preliminarily believes that the connectivity fees for proposed
consolidated market data would not be directly passed through to the
end users. SRO connectivity fees would be fixed costs incurred by self-
aggregators and by competing consolidators, a cost the latter could
spread out among their end users as a part of the consolidation and
dissemination fees.
---------------------------------------------------------------------------

    \1019\ For example, under Section 6(b)(4) of the Exchange Act,
the rules of an exchange must ``provide for the equitable allocation
of reasonable dues, fees, and other charges among its members and
issuers and other persons using its facilities.'' 15 U.S.C.
78f(b)(4).
---------------------------------------------------------------------------

    Additionally, because the total fees for the equivalent of proposed
consolidated market data are likely to decline as a result of the
proposal, some market participants may choose to purchase more
consolidated market data content than they purchase today, such as
purchasing the expanded core data. The likelihood of this outcome would
depend on the difference between total fees for proposed consolidated
market data and current total fees for equivalent data content. The
economic effect of more market participants purchasing expanded core
data is discussed above in Section VI.C.1(b).
(ii) Fees for the Content of Current SIP Data
    The Commission also considers the effect of the proposed rule on
fees market participants currently pay for SIP data content versus what
they would pay for equivalent content under the decentralized
consolidation model.

The Commission recognizes that a significant proportion of market
participants currently purchase only SIP data and/or the unconsolidated
equivalent of SIP data.\1020\ Under the proposed rule and conditional
on fees for proposed consolidated market data, while some of these
market participants would choose to purchase more data than they
purchase today, other market participants would continue to purchase
content equivalent to current SIP data (e.g., NBBO and TOB). The
Commission preliminarily believes that data fees paid for equivalent
data content could be higher than current SIP data fees or could be
lower than current SIP data fees. Whether the fees are higher or lower
depends on several factors: the data content fee structure proposed by
the effective national market system plan(s) for NMS stocks, how
competing consolidators allocate their costs of processing (i.e.,
receiving, consolidating, and disseminating) consolidated market data,
and any connectivity fees charged by competing consolidators for
consolidated market data.
---------------------------------------------------------------------------

    \1020\ See supra Section VI.B.2(a).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the data content fee
structure proposed by the effective national market system plan(s) for
NMS stocks under the decentralized consolidation model is an important
factor in determining whether total data fees (i.e., the sum of data
content fees, consolidation and dissemination fees, and connectivity
fees) for the equivalent of current SIP data could be higher or lower
under the proposed rule.\1021\ The Commission recognizes that because
of the expanded scope of proposed consolidated market data relative to
the current SIP data, the data content fee market participants would
pay for data necessary to create proposed consolidated market data
might be higher than the portion of current SIP data fees that accounts
for the data content. Until the effective national market system
plan(s) propose fees for the data content necessary to create proposed
consolidated market data, the Commission is unable to determine whether
this fee structure would charge lower fees for end users who wish to
receive subsets of consolidated market data from competing
consolidators. In other words, the Commission is unable to determine
whether the effective national market system plan(s) for NMS stocks
would propose a fee structure reflecting different tiers of data
content for the proposed consolidated market data. Without such a
structure, all subscribers to consolidated market data would pay the
same data content fee regardless of whether they wish to receive all or
a subset of consolidated market data. As a result, the proposal could
increase the content fees for the equivalent of SIP data. This
potential outcome is highly dependent on the effective national market
system data plan(s) and fee proposals.\1022\
---------------------------------------------------------------------------

    \1021\ See supra Section VI.B.2(c).
    \1022\ The Commission has proposed an order to modernize the
governance of the data plans. See supra note 8.
---------------------------------------------------------------------------

    The fees for data consolidation and dissemination depend on how
competing consolidators allocate fixed costs among subscribers
receiving different subsets of data. As discussed above,\1023\ the
Commission expects competing consolidators to offer a menu of products
and services, regardless of the data structure of the effective
national market system plan(s). Competing consolidators could elect to
charge lower consolidation and dissemination fees to subscribers
receiving subsets of data compared to fees charged to subscribers
receiving all consolidated market data. In fact, the Commission
preliminarily believes that competitive pressure could result in such a
fee structure. As a result, the data consolidation and dissemination
component of total fees charged to those who purchase content
equivalent to SIP data could be lower than this component of current
SIP data fees today.
---------------------------------------------------------------------------

    \1023\ See supra Section VI.C.2(a).
---------------------------------------------------------------------------

    The fees for connectivity services paid by end users are likely to
decline for some users but could increase for others. Currently, some
SIP data users connect to the exchanges that are the administrators of
exclusive SIPs and pay connectivity fees to access the SIP data. These
connectivity fees are paid directly to the exchanges and do not go to
the exclusive SIPs. There are also SIP data users that do not connect
to the exchanges and thus do not pay SRO connectivity fees for SIP
data, but may pay fees to other market data service providers. Under
the proposed rule, both types of current SIP data subscribers may be
charged a connectivity fee by competing consolidators when they
subscribe to proposed consolidated market data. The Commission
acknowledges that there is uncertainty over whether the competing
consolidator connectivity fees would be larger or smaller than what
some of the SIP data users currently pay in connectivity fees. The
overall connectivity fees under the proposed rule may be larger if
competing consolidators are not constrained by competition such that
they can charge higher connectivity fees without concern for
subscribers' scope of content. On the other hand, as discussed above
\1024\ and given the potential connectivity options available, the
Commission preliminarily believes competing consolidators will be under
competitive pressure, and as such, they may offer a range of
connectivity fees, including based on market participants' scope of
data content and speed choice. In that case, SIP data subscribers who
currently pay connectivity fees to the exchanges may see their
connectivity fees decline.
---------------------------------------------------------------------------

    \1024\ See supra Section VI.C.2(b)(i).
---------------------------------------------------------------------------

