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

    \781\ See infra Section III.C.8.
---------------------------------------------------------------------------

    Commenters also raised questions related to the proposed
decentralized consolidation model's regulatory impact.\782\ One
commenter asked whether there would be any regulatory immunity
differences between competing consolidator offerings from SROs and non-
SROs.\783\ SRO immunity considerations would depend on the particular
facts and circumstances.\784\
---------------------------------------------------------------------------

    \782\ See Citadel Letter at 5; FINRA Letter at 4-5, 6.
    \783\ See Citadel Letter at 5.
    \784\ See also infra Section III.C.7(a)(iv); Brief of the
Securities and Exchange Commission, Amicus Curiae, No. 15-3057, City
of Providence v. Bats Global Markets, Inc. (2d Cir.), at 21, 22.
Courts have found that SROs are entitled to absolute immunity from
private claims under certain circumstances. In particular, ``when
acting in its capacity as a SRO, [the SRO] is entitled to immunity
from suit when it engages in conduct consistent with the quasi-
governmental powers delegated to it pursuant to the Exchange Act and
the regulations and rules promulgated thereunder.'' See DL Capital
Group, LLC v. NASDAQ Stock Market, Inc., 409 F. 3d 93, 97 (2d Cir.
2005) (quoting D'Alessio v. New York Stock Exchange, Inc., 258 F. 3d
93, 106 (2d Cir. 2001)). If an SRO fails to comply with the
provisions of the Exchange Act, the rules or regulations thereunder,
or its own rules, the Commission is authorized to take action. See
15 U.S.C. 78s(g).
---------------------------------------------------------------------------

9. Access to Data: Rule 603(b)
(a) Proposal
    Rule 603(b) of Regulation NMS currently requires a centralized
consolidation model. The Commission proposed to amend Rule 603(b) to
require each SRO to provide its NMS information, including all data
necessary to generate consolidated market data, to all competing
consolidators and self-aggregators in the same manner and using the
same methods, including all methods of access and data formats, as such
SRO makes available any information to any other person. Under the
proposed approach, competing consolidators and self-aggregators would
collect each SRO's market data that is necessary to generate
consolidated market data.\785\ As proposed, the same access options
available to proprietary feeds, including, but not limited to,
transmission medium (i.e., fiber optics or wireless), multicast
communication, co-location options, physical port, logical port,
bandwidth, and FPGA services, would be required to be made available
for proposed consolidated market data feeds. Further, any enhancements
to proprietary feed methods of access would similarly be made to
consolidated market feeds.\786\
---------------------------------------------------------------------------

    \785\ See Proposing Release, 85 FR at 16769.
    \786\ See id.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that the exchanges
could utilize their existing proprietary data product offerings that
contain consolidated market data elements or the exchanges could
develop new consolidated market data offerings for purposes of making
information available under Rule 603(b). Competing consolidators and
self-aggregators could choose to purchase products that include only
the proposed consolidated market data elements or products that contain
elements of both proposed consolidated market data and other
proprietary data.\787\
---------------------------------------------------------------------------

    \787\ See id.
---------------------------------------------------------------------------

    The Commission also proposed to remove the requirement in Rule
603(b) that ``all consolidated information for an individual NMS stock
[be disseminated] through a single plan processor'' \788\ because it
would be inconsistent with the proposed decentralized consolidation
model. In a decentralized consolidation model, multiple competing
consolidators would

disseminate consolidated market data in individual NMS stocks rather
than single plan processors.\789\
---------------------------------------------------------------------------

    \788\ 17 CFR 242.603(b).
    \789\ Proposing Release, 85 FR at 16771.
---------------------------------------------------------------------------

    In the proposal, the Commission stated that the proposed
decentralized consolidation model and the proposed consolidated market
data definition would not preclude the exchanges from continuing to
sell proprietary data and that the fees for proprietary data, which are
outside of the proposed definition of consolidated market data, would
be subject to the rule filing process pursuant to Section 19(b) of the
Exchange Act and Rule 19b-4.\790\ The Commission stated that if an
exchange provided its proprietary data products to a competing
consolidator or self-aggregator and a competing consolidator or self-
aggregator developed a product, or otherwise used data, that exceeded
the scope of proposed consolidated market data (e.g., full depth of
book data), the competing consolidator or self-aggregator would be
charged separately for the proprietary data use pursuant to the
individual exchange fee schedules.\791\ Self-aggregators and competing
consolidators that limited their use of exchange data to proposed
consolidated market data elements would be charged only for proposed
consolidated market data pursuant to the effective national market
system plan(s) fee schedules, in accordance with Rule 608 of Regulation
NMS.\792\
---------------------------------------------------------------------------

    \790\ 15 U.S.C. 78s(b) and 17 CFR 240.19b-4. See id. at 16769.
    \791\ See id.
    \792\ 17 CFR 242.608.
---------------------------------------------------------------------------

(b) Final Rule and Response to Comments
    The Commission is adopting the amendments to Rule 603(b) as
proposed. The Commission believes that these changes to Rule 603(b) are
appropriate to establish the decentralized consolidation model. Under
Rule 603(b), the SROs are required to make available all quotation and
transaction information that is necessary to generate consolidated
market data in the same manner and using the same methods, including
all methods of access and the same format, as such SRO makes available
any information with respect to quotations for and transactions in NMS
stocks to any person. Competing consolidators and self-aggregators will
be able to collect from the SROs that NMS information that is necessary
to generate consolidated market data as defined in Rule
600(b)(19),\793\ which includes core data,\794\ regulatory data,
administrative data, and self-regulatory organization-specific program
data.
---------------------------------------------------------------------------

    \793\ See also infra Section III.C.8(a).
    \794\ For example, competing consolidators and self-aggregators
will collect quotation information that is necessary to calculate
the NBBO as described in Rule 600(b)(50).
---------------------------------------------------------------------------

    Under Rule 603(b), the SROs are allowed to provide their core data
to competing consolidators and self-aggregators via the existing
proprietary data feeds, a combination of proprietary data feeds, or a
newly developed consolidated market data feed.\795\ However, if an SRO
developed a dedicated consolidated market data feed, the SRO will have
to take steps to ensure that any proprietary data feed is not made
available on a more timely basis (i.e., by any time increment that
could be measured by the SRO) than a consolidated market data
feed.\796\ Rule 603(a) also applies to the provision of data content
underlying consolidated market data by the SROs to competing
consolidators. The Commission believes that under Rule 603(a), if an
SRO developed a consolidated market data feed, it would likely have to
throttle any order-by-order proprietary data feed so that it is not
made available on a more timely basis than such dedicated consolidated
market data feed. Any dedicated consolidated market data feed developed
by an exchange would likely involve processing by an exchange to
segment its consolidated market data elements, which adds latency to
data dissemination, while an order-by-order proprietary data feed would
involve no less processing by the exchange. Further, the SROs are
allowed to offer different access options (e.g., with different
latencies, throughput capacities, and data-feed protocols) to market
data customers, as long as any access options available to proprietary
data customers are made available to competing consolidators and self-
aggregators for their selection for the collection of the data
necessary to generate consolidated market data.
---------------------------------------------------------------------------

    \795\ Competing consolidators and self-aggregators would be
permitted to choose among the data feed options offered by the SROs
to satisfy their obligations under Rule 603(b) to collect the SRO
information that is necessary to generate consolidated market data.
See also Section III.E.2(g) for a discussion of the licensing,
billing and audit process. The effective national market systems
plans through their licensing, billing and audit processes can
determine the extent to which data content utilized by competing
consolidators and self-aggregators constituted elements of
consolidated market data.
    \796\ See infra Section III.B.9(f).
---------------------------------------------------------------------------

    In addition, if an SRO provided its proprietary data products to
competing consolidators or self-aggregators for purposes of Rule 603(b)
and a competing consolidator or self-aggregator developed a product, or
otherwise used data content that is beyond the scope of consolidated
market data (e.g., full depth of book data), the proprietary data
content will be subject to the individual exchange fees for proprietary
data,\797\ while the data content underlying consolidated market data
will be subject to the fees established pursuant to the effective
national market system plan(s).\798\
---------------------------------------------------------------------------

    \797\ Fees for proprietary data are filed with the Commission
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4
thereunder.
    \798\ Fees for the data content underlying consolidated market
data will be filed with the Commission pursuant to Rule 608 of
Regulation NMS, 17 CFR 242.608.
---------------------------------------------------------------------------

    The Commission received several comments on its proposed amendments
to Rule 603(b). Some commenters stated that the changes to Rule 603(b)
were key to the success of the proposal.\799\ One commenter stated that
the proposed changes to Rule 603(b) ``should help to ensure that
proprietary feeds, competing consolidators and self-aggregators operate
on a more level playing field with regards to the speed that market
participants can obtain market data and access.'' \800\ The commenter
continued that the proposal would create a true alternative to
subscribing to and paying for each individual exchange's proprietary
feed.\801\ Another commenter stated that the requirement to make data
available to competing consolidators in the same manner as the
exchanges make it available to any other person would address latency
issues that exist in core data.\802\
---------------------------------------------------------------------------

    \799\ See McKay Letter; SIFMA Letter. See also Clearpool Letter
at 7 (supporting the proposed language of Rule 603(b)).
    \800\ SIFMA Letter at 11. See also McKay Letter at 4 (stating
that the proposed language of Rule 603(b) would prevent an exchange
from creating a proprietary data feed that would not be sufficient
to create consolidated market data but which has a latency or other
access advantage associated with it).
    \801\ See SIFMA Letter at 11.
    \802\ See Fidelity Letter at 10.
---------------------------------------------------------------------------

    One commenter suggested that the exchanges provide content that is
similar to what they provide on their direct feeds, stating that all
data can be useful for ``execution algorithms' quantitative trading
decisions.'' \803\ Another commenter suggested that the exchanges
should provide a single data feed--their proprietary DOB feed--to
satisfy the requirements of the proposed rules, simplify data
distribution, and ease Rule 603(a) burdens.\804\ The Commission has set
forth minimum data content underlying consolidated market data that
must be made available by the SROs under Rule 603(b). The Commission
has identified these elements as necessary for a wide array of trading
in the national market system.

Because the Commission recognizes that some market participants may
need more information than what is defined as consolidated market data,
SROs can provide additional information to these customers via
proprietary feeds. Further, as discussed above, the SROs can satisfy
their obligations under Rule 603(b) by utilizing their proprietary data
feeds, a combination of proprietary data feeds, or a newly developed
core data feed that contains all of the data content underlying
consolidated market data.\805\ Rule 603(b) does not specify a required
method of delivery of the data content underlying consolidated market
data but requires that such data be provided in the same manner and
using the same methods of access and the same format,\806\ as the SROs
use to make any NMS information available in NMS stocks to any person.
---------------------------------------------------------------------------

    \803\ BestEx Research Letter at 5.
    \804\ See MEMX Letter at 9.
    \805\ See supra note 795 and accompanying text.
    \806\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    One commenter, however, stated, without further explanation, that
the ``same manner and methods'' language was ``merely a standard price
list offered by the exchange.'' \807\ The commenter further stated that
the ``same format'' language would hurt average investors and give high
frequency trading firms an advantage and asserted that ``[o]ne can only
attempt to match faster connectivity by altering data format and
compression methods.'' \808\ To the extent that the commenter is
suggesting that investors who obtain consolidated market data products
from a competing consolidator may be at a disadvantage to self-
aggregators because of the latency advantage of self-aggregators, the
Commission believes, as discussed in Section IV.D.2(d), that the self-
aggregators will not necessarily have a systematic latency advantage
over competing consolidators. If the commenter is suggesting that SROs
provide data in a different format to compensate for faster
connectivity, Rule 603(b) requires the SROs to make the data content
underlying consolidated market data available to competing
consolidators and self-aggregators in the same manner and methods,
including all methods of access and the same format, as proprietary
data. Further, Rule 603(a) prohibits an SRO from making NMS information
available to any person on a more timely basis (i.e., by any time
increment that could be measured by the SRO) than it makes such data
available to competing consolidators and self-aggregators.\809\
---------------------------------------------------------------------------

