amendments to Rule 201

1. Proposal
    Under the definition of regulatory data, the primary listing
exchange for an NMS stock would make the determination regarding
whether a Short Sale Circuit Breaker has been triggered. The Commission
proposed to amend the process required under Rule 201 in two ways.
First, if the Short Sale Circuit Breaker has been triggered, the
listing market would be required immediately to notify competing
consolidators and self-aggregators

(rather than notifying a single plan processor as was previously the
case). Competing consolidators would then be required to consolidate
and disseminate this information to their subscribers.
    Specifically, the Commission proposed to amend Rule 201(b)(1)(ii)--
which requires Short Sale Circuit Breakers to be applied ``the
remainder of the day and the following day when a national best bid for
the covered security is calculated and disseminated on a current and
continuing basis by a plan processor pursuant to an effective national
market system plan''--by removing the reference to the plan processor
to reflect the proposed decentralized consolidation model. Furthermore,
the Commission proposed amending Rule 201(b)(3)--which requires listing
markets to immediately notify ``the single plan processor responsible
for consolidation of information for the covered security pursuant to
Rule 603(b)'' when a Short Sale Circuit Breaker has been triggered--by
removing the single plan processor notice requirement and replacing it
with the requirement for the listing market to immediately make such
information available as provided in Rule 603(b) (i.e., to competing
consolidators and self-aggregators).
    Second, under the proposed decentralized consolidation model with
competing consolidators and self-aggregators, the listing market, in
order to make determinations as to whether a Short Sale Circuit Breaker
has been triggered as required by 17 CFR 242.201(b)(1)(i) (Rule
201(b)(1)(i)), would have the option of obtaining proposed consolidated
market data from one or more competing consolidators (rather than from
a single plan processor as is currently the case), to aggregate
consolidated market data itself, or some combination of the two.\521\
---------------------------------------------------------------------------

    \521\ For example, a listing market could self-aggregate for its
own listings and obtain consolidated data from a competing
consolidator for stocks listed elsewhere. The rules that the
Commission is adopting do not require a listing market to purchase
consolidated data from a competing consolidator.
---------------------------------------------------------------------------

    The Commission also proposed certain conforming amendments in Rule
201 to harmonize that rule with the Proposing Release. Currently, 17
CFR 242.201(a) (Rule 201(a)) defines ``listing market'' by reference to
the listing market as defined in the effective transaction reporting
plan for the covered security. Since primary listing exchanges will be
required to collect and calculate regulatory data, the Commission
proposed to introduce a definition of ``primary listing exchange'' in
Rule 600(b)(68) to provide greater clarity with respect to the
responsibilities regarding regulatory data. Specifically, under
proposed Rule 600(b)(68), primary listing exchange would be defined as,
for each NMS stock, the national securities exchange identified as the
primary listing exchange in the effective national market system plan
or plans required under Rule 603(b).\522\
---------------------------------------------------------------------------

    \522\ See infra Section III.E.2(j) (discussing the requirement
that the effective national market system plan(s) be amended to
include a list of the primary listing exchange for each NMS stock).
---------------------------------------------------------------------------

    The Commission believes that it is appropriate for the effective
national market system plan(s) to determine which exchange is the
primary listing exchange for each NMS stock and that the definition
would ensure that primary listing exchanges are clearly identified. The
Commission also believes that the definition of listing market in Rule
201(a)(3) should be amended so that it cross-references this proposed
definition of primary listing exchange to facilitate the consistent
identification of primary listing exchanges across Regulation SHO and
Regulation NMS and to avoid potentially duplicative or confusing
definitions in the Commission's rules.
2. Final Rule and Response to Comments
    The Commission received one letter supporting the amendments to
Regulation SHO.\523\ For the same reasons discussed above with regard
to how the proposed amendments would facilitate the decentralized
consolidation model, the Commission is adopting the amendments to
Regulation SHO as proposed.
---------------------------------------------------------------------------

    \523\ See Data Boiler Letter I at 27.
---------------------------------------------------------------------------

J. Definition of ``Administrative Data'' Under Rule 600(b)(2)

1. Proposal
    The Commission proposed defining ``administrative data'' as
administrative, control, and other technical messages made available by
national securities exchanges and national securities associations
pursuant to the effective national market system plan or plans required
under Sec.  242.603(b) or the technical specifications thereto as of
the date of Commission approval of the proposal. Administrative data
would be a component of the definition of ``consolidated market data,''
which permits additional administrative data elements to be added
pursuant to amendments to the effective national market system plan(s).
Examples of administrative messages include market center and issue
symbol identifiers, and examples of control messages include messages
regarding the beginning and end of trading sessions. As the Commission
stated in the proposing release, the proposed definition was ``intended
to capture administrative information that is currently provided in SIP
data.'' \524\
---------------------------------------------------------------------------