(c) Benefits of the Decentralized Consolidation Model Pertaining to
Competing Consolidators
    As discussed above,\1025\ currently SIP data is collected,
calculated, and disseminated to market participants through a
centralized consolidation model with an exclusive SIP for each NMS
stock. Even though current exclusive SIPs are selected through a
bidding process,\1026\ the Commission preliminarily believes that a
competitive marketplace is more capable of producing the benefits that
come from competitive forces than the process of soliciting bids for
exclusive contracts.\1027\ In particular, the Commission preliminarily
believes that the decentralized consolidation model would have three
potential benefits for market participants. First, the Commission
believes that the decentralized consolidation model offers the
potential for more gains in efficiency in the delivery of consolidated
market data, which may include cost savings that could be passed on to
market participants, to emerge over time. Second, the Commission
believes the model would enable consolidated market data delivery to
continue to keep up with market data communication innovations in the
future, in a way that the current centralized consolidation model has
not. Third, the Commission preliminarily expects the new model would
significantly reduce the various types of content and latency
differentials that currently exist between SIP data and proprietary
data products.\1028\
---------------------------------------------------------------------------

    \1025\ See supra Sections IV.A, VI.B.2(b).
    \1026\ See supra Section VI.B.1.
    \1027\ See supra Section VI.A.2; infra Section VI.D.2.
    \1028\ See supra Section VI.B.2(b).
---------------------------------------------------------------------------

    The Commission preliminarily believes that introducing competition
into the provision of consolidated

market data and dissemination services would present more incentives
for reducing costs and lowering prices for those services,\1029\ and
innovating on product offerings more tailored to the needs of the
consumers. It is therefore the Commission's preliminary expectation
that the decentralized consolidation model would result in a meaningful
increase in investments intended to lower costs and/or improve quality
in the provision of consolidated market data. This represents an
economic benefit for the industry, some of which would be kept by
competing consolidators as profit, and some of which would be received
by market participants in the form of lower fees and/or improved
quality for competing consolidator services.
---------------------------------------------------------------------------

    \1029\ See infra Section VI.D.2.
---------------------------------------------------------------------------

    As discussed above,\1030\ some market participants may benefit as a
result of the introduction of the decentralized consolidation model
because of the lower price for proposed consolidated market data
relative to today's price for consolidated market data holding data
content constant. These market participants are likely interested in
expanded consolidated market data, and currently would have to pay to
obtain additional data elements via proprietary data feeds. Therefore,
these market participants could pay a lower price for expanded
consolidated market data under the decentralized consolidation model.
---------------------------------------------------------------------------

    \1030\ See supra Section VI.C.2(b).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the decentralized
consolidation model would provide a benefit to market participants by
increasing the amount of innovation in the consolidation and
dissemination of consolidated market data. This is a benefit because it
represents an improvement over the current system for dissemination of
SIP data, in which the lack of competitors reduces the incentives of
the exchanges that govern SIPs to innovate.\1031\ As mentioned above,
the Commission preliminarily believes that the current system of
disseminating SIP data through exclusive SIPs, which are managed by
Equity Data Plans' operating committees, is not well suited to keep up
with the pace of innovation in data processing and communication in the
market.\1032\ The decentralized consolidation model would place the
task of determining the method of consolidation and dissemination to
free market forces, which the Commission preliminarily believes would
make it easier to innovate rapidly and maintain competitive parity with
other market participants. The end result of this improved efficiency
in investment decisions by consolidators would be to improve the
quality and reliability of market data consolidation and dissemination
services, which would result in market participants having better data
to make trading decisions.\1033\ The Commission preliminarily believes
this would lead to better trading decisions, lower execution costs, and
would help reduce information asymmetries between market participants
that currently solely rely on SIP data and market participants who
purchase the exchanges' proprietary data products. The Commission
preliminarily believes that the magnitude of this benefit depends on
the assumption that there would be a sufficient number of competing
consolidators entering the market.
---------------------------------------------------------------------------

    \1031\ See supra Section VI.A.2.
    \1032\ Id.
    \1033\ See infra Section VI.D.1.
---------------------------------------------------------------------------

    The Commission preliminarily believes that another benefit of the
decentralized consolidation model would be to substantially reduce the
latency differential between proposed consolidated market data and
proprietary data. This belief is based upon the Commission's assumption
that the business practices of current market data aggregators, some of
which will likely become competing consolidators, would serve as a
model for how competing consolidators would operate under the
decentralized consolidation model.\1034\ Current market data
aggregators have achieved connectivity, transmission, consolidation,
and distribution speeds that are meaningfully faster than SIP data even
as they process larger amounts of data than SIP data.\1035\ Therefore,
the Commission believes that competition among competing consolidators
would keep market data consolidation and distribution feeds close to
the speeds achieved in the private market currently.
---------------------------------------------------------------------------

    \1034\ See supra Section VI.C.2(a).
    \1035\ The Commission preliminarily believes that if the
existing exclusive SIPs choose to become competing consolidators in
the decentralized consolidation model, the competition with other
competing consolidators will incentivize them to improve their
connectivity, transmission, consolidation, and distribution speeds
to the levels of other competing consolidators.
---------------------------------------------------------------------------

    The Commission preliminarily believes that all forms of latency
discussed previously--geographic, consolidation, and transmission
latency \1036\--have the potential to be the source of these reductions
in the latency differential. The Commission understands that the
existing market data aggregator business does not rely on the single-
instance consolidator model but instead produces a separate
consolidated feed at each data center. This has the potential to
substantially reduce geographic latency for data centers that are not
co-located with one of the existing exclusive SIPs because it means new
information at a data center can be used immediately at that data
center instead of being returned to the processing center first. The
Commission therefore expects that the decentralized consolidation model
would serve to substantially reduce geographic latency in the same way
for market participants. For instance, the existing market data
aggregators already have infrastructure in place to consolidate market
data in the described way. And if the existing exclusive SIPs become
competing consolidators, they would also have to produce separate
consolidated feeds at each data center to be able to compete with other
competing consolidators. Therefore, the Commission preliminarily
believes that the geographic latency reduction in the decentralized
consolidation model can be achieved even if one existing market data
aggregator enters the competing consolidator business. Therefore, the
benefit of the decentralized consolidation model with regard to
geographic latency would not rely heavily on the assumption that a
large number of consolidators would enter the market.\1037\
Importantly, as discussed above,\1038\ geographic latency is the
biggest cause of latency differentials between current SIP data
distributed by exclusive SIPs and current proprietary data feeds.
---------------------------------------------------------------------------