    \807\ Data Boiler Letter II at 1.
    \808\ Id. at 1.
    \809\ See infra Section III.B.9(f).
---------------------------------------------------------------------------

    Another commenter stated that the proposed language in Rule 603(b)
did not consider that an exchange's connectivity options may not have
the capacity to be provided to all competing consolidators and self-
aggregators in the same manner and using the same methods.\810\ The
commenter stated that the proposal did not address the possible impact
on wireless connectivity or how customers would be affected if the SROs
ceased to offer wireless connectivity. The commenter did not expand
upon how the decentralized consolidation model would burden capacity
beyond what occurs today in the provision of proprietary data using the
same connectivity options. The exchanges assess capacity needs for
their proprietary data products and will be able to assess such needs
for the connectivity options for the data content underlying
consolidated market data. Each individual SRO will be required to
provide the data underlying consolidated market data to competing
consolidators and self-aggregators in the same manner and using the
same methods as is provided for proprietary data. The exchanges can
utilize their proprietary data feeds to make the data content
underlying consolidated market data available to competing
consolidators and self-aggregators and will be able to offer any access
options available to proprietary data feeds to competing consolidators
and self-aggregators for their selection.
---------------------------------------------------------------------------

    \810\ See IDS Letter I at 11.
---------------------------------------------------------------------------

(c) Comments on Access Options
    In the Proposing Release, the Commission stated that the exchanges
could provide different access options (e.g., with different latencies,
throughput capacities, and data feed protocols) to market data
customers, but any access options available to proprietary data
customers must also be available to competing consolidators and self-
aggregators. As proposed, Rule 603(b) would require exchanges to
provide all forms of access used for proprietary data to all competing
consolidators and self-aggregators for the collection of the data
necessary to generate proposed consolidated market data.\811\ Further,
an exchange must offer the same form of access, such as fiber optics,
wireless, or other forms, in the same manner and using the same
methods, including all methods of access and the same format, as the
exchange offers for its proprietary data. For instance, if an exchange
has more than one form of transmission for its proprietary data, then
the exchange must offer the competing consolidators and self-
aggregators those types of transmission for consolidated market data.
As discussed, the rule will not require an exchange to offer new forms
of access, but if an exchange did offer any new forms of access for
proprietary data, it will have to offer them for consolidated market
data as well.
---------------------------------------------------------------------------

    \811\ See Proposing Release, 85 FR at 16770.
---------------------------------------------------------------------------

    One commenter stated that all forms of data submission must assure
full and equal, transparent, and equally timed access to data.\812\
Another commenter stated that the most important component for the
success of the competing consolidator model is ``to ensure that all
market participants have the opportunity for equal access within the
facilities of an exchange for purposes of receiving market data from
the exchange, transmitting that market data out of the exchange and
receiving and distributing market data from another exchange (e.g., to
receive and deliver an away exchange's market data.'' \813\ This
commenter further stated that exchanges should not favor certain market
participants over others and that equal access must cover both egress
and ingress within exchange data centers.\814\ Further, the commenter
stated that the economic incentive to become a competing consolidator
may not be sufficient without such equal access.\815\ Another commenter
cautioned that allowing an exchange to develop a new market data
product that contains only the data elements that are specified in the
proposed definition of consolidated market data could be problematic
because (1) competing consolidators likely will have feed handlers for
publicly available feeds, which would impose additional burdens; and
(2) there would be no incentive for exchanges to keep the latency of
these special feeds similar to that of public feeds.\816\
---------------------------------------------------------------------------

    \812\ See Kubitz Letter.
    \813\ McKay Letter at 3. See also Temple University Letter at 2
(stating that ``intermediaries'' including exchanges and SIPs should
not ``unfairly discriminate or privilege certain market participants
to the detriment of others in terms of data access, execution and
other market data operations'' and that such intermediaries should
act ``independently and neutrally towards market participants to
ensure the competitive integrity of the marketplace'').
    \814\ See McKay Letter at 3.
    \815\ Id.
    \816\ See NovaSparks Letter at 1-2.
---------------------------------------------------------------------------

    The Commission believes that the SROs should be required to provide
the information necessary to generate consolidated market data in the
same manner and using the same methods, including all methods of access
and the same format as they provide to any person. Different forms of
access affect

the delivery of data. If an exchange provided a superior form of access
to its proprietary data products, then transmission of consolidated
market data would be negatively impacted and the benefits of the
decentralized consolidation model, such as lower latencies, would not
be realized. The national market system would be affected by this
disparity as it is today--with certain proprietary data products
providing superior access as compared to consolidated market data
products. As stated in the Proposing Release, different market
participants have different access needs. The Commission is not
mandating a specific access option or limiting options for market
participants, but all access options, including co-location, must be
available to all market participants whether they are purchasing the
data content underlying consolidated market data or proprietary data.
    The access requirement under Rule 603(b) requires the exchanges to
provide their NMS information, including all data necessary to generate
consolidated market data, at one data dissemination location co-located
near each exchange's matching engine. The requirement in Rule 603(b)
that access be provided in the same manner as any other information is
provided to any person encompasses co-location options that are
provided by exchanges to market participants that purchase proprietary
data. Proprietary data users are typically co-located near an
exchange's matching engine. Rule 603(b) will allow competing
consolidators and self-aggregators to receive data at the same speeds,
and with the same access options, as the exchange offers its market
data.\817\ Different co-location options within a data center could
raise concerns about whether that exchange is providing the same manner
of access to its data as required under Rule 603(b). Further, the
exchanges would not be permitted to provide their NMS information
necessary to generate consolidated market data in a faster manner to
any affiliate exchange, a subsidiary, or other affiliate that operates
as a competing consolidator or a subsidiary or affiliate that competes
in the provision of proprietary data.
---------------------------------------------------------------------------

    \817\ See also infra Section III.B.9(f).
---------------------------------------------------------------------------

(d) Comments on Latency Neutralization
    In the Proposing Release, the Commission stated that proposed Rule
603(b) would require that all access options be provided in a latency-
neutralized manner such that all participants within an exchange's data
center--such as proprietary data subscribers, competing consolidators,
and self-aggregators--would receive information at the same time,
regardless of their location or status within the data center. The
Commission continued that exchanges could, for example, adopt equal
cable length protocols (i.e., where cable lengths from network
equipment to customer cabinets are harmonized for equal access) to
ensure that all of the exchange's data center connections provide
market data simultaneously. Finally, the Commission stated that the
SROs must use the same latency-neutralization processes for competing
consolidators and self-aggregators as they offer subscribers of
proprietary data.
    One commenter stated that to provide a level playing field
``latency-neutralized'' access must apply to locally produced data
(i.e., data produced within an exchange's data center where a market
participant is co-located) and that the exchange must not interfere in
the competition to provide inbound market data from exchanges located
in other market centers.\818\ This commenter provided a detailed
discussion of five steps of data access and delivery that it believed
should be subject to latency neutralization requirements under Rule
603(b) if an exchange or its affiliate exercises direct control or
indirect control.\819\ Specifically, the commenter stated that latency
neutralization should apply to (1) the initial distribution from an
exchange's market data distribution engine to the cabinets of a
competing consolidator, self-aggregator, or other direct recipient of
market data; (2) the distribution from a competing consolidator's
cabinet out of an exchange's data center to equipment (e.g., wireless
or fiber equipment) for distribution to subscribers (described as the
``egress leg''); (3) the receipt of market data from an away exchange
for delivery to co-located customers in the exchange's data center
(described as the ``ingress leg''); (4) the delivery of data from a
competing consolidator's cabinet of market data received from away
markets to the competing consolidator's subscribers that are located in
the same data center (described as the ``delivery to subscriber leg'');
and (5) the transmission of data from an exchange data center to be
received at other exchange data centers and/or for distribution to non-
co-located market participants (described as the ``transit leg''). This
commenter stated that these considerations are important to determining
when and where competition begins in providing consolidated market data
and that it believes that competition should begin when market data
leaves those areas over which an exchange or its affiliates exercise
direct or indirect control.\820\
---------------------------------------------------------------------------

    \818\ See McKay Letter at 6.
    \819\ See id. at 7. The commenter suggested that ``indirect
control'' means the use of the exchange or its affiliate's
influence, weight or pressure to create an advantage or disadvantage
in exchange connectivity to select market participants. Further, the
commenter described several different forms of direct or indirect
control, including ``requiring market participants to connect to a
meet me room, specifying the types of cross connects that may be
used, restricting the use of certain frequencies to certain market
participants, through the use of one or more affiliates or select
third parties to create advantages, or pursuant to formal and
informal arrangements with the data center operator.'' Id. at 8-9.
    \820\ See id. at 10.
---------------------------------------------------------------------------

    Rule 603(b) requires that the exchanges provide their NMS
information, including all data necessary to generate consolidated
market data, in the same manner and using the same methods as such
exchange provides any information to any person. As discussed above,
this language encompasses the provision of data by an exchange at one
data dissemination location co-located near each exchange's matching
engine to allow competing consolidators and self-aggregators to receive
data at that location at the same speeds, and with the same access
options, as the exchange offers its market data. The SROs are required
to use the same latency-neutralization processes for competing
consolidators and self-aggregators as they offer to subscribers of
proprietary data such that all participants within the exchange's data
center, regardless of their location or status within the data center,
would receive the data at the same time.\821\ In the Proposing Release,
the Commission described latency neutralization protocols that
exchanges could adopt, such as equal cable length protocols where cable
lengths from network equipment to customer cabinets are harmonized for
equal access. Any differential treatment of competing consolidators in
the transmission of consolidated market data within a data center
controlled by an exchange must be filed with the Commission as a
proposed rule change pursuant to Section 19(b) of the Exchange Act and
Rule 19b-4 thereunder and satisfy statutory requirements, such as not

being designed to permit unfair discrimination \822\ nor impose a
burden on competition.\823\
---------------------------------------------------------------------------

    \821\ See Proposing Release, 85 FR at 16771. For example,
exchanges could adopt equal cable length protocols (i.e., where
cross-connect cable lengths from network equipment to customer
cabinets are harmonized for equal access) and ports of the same
bandwidth (i.e., 1G, 10G, and 40G) to ensure that all of the
exchange's data center connections provide market data
simultaneously to market participants located within a data center.
    \822\ Section 6(b)(5) of the Exchange Act, 15 U.S.C. 78f(b)(5).
    \823\ Section 6(b)(8) of the Exchange Act, 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

(e) Comments on SRO Costs
    One commenter, FINRA, stated that the ADF would be required to
connect and provide data to all competing consolidators and self-
aggregators.\824\ FINRA said that it potentially could incur
significant costs to establish and maintain this required connectivity,
despite minimal fee revenue from data disseminated from the ADF given
the low volume of regularly reported trades and lack of quoting
participants.\825\ FINRA stated in its comment letter that the ADF has
a low volume of over-the-counter (``OTC'') trades and no quotes.
Therefore, the connectivity options would not need to support much data
capacity, which should limit the amount of costs incurred by FINRA to
establish such connectivity. However, FINRA could seek to recoup any
costs associated with establishing and maintaining connectivity to
competing consolidators and self-aggregators by proposing connectivity
fees pursuant to Section 19(b) of the Exchange Act.\826\ Information
about OTC quotations and trades in NMS stocks are an important
component of SIP data today and will continue to be important in
consolidated market data. This OTC information must be collected,
consolidated, and disseminated in the decentralized consolidation
model.
---------------------------------------------------------------------------

    \824\ See FINRA Letter at 4.
    \825\ See id.
    \826\ Connectivity to the data underlying consolidated market
data would be a new data service because such service does not
currently exist. The SROs will have to file with the Commission any
proposed new fees for connectivity to their individual data that
underlies consolidated market data pursuant to Section 19(b) of the
Exchange Act and Rule 19b-4 thereunder, and any proposed
connectivity fee must satisfy the statutory standards, including
being fair and reasonable, being not unreasonably discriminatory,
and reflecting an equitable allocation of reasonable fees. See
Sections 6(b)(4) and 15A(b)(5) of the Exchange Act. See also infra
note 1158 and accompanying text and Section III.E.2(c).
---------------------------------------------------------------------------