    \524\ See Proposing Release, 85 FR at 16763.
---------------------------------------------------------------------------

2. Final Rule and Response to Comments
    The Commission received one comment supporting the proposed
definition of administrative data,\525\ and is adopting the definition
as proposed. The Commission continues to believe that including
administrative messages in consolidated market data will facilitate
market participants' efficient and accurate use of consolidated market
data. Further, the Commission believes that this information is useful
to market participants and should continue to be widely available. The
Commission believes that SROs would be well-situated to provide
administrative data messages, which relate to SRO-specific details such
as the market-center identifiers or the beginning and ending of trading
sessions, because SROs have direct and immediate access to this
information and could efficiently integrate it into the data feeds that
they will utilize to make available the data necessary for competing
consolidators and self-aggregators to generate core and regulatory
data.
---------------------------------------------------------------------------

    \525\ This commenter stated that the current administrative data
``provides additional context for market participants to understand,
and efficiently and accurately use, the proposed core and regulatory
data to support their trading activities.'' Data Boiler Letter I at
35. The commenter further added that ``there can be streamlining
opportunity for [competing consolidators] to eliminate any
repetitive information during distribution and recipients should
have a choice to opt-out.'' Id. As stated above, the decentralized
consolidation model permits competing consolidators to offer
different products to market data end users, allowing end users to
decide which data feeds to purchase and utilize.
---------------------------------------------------------------------------

K. Definition of ``Self-Regulatory Organization-Specific Program Data''
Under Rule 600(b)(85)

1. Proposal
    The Commission proposed to define exchange-specific program data
as: (1) Information related to retail liquidity programs specified by
the rules of national securities exchanges and disseminated pursuant to
the effective national market system plan or plans required under Sec.
242.603(b) as of the date of Commission approval of the proposal and
(2) other exchange-specific information with respect to quotations for
or transactions in NMS stocks as

specified by the effective national market system plan or plans
required under Sec.  242.603(b).
    The Commission stated that existing retail liquidity programs,
which offer opportunities for retail orders to receive price
improvement, and, in certain cases, other exchange-specific program
information should continue to be included in proposed consolidated
market data. If (i) an exchange(s) develops new program(s) in the
future, and (ii) the broad dissemination of information about such
programs as part of consolidated market data would facilitate
participation in such programs, an amendment to the effective national
market system plan(s) could be filed with the Commission under Rule 608
of Regulation NMS to include such information in consolidated market
data.

2. Final Rule and Response to Comments

    The Commission received comments regarding the definition of
exchange-specific program data. One commenter supported the inclusion
of exchange-specific program data in consolidated market data, stating
that this data, which is already carried by the SIPs, is highly
relevant and important to all types of market participants.\526\
Another commenter agreed with the inclusion of information related to
existing retail liquidity programs but stated that there should be a
``procedural mechanism to review if there might be other new exchange-
specific program information to be included in the future.'' \527\
---------------------------------------------------------------------------

    \526\ See IEX Letter at 7.
    \527\ Data Boiler Letter I at 35-36.
---------------------------------------------------------------------------