    \1036\ See supra Section VI.B.2(b).
    \1037\ See supra Section VI.C.2(a).
    \1038\ See supra Section VI.B.2(b).
---------------------------------------------------------------------------

    Also, the Commission understands that many current market data
aggregators rely on wireless communications to receive data from
various exchange data centers, using fiber connections as a backup in
case of bad weather. To the extent that wireless communications are
faster than current transmission methods for SIP data, the Commission
expects the decentralized consolidation model to reduce transmission
latency as well. In addition, to the extent that existing market
aggregators have developed faster consolidation methods, the Commission
expects that the decentralized consolidation model would also reduce
consolidation latency. The Commission preliminarily believes that the
effect of the decentralized consolidation model on the consolidation
and transmission

latencies depends on robust competition among competing consolidators
going forward. The Commission preliminarily believes that to the extent
that the benefits of faster access to market data come from the ability
to engage in more timely participation in the provision of liquidity,
this effect represents an economic benefit to the equity market
generally because it would provide more fair and equal access to market
data and would reduce information asymmetries among market
participants. In particular, to the extent that the existing advantages
of having access to fast proprietary data feeds are derived from
trading strategies exploiting differentials in the speed of access to
market data (i.e., exploiting traders in the market who currently rely
solely on slower SIP data), this benefit would represent a transfer
from current users of faster proprietary data to the users of proposed
consolidated market data in the decentralized consolidation model that
would now also have access to faster data.\1039\
---------------------------------------------------------------------------

    \1039\ See also Don Bollerman, A NYSE Speed Bump You Weren't
Aware Of, IEX available at https://iextrading.com/about/press/op-ed/
(last accessed Jan. 8, 2020) (discussing the effect of speed
differentials on trading).
---------------------------------------------------------------------------

    In order for both economic benefits and transfers to be realized,
at least some market participants that are new users of fast and more
content-rich consolidated market data would need to possess the
technological capability to take advantage of the speed improvements
the decentralized consolidation model is likely to provide. It is the
Commission's preliminary understanding that such technological
capabilities are expensive to acquire, and this fact would reduce the
amount of benefit and the degree to which individual market
participants can profit (through the transfers mentioned above) from
the decrease in data latency.
    If even a small delay remains between the typical competing
consolidator's consolidated market data feed and proprietary data
feeds, then the benefits of increased consolidated market data delivery
speed described above are likely to be smaller. This belief is based on
the Commission's preliminary understanding that speed gains at these
timescales only matter insofar as to help a market participant react to
new information faster than other market participants.\1040\
---------------------------------------------------------------------------

    \1040\ See supra Section VI.B.2(b).
---------------------------------------------------------------------------

    Additionally, the Commission notes two other potential benefits of
the proposed amendments. First, market participants could potentially
save on the cost of consolidated market data because they will only
need to subscribe to one competing consolidator instead of two
exclusive SIPs (i.e., Nasdaq UTP and CTA/CTQ). To the extent market
participants can subscribe to one competing consolidator, they could
save money by not having to pay the costs of processing consolidated
market data to two different providers. Additionally, market
participants may also save on their infrastructure costs if they have
the ability to customize their data purchases and receive, for example,
narrower data content than proposed consolidated market data. Market
participants may achieve this if competing consolidators offer tiered
levels of service with different data contents and different service
fees based on the needs of specific types of investors similar to what
one SIP proposed recently.\1041\
---------------------------------------------------------------------------

    \1041\ See supra Section VI.C.2(b); supra note 267.
---------------------------------------------------------------------------

    Second, expanding Regulation SCI to include competing consolidators
would help ensure that competing consolidators' systems involved in the
collection, consolidation, and dissemination of proposed consolidated
market data are able to maintain their operational capability,
including the ability to maintain effective operations, minimize or
eliminate the effect of performance degradations, and have sufficient
backup and recovery capabilities. The Commission preliminarily believes
that competing consolidators being subject to the Regulation SCI
requirements would lead to, among other things, fewer interruptions in
the data delivery process and, thus, may result in better trading
decisions.\1042\
---------------------------------------------------------------------------

    \1042\ See infra Section VI.C.2(e)(i).
---------------------------------------------------------------------------

(d) Costs of the Decentralized Consolidation Model Pertaining to
Competing Consolidators
    The Commission preliminarily believes that the proposed amendments
that introduce a decentralized consolidation model are likely to have
both direct and indirect costs on potential competing consolidators,
SROs, existing exclusive SIPs, and market participants, as detailed
below. As explained below, the Commission preliminarily estimates that
the direct costs to each potential competing consolidator would be
between around $5.12 MM and $5.13 MM in ongoing annual costs, and total
one-time costs of up to between approximately $897,000 and $2.40 MM,
depending on entity type.\1043\ Further, the Commission preliminarily
estimates that costs to each SRO from the proposed amendments regarding
the decentralized consolidation model include up to around $246,000 in
the direct one-time costs, and around $128,000 in the ongoing annual
costs. The Commission expects, however, that the proposed amendments
that introduce a decentralized consolidation model would have
additional indirect costs. Some of these direct and indirect costs are
likely to be passed on to investors.
---------------------------------------------------------------------------

    \1043\ These costs do not include the costs of compliance with
expanded Regulation SCI, which are discussed below. See infra
Section VI.C.2(e)(ii).
---------------------------------------------------------------------------