(f) Interpretation of Rule 603(a)
    Currently, Rule 603(a) requires that SROs distribute NMS
information on terms that are fair and reasonable and not unreasonably
discriminatory.\827\ The Commission stated in the Regulation NMS
Adopting Release that Rule 603(a) would prohibit an SRO from making its
core data available to vendors on a more timely basis than it makes
such data available to the exclusive SIPs.\828\ In particular, the
Commission said that ``independently distributed data could not be made
available on a more timely basis than core data is made available to a
Network processor. Stated another way, adopted Rule 603(a) prohibits an
SRO or broker-dealer from transmitting data to a vendor or user any
sooner than it transmits data to a Network processor.'' \829\ Today,
latency differentials of any measurable amount are meaningful for
certain market participants and their trading strategies. The
Commission believes that Rule 603(a) prohibits an SRO from making NMS
information available to any person on a more timely basis (i.e., by
any time increment that could be measured by the SRO \830\) than it
makes such data available to the existing exclusive SIPs and as
amended, competing consolidators and self-aggregators. When it adopted
Regulation NMS, the Commission did not provide a de minimis exception
to the timeliness of data availability in Rule 603(a). If an SRO can
measure the timeliness of data transmission in a specific increment,
such increment generally should be utilized for determining whether
such data has been transmitted on a more timely basis to persons other
than an existing exclusive SIP, competing consolidators, or self-
aggregators.
---------------------------------------------------------------------------

    \827\ See Rule 603(a)(2) of Regulation NMS, 17 CFR
242.603(a)(2).
    \828\ See Regulation NMS Adopting Release, supra note 7, at
37569. Specifically, the Commission stated, ``Rule 603(a)(2)
requires that any SRO, broker, or dealer that distributes market
information must do so on terms that are not unreasonably
discriminatory. These requirements prohibit, for example, a market
from making its `core data' (i.e., data that it is required to
provide to a Network processor) available to vendors on a more
timely basis than it makes available the core data to a Network
processor.'' Id.
    \829\ Id. at 37567.
    \830\ For example, latency is currently measured for SIP data in
microsecond increments. See CTA Key Operating Metrics of Tape A&B
U.S. Equities Securities Information Processor (CTA SIP), available
at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Processor_Metrics_3Q2020.pdf (last accessed Nov. 27, 2020).
---------------------------------------------------------------------------

10. Calculation of the National Best Bid and National Best Offer Under
Rule 600(b)(50)
(a) Proposal
    The Commission proposed to amend the definition of national best
bid and national best offer to reflect that competing consolidators and
self-aggregators, rather than the exclusive SIPs, would be calculating
the NBBO in the proposed decentralized consolidation model. In
addition, to accommodate this proposed decentralized consolidation
model, the Commission proposed to bifurcate the NBBO definition between
NMS stocks and other NMS securities (i.e., listed options) to reflect
that the proposed decentralized consolidation would apply only with
regard to NMS stocks, and therefore the plan processor for options
would continue to be responsible for calculating and disseminating the
NBBO in listed options. The proposed changes to the definition of NBBO
would not impact the manner in which the NBBO is calculated for NMS
stocks.\831\
---------------------------------------------------------------------------

    \831\ The NBBO will reflect the new round lot sizes. See supra
Section II.D.2.
---------------------------------------------------------------------------

(b) Comments on Complexity and Confusion Resulting From Multiple NBBOs
    The Commission received multiple comments with respect to the
proposed definition of NBBO, with commenters expressing concerns about
multiple NBBOs and the impact on market participants and investors.
Commenters stated that confusion could result from multiple NBBOs being
available to market participants.\832\ One commenter stated that retail
investors do not have experience with multiple NBBOs.\833\ The
commenter further noted that multiple NBBOs would make broker-dealers'
Rule 605 reports difficult to compare because broker-dealers could be
using different NBBOs.\834\ The commenter questioned whether a broker-
dealer would be responsible for execution quality and compliance with
the Vendor Display Rule if the competing consolidator that the broker-
dealer is using miscalculates the NBBO.\835\
---------------------------------------------------------------------------

    \832\ See TD Ameritrade Letter at 12 (``In the present-day
structure, SIPs provide a `gold copy' standard of the NBBO which can
be used for comparison when meeting the regulatory requirements of
best execution and the Vendor Display Rule . . . The industry may
have as many NBBO quotes as there are [competing consolidators] and
self-aggregators.''); Healthy Markets Letter I at 4 (``We have
significant concerns that by creating multiple, alternative SIPs,
that market participants may cherry-pick the data feed that costs
them the least or makes them look the best.''); Nasdaq Letter IV at
12; Fidelity Letter at 10-11.
    \833\ See TD Ameritrade Letter at 12-13 (``Furthermore, even if
proprietary feeds disseminate a different quote than the NBBO, such
quote has never been permitted for purposes of use in the Vendor
Display Rule, meaning the retail investor has not previously
experienced a multiple NBBO environment.''). See also Fidelity
Letter at 10-11 (``Under the Proposal, retail customers placing
orders in the same security at two different brokerage firms may
receive two different prices depending upon which competing
consolidator each firm uses.''). This scenario could happen today.
The Commission does not believe the decentralized consolidation
model will introduce confusion for retail investors. Retail
investors will continue to be able to see the NBBO provided by their
broker-dealer, whether it is calculated by their broker-dealer or a
competing consolidator.
    \834\ See TD Ameritrade Letter at 13.
    \835\ See id. The commenter further questioned whether
regulators would grant relief when reviewing execution quality on an
order by order basis, when different competing consolidators are
calculating NBBOs differently.

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

    Other commenters noted that a lack of a single NBBO as calculated
by the existing SIPs could impact the market in a variety of ways, such
as a lack of a single benchmark to determine trade quality; curtailing
the Commission's surveillance efforts; potentially creating a multi-
tiered system where some traders can access faster NBBOs; \836\ and
adding significant complexity, confusion, and uncertainty to best
execution analysis.\837\ One commenter said that it is unlikely the
NBBOs produced by competing consolidators and their associated
timestamps would ever be synchronized and that the NBBOs calculated by
competing consolidators and self-aggregators will never align. The
commenter said that the different versions of market data would impact
broker-dealer compliance with market conduct rules.\838\
---------------------------------------------------------------------------

    \836\ See Nasdaq Letter IV at 7 (``Shedding the single NBBO--
which has long been investors' `North Star' for price discovery--in
favor of multiple NBBOs would further complicate market structure,
confuse investors as to whether they are actually seeing the best
price, and hinder market surveillance and enforcement efforts.'').
    \837\ See FINRA Letter at 6.
    \838\ See id. at 3-4.
---------------------------------------------------------------------------

    Another commenter noted that multiple NBBOs would make comparison
of broker-dealer performance difficult, as broker-dealers may decide
which NBBO to use depending on which NBBO costs the least or makes
their execution quality look better.\839\ The commenter acknowledged
that while there is no clear NBBO today, the exclusive SIPs do
calculate and disseminate a NBBO.\840\ Commenters questioned how
execution quality would be judged if each competing consolidator
provided a different NBBO.\841\ Another commenter believed that
multiple NBBOs will impact liquidity.\842\ One commenter said that
latency arbitrage would be required to ``keep markets in line,''
estimating an increase of almost $3 billion in latency arbitrage
profits as a result of the multiple NBBOs introduced by the
proposal.\843\ This commenter said that multiple NBBOs would also
reduce investor confidence that trades will be executed at the best
price \844\ and believed that multiple NBBOs would negatively impact
market quality, complicate best execution compliance by broker-dealers,
and overall hurt investor confidence in the markets.\845\ Another
commenter requested clarity that a single competing consolidator could
produce multiple NBBOs at different locations at any given point of
time, since some competing consolidators may co-locate at more than one
exchange data centers.\846\
---------------------------------------------------------------------------

    \839\ See Healthy Markets Letter I at 4.
    \840\ See id.
    \841\ See Schwab Letter at 6; NYSE Letter II at 24; WFE Letter
at 1.
    \842\ See Data Boiler Letter I at 3. The commenter did not
describe how it thought multiple NBBOs would impact liquidity. As
discussed, the current market operates with multiple NBBOs. The
Commission believes that the NBBOs that will be calculated in the
decentralized consolidation model better reflect current market
conditions due to the improvements in latencies and therefore, will
be more prompt, accurate, and reliable. The enhanced and faster
consolidated market data resulting from the proposal should allow
market participants access to more up-to-date market data (including
NBBO data) than provided by the SIP, permitting them to more readily
find liquidity than before.
    \843\ Nasdaq Letter III at 8. Many firms that aggregate
proprietary feeds today likely have different aggregation times and
are likely already exposed to latency arbitrage. It is unclear why
the use of latency arbitrage would increase as a result of the
proposal, especially since the existence of multiple NBBOs would not
represent a change from current market practices.
    \844\ See Nasdaq Letter IV at 11.
    \845\ See id. at 3.
    \846\ See McKay Letter at 10-11 (``. . . many market
participants are colocated at one or more of the major exchange
datacenters in New Jersey and receive their market data at such
colocated points of presence. If a competing consolidator seeks to
provide market participants with the fastest and most efficient
consolidated market data possible, the result would be a slightly
different NBBO at each exchange datacenter.'').
---------------------------------------------------------------------------

    In the decentralized consolidation model, competing consolidators
will replace the exclusive SIPs in generating the NBBO as defined in
Rule 600. Therefore, there will be NBBOs generated by each competing
consolidator, as well as self-aggregators, based upon the data content
received from the SROs pursuant to Rule 603(b). While commenters
expressed concerns about the loss of an NBBO generated by a single plan
processor--the exclusive SIPs--the Commission believes that market
participants will adjust to not having an NBBO generated by a single
plan processor. ``Multiple NBBOs'' already exist today.\847\ Some
market participants obtain the NBBO from the exclusive SIPs, and some
market participants generate their own NBBO by aggregating multiple
proprietary data feeds. Some market participants that generate their
own NBBO use third party aggregation software or services to do so. The
NBBO seen by market participants depends on the systems used to
generate the NBBO and the systems used by the market participants to
receive and view it. Market participants are therefore already
accustomed to a market environment in which there are ``multiple
NBBOs'' generated by different parties, at different speeds, in
different locations. They are accustomed to performing best execution
analysis and providing execution quality statistics in the current
environment. Therefore, the Commission does not believe that the
generation of NBBOs by multiple competing consolidators will add
complexity or confusion to the markets.
---------------------------------------------------------------------------

    \847\ See also infra Section V.B.2(f).
---------------------------------------------------------------------------

    Moreover, neither the amended definition of NBBO, nor the
decentralized consolidation model more generally, mandates the
consumption of multiple NBBOs from multiple competing consolidators.
So, while different competing consolidators may calculate and
disseminate unique NBBOs or single competing consolidators may
calculate different NBBOs at separate data center locations under the
decentralized consolidation model, the Commission does not believe that
this should cause confusion for market participants, who already
consider market data from multiple sources. Finally, the amended
definition of NBBO does not change the methodology by which the NBBO
for a particular NMS stock is calculated, which will help to ensure
consistency in the NBBO calculation. The Commission is therefore
adopting the amendments to the definition of NBBO as proposed.
(c) Comments on Impact of Multiple NBBOs on Best Execution Obligations
    With respect to best execution, commenters stated that the
Commission did not sufficiently discuss the best execution implications
of multiple NBBOs.\848\ Commenters stated that eliminating the single
NBBO, and requiring broker-dealers to choose among multiple NBBOs,
would complicate and increase the cost of compliance with best
execution

obligations.\849\ However, another commenter stated that it ``does not
believe the existence of multiple NBBOs will create problems for market
participants or the market as a whole at a level that would warrant not
moving forward with the decentralized, competitive model. . . .'' \850\
Additionally, one commenter stated that expanding core data generally
would facilitate best execution.\851\
---------------------------------------------------------------------------