    Some commenters objected to the proposed definition of exchange-
specific program data. One commenter stated that the proposal would
require changes to exchange-specific programs to become effective
through an effective national market system plan amendment even though
exchanges are currently free to propose such programs through the SRO
rulemaking process provided in Section 19(b) of the Exchange Act and
that requiring such changes to be duplicatively filed as proposed plan
amendments would serve no policy or regulatory purpose and would
improperly give competing exchanges (as members of the plans' Operating
Committee) a vote in whether or not an exchange may change its
programs.\528\ Another commenter characterized exchange-specific
program information as ``an essentially unknown category of information
that may or may not be useful to particular categories of investors''
and stated that the Commission has determined that ``virtually all
categories of information--even indeterminate ones--constitute core
data.'' \529\
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    \528\ See NYSE Letter II at 28.
    \529\ Nasdaq Letter IV at 33.
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    The Commission is adopting the definition of exchange-specific
program data largely as proposed, but is modifying the definition to
``self-regulatory organization-specific program data'' so that it
extends to national securities associations in addition to all national
securities exchanges.\530\ The Commission believes that information
related to any program developed by a national securities association
in the future should also be able to be included in consolidated market
data if specified by the effective national market system plan(s).\531\
Information related to retail liquidity programs is already in the SIP
feeds today, and the Commission agrees that this information is
relevant to market participants who wish to submit orders to, or
otherwise participate in, such programs and should therefore be
included in consolidated market data. To the extent other exchange-
specific or national securities association-specific programs may be
developed in the future, the Commission believes such information would
be similarly relevant to market participants who wish to engage with
such programs.
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    \530\ The Commission is also modifying proposed Rule
600(b)(85)(ii) of Regulation NMS so that it refers to ``[o]ther
self-regulatory organization-specific information with respect to
quotations for or transactions in NMS stocks . . .'' rather than
``other exchange-specific information with respect to quotations for
or transactions in NMS stocks . . .''. See infra Section VIII.
    \531\ See also supra Section II.F.2(c) (explaining that the
Commission is adopting a modified definition of depth of book data
that includes liquidity at depth of book price levels that may be
available on FINRA's ADF or other facilities of a national
securities association in the future).
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    The Commission also agrees that a procedural mechanism to modulate
the inclusion in consolidated market data of information related to
future SRO-specific programs is needed. The Commission believes that
requiring such data to be included by amendment to the effective
national market systems plan(s), as proposed, is the appropriate
mechanism because, as explained above, it allows for the inclusion of
additional SRO-specific program information data elements that may
emerge periodically through the approval of new SRO rules.\532\
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    \532\ See supra Section II.B.2.
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    The Commission disagrees with the comment that this process would
be ``duplicative'' of the Section 19(b) process or give an exchange's
competitors a vote in whether an exchange may change its programs. The
Section 19(b) process for approval of an SRO's rules and a plan
amendment serve two distinct purposes. An individual SRO could develop
a new program on its own initiative pursuant to the Section 19(b)
process. The SRO could disseminate information related to any such
program to market participants on a proprietary basis only. On the
other hand, a plan amendment would only be required in order to include
this information in consolidated market data if an SRO decides to
pursue the option and the Operating Committee agrees it is appropriate
to provide it to market participants under the national market system
rules.
    Finally, the Commission disagrees that exchange-specific program
data is an ``essentially unknown category of information'' that may or
may not be useful to market participants. The rules would allow the
effective national market system plan(s) to add other SRO-specific
information if the Operating Committee determines that the information
would be useful to market participants. The Commission believes that
allowing the Operating Committee(s) some flexibility to add additional
SRO-specific information would be in the interest of investors and
would strengthen the national market system. The Equity Data Plans have
utilized such a mechanism in the past.

III. Enhancements to the Provision of Consolidated Market Data

A. Introduction

    The Commission is adopting a decentralized consolidation model in
which competing consolidators, rather than the exclusive SIPs, will
collect, consolidate, and disseminate consolidated market data. This
new model will address the geographic, aggregation, and transmission
latencies that characterize the existing centralized consolidation
model,\533\ which has