    As discussed above,\1044\ the Commission preliminarily believes
that five types of entities may register to become competing
consolidators and would have to build systems, or modify existing
systems, that comply with the proposed rules: (1) Market data
aggregation firms, (2) broker-dealers that currently aggregate market
data for internal uses, (3) the existing exclusive SIPs, (4) new
entrants, and (5) SROs. The Commission preliminarily estimates that all
direct ongoing annual costs and some one-time costs would be common
among all competing consolidators and that some one-time costs would
vary depending on entity type.
---------------------------------------------------------------------------

    \1044\ See supra Sections V.D.2, VI.C.2(a).
---------------------------------------------------------------------------

    For purposes of the PRA,\1045\ the Commission preliminarily
estimates that direct ongoing costs for each competing consolidator,
except for SROs, would be $5,126,167 and consist of the following
costs: Costs of $5,744 to amend Form CC prior to the implementation of
material changes to pricing, connectivity, or products as well as to
correct inaccurate or incomplete information; \1046\ costs of $25 to
obtain digital IDs for the purposes of signing the Form CC
annually,\1047\ costs of around $5.07 MM associated with operating and
maintaining a competing consolidator system; \1048\ costs of $120 to
ensure that it has posted the correct direct URL hyperlink to the
Commission's website on its own website; \1049\ costs of $4,360 of
recordkeeping; \1050\ and costs of

$45,222 to prepare and make publicly available a monthly report.\1051\
---------------------------------------------------------------------------

    \1045\ Direct costs cited in this section are quantified from
estimates in the PRA. See supra Section V.
    \1046\ See supra Section V.D.1(b); supra note 671.
    \1047\ See supra Section V.D.1(b).
    \1048\ These costs are composed of labor costs of $176,250,
external costs of $123,725 to operate and maintain systems to comply
with Rules 614(d)(1)-(d)(4), external costs of $168,000 to purchase
market data from the SROs, and an additional annual ongoing external
cost of $4,602,720 to co-locate itself at four exchange data
centers. See supra Section V.D.2(f).
    \1049\ See supra Section V.D.2(h); supra note 724.
    \1050\ See supra Section V.D.3(b).
    \1051\ See supra Section V.D.4(b); supra note 732.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that direct ongoing costs
for each SRO as a competing consolidator would be $5,120,398 and would
consist of the same costs as for all other competing consolidators
excluding the costs of $5,744 to amend Form CC prior to the
implementation of material changes to pricing, connectivity, or
products as well as to correct inaccurate or incomplete information,
and the costs of $25 to obtain digital IDs for the purposes of signing
the Form CC.\1052\
---------------------------------------------------------------------------

    \1052\ These costs are excluded because SROs are not required to
file Form CC. See supra Section V.D.1(a).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that direct one-time costs
that are common across all competing consolidators would be $89,348 and
consist of the following costs: Costs of $120.50 to publicly post the
Commission's direct URL hyperlink to its website upon filing of the
initial Form CC; \1053\ costs of $8,720 to keep and preserve at least
one copy of all documents made or received by it in the course of its
business and in the conduct of its business; \1054\ and costs of
$80,507 to produce the monthly reports.\1055\
---------------------------------------------------------------------------

    \1053\ See supra Section V.D.2(g); supra note 721.
    \1054\ See supra Section V.D.3(a); supra note 726.
    \1055\ See supra Section V.D.4(a); supra note 727.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the total direct costs
to each market data aggregation firm or each broker-dealer that
currently aggregate market data for internal uses that would decide to
register as a competing consolidator would include $5,126,167 in
ongoing annual costs, as discussed above, and total one-time costs of
$896,542. The one-time costs are composed of costs of $93,540 to
complete the initial Form CC; \1056\ costs of $50 to obtain digital IDs
for the purposes of signing the initial Form CC; \1057\ costs of $5,604
to file two amendments to Form CC; \1058\ labor costs of $293,750;
\1059\ external costs of $206,250 to modify its systems to comply with
Rules 614(d)(1)-(d)(4), external costs of $14,000 to purchase market
data from the SROs, an additional initial external cost of $194,000 to
co-locate itself at four exchange data centers; \1060\ as well as
$89,348 in costs that are common to all competing consolidators, as
described above.
---------------------------------------------------------------------------

    \1056\ See supra Section V.D.1(a); supra note 664.
    \1057\ See supra Section V.D.1(a).
    \1058\ Id.
    \1059\ See supra Sections V.D.2(a), V.D.2(b); supra notes 676,
683.
    \1060\ See supra Sections V.D.2(a), V.D.2(b).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the total direct costs
to each existing SIP that would decide to register as a competing
consolidator would include $5,126,167 in ongoing annual costs, as
discussed above, and total one-time costs of $1,396,542. The one-time
costs per existing SIP are composed of costs of $93,540 to complete the
initial Form CC; \1061\ costs of $50 to obtain digital IDs for the
purposes of signing the initial Form CC; \1062\ costs of $5,604 to file
two amendments to Form CC; \1063\ labor costs of $587,500; \1064\
external costs of $412,500 to modify its systems to comply with Rules
614(d)(1)-(d)(4), external costs of $14,000 to purchase market data
from the SROs, an additional initial external cost of $194,000 to co-
locate itself at four exchange data centers; \1065\ as well as $89,348
in costs that are common to all competing consolidators, as described
above.
---------------------------------------------------------------------------

    \1061\ See supra Section V.D.1(a); supra note 664.
    \1062\ See supra Section V.D.1(a).
    \1063\ Id.
    \1064\ See supra Section V.D.2(c); supra note 691.
    \1065\ See supra Section V.D.2(c).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the total direct costs
to each new entrant in the competing consolidator space would include
$5,126,167 in ongoing annual costs, as discussed above, and total one-
time costs of $2,396,542. The one-time costs are composed of costs of
$93,540 to complete the initial Form CC; \1066\ costs of $50 to obtain
digital IDs for the purposes of signing the initial Form CC; \1067\
costs of $5,604 to file two amendments to Form CC; \1068\ labor costs
of $1.175 MM,\1069\ external costs of $825,000 to build its systems to
comply with Rules 614(d)(1)-(d)(4), external costs of $14,000 to
purchase market data from the SROs, an additional initial external cost
of $194,000 to co-locate itself at four exchange data centers; \1070\
as well as $89,348 in costs that are common to all competing
consolidators, as described above.
---------------------------------------------------------------------------