    \848\ See, e.g., Nasdaq Letter IV at 3, 12-13; Clearpool Letter
at 8 (``[W]hile the proposal states that the existence of multiple
NBBOs does not impact a broker's best execution obligations, we
believe that ``fragmenting'' the NBBO could lead to several problems
around such obligations, which would need to be addressed and
clarified by the Commission prior to implementation.''); Healthy
Markets Letter I at 4-5 (``Could a market participant seek to
deliberately subscribe to an inferior data feed? . . . We urge the
Commission to establish objective standards, including policies,
procedures, and documentation requirements for brokers regarding
their selection and usage of competing data feeds.''); FINRA Letter
at 5 (``[T]he Commission may also want to consider providing
guidance on whether a broker-dealer would, or should, be evaluated--
by the Commission, FINRA, or others--on its decision of which
competing consolidator(s) to receive consolidated market data from,
what factors a broker-dealer should consider in evaluating its
choice of a competing consolidator(s) (both initially and on an
ongoing basis), and how a broker-dealer's choice of a competing
consolidator(s) might affect the broker-dealer's best execution
obligations.'').
    \849\ See Nasdaq Letter IV at 3, 42, 49; Joint CRO Letter at 2;
STANY Letter II at 6; TD Ameritrade Letter at 12-13.
    \850\ Clearpool Letter at 8; see also Capital Group Letter at 4
(``We also support the proposed commercial competing consolidators.
Different users have different needs with regards to data complexity
(e.g., what data elements are included or excluded), latency and
price. We do not see this as the creation of `multiple truths' or
`multiple markets.' Because the data will also be available for post
trade analysis, market participants will be able to analyze outcomes
using the difference between the originating venue timestamps and
the consolidator timestamps to determine if best execution
obligations were fulfilled and if the speed they chose to pay for
meets their needs.'').
    \851\ See Better Markets Letter at 2.
---------------------------------------------------------------------------

    As described above, ``multiple NBBOs'' already exist today. The
amended definition of NBBO will not significantly alter this state of
affairs; rather, it adjusts the definition of NBBO to accommodate the
decentralized consolidation model to reflect that NBBOs will be
calculated and disseminated by competing consolidators and calculated
by self-aggregators. As is the case today, broker-dealers must act
reasonably to obtain pricing information in carrying out their duty to
seek to obtain the most favorable terms reasonably available under the
circumstances for the execution of customer orders.\852\
---------------------------------------------------------------------------

    \852\ See supra Section I.E.
---------------------------------------------------------------------------

(d) Comments on Impact of Multiple NBBOs on Surveillance and
Enforcement
    While some commenters expressed concern about the proposed
decentralized consolidation model's impact on regulation,\853\ several
commenters more specifically opined that the multiple NBBOs resulting
from the proposed model would undermine exchange surveillance and
enforcement,\854\ and raised questions about how market participants
should consider multiple NBBOs in trade-through prevention and locked
and crossed markets.\855\ One commenter said that the proposal did not
fully consider the impact of multiple NBBOs on surveillance and
compliance with investor protection rules \856\ and that multiple NBBOs
would affect surveillances that detect broker-dealer market access
controls deficiencies and fraud and manipulation.\857\ The commenter
also stated that the proposed model would make it almost impossible to
monitor for locked and crossed markets and to conduct trade-through
surveillance due to the multiple competing consolidator feeds.\858\ In
addition, the commenter stated that regulators and market participants
will have different views of the market depending on the NBBO they use,
which would allow bad actors to take advantage of the resulting
regulatory loopholes and inefficiencies.\859\ The commenter stated that
multiple NBBOs could create false positives, more investigations and
data requests, as well as false negatives.\860\
---------------------------------------------------------------------------

    \853\ See supra Section III.B.8.
    \854\ See Joint CRO Letter at 2, 3; Nasdaq Letter IV at 12; NYSE
Letter II at 24; see also TechNet Letter II at 2 (stating that
multiple NBBOs would undermine effective regulation and investor
confidence).
    \855\ See Joint CRO Letter at 2, 3, 4; Nasdaq Letter IV at 3,
12, 36, 49.
    \856\ See Joint CRO Letter at 2, 4.
    \857\ See id. at 3.
    \858\ See id. at 4. The commenter stated that reprogramming its
systems to comply with and surveil for compliance with the locked
and crossed and order protection rules would be an ``extensive
undertaking.'' Id. See also Nasdaq Letter IV at 12, 36, 49.
    \859\ See Joint CRO Letter at 3.
    \860\ See id. at 2, 3.
---------------------------------------------------------------------------

    Additionally, one commenter stated that the multiple NBBOs that
will be produced by competing consolidators and self-aggregators under
the proposed decentralized consolidation model will increase costs for
exchanges to enforce their rules \861\ and increase the risk of market
manipulation.\862\ This commenter also said that regulations could be
inconsistently applied due to variations in consolidated market data
from different competing consolidators,\863\ and that the proposal
would result in more frequent enforcement investigations, expansive
data requests, and delays in concluding investigations.\864\ Another
commenter stated that the proposed decentralized consolidation model
would hurt Rule 605 compliance because the baseline NBBO used by each
market center for comparisons would vary.\865\
---------------------------------------------------------------------------

    \861\ See Nasdaq Letter IV at 12, 37. See also Joint CRO Letter
at 4.
    \862\ See Nasdaq Letter IV at 12.
    \863\ See id. The commenter also stated that the proposal would
lead to confusion and inconsistent application if adopted. See id.
at 12-13.
    \864\ See id. at 37.
    \865\ See NYSE Letter II at 24.
---------------------------------------------------------------------------

    These issues are not new or unique to the decentralized
consolidation model. As discussed earlier,\866\ SRO surveillance and
regulatory programs currently need to consider different sources of
market data, including different ``NBBOs'' calculated by different
market participants as well as the NBBO calculated by exclusive SIPs
pursuant to Rule 600(b)(50). While there may be an increased number of
data sources in a decentralized consolidation model, the issues
described by these commenters are currently dealt with by SRO market
surveillance and enforcement staff today. Broker-dealers have
considered multiple data sources in complying with trade-through and
locked and crossed markets in the context of Regulation NMS. The
Commission believes that the amended definition of NBBO should not
cause increased exchange enforcement costs or an increase in alerts or
false positives because the surveillance and regulatory process will
continue as it does today.
---------------------------------------------------------------------------

    \866\ See supra Section III.B.8.
---------------------------------------------------------------------------

    Currently, SROs already must decide among data sources to use for
their surveillance and regulatory systems. SROs must also handle the
different data sources used by market participants for regulatory
compliance. Market participants may use SIP data, proprietary data, or
a combination. Market participants also may calculate their own NBBOs.
The data used by market participants today may differ from the data
used by the SROs for their surveillance and regulatory systems. Broker-
dealers are not required to use a particular source of market data for
regulatory compliance. Because broker-dealers may rely on different
sources of data--data sources that may not be used by SRO regulatory
staff to generate alerts--SRO investigators typically request data from
broker-dealers to evaluate whether an alert has discovered an actual
violation of the Federal securities laws and exchange rules. This
dynamic will not change in a decentralized consolidation model. SROs
may decide to use a consolidated market data product generated by a
competing consolidator, or they may decide to self-aggregate data to
generate consolidated market data for purposes of their surveillance
and regulatory systems. SROs will not be required to purchase every
consolidated feed to conduct enforcement or surveillance, just as they
are not required to purchase all direct proprietary feeds used by
market participants. Therefore, SROs should not incur higher
enforcement costs because the regulatory process will continue to
operate as it does currently.\867\
---------------------------------------------------------------------------

    \867\ See infra Section V.C.2(d); notes 1757-1760 and
accompanying text.
---------------------------------------------------------------------------

    Furthermore, even if SRO surveillance and regulatory programs used
the same data source as a broker-dealer, SROs

would still have to request information from such broker-dealer due to
potential data differences--such as geographic latencies, access
options, or processing options--to evaluate whether there is a
potential violation. Therefore, the Commission believes that the
existence of multiple NBBOs should not present any problems that the
SROs have not previously handled.

C. Competing Consolidators

    The Commission believes that the introduction of competing
consolidators as the entities responsible for the collection,
consolidation, and dissemination of consolidated market data products
will update and modernize the national market system and provide market
participants and investors with benefits. As noted above, the
Commission received many comments that supported the goals of the
decentralized consolidation model and the potential positive impacts
this model would have on the provision of consolidated market
data.\868\ However, some comments raised concerns about the
introduction of competing consolidators and their impact on the
national market system, which are discussed below.
---------------------------------------------------------------------------

    \868\ See supra Section III.B.1; BlackRock Letter, Fidelity
Letter, State Street Letter, Wellington Letter, ICI Letter, Virtu
Letter, AHSAT Letter, FIA PTG Letter, IntelligentCross Letter,
Committee on Capital Markets Regulation Letter, BestEx Research
Letter, Wharton Letter, MEMX Letter, Clearpool Letter; T. Rowe Price
Letter; Capital Group Letter; DOJ Letter; ACS Execution Services
Letter; IEX Letter; Steinmetz Letter (commenting on the entire
proposal); SIFMA Letter; ACTIV Financial Letter; MFA Letter; Better
Markets Letter.
---------------------------------------------------------------------------

1. Definition of ``Competing Consolidator'' Under Rule 600(b)(16)
(a) Proposal
    The Commission proposed to amend Regulation NMS to introduce
competing consolidators as the entities responsible for the collection,
consolidation, and dissemination of consolidated market data. Under
proposed Rule 600(b)(16) of Regulation NMS, a competing consolidator
would be defined as ``a securities information processor required to be
registered pursuant to Rule 614 or a national securities exchange or
national securities association that receives information with respect
to quotations for and transactions in NMS stocks and generates
consolidated market data for dissemination to any person.''
(b) Final Rule and Response to Comments
    The Commission received one comment supporting the proposed
definition of competing consolidator.\869\ The Commission, however, is
revising the definition to reflect that competing consolidators are not
required to generate a complete consolidated market data product.\870\
Rule 600(b)(16) defines a competing consolidator as ``a securities
information processor required to be registered pursuant to Rule 614 or
a national securities exchange or national securities association that
receives information with respect to quotations for and transactions in
NMS stocks and generates a consolidated market data product for
dissemination to any person.''
---------------------------------------------------------------------------

    \869\ Data Boiler Letter I at 46.
    \870\ See supra Section II.B.2. See also infra Section
III.C.8(a)(ii) for a discussion of the revisions to the
responsibilities of competing consolidators resulting from this
change.
---------------------------------------------------------------------------

    Regarding the consolidated market data that must be generated by
competing consolidators, the Commission asked in the Proposing Release
whether competing consolidators should be required to develop a
consolidated market data product that contained all of the elements
provided under the proposed definition of consolidated market
data.\871\ As proposed, competing consolidators would have had the
flexibility to offer different products but were also required to offer
a full consolidated market data product. One commenter stated that
competing consolidators should not be required to include depth-of-book
in the products they sell, as including such data would increase
latency and complexity.\872\ The commenter stated that not mandating
the provision of depth-of-book data would encourage competition further
and reduce data costs for all consumers.\873\ Another commenter stated
that the requirement that competing consolidators develop a
consolidated market data product that contained all of the elements of
consolidated market data, regardless of demand, along with other
proposed competing consolidator requirements, including registration
and Regulation SCI, imposed costs on competing consolidators that would
serve as a barrier to entry to potential competing consolidators.\874\
Another commenter suggested that only a single competing consolidator
should be obligated to provide a consolidated market data product, not
all competing consolidators.\875\ One commenter suggested that
competing consolidators should have the flexibility to compete with
proprietary data offerings and decide what products to offer to their
subscribers.\876\
---------------------------------------------------------------------------

    \871\ See Proposing Release, 85 FR at 16782.
    \872\ See BestEx Research Letter at 2, 5. The commenter said the
result would be consumers that prefer depth over latency would be
able to find the right products, as would those that prefer latency
over depth.
    \873\ See id. at 5.
    \874\ See NYSE Letter II at 14-15.
    \875\ Data Boiler Letter I at 52.
    \876\ BlackRock Letter at 2-3.
---------------------------------------------------------------------------