relied upon the exclusive SIP for each NMS stock to centrally collect,
consolidate, and disseminate SIP data from its location, regardless of
the location of other exchanges, FINRA, or subscribers. The Commission
believes this new model will foster a competitive environment for the
dissemination of consolidated market data and will modernize the
underlying architecture of the national market system.
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    \533\ See Proposing Release, 85 FR at 16765-66 (describing the
latencies that exist in the current centralized consolidation
model). The existing centralized consolidation model system suffers
from three sources of latencies: (a) Geographic latency, (b)
aggregation latency, and (c) transmission latency. Geographic
latency is typically the most significant component of the latencies
that the exclusive SIPs experience compared to the proprietary data
feeds. Geographic latency, as used herein, refers to the time it
takes for data to travel from one physical location to another,
which must also take into account that data does not always travel
between two locations in a straight line. Aggregation or
consolidation latency, as used herein, refers to the amount of time
an exclusive SIP takes to aggregate the multiple sources of SRO
market data into SIP data and includes calculation of the NBBO.
Transmission latency, as used herein, refers to the time interval
between when data is sent (e.g., from an exchange) and when it is
received (e.g., at an exclusive SIP and/or at the data center of the
subscriber), and the transmission latency between two fixed points
is determined by the transmission communications technology through
which the data is conveyed.
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    The centralized consolidation model has largely remained unchanged
despite significant market developments since it was developed in the
1970s. Today, the exclusive SIPs are located in disparate locations far
from each other and from end users. Each exclusive SIP must collect
data from geographically dispersed SRO data centers, consolidate that
data, and then disseminate that data as SIP data from the exclusive
SIP's location to end-users, which are often in other locations. The
need for market information to travel back and forth across the ``New
Jersey triangle'' \534\ prior to reaching subscribers creates
significant geographic and other latencies.\535\ This structure, as
well as the limited data content available in SIP data, has led many
market participants to relegate SIP data to backup data.\536\
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    \534\ The CTA/CQ SIP is located in Mahwah, NJ, and the UTP SIP
is located in Carteret, NJ. Other exchanges and broker-dealers are
located in Secaucus, NJ. These three main data center locations are
typically referred to as the ``New Jersey Triangle.''
    \535\ See supra note 533.
    \536\ See, e.g., SIFMA Letter at 3 (``Even if a broker-dealer
elects to consolidate market data through proprietary feeds, it must
also purchase the core data from the SIPs for a number of reasons,
such as to comply with the Vendor Display Rule, receive regulatory
messages like trading halts and have a backup source of data in case
an exchange experiences issues with its proprietary feeds.''). But
see BestEx Research Letter at 2 (``Despite the claims of many market
participants, the SIP is a critical component of the US equity
market structure and is widely used by institutional broker-
dealers.''). The commenter, however, also stated that ``the reforms
to the SIP proposed by the Commission will make it even more robust
and useful.'' Id. at 1. While SIP data is widely used, market
participants, as well as the commenter, acknowledge that the
decentralized consolidation model will modernize the national market
system and make it more useful for today's trading.
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    The national market system for the collection, consolidation, and
dissemination of SIP data was established to be the heart of the
national market system and is designed to provide broad public access
to a consolidated, real-time stream of market information.\537\
Investors' need for real time information has been recognized since the
adoption of the 1975 Amendments and is reflected in Section 11A of the
Exchange Act.\538\ In the context of market data, the Commission has
said that ``real time'' means that ``there is very little delay between
the time a quotation is made or a transaction is effected and the time
that this information is made available to investors and others who use
the information.'' \539\ Some market participants believe that the
latencies inherent in the centralized consolidation model have affected
the ability of brokers to trade competitively and to provide best
execution to customer orders, especially when compared to proprietary
data products that are not encumbered by centralized
consolidation.\540\
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    \537\ See Market Information Concept Release, supra note 22, at
70614.
    \538\ Section 11A(c)(1)(B) of the Exchange Act states that the
Commission should assure, among other things, the ``prompt''
collection, processing, distribution, and publication of
information. Further, the Senate Report for the enactment of Section
11A stated that ``it is critical for those who trade to have access
to accurate, up-to-the-second information.'' S. Rep. No. 94-75 at 8
(1975) (``Senate Report'').
    \539\ Market Information Concept Release, supra note 22, at
70614.
    \540\ One commenter stated that ``[c]urrent market structure
allows investors' order [sic] to be traded at stale prices.'' Better
Markets Letter at 6. See also Capital Group Letter at 2, 4;
Clearpool Letter at 2; DOJ Letter at 2, 4; Fidelity Letter at 2; MFA
Letter at 2; State Street Letter at 2, 3; T. Rowe Price Letter at 1-
2; Virtu Letter at 2, 5.
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    Significant technological changes have occurred since the 1970s and
the passage of the 1975 Amendments. Electronic trading has all but
supplanted manual trading, and electronic trading systems can handle
and process data at speeds unheard of when the national market system
was established. While the Equity Data Plans have made various
investments and systems upgrades over time, they have not kept up with
the demands of all market participants. The concurrent existence of the
centralized consolidation model for SIP data and the decentralized
consolidation model for proprietary data has resulted in a two-tiered
market in which certain market participants that can afford and choose
to pay for proprietary data feeds receive content-rich data faster than
those who do not purchase these feeds, including market participants
who may face higher barriers to entry from data and other exchange
fees. Market participants that do not receive proprietary DOB feeds may
be affected in their efforts to seek best execution and otherwise
effectively compete with market participants that receive proprietary
DOB data feeds because they do not obtain access to the additional
content and may be receiving data in a slower manner.
    Therefore, the Commission believes that the national market system
must be modernized to allow ``new data processing and communications
systems [to] create the opportunity for more efficient and effective
market operations.'' \541\ The centralized consolidation model no
longer meets market participants' need for real-time consolidated
market data.\542\ The purpose of the decentralized consolidation model
is to modernize the infrastructure of the national market system by
eliminating the outdated centralized architecture for data
consolidation and dissemination.
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    \541\ Section 11A(a)(1)(B) of the Exchange Act.
    \542\ See supra Section II.C.2(a) (discussing the indirect
benefits to market participants whose executing broker-dealers will
receive expanded data content from competing consolidators); infra
Section III.B.5 (discussing indirect benefits to investors from