    \1066\ See supra Section V.D.1(a); supra note 664.
    \1067\ See supra Section V.D.1(a).
    \1068\ Id.
    \1069\ See supra Sections V.D.2(d), V.D.2(e); supra notes 698,
705.
    \1070\ See supra Sections V.D.2(d), V.D.2(e).
---------------------------------------------------------------------------

    The Commission preliminarily estimates that the total direct costs
to each SRO that would decide to register as a competing consolidator
would include $5,120,398 in ongoing annual costs, as discussed above,
and total one-time costs of $2,297,348. The one-time costs are composed
of labor costs of $1.18 MM; \1071\ external costs of $825,000 to build
systems to comply with Rules 614(d)(1)-(d)(4), external costs of
$14,000 to purchase market data from the SROs, an additional initial
external cost of $194,000 to co-locate itself at four exchange data
centers,\1072\ as well as $89,348 in costs that are common to all
competing consolidators, as described above.
---------------------------------------------------------------------------

    \1071\ See supra Sections V.D.2(d), V.D.2(e); supra notes 698,
705.
    \1072\ See supra Sections V.D.2(d), V.D.2(e).
---------------------------------------------------------------------------

    Separately, the Commission preliminarily estimates that the total
direct costs to each SRO would include $128,064 in ongoing annual
costs, and total one-time costs of $246,005. The ongoing annual costs
are composed of costs to collect the information necessary to generate
proposed consolidated market data required by proposed Rule
603(b).\1073\ The total one-time direct costs include up to $175,140 to
prepare an amendment to the effective national market system plan for
NMS stocks,\1074\ and labor costs of $70,865 of legal, compliance,
information technology, and business operations personnel to collect
the information necessary to generate consolidated market data as
required by proposed Rule 603(b).\1075\
---------------------------------------------------------------------------

    \1073\ See supra Section V.D.2(f).
    \1074\ Half of these costs, or $87,570, would be incurred to
comply with the timestamps required by the proposed rule, including
a review and any applicable change of the respondent's technical
systems and rules. A quarter of these costs, or $43,785, would be
incurred to compose the form of annual report on competing
consolidator performance. Additionally, $8,340 would be incurred to
compile and confirm the primary listing exchange for each NMS stock.
See supra Section V.D.5; supra note 734.
    \1075\ See supra Section V.D.6; supra note 737.
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed amendments
that introduce a decentralized consolidation model are likely to have
indirect costs to existing exclusive SIPs, some market participants,
and investors. The Commission preliminarily believes that the proposed
amendments may impose a substantial cost for existing exclusive SIPs in
terms of loss of business because exclusive SIPs would no longer be
exclusive consolidators and disseminators of consolidated market data,
and at least one of the exclusive SIPs--Nasdaq UTP--would no longer be
paid out of the NMS plan for its processing costs.\1076\ The Commission
preliminarily believes that this loss of business would be mitigated by
the opportunity for the exclusive SIPs to become competing
consolidators. If exclusive SIPs decide

to become competing consolidators, they would compete for business with
each other and with other competing consolidators. This competition may
lead to revenue that is lower than their current revenue. This
potential decrease in revenue would represent a transfer of resources
to other competing consolidators and to market participants potentially
increasing social welfare. On the other hand, the exclusive SIPs have
the benefit of having been in this business for a long time. The
exclusive SIPs have significant connectivity to market participants and
vendors and can leverage their existing customer base and established
relationships with vendors and purchasers at firms. If the exclusive
SIPs decide to become competing consolidators, their experience with
this market may give them a competitive advantage and help mitigate
their potential revenue losses.
---------------------------------------------------------------------------

    \1076\ This does not apply to CTA/CQ Plan that, as discussed
above, is paid differently. See supra Section VI.B.2(c).
---------------------------------------------------------------------------

    Some market participants may also incur indirect costs as a result
of the introduction of the decentralized consolidation model. First, as
discussed above,\1077\ the price that some market participants would
pay for proposed consolidated market data may be higher than today's
price for consolidated market data, holding data content constant.
These market participants are likely interested in the current scope of
SIP data, and, therefore, may have to pay a higher price for expanded
data content that they are not interested in.
---------------------------------------------------------------------------

    \1077\ See supra Section VI.C.2(b).
---------------------------------------------------------------------------

    Second, the Commission preliminarily believes that there would be
an implementation cost for market participants to switch from using
current exclusive SIP providers or proprietary data feeds to using
competing consolidators. This cost is likely to vary among types of
market participants; for instance, existing purchasers of proprietary
DOB data products are likely to assume limited additional costs while
new customers of proposed consolidated market data from competing
consolidators would need, for example, to establish new connectivity
and integrate a larger set of data into their operations. This
implementation cost would include administrative costs for subscribing
to a new provider of the data, as well as any infrastructure
investments that may be needed to handle the data as delivered by the
competing consolidator. The Commission is uncertain about the size of
these costs but notes that these costs and the magnitude of their
effect may vary by market participant.
    Additionally, one of the current exclusive SIPs, SIAC, processes
and disseminates the academic TAQ dataset. If SIAC discontinues its SIP
business, there may be interruptions to the availability of this data,
which would create a cost for both the academic community and investors
that otherwise benefit from regulators' use of this dataset. Other data
vendors also provide comprehensive historical data products that may
become more readily available from competing consolidators.\1078\ The
Commission is unable to quantify the incremental social welfare cost of
the interruption of availability of the TAQ dataset and invites
comments on this issue.
---------------------------------------------------------------------------

    \1078\ See, e.g., MayStreet, Market Data, available at http://maystreet.com/products/market-data/ (last accessed Jan. 2, 2020).
---------------------------------------------------------------------------