    The Commission agrees with the comments that objected to requiring
that all competing consolidators sell a product containing all of the
specified elements of consolidated market data \877\ because forcing
higher fixed costs and a mandatory product offering across all
competing consolidators potentially would make it more difficult for
competing consolidators to enter the market and to tailor their
services and product offerings while recouping expenses. The Commission
believes that allowing competing consolidators to generate their own
set of product offerings, tailored to the needs of their subscriber
base or otherwise differentiated, will lower the fixed costs of those
competing consolidators that elect to specialize in targeted products
that do not contain all of the elements of consolidated market data.
Specifically, these competing consolidators can offer such products
without acquiring the underlying data and developing the technological
capability necessary to calculate and consolidate all elements of
consolidated market data. This reduction in fixed costs will enable
these competing consolidators to offer products that do not contain all
elements of consolidated market data and do so in a more cost-effective
manner, which should enhance their ability to meet the specific data
needs of various market participants. In addition, increased
participation by more streamlined competing consolidators that operate
with fewer constraints and potentially fewer fixed costs, or costs
tailored to their own unique product offerings, would promote
competition in the market.
---------------------------------------------------------------------------

    \877\ See BestEx Research Letter at 2, 5; NYSE Letter II at 14-
15; BlackRock Letter at 2-3; Data Boiler Letter I at 52.
---------------------------------------------------------------------------

    The Commission recognizes that competing consolidators are the only
entities that will generate and disseminate consolidated market data
products in the national market system, and acknowledges the
possibility that competing consolidators may not offer consolidated
market data products that do not contain all of the elements of
consolidated market data. However, consistent with the views expressed
by a variety of market participants regarding the importance of the

individual elements of consolidated market data, the Commission
believes that there will be widespread demand for a product that
contains all elements of consolidated market data, and particularly for
the additional information included in core data.\878\ Specifically,
because this additional data will provide useful information that will
assist in order routing and placement decisions and achieving improved
executions for customer orders,\879\ many broker-dealers that execute
customer orders will acquire a product containing all elements of
consolidated market data to compete effectively for customer
business.\880\ Consolidated market data includes information that the
Commission believes is necessary to disseminate under the rules of the
national market system and useful for a broad-cross section of market
participants. Accordingly, the Commission believes that there should be
demand for products containing all elements of consolidated market data
even though, as adopted, Rule 614 will not require competing
consolidators to offer them.
---------------------------------------------------------------------------

    \878\ See supra note 112 and accompanying text (noting that
multiple Roundtable panelists and commenters supported the inclusion
of odd-lot information, depth of book data, and auction
information); supra notes 152-153 and accompanying text (describing
comments expressing support for the expansion of consolidated market
data and core data); 242-244 (describing comments expressing support
for the inclusion of smaller-sized orders in higher-priced stocks);
386-388 (describing comments expressing support for the inclusion of
depth of book data); 462-464 (describing comments expressing support
for the inclusion of auction information).
    \879\ See Proposing Release, 85 FR at 16754 (describing how
depth of book data can assist Smart Order Routers and electronic
trading systems with the optimal placement of orders across
markets); 16759 (explaining how information regarding the size and
side of order imbalances can indicate the direction a stock's price
might move, inform decisions on where to price an auction order and
what order type to use, and improve execution quality). See also
supra Sections II.C.2(b)-II.D.2 (explaining how aggressively priced
odd-lots will be included in core data through the definitions of
odd-lot information and round lot); II.F.2; II.G.2.
    \880\ See supra Section II.C.2(a).
---------------------------------------------------------------------------

    With respect to the receipt of data by competing consolidators,
Rule 603(b), as adopted, requires each SRO to provide its NMS
information, including all data necessary to generate consolidated
market data, to competing consolidators. In accordance with Rule
603(b), competing consolidators will receive each SRO's market data
that is necessary to generate consolidated market data. One commenter
stated that competing consolidators, their subscribers, and self-
aggregators should be permitted to receive data elements or products
based on need.\881\ As discussed above, competing consolidators will be
permitted to develop different types of consolidated market data
products based on the demands of their customers.\882\ Accordingly,
competing consolidators will not be required to receive all of the data
content underlying consolidated market data. Rather, competing
consolidators can receive the data they need to generate the
consolidated market data products they decide to offer, but the
Commission notes that competing consolidators that are SIPs required to
be registered pursuant to Rule 614 must comply with the Vendor Display
Rule when offering consolidated market data products and therefore must
receive, at a minimum, the data necessary to satisfy the Vendor Display
Rule.\883\
---------------------------------------------------------------------------

    \881\ See SIFMA Letter at 11.
    \882\ See supra Section II.B.2 discussing the definition of
consolidated market data product.
    \883\ The Vendor Display Rule requires a SIP that provides a
display of quotation and transaction information with respect to an
NMS stock, in the context of which a trading or order-routing
decision can be implemented, to also provide a consolidated display
for that stock. Rule 603(c) of Regulation NMS, 17 CFR 242.603(c).
See also supra note 97; FINRA, Regulatory Notice 15-46, 1, 3 n. 12
(2015) (``The exercise of reasonable diligence to ascertain the best
market under prevailing market conditions can be affected by the
market data, including specific data feeds, used by a firm. For
example, a firm that regularly accesses proprietary data feeds, in
addition to the consolidated SIP feed, for its proprietary trading,
would be expected to also be using these data feeds to determine the
best market under prevailing market conditions when handling
customer orders to meet its best execution obligations.'').
---------------------------------------------------------------------------

    Competing consolidators will also have the ability to select for
themselves, from among the options offered by the SROs, how to access
the data underlying consolidated market data (e.g., with different
latencies, throughput capacities, and data-feed protocols) and consider
costs and complexities related to each option. The Commission believes
that these provisions will provide competing consolidators with
flexibility to develop their consolidated market data products business
in a way that best suits their capabilities and their subscribers'
needs.
2. Comments on Resiliency
    The Commission received several comments with respect to the impact
of competing consolidators on the resiliency of the markets.\884\ Some
commenters stated that competing consolidators could add resiliency to
the markets.\885\ One commenter said that competing consolidators would
strengthen resiliency because there would no longer be a single point
of failure that could cause ``stock market paralysis.'' \886\
Similarly, another commenter said that competition could reduce the
risk of a single point of failure,\887\ and another commenter said that
the decentralized consolidation model would eliminate the SIP as a
single point of failure.\888\ Two commenters said that having a
``sufficient number of competing consolidators will be important to
ensure resiliency and backup in the collection, consolidation, and
distribution of consolidated market data.'' \889\
---------------------------------------------------------------------------

    \884\ See Committee on Capital Markets Regulation Letter at 3;
BestEx Research Letter at 1; BlackRock Letter at 5; ACS Execution
Services Letter at 5; Clearpool Letter at 7-8; Cboe Letter at 25;
TechNet Letter II at 2; NYSE Letter II at 24; Data Boiler Letter I
at 48; Data Boiler Letter II at 1; NBIM Letter at 6; NovaSparks
Letter at 1. The Commission also received one comment that urged the
Commission to focus on cybersecurity in upgrading the infrastructure
for market data. Temple University Letter at 2. The Commission is
amending Rule 1000 of Regulation SCI to make competing consolidators
exceeding a threshold ``SCI entities.'' See infra Section III.F.
    \885\ See Committee on Capital Markets Regulation Letter at 3;
BestEx Research Letter at 1; BlackRock Letter at 5; ACS Execution
Services Letter at 5; Clearpool Letter at 7-8; MEMX Letter at 3, 8;
ACTIV Financial Letter at 1 (stating that competition could
``provide investors with a . . . higher reliability framework for
determining accurate pricing of NMS securities''); NovaSparks Letter
at 1 (``The competitive nature of the new model will encourage
Competing Consolidators to deliver excellent reliability,
functionality and performance.'').
    \886\ Committee on Capital Markets Regulation Letter at 3.
    \887\ See BestEx Research Letter at 1. This commenter also said
that competing consolidators would reduce reliance on a single SIP
vendor. Id. at 5.
    \888\ See BlackRock Letter at 5.
    \889\ ACS Execution Services Letter at 5; Clearpool Letter at 7-
8. However, with respect to business continuity planning and
disaster recovery, one commenter said that having a single
competitor to the SIP would be sufficient to address concerns about
a single point of failure. See Data Boiler Letter I at 48.
---------------------------------------------------------------------------

    Commenters also argued that introducing competing consolidators
could weaken the national market system by increasing a risk of
failure,\890\ or that competing consolidators would not address
concerns about a single point of failure.\891\ One commenter stated
that introducing competing consolidators would, in fact, introduce
multiple opportunities of failure.\892\ This commenter said that a
competing consolidator with ``a significant

customer base'' could even cause market-wide trading halts if it had
system problems and urged caution in making any changes that could
``imperil the resiliency of the U.S. equities market.'' \893\ Another
commenter said that competing consolidators would continue the risk of
a single point of failure because customers of a single competing
consolidator that failed would lose access to its consolidated market
data, and unlike when an exclusive SIP fails and impacts all market
participants, only customers of the competing consolidator would be
disadvantaged.\894\ To mitigate the risk of failure, the commenter said
that subscribers would have to subscribe to at least two competing
consolidators and incur the costs of doing so.\895\ This commenter
stated that the Commission did not provide evidence to support its
conclusion that the proposed decentralized consolidation model would
improve the stability of the market data system for data
consumers.\896\ Another commenter said that there may be high-risk
competing consolidators that enter the market (such as cheaper or
slower competing consolidators) and their subscribers may not be able
to avoid harm quickly enough if technological issues occur.\897\
Another commenter said that competing consolidators would add technical
complexity, which would reduce resilience.\898\
---------------------------------------------------------------------------

    \890\ See Cboe Letter at 25; TechNet Letter II at 2. One
commenter noted an inverse relationship between data connection
speed and reliability. The commenter stated that exchanges and
competing consolidators would need to create a protocol for
conditional use of slower, reliable consolidated market data feeds
to ensure reliability of such feeds. See NBIM Letter at 6. Competing
consolidators will be required to comply with operational capability
and resiliency obligations to help ensure that the provision of
proposed consolidated market data remains reliable. See infra
Section III.F.
    \891\ See NYSE Letter II at 24; Data Boiler Letter I at 48; Data
Boiler Letter II at 1.
    \892\ See Cboe Letter at 25.
    \893\ Id.
    \894\ See NYSE Letter II at 24. Another commenter stated, ``. .
. if either of the SIPs experiences a systems issue affecting the
quality or availability of market data, all market participants are
affected equally by the issue. However, under the competing
consolidator model, if one competing consolidator is impaired, it
could severely disadvantage that competing consolidator's
subscribers and their investor clients.'' FINRA Letter at 4.
    \895\ See NYSE Letter II at 24.
    \896\ See id.
    \897\ See Nasdaq Letter IV at 8, 35.
    \898\ See TechNet Letter II at 2.
---------------------------------------------------------------------------

    The Commission does not believe that competing consolidators will
expose the national market system to an increased risk of failure \899\
or propagate the risk of a single point of failure.\900\ The Commission
believes that the decentralized consolidation model will improve the
resiliency of national market system by eliminating single points of
failure that exist in the current system. Today, SIP data for Tapes A
and B is only provided by the exclusive SIP for the CTA/CQ Plan and SIP
data for Tape C is only provided by the exclusive SIP for the Nasdaq
UTP Plan. These are single points of failure. In the decentralized
consolidation model, there will be multiple entities--competing
consolidators--collecting, consolidating, and disseminating
consolidated market data products, which will enhance the resiliency of
the national market system. Competing consolidators also will be
subject to requirements that are designed to support their resiliency.
For example, competing consolidators will be required to disclose
publicly, on a monthly basis, their system availability.\901\ This will
encourage competing consolidators to invest in their systems to make
sure that they have high rates of system ``up-time.'' The monthly
disclosures will help support systems resiliency by imposing
competitive pressures on competing consolidators to ensure that their
systems are resilient, as market participants can use the monthly
disclosures to assess and compare the performance of a competing
consolidator. Competing consolidators that cannot generate and
disseminate consolidated market data products reliably likely will not
attract or retain subscribers. Furthermore, competing consolidators
will be subject to requirements that are designed to support their
operational resiliency, including, as appropriate, Regulation SCI. The
Commission is also adopting changes to Regulation SCI to help to ensure
the integrity and resiliency of competing consolidators.\902\ The
Commission believes that it is important to impose requirements to help
ensure that the technology systems of competing consolidators are
reliable and resilient, consistent with the policy goals of Regulation
SCI. These requirements are designed to address concerns that competing
consolidators will become multiple points of failure in the
decentralized consolidation model.
---------------------------------------------------------------------------

    \899\ See Cboe Letter at 25; TechNet Letter II at 2.
    \900\ See NYSE Letter II at 24; Data Boiler Letter I at 48.
    \901\ See 17 CFR 242.614(d)(6) (Rule 614(d)(6)).
    \902\ See infra Section III.F.
---------------------------------------------------------------------------

    One commenter urged the Commission to issue standards for when a
market participant would have to subscribe to multiple competing
consolidators to mitigate the risk that its primary competing
consolidator fails.\903\ As noted above,\904\ the Commission is not
requiring market participants to have back-up competing consolidators,
whether such market participants subscribe to SCI competing
consolidators or competing consolidators that are not SCI entities,
though some may choose to do so in light of their own business needs.
The Commission believes that having multiple competing consolidators
collect, consolidate, and disseminate consolidated market data products
would eliminate a single point of failure that would weaken the entire
national market system because if one competing consolidator's
operations experiences a failure, its impact on the markets will be
minimized due to the presence of other competing consolidators that can
perform the same functions.
---------------------------------------------------------------------------

    \903\ See FINRA Letter at 4.
    \904\ See supra text accompanying notes 756-757.
---------------------------------------------------------------------------

3. Comments on Data Quality
    Several commenters supported the introduction of competing
consolidators because of the potential enhancements to the quality of
consolidated market data.\905\ Three commenters believed that
competition would improve the quality of consolidated market data.\906\
---------------------------------------------------------------------------

    \905\ See Committee on Capital Markets Regulation Letter at 3;
RBC Letter at 5-6; State Street Letter at 3.
    \906\ See Committee on Capital Markets Regulation Letter at 3;
RBC Letter at 5-6; Susquehanna Letter at 1.
---------------------------------------------------------------------------

    However, three commenters questioned the proposal's impact on data
quality, stating that the effects were uncertain and that competition
could harm data quality and accuracy, including through attracting
untested vendors who provide cheaper but potentially less reliable
service.\907\ One of these commenters stated that competing
consolidators could produce varying NBBOs and cheap data products that
would limit market information to non-self-aggregating market
participants.\908\ The commenter stated that the Commission will likely
have to create additional regulations to set minimum standards ensuring
the quality, availability, and accessibility of consolidated market
data produced by competing consolidators.
---------------------------------------------------------------------------

    \907\ See TD Ameritrade Letter at 13; Nasdaq Letter IV at 4, 7,
35; STANY Letter II at 6.
    \908\ See Nasdaq Letter IV at 26.
---------------------------------------------------------------------------

    The Commission believes that the definitions in Rule 600, as well
as the registration and disclosure requirements of Rule 614, will help
to ensure the data quality of consolidated market data. All competing
consolidators will register with the Commission and become regulated
entities (if not already SROs) and will be required to generate
consolidated market data products in a manner that is consistent with
the definitions set forth in Rule 600.
    Further, the Commission believes that competition in the
decentralized consolidation model will also support high quality
consolidated market data. Competing consolidators will be required to
produce public monthly reports on their performance and other metrics,
which should incentivize

competing consolidators to perform at a high level in order to attract
and maintain a subscriber base. A competing consolidator that does not
produce accurate, high quality consolidated market data products would
risk losing customers to other competing consolidators.\909\
---------------------------------------------------------------------------

    \909\ Competing consolidators would also be subject to
Commission oversight under Rule 614. See infra Section III.C.7.
---------------------------------------------------------------------------

4. Comments on Competing Consolidator Products
    Commenters offered suggestions on the types of products to be sold
by competing consolidators.\910\ Two commenters suggested products that
should be offered by competing consolidators.\911\ One of the
commenters said that competing consolidators should provide
consolidated market data at no charge to a registered academic
aggregator to act as an intermediary for the academic community.\912\
The other commenter stated that competing consolidators should be
required to sell a regulatory data-only feed at a fair and reasonable
price (relative to the cost of that data as part of consolidated market
data), and/or exchanges should be allowed to sell a regulatory data
proprietary market data feed.\913\ One commenter requested
clarification as to the ability of a competing consolidator to offer
separate co-location offerings as part of its competitive
services.\914\
---------------------------------------------------------------------------

    \910\ See Wharton Letter at 4; MFA Letter at 3, 9; McKay Letter
at 11.
    \911\ See Wharton Letter at 4; MFA Letter at 3, 9.
    \912\ See Wharton Letter at 4.
    \913\ See MFA Letter at 3, 9.
    \914\ See McKay Letter at 11.
---------------------------------------------------------------------------

    The Commission is not requiring competing consolidators to offer
reduced cost or free services, but competing consolidators could
develop such products if they so desired. In addition to consolidated
market data products, competing consolidators will be able to offer
other products, such as academic products or regulatory data products.
Further, the Operating Committee of the effective national market
system plan(s) for NMS stocks could develop reduced fees for the data
content underlying consolidated market data for the academic community
or for regulatory data, or the exchanges could develop and propose,
pursuant to Section 19(b) of the Exchange Act and Rule 19b-4
thereunder, similar products.
5. Comments on Selection of a Competing Consolidator
    Several commenters raised questions concerning the selection of
competing consolidators by broker-dealers.\915\ The Commission believes
that a broker-dealer will be responsible for selecting its competing
consolidator(s) and will be required to perform its own due diligence
to ensure that the competing consolidator(s) it chooses will be able to
assist the broker-dealer in meeting its regulatory obligations and its
obligations to its customers, including best execution.\916\
---------------------------------------------------------------------------

    \915\ See Healthy Markets Letter I at 4-5 (urging the Commission
to establish objective standards for brokers regarding their
selection and usage of competing consolidator feeds); FINRA Letter
at 6 (stating that a broker-dealer's best execution obligations
would prevent it from selecting a more advantageous source of market
data for its proprietary activities than it uses for its clients);
Fidelity Letter at 10 (suggesting that regulators examine why a
broker-dealer would choose one competing consolidator over another).
    \916\ See supra Section I.E.
---------------------------------------------------------------------------

    One commenter sought clarification of a broker-dealer's
responsibility for problems caused by its choice of competing
consolidator.\917\ This commenter asked if a broker-dealer could be
held liable for its competing consolidator's systems issues if such
issues negatively impact its customers. The commenter also suggested
that the Commission provide guidance for broker-dealers that compliance
with rules dependent on the availability of accurate market data be
assessed based on the data provided by a broker-dealer's competing
consolidator or received directly by a self-aggregator.\918\
---------------------------------------------------------------------------

    \917\ See FINRA Letter at 4-5.
    \918\ See id. at 5-6.
---------------------------------------------------------------------------

    Broker-dealers have obligations to their customers (e.g., a duty of
best execution) as well as regulatory obligations (e.g., Rule 603(c),
Rule 611, Regulation SHO). Broker-dealers need high quality data to
satisfy their obligations. The choice of a competing consolidator will
be relevant to a broker-dealer's receipt of market data and therefore,
a broker-dealer should assess, both upon its initial selection and on
an ongoing basis, the quality of data received from a competing
consolidator. The Commission believes that the selection of a competing
consolidator can impact a broker-dealer's services to its customers as
well as the broker-dealer's ability to comply with its regulatory
obligations, such as providing best execution for its customers.\919\
Broker-dealers will need to conduct their own analysis and perform
their own due diligence in choosing and periodically assessing
competing consolidators that meet their regulatory needs and the needs
of their customers.
---------------------------------------------------------------------------

    \919\ See supra Section I.E.
---------------------------------------------------------------------------

6. Comments on a Standardized Consolidation Process
    Two commenters recommended standardizing aspects of the operation
of competing consolidators, including the consolidation process and the
content and distribution mechanism, arguing that standardization could
make it easier for subscribers to switch to other competing
consolidators and provide consistency across data sets.\920\
---------------------------------------------------------------------------

    \920\ See BlackRock Letter at 5; MEMX Letter at 8. See also RBC
Letter at 6 (suggesting that the Commission provide guidance on the
minimum specifications for methods and processes of delivery for
competing consolidators to avoid having multiple methods and
processes, which could result in a tiered system of market data and
reduced competition); MIAX Letter at 2 (suggesting that the
Commission require all competing consolidators to utilize the same
transport protocols (i.e., multicast) when transmitting data to
market participants).
---------------------------------------------------------------------------

    The Commission is not standardizing the competing consolidator
consolidation and dissemination processes. The Commission believes
competing consolidators are in the best position to develop technical
standards for themselves. Furthermore, the Commission believes that
competing consolidators should have the flexibility to design the
consolidation and delivery services that their subscribers need.\921\
---------------------------------------------------------------------------

    \921\ The Commission will monitor issues related to the
implementation of the decentralized consolidation model, including
whether standardization of the competing consolidator consolidation
or dissemination processes would benefit market participants.
---------------------------------------------------------------------------

7. Registration and Responsibilities of Competing Consolidators: Rule
614
    The Commission proposed Rule 614 to require SIPs that wish to act
as competing consolidators to register with the Commission and publicly
disclose certain information about their organization, operations, and
products. Under proposed Rule 614, competing consolidators would be
subject to certain obligations and would be required to regularly
publish certain performance statistics on a monthly basis on their
respective websites.
(a) Competing Consolidator Registration: Rule 614(a)
(i) Rule 614(a)(1)(i): Proposal
    Proposed Rule 614(a)(1)(i) would prohibit any person, other than an
SRO, from (A) receiving directly from a national securities exchange or
national securities association information with respect to quotations
for and transactions in NMS stocks; and (B) generating the proposed
consolidated market data for dissemination to any person (i.e., acting
as a competing consolidator by disseminating data to external parties)
unless that person files

with the Commission an initial Form CC and the initial Form CC has
become effective pursuant to proposed Rule 614(a)(1)(v).\922\
---------------------------------------------------------------------------

    \922\ If a self-aggregator disseminated consolidated market data
to any person, it would be acting as a competing consolidator and
would be required to register pursuant to proposed Rule 614 and
comply with the requirements applicable to competing consolidators.
---------------------------------------------------------------------------

(ii) Rule 614(a)(1)(i): Final Rule and Response to Comments
    The Commission is revising proposed Rule 614(a)(1)(i) to address a
comment relating to market data vendors, as discussed below. Rule
614(a)(1)(i)(A), as adopted, will provide: ``No person other than a
national securities exchange or a national securities association . . .
may receive directly, pursuant to an effective national market system
plan, from a national securities exchange or national securities
association information with respect to quotations for and transactions
in NMS stocks'' (addition in italics). This new language is intended to
clarify the entities that will be required to register as a competing
consolidator.
    The Commission requested comment on the proposed registration
process, including whether competing consolidator registration should
be subject to Commission approval and/or additional or different
regulation.\923\ The Commission received several comments regarding
proposed Rule 614(a)(1)(i). A few commenters described the proposed
registration process as ``onerous,'' ``overly burdensome'' and a
``barrier to entry.'' \924\ However, other commenters supported the
registration process and urged regulating competing consolidators
``with the same rigor and governance applied to the SIP plans today.''
\925\
---------------------------------------------------------------------------

    \923\ See Proposing Release, 85 FR at 16778.
    \924\ NYSE Letter at 14; ACTIV Financial Letter at 2-3; Nasdaq
Letter II at 37.
    \925\ WFE Letter at 1. See also MIAX Letter at 5.
---------------------------------------------------------------------------