    Finally, the Commission preliminarily believes that the
decentralized consolidation model may result in multiple NBBO quotes
observed by different market participants due to different aggregation
methods used by competing consolidators. As discussed above,\1079\
currently market participants may already observe multiple NBBO quotes.
Therefore, the Commission preliminarily believes that the decentralized
consolidation model would result in no meaningful difference in
practice with respect to the existence of multiple NBBOs.
---------------------------------------------------------------------------

    \1079\ See supra Section VI.B.2(b).
---------------------------------------------------------------------------

    The proposed amendments would impose a cost for SROs from losing
SIP fees. However, the Commission preliminarily believes that this loss
of fees would be offset by the data content and access fees paid to
SROs by competing consolidators.
(e) Economic Effects of Competing Consolidators Being Subject to
Regulation Systems Compliance and Integrity
    The proposed rule amends Rule 1000 of Regulation SCI by expanding
the definition of ``SCI entities'' to include ``competing
consolidators.'' \1080\ Under the proposed rule, competing
consolidators would be subject to the standard requirements of
Regulation SCI (i.e., requirements for SCI systems that are not
critical SCI systems).\1081\ The Commission preliminarily believes that
expanding Regulation SCI to include competing consolidators would help
prevent market disruptions due to one or more competing consolidators'
systems issues and reduce the severity and duration of any effects that
may result if a systems issue were to occur for a competing
consolidator. But expanding Regulation SCI to include competing
consolidators would also impose costs on various entities, most
significantly on competing consolidators. Competing consolidators would
incur a number of direct and indirect compliance costs, such as initial
and on-going paperwork burdens as well as competing consolidators'
potential switching costs to find vendors that can satisfy the
Regulation SCI requirements. Additionally, Regulation SCI would impose
some indirect costs on other market participants because of their
specific business relationships with competing consolidators. For
example, third-party vendors employed by competing consolidators to
provide services used in their SCI systems would incur Regulation SCI
compliance costs similar to those incurred by competing consolidators.
---------------------------------------------------------------------------

    \1080\ See supra Section IV.B.2(f) and note 557 and accompanying
text.
    \1081\ See supra Section IV.B.2(f) and note 563 and accompanying
text.
---------------------------------------------------------------------------

(i) Benefits To Expanding Regulation SCI To Include Competing
Consolidators
    Currently, the exclusive SIPs are SCI entities and the benefits
discussed in Regulation SCI already apply to them and to market
participants.\1082\ Under the proposed amendments, competing
consolidators would also be considered SCI entities and the benefits of
Regulation SCI would apply to them and would continue to apply to
market participants, i.e., maintain the status quo, if the exclusive
SIPs cease operating as exclusive plan processors. This section
discusses the benefits that would apply to competing consolidators and
would continue to apply to market participants from adding competing
consolidators to the list of SCI entities.\1083\
---------------------------------------------------------------------------

    \1082\ See Regulation SCI Adopting Release, supra note 28, at
72404.
    \1083\ More specifically, the benefits discussed in this section
are not measuring a change from the baseline but are discussing the
benefits that would continue to apply from including competing
consolidators in the list of SCI entities.
---------------------------------------------------------------------------

    The Commission preliminarily believes that at least three benefits
would continue to apply by expanding Regulation SCI to include
competing consolidators.\1084\ First, imposing the requirements of
Regulation SCI on competing consolidators would help

prevent market disruptions due to one or more competing consolidators'
systems issues. Second, it would help reduce the severity and duration
of any effects that may result if a systems issue were to occur for one
of these competing consolidators, which could also help prevent
potential catastrophic events that might start out as a minor systems
problem but then quickly spread across the national market system,
potentially causing damage to market participants, including investors.
Third, expanding the Regulation SCI framework would help ensure more
effective Commission oversight of competing consolidators' systems.
---------------------------------------------------------------------------

    \1084\ As discussed in detail above, the Commission
preliminarily believes that a number of entities who would become
competing consolidators are already subject to Regulation SCI. The
Commission preliminarily believes that many of the benefits
described below would not apply to these entities, because they
already have systems that meet the requirements for Regulation SCI.
Instead, the Commission preliminarily believes that many of the
benefits from extending Regulation SCI to include competing
consolidators would come from new entities who become competing
consolidators who are not currently subject to Regulation SCI. See
supra Section V.G.
---------------------------------------------------------------------------

    The Commission preliminarily believes that adding competing
consolidators to the list of SCI entities would help prevent market
disruptions by strengthening the infrastructure and improving the
resiliency of the systems of new competing consolidators who are not
currently SCI entities. The proposed amendments to Regulation SCI would
help new competing consolidators who are not currently SCI entities
establish robust systems that are less likely to experience a system
disruption by requiring these competing consolidators to establish,
maintain and enforce written policies and procedures reasonably
designed to ensure that their SCI systems have levels of capacity,
integrity, resiliency, availability, and security, adequate to maintain
the SCI entity's operational capability and promote the maintenance of
fair and orderly markets.\1085\ The Commission preliminarily believes
that some potential new competing consolidators may already have
policies and procedures in place to maintain and test critical systems.
However, the Commission preliminarily believes that the requirements of
Regulation SCI would strengthen these policies and procedures, which
would help improve the robustness of critical systems.
---------------------------------------------------------------------------

    \1085\ See supra Section IV.B.2(f).
---------------------------------------------------------------------------

    The Commission preliminarily believes that complying with the
provisions of Regulation SCI would help reduce the severity and
duration of any effects that may result if a systems issue were to
occur for one of the new competing consolidators who are not currently
SCI entities. For example, Rule 1002(a), which requires an SCI entity
to take corrective action if an SCI event occurs, could reduce the
length of systems disruptions, systems compliance issues, and systems
intrusions, and thus reduce the negative effects of those interruptions
on the competing consolidator and market participants. Additionally,
each SCI entity must establish, maintain and enforce business
continuity and disaster recovery plans that include maintaining backup
and recovery capabilities sufficiently resilient and geographically
diverse and that are reasonably designed to achieve next business day
resumption of trading and two-hour resumption of critical SCI systems
following a wide-scale disruption. These plans would help competing
consolidators restore their systems more quickly in the event of a
disruption.
    The Commission also preliminarily believes that the requirement for
competing consolidators to establish procedures to disseminate
information about SCI events to responsible SCI personnel, competing
consolidator subscribers, and the Commission would help reduce the
duration and severity of any system distributions that do occur for one
of the new competing consolidators who are not currently SCI entities.
The procedures would help these competing consolidators quickly provide
the affected parties with critical information in the event that it
experiences a system disruption. This could allow the affected parties
to respond more quickly and more appropriately to the incident, which
could help shorten the duration and reduce the effects of a system
event. This could also potentially help prevent an event that might
start out as a minor systems issue from becoming a catastrophic problem
that quickly spreads across the national market system, potentially
causing damage to market participants, including investors.
    Additionally, the Commission believes that the requirement for a
competing consolidator to conduct testing of its business continuity
and disaster recovery plans with its designated participants and other
industry SCI entities would help detect and improve the coordination of
responses to system issues that could affect multiple market
participants in the NMS stock market. This testing should help prevent
these system disruptions from occurring and help reduce the severity of
their effects, if they do occur.
    The Commission preliminarily believes expanding Regulation SCI to
include competing consolidators would help ensure more effective
Commission oversight of new competing consolidators who are not
currently SCI entities. As SCI entities, these competing consolidators
would have to immediately notify the Commission upon the occurrence of
an SCI event (unless de minimis) and, each quarter, would have to
inform the Commission of any planned material changes to its SCI
systems and the security of indirect SCI systems, as well as any SCI
events that had a de minimis impact on its operations or on market
participants. Each year these competing consolidators would also have
to provide the Commission with an SCI review of their compliance with
Regulation SCI. This information would help ensure more effective
Commission oversight by enhancing the Commission's review of these
competing consolidators and helping make the Commission aware of
potential areas of weakness in the competing consolidator's systems
that may pose risk to the entity or the market as a whole, as well as
areas of non-compliance with Regulation SCI.
    Additionally, the Commission preliminarily believes that the
exclusive SIPs could realize an incremental benefit relative to the
baseline from lower SCI-related costs. Because the Commission assumes
that enough competing consolidators would enter the market to provide
for multiple viable sources of consolidated market data,\1086\ the
Commission preliminarily believes that if the exclusive SIPs become
consolidators then they would be considered SCI entities subject to the
standard obligations of Regulation SCI, rather than subject to the
additional costs associated with being subject to the heightened
requirements applicable to ``critical SCI systems.''
---------------------------------------------------------------------------

    \1086\ See supra Section VI.C.2(a) for a discussion of this
assumption.
---------------------------------------------------------------------------

(ii) Costs of Expanding Regulation SCI To Include Competing
Consolidators
    Competing consolidators would incur both paperwork and non-
paperwork related direct and indirect compliance costs as SCI entities.
Because Regulation SCI imposes some indirect requirements on other
market participants interacting with SCI entities (e.g., vendors
providing SCI systems to SCI entities), those market participants would
also incur indirect costs from competing consolidators being defined as
SCI entities.
    The Commission preliminarily believes that the 2018 estimates of
initial paperwork burdens for new SCI entities and ongoing paperwork
burdens for all SCI entities under Regulation SCI are largely
applicable to potential entrants into the competing consolidator
business.\1087\ The 2018 PRA Extension includes estimates
distinguishing between new versus existing SCI entities. The Commission
preliminarily believes that, using the same new versus existing SCI
entity framework, the 12 estimated entrants into the competing

consolidator business could be divided into three groups: Entrants that
are existing SCI entities with experience in the consolidated market
data business (e.g., exclusive SIPs or exchanges or entities affiliated
with an exchange that currently operate an exclusive SIP); entrants
that are existing SCI entities but with no experience in the
consolidated market data business and needing to performing a new
function with new SCI systems (e.g., a national securities association
or national securities exchanges that do not currently operate an
exclusive SIP); and finally, entrants that are entirely new SCI
entities that are not currently subject to Regulation SCI (e.g., third-
party aggregators that are not currently subject to Regulation SCI). As
discussed above,\1088\ the Commission preliminarily believes that the
existing SCI entities in the first category would not have any initial
burden, whereas the existing SCI entities in the second category would
incur approximately 50% of the Commission's initial burden estimates
for an entirely new SCI entity. Further, the 2018 ongoing burden
estimates for existing SCI entities in both of these categories would
continue to be applicable. Similarly, the Commission preliminarily
believes that new SCI entities in the third category would have the
same estimated initial paperwork burdens as those estimated for new SCI
entities and the same ongoing paperwork burdens as all other SCI
entities.
---------------------------------------------------------------------------

    \1087\ See supra note 740.
    \1088\ See supra Section V.G.
---------------------------------------------------------------------------

    As SCI entities, competing consolidators would also incur non-
paperwork related direct compliance costs. In 2014, the Regulation SCI
adopting release estimated that an SCI entity would incur an initial
cost of between approximately $320,000 and $2.4 million.\1089\
Additionally, an SCI entity would incur an annual ongoing cost of
between approximately $213,600 and $1.6 million.\1090\ The Commission
preliminarily believes that similar to the paperwork burden estimates,
these non-paperwork related costs are also largely applicable to
competing consolidators. But the Commission is uncertain about the
actual level of costs competing consolidators would incur, because
these costs could differ based on the type of potential entrant into
the competing consolidator business. The Commission preliminarily
believes that there are two reasons why competing consolidators' costs
are likely to be on the lower end of these cost estimates.
---------------------------------------------------------------------------

    \1089\ Regulation SCI Adopting Release, supra note 28, at notes
1943-1944.
    \1090\ Id. at notes 1945-1946.
---------------------------------------------------------------------------