    While the registration of competing consolidators is a new
regulatory process that will be required of entities that may not be
regulated today, as discussed below, the registration process is
necessary and does not unduly burden potential competing consolidators.
While there are costs and burdens associated with the registration
process,\926\ the Commission believes that such costs and burdens are
justified by the benefits of Commission oversight and the disclosure of
competing consolidator operations for market participants. As discussed
in the Proposing Release, the regulatory regime and responsibilities of
competing consolidators are designed to collect relevant information
about competing consolidators and to require competing consolidator
performance data, data quality issues, and system issues to be made
publicly available through a relatively streamlined process that
imposes appropriate burdens on entities likely to register as competing
consolidators. The Commission designed the competing consolidator
registration process to provide the Commission with information
necessary for it to perform its regulatory oversight of these important
market participants without imposing burdensome regulatory requirements
on registrants.\927\
---------------------------------------------------------------------------

    \926\ See infra Section V.C.3.
    \927\ The Form CC filing process is a notice-based registration
process and is similar to other notice-based filing processes
required by the Commission. See Securities Exchange Act Release No.
40760 (Dec. 8, 1998), 63 FR 70844 (Dec. 22, 1998) (``Regulation ATS
Adopting Release'').
---------------------------------------------------------------------------

    Further, the registration process for competing consolidators was
designed to limit the burdens on competing consolidators, commensurate
with their role. The competing consolidator regime is less burdensome
than the registration process applicable for exclusive processors. As
described in the Proposing Release, the registration process for
exclusive processors is set forth in Section 11A of the Exchange Act
\928\ and requires the Commission to grant applications or institute
proceeding to determine whether a registration should be denied.\929\
The Commission, however, proposed a more streamlined and limited
process. As part of this process, the Commission will not approve Form
CC and amendments to Form CC. Rather, the Commission is adopting a
process in which a potential competing consolidator's registration will
become effective unless the Commission issues an order declaring its
Form CC ineffective. The Commission believes that this registration
process will allow potential competing consolidators to begin operating
relatively quickly, while still allowing the Commission to review Form
CC for non-compliance with Federal securities laws and the rules and
regulations thereunder, and for material deficiencies with respect to
accuracy, currency, or completeness.
---------------------------------------------------------------------------

    \928\ 15 U.S.C. 78k-1.
    \929\ See Proposing Release, 85 FR at 16778.
---------------------------------------------------------------------------

    Section 11A(b)(1) of the Exchange Act \930\ provides that a SIP not
acting as the ``exclusive processor'' \931\ of any information with
respect to quotations for or transactions in securities is exempt from
the requirement to register with the Commission as a SIP unless the
Commission, by rule or order, determines that the registration of such
SIP ``is necessary or appropriate in the public interest, for the
protection of investors, or for the achievement of the purposes of
[Section 11A].'' A SIP that proposes to act as a competing consolidator
would not engage on an exclusive basis on behalf of any national
securities exchange or registered securities association in collecting,
processing, or preparing for distribution or publication any
information with respect to quotations for or transactions in
securities; therefore, a competing consolidator would not fall under
the statutory definition of ``exclusive processor.'' Section 11A(b)(1)
of the Exchange Act provides the Commission with authority to require
the registration of a SIP not acting as an exclusive processor by rule
or order. Under the adopted rules, competing consolidators will play a
vital role in the national market system by collecting, consolidating,
and disseminating consolidated market data. Because the availability of
prompt, accurate, and reliable consolidated market data is essential to
investors and other market participants, the Commission believes that
it is necessary and appropriate in the public interest and for the
protection of investors to require each SIP that wishes to act as a
competing consolidator to register with the Commission as a SIP
pursuant to Rule 614. The Commission is thus exercising this authority
by adopting Rule 614 to establish the process by which SIPs that wish
to act as competing consolidators will be required to register with the
Commission.
---------------------------------------------------------------------------

    \930\ 15 U.S.C. 78k-1(b)(1).
    \931\ See Section 3(b)(22)(B) of the Exchange Act for the
definition of exclusive processor.
---------------------------------------------------------------------------

    The registration process for exclusive SIPs under Section 11A
requires the Commission to publish notice of an exclusive SIP's
application for registration and, within 90 days of publication of
notice of the application, by order grant the application or institute
proceedings to determine whether the registration should be
denied.\932\ At the conclusion of the proceedings, the Commission must,
by order, grant or deny the registration.\933\ Section 11A(b)(1) of the
Exchange Act also authorizes the Commission, by rule or by order, upon
its own motion or by application, to exempt conditionally or
unconditionally any SIP or class of SIPs from any provision of Section
11A or the rules or regulations thereunder if the Commission finds that
such exemption

is consistent with the public interest, the protection of investors,
and the purposes of Section 11A, including the maintenance of fair and
orderly markets in securities and the removal of impediments to and
perfection of the mechanisms of a national market system.
---------------------------------------------------------------------------

    \932\ See Section 11A(b)(3).
    \933\ See Section 11A(b)(3)(B).
---------------------------------------------------------------------------

    The Commission believes that it is consistent with the public
interest, the protection of investors, and the purposes of Section 11A
to use its authority under Section 11A(b)(1) to exempt SIPs that wish
to act as competing consolidators from the registration process
established in Section 11A(b)(3) of the Exchange Act \934\ and to allow
such competing consolidators to register pursuant to a process that is
more streamlined and limited than the process described in Section
11A(b)(3). The process specified in Section 11A(b)(3) of the Exchange
Act was developed for exclusive SIPs and reflects the heightened need
to review and analyze exclusive processors. In contrast, SIPs that do
not act as exclusive SIPs are exempt from registration unless the
Commission ``finds that the registration of such securities information
processor is necessary or appropriate in the public interest, for the
protection of investors, or for the achievement of the purposes of
[Section 11A].'' The Commission does not believe that this process for
exclusive processors in necessary for competing consolidators. The
Commission believes that the registration process in Rule 614 will
provide the Commission with the information necessary to oversee
competing consolidators and help ensure that relevant information
regarding such competing consolidators is available to the Commission
and to the public. The streamlined registration process is also
designed to reduce regulatory burdens and encourage entities to
register as competing consolidators.
---------------------------------------------------------------------------

    \934\ 15 U.S.C. 78k-1(b)(3).
---------------------------------------------------------------------------

    In addition, the Commission believes that it is consistent with the
public interest, the protection of investors, and the purposes of
Section 11A to use its exemptive authority under Section 11A(b)(1) of
the Exchange Act to exempt those SIPs that act as competing
consolidators from Section 11A(b)(5) of the Exchange Act,\935\ which
requires a registered SIP to notify the Commission if the SIP prohibits
or limits any person with respect to access to its services. Section
11A(b)(5) allows any person aggrieved by a prohibition or limitation of
such access to the SIP's services to petition the Commission to review
the prohibition or limitation of access. Exclusive SIPs, by definition,
engage on an exclusive basis in collecting, processing, or preparing
data. In contrast, the competing consolidators will not engage in
collecting, processing, or preparing data on an exclusive basis.
Therefore, the Commission believes that the protections of Section
11A(b)(5) of the Exchange Act, including the ability of an aggrieved
person to petition the Commission for review of a SIP's prohibition or
limitation of access to the SIP's services, are not necessary for
competing consolidators. The Commission believes that the decentralized
consolidation model with multiple competing consolidators will reduce
the likelihood that a subscriber will not be able to access
consolidated market data. Subscribers will be able to obtain such data
from another competing consolidator. Accordingly, the Commission
believes that it will be consistent with the protection of investors
and the public interest to exempt competing consolidators from Section
11A(b)(5) of the Exchange Act.
---------------------------------------------------------------------------

    \935\ Section 11A(b)(5) of the Exchange Act, 15 U.S.C. 78k-
1(b)(5), requires a SIP promptly to notify the Commission if the
registered SIP prohibits or limits any person in respect of access
to services offered, directly or indirectly, by the registered SIP.
The notice must be in the form and contain the information required
by the Commission. Any prohibition or limitation on access to
services with respect to which a registered SIP is required to file
notice is subject to review by the Commission on its own motion, or
upon application by any person aggrieved by the prohibition or
limitation.
---------------------------------------------------------------------------

(iii) Comments on Data Vendors
    Two commenters expressed concern that current market data vendors
would have to register as competing consolidators to continue receiving
consolidated market data directly from SROs.\936\ One of the commenters
stated that proposed Rule 614(a)(1)(i) appeared to require market data
vendors that generate and disseminate consolidated market data in NMS
stocks based on information received directly from SROs to register as
competing consolidators.\937\ The commenter further stated that the
discussion of market data vendors in the Proposing Release created
uncertainty regarding whether the Commission intended to require market
data vendors to register as competing consolidators to continue
engaging in their current businesses.\938\ The other commenter said the
proposal stated that data vendors that want to continue to receive
proprietary data that included data content underlying consolidated
market data from an SRO would have to register as competing
consolidators, or they would have to subscribe to a competing
consolidator to purchase this data. The commenter said the price of
this data could increase, causing a data vendor's customer base to
decrease.\939\
---------------------------------------------------------------------------

    \936\ See IDS Letter I at 3, 4; NYSE Letter II at 18.
    \937\ See IDS Letter I at 3, 4.
    \938\ See id. at 3.
    \939\ See NYSE Letter II at 18.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that vendors would
still be able to operate in the decentralized consolidation model.
Vendors would be able to receive proprietary market data directly from
the SROs as they do today or they would be able to receive consolidated
market data from a competing consolidator in a manner that is similar
to how they receive SIP data today without being required to register
as a competing consolidator. However, if a vendor wished to receive
directly from the SROs information with respect to quotations for and
transactions in NMS stocks at the prices established by the effective
national market system plan(s) and generate consolidated market data
for dissemination, such vendor would be required to register as a
competing consolidator. Thus, only competing consolidators and self-
aggregators would be able to directly receive the NMS information that
is necessary to generate consolidated market data from the SROs at the
prices established by the effective national market system
plan(s).\940\
---------------------------------------------------------------------------

    \940\ See Proposing Release, 85 FR at 16770, n. 434.
---------------------------------------------------------------------------

    The Commission agrees that Rule 614(a)(1)(i), as proposed, could
create uncertainty with respect to whether market data vendors would be
able to continue their current businesses without being required to
register as competing consolidators. Accordingly, the Commission is
revising proposed Rule 614(a)(1)(i) to provide that no person, other
than a national securities exchange or a national securities
association, ``[m]ay receive directly, pursuant to an effective
national market system plan, from a national securities exchange or
national securities association information with respect to quotations
for and transactions in NMS stocks'' and ``[g]enerate consolidated
market data products for dissemination to any person unless the person
files with the Commission an initial Form CC and the initial Form CC
has become effective pursuant to paragraph (a)(1)(v)'' (italicized to
show changes to the proposed language).\941\
---------------------------------------------------------------------------

    \941\ This provision is also updated to reflect the new
definition of consolidated market data product. See supra Section
II.B.