    First, these cost estimates include costs of having part of an SCI
entity's system be a ``critical SCI system,'' and therefore be subject
to certain heightened resilience and information dissemination
provisions of Regulation SCI. For instance, as discussed above,\1091\
the existing exclusive SIPs currently represent single points of
failure and are subject to heightened requirements for ``critical SCI
systems.'' Under the proposed rule, competing consolidators' systems
are not included within the scope of ``critical SCI systems.'' The
Commission preliminarily believes that if competing consolidators'
systems are subject to the standard requirements of Regulation SCI,
they would not incur compliance costs of the heightened requirements
for ``critical SCI systems.'' To the extent that the incremental costs
of being subject to the heightened requirements for ``critical SCI
systems'' versus the standard requirements for ``SCI systems'' is
small, these cost savings could be low.
---------------------------------------------------------------------------

    \1091\ See supra Section IV.B.2(f).
---------------------------------------------------------------------------

    Second, among all of the SCI entities, competing consolidators have
relatively simpler systems and fewer functions, and thus would have
compliance costs closer to the lower end of the above cost estimates.
The above cost estimates provide an average for all SCI entities,
without distinguishing between different categories of SCI entities.
However, the Regulation SCI adopting release explains that compliance
costs would depend on the complexity of SCI entities' systems and they
would be higher for SCI entities with more complex systems.\1092\
Competing consolidators would likely have simpler systems and fewer
functions relative to some of the other SCI entities, such as
exchanges. As a result, the Commission preliminarily believes that
competing consolidators' compliance costs are likely to be on the lower
end of the average cost estimates for all SCI entities.
---------------------------------------------------------------------------

    \1092\ Regulation SCI Adopting Release, supra note 28, at 634.
---------------------------------------------------------------------------

    Additionally, the Commission preliminarily believes that some of
competing consolidators' subscribers associated with the testing of
business continuity and disaster recovery plans would incur Regulation
SCI-related connectivity costs. Rule 1004 of Regulation SCI sets forth
the requirements for testing an SCI entity's business continuity and
disaster recovery plans with its designated members or
participants.\1093\ Competing consolidators and their designated
subscribers would be subject to these same costs. The Regulation SCI
adopting release estimated connectivity costs as part of these business
continuity and disaster recovery plans to be approximately $10,000 per
SCI entity member or participant.\1094\ The Commission preliminarily
believes that these connectivity cost estimates would also be
applicable to competing consolidators' designated subscribers.
---------------------------------------------------------------------------

    \1093\ Id.; Rule 1004.
    \1094\ Id. at note 2065.
---------------------------------------------------------------------------

    The Commission preliminarily believes that competing consolidators
and various other market participants would incur certain indirect
costs related to compliance requirements for competing consolidators as
SCI entities.
    The Commission preliminarily believes that the costs to comply with
Regulation SCI discussed above would also fall on third-party vendors
employed by competing consolidators to provide services used in their
SCI systems. Regulation SCI requires that any system provided by a
vendor to an SCI entity and used by that entity in its SCI system must
also comply with Regulation SCI requirements. The Commission
preliminarily believes that all costs discussed above for competing
consolidators to comply with Regulation SCI would also fall on third-
party vendors employed by competing consolidators in the course of
providing consolidated market data. Examples of such vendors may
include communications firms employed by competing consolidators to
transport data from exchanges to the competing consolidator's
aggregation servers at various data centers. If many third-party
vendors are employed by potential competing consolidators in their
consolidated market data business, the size of this cost could be
significant. The Commission invites comment on the issue.
    Additionally, the Commission preliminarily believes there is the
potential for these costs to cause the vendors to end existing business
relationships with market participants who become competing
consolidators. It is possible that third-party vendors would not want
to incur the costs that competing consolidators may impose to assure
that the competing consolidator can comply with Regulation SCI
requirements, and as a result be unwilling to provide services to the
competing consolidator's consolidated market data business. To the
extent that this happens, competing consolidators would incur costs
from having to find new vendors, form a new business relationship, and
adapt their systems to the infrastructure of the new vendor.

Competing consolidators may also elect to perform the relevant
functions internally. To the extent that competing consolidators either
find new vendors or perform the functions internally, it would
represent an increased inefficiency in the market, since presumably the
current market data vendors are the most efficient means of performing
these functions.
    The Commission preliminarily believes that the technology
supporting some of the services provided by vendors to current data
aggregators (notably communications, such as microwave transmission)
require significant expertise in order to be competitive and are
difficult to replicate. To the extent this is the case, and to the
extent that Regulation SCI requirements prevent competing consolidators
from using these vendors, the ability of competing consolidators to
provide consolidated market data in a manner that rivals current third-
party aggregation practices could be significantly reduced.
(f) Economic Effects of the Decentralized Consolidation Model
Pertaining to Self-Aggregators
    As discussed above,\1095\ a number of market participants currently
purchase proprietary data products from the exchanges and consolidate
this data for their internal use. To permit self-aggregation under the
proposed decentralized consolidation model, the Commission proposes to
define a self-aggregator as a broker or dealer that would receive
information from the exchanges necessary to generate consolidated
market data solely for internal use.\1096\
---------------------------------------------------------------------------

    \1095\ See supra Section IV.B.2(e)(iii).
    \1096\ Id.
---------------------------------------------------------------------------

    Market participants that currently effectively self-aggregate and
that decide to become self-aggregators under the proposed decentralized
consolidation model will have two choices regarding the use of the
exchanges' proprietary data products. First, they may decide to limit
the use of exchange data to the creation of proposed consolidated
market data, in which case they would be charged for proposed
consolidated market data pursuant to the fee schedules of the effective
national market system plan(s) for NMS stocks. In this case, market
participants would likely benefit from lower data fees as compared to
current fees they pay for proprietary data and connectivity
products.\1097\
---------------------------------------------------------------------------

    \1097\ See infra Section VI.C.4.
---------------------------------------------------------------------------

    Second, they may decide they need data beyond the scope of proposed
consolidated market data, in which case they would be additionally