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

    The Commission believes that adopted Rule 614(a)(1) makes clear
that only entities that receive information with respect to quotations
for and transactions in NMS stocks directly pursuant to an effective
national market system plan from a national securities exchange or
national securities association, and generate consolidated market data
products for dissemination, will be required to register as competing
consolidators. A market data vendor that purchases proprietary data
feeds from an SRO or SROs, or that purchases data from a competing
consolidator, and aggregates and disseminates such data to its
customers, will not be required to register as a competing
consolidator. However, vendors that do not register as competing
consolidators would not be permitted to purchase the NMS information
necessary to generate consolidated market data from the SROs at prices
established by an effective national market system plan.
    The commenter also argued that the proposal fails to assess the
cost of the proposed changes on market data vendors.\942\ The
commenter's primary concern with respect to the proposal's potential
costs to market data vendors arose from the assumption that market data
vendors would be required to register as competing consolidators. As
stated above, a market data vendor is not required to register as
competing consolidator unless it wishes to purchase information with
respect to quotations for and transactions in NMS stocks directly from
a national securities exchange or national securities association
pursuant to an effective national market system plan, and generate
consolidated market data products for dissemination, i.e., act as
competing consolidator. Accordingly, the adopted rules do not
necessarily increase costs for market data vendors.
---------------------------------------------------------------------------

    \942\ See IDS Letter I at 5-6.
---------------------------------------------------------------------------

    The commenter further stated that the primary impact of the
proposal on a market data vendor that does not register as a competing
consolidator (and therefore does not purchase data directly from the
SROs at prices established by the effective national market system
plan(s)) would come from changes in the prices that the SROs charge for
their proprietary data feeds, which the commenter describes as
``unregulated.'' \943\ The Commission acknowledges this assessment but
clarifies that proprietary data fees are regulated, although such fees
are not subject to this rulemaking nor are they subject to the same
regulatory process that is used for effective national market system
plan(s) fees.\944\ The exchanges are required to file all proposed fees
for their proprietary data products with the Commission pursuant to
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder and the
proposed fees must satisfy the standards under the Exchange Act,
including Section 6(b)(4) and Section 15A(b)(5).\945\
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    \943\ Id. at 5.
    \944\ See Effective-Upon-Filing Adopting Release, supra note 17.
NMS Plan amendments are subject to Rule 608 of Regulation NMS, 17
CFR 242.608.
    \945\ Sections 6(b)(4) and 15A(b)(5) of the Exchange Act require
that the rules of a national securities exchange or national
securities association provide for the equitable allocation of
reasonable dues, fees, and other charges among its members and
issuers and other persons using its facilities.
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(iv) Comments on Competing Consolidators Affiliated With Exchanges
    In the Proposing Release, the Commission stated that because
Section 3(a)(22)(A) of the Exchange Act excludes SROs from the
definition of SIP they would not have to register as a competing
consolidator pursuant to proposed Rules 614(a) through (c) and proposed
Form CC.\946\ The Commission stated that an SRO could either operate a
competing consolidator under its SRO as a facility or could operate a
competing consolidator in a separate affiliated entity, not as a
facility of the SRO.\947\
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    \946\ See Proposing Release, 85 FR at 16779, n. 537.
    \947\ See Proposing Release, 85 FR at 16779, n. 537.
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    Several commenters addressed this topic. One commenter, arguing
that SRO obligations are not a substitute for the competing
consolidator requirements, stated that an SRO or its affiliate that
acts as a competing consolidator should be registered as such and
should be subject to the same disclosure and other requirements as
other competing consolidators.\948\
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    \948\ See IEX Letter at 8-9.
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    Two commenters questioned the proposal's assumption that SROs or
their affiliates would be willing to become competing
consolidators.\949\ Three commenters stated that a competing
consolidator that was a facility of a national securities exchange
would be at a competitive disadvantage to competing consolidators that
were not exchange facilities.\950\ One commenter noted that a competing
consolidator that was not an exchange facility could change its
products and their associated fees in response to competitive forces,
while a competing consolidator that was a facility of an exchange would
be required to file a proposed rule change with the Commission pursuant
to Section 19(b) of the Exchange Act to make the same changes.\951\
Another commenter stated that the proposal established a two tiered
system, with competing consolidators that are not affiliated with an
exchange subject to the relatively streamlined Form CC regime and
exchange facility competing consolidators subject to the more stringent
framework, including the 19b-4 rule filing process.\952\ A third
commenter suggested that to alleviate this disparity the Commission
should subject both SROs and non-SROs that seek to become competing
consolidators to the same regulatory standards by subjecting the Form
CC, and any amendment thereto, to Commission review and approval.\953\
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    \949\ See NYSE Letter II at 17-18; IDS Letter I at 15-21.
    \950\ See NYSE Letter II at 17-18; IDS Letter I at 19-21; MIAX
Letter at 5.
    \951\ See NYSE Letter II at 17-18.
    \952\ See IDS Letter I at 21. Another commenter stated that
disparate treatment of exchanges as competing consolidators violates
the APA, explaining that exchanges acting as competing consolidators
would be subject to Sections 6(b) and 19(d) of the Exchange Act,
while non-facility competing consolidators would not be subject to
these requirements. The commenter stated that non-facility competing
consolidators would enjoy a ``significant competitive advantage over
exchange competing consolidators by having greater pricing
flexibility and not being subject to the denial of access process.''
See Nasdaq Letter IV at 44.
    \953\ See MIAX Letter at 5. The commenter also expressed concern
that an exchange-operated competing consolidator with an unregulated
affiliate that provides access and connectivity services could use
the networks of the non-regulated affiliate to offer pricing
discounts or other incentives to encourage market participants to
purchase the competing consolidator's consolidated market data. The
commenter asserted that an affiliate of an exchange that provides
access and connectivity to exchange systems is a facility of the
exchange because it is a ``system of communication to or from the
exchange, by ticker or otherwise, maintained by or with the consent
of the exchange.'' Id. at 4.
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    Two commenters also stated that the Proposal did not explain how a
competing consolidator affiliated with an exchange could avoid being a
facility of the exchange.\954\ One commenter stated that the absence of
guidance with respect to when an affiliated competing consolidator
would be a facility of an exchange substantially reduces the likelihood
that entities affiliated with SROs would create competing
consolidators.\955\ The commenter further asserted that the failure to
address this important issue for potential competing consolidators made
it impossible to comment adequately and comprehensively on the
proposal.\956\ Another commenter stated that the Commission should
consider issuing interpretive guidance to provide

additional clarity around the definition of a facility of an
exchange.\957\
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    \954\ See NYSE Letter II at 17; IDS Letter I at 17.
    \955\ See IDS Letter I at 21.
    \956\ See id. at 18.
    \957\ See McKay Brothers Letter at 2.
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    The questions raised by commenters relate to the Commission's
application of the terms ``exchange'' and ``facility'' of an exchange,
defined in Sections 3(a)(1) and (2) of the Exchange Act, to the
activities of competing consolidators affiliated with exchanges.
Section 3(a)(1) defines an ``exchange'' to include ``an organization,
association, or group of persons, whether incorporated or
unincorporated,'' that maintains a ``market place'' for ``bringing
together purchasers and sellers of securities.'' \958\ Section 3(a)(2)
defines a ``facility'' of an exchange to include the exchange's
premises, tangible or intangible property whether on the premises or
not, or any right to the use of such premises or property or any
service thereof for the purpose of effecting or reporting a transaction
on an exchange.\959\ Section 3(a)(2) specifically includes services
such as systems of communication to or from the exchange.\960\ The
Commission has observed that the determination of whether a service is
a facility of an exchange requires an analysis of the particular facts
and circumstances.\961\
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    \958\ Section 3(a)(1) of the Exchange Act defines ``exchange''
as any organization, association, or group of persons, whether
incorporated or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing together
purchasers and sellers of securities or for otherwise performing
with respect to securities the functions commonly performed by a
stock exchange as that term is generally understood, and includes
the market place and the market facilities maintained by such
exchange. 15 U.S.C. 78c(a)(1). See also 17 CFR 240.3b-16.
    \959\ Section 3(a)(2) of the Exchange Act defines the term
``facility'' when used with respect to an exchange includes its
premises, tangible or intangible property whether on the premises or
not, any right to the use of such premises or property or any
service thereof for the purpose of effecting or reporting a
transaction on an exchange (including, among other things, any
system of communication to or from the exchange, by ticker or
otherwise, maintained by or with the consent of the exchange), and
any right of the exchange to the use of any property or service. 15
U.S.C. 78c(a)(2).
    \960\ See id. See also Securities Exchange Act Release No. 90209
(October 15, 2020), 85 FR 67044, 67048 (October 21, 2020) (SR-NYSE-
2020-05; SR-NYSE-2020-11 et al.) (``NYSE Wireless Order'').
    \961\ See Securities Exchange Act Release No. 76127 (October 9,
2015), 80 FR 62584, 62586 n. 9 (October 16, 2015) (SR-NYSE-2015-36)
(Order Approving Proposed Rule Change amending Section 907.00 of the
Listed Company Manual).
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    In the Proposing Release, the Commission stated that an exchange
could choose whether to operate a competing consolidator (1) as a
facility of the exchange, or (2) as a separate affiliate, not as a
facility, registered as a competing consolidator.\962\ The application
of the definition of ``facility'' of an exchange does not turn on which
particular entity directly holds a particular asset, including the
national securities exchange license.\963\ Accordingly, whether a
competing consolidator affiliated with a national securities exchange
is a facility of that exchange does not depend solely on corporate
structure, but rather on a facts-and-circumstances analysis of the
functions provided by the affiliated competing consolidator and its
relationship with the exchange.\964\
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    \962\ Proposing Release, 85 FR at n. 537.
    \963\ See NYSE Wireless Order, supra note 960, at 67047. Cf.
Securities Exchange Act Release No. 40760 (Dec. 8, 1998), 63 FR
70844, 70852 (Dec. 22, 1998) (``Regulation ATS Adopting Release'')
(stating, in the context of entities providing trading systems that
function as ATSs, that ``[t]he Commission will attribute the
activities of a trading facility to a system if that facility is
offered by the system directly or indirectly (such as where a system
arranges for a third party or parties to offer the trading
facility). . . . In addition, if an organization arranges for
separate entities to provide different pieces of a trading system .
. . , the organization responsible for arranging the collective
efforts will be deemed to have established a trading facility.'').
    \964\ A particular function provided by an organization,
association, or group of persons, whether incorporated or
unincorporated, may fall within the statutory definition of
``exchange'' when business activities performed across the group
constitute part of that market place for bringing together
purchasers and sellers. See NYSE Wireless Order, supra note 960, at
67047. An entity's mere affiliation with an exchange, without more,
is not solely determinative of whether a function is a facility of
an exchange. See Securities Exchange Act Release No. 44983 (Oct. 25,
2001), 66 FR 55225 (Nov. 1, 2001) (SR-PCX-00-25).
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    The Commission would expect that the activities of a competing
consolidator affiliated with a national securities exchange would be
likely to fall within the statutory definitions. The Commission also
understands that the facts and circumstances with respect to each
exchange and competing consolidator relationship may be different,
including that there are different corporate structures under which an
exchange could operate a competing consolidator. Therefore, to address
the concerns raised by commenters and to foster a level competitive
playing field for competing consolidators that are facilities of an
exchange, the Commission believes that an exemption from certain
regulatory requirements, subject to the conditions set forth below,
would be appropriate in the public interest and consistent with the
protection of investors.
    Section 36(a)(1) of the Exchange Act authorizes the Commission,
subject to certain limitations, to conditionally or unconditionally
exempt any person, security, or transaction, or any class thereof, from
any provision of the Exchange Act or rule thereunder, if necessary or
appropriate in the public interest and consistent with the protection
of investors.\965\ The limited exemption would exempt a national
securities exchange with respect to its competing consolidator
activities from (i) the rule filing requirements in Section 19(b)(1) of
the Exchange Act and Rule 19b-4 thereunder, (ii) the denial of access
provisions in Section 19(d) of the Exchange Act, (iii) the requirements
in Section 6(b) of the Exchange Act; and (iv) the requirements in
Regulation SCI applicable to SCI SROs (unless the competing
consolidator is otherwise subject to Regulation SCI as Regulation SCI
would be applied to a competing consolidator).
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    \965\ 15 U.S.C. 78mm(a)(1).
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    As a condition of the exemptive relief, the competing consolidator
must be registered under Rule 614 and be in compliance with all
regulatory requirements applicable to competing consolidators under
Rule 614, including the requirement to file Form CC. To promote a level
playing field, and as required by Rule 603(b), the national securities
exchange must not provide any latency, content, connectivity, cost or
other competitive advantages with respect to the provision of the
content underlying the consolidated market data to the affiliated
competing consolidator.\966\ As a further condition of the exemption,
and to ensure that the national securities exchange does not leverage
exchange products and services to establish an unfair competitive
advantage, a national securities exchange would not be permitted to
link the pricing for or condition availability for services of the
affiliated competing consolidator to any products or services of the
exchange, including transactions, connectivity and data.\967\
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    \966\ Rule 603(b) requires a national securities exchange to
provide its NMS information, including all data necessary to
generate consolidated market data, to all competing consolidators
and self-aggregators in the same manner and using the same methods,
including all methods of access and the same format, as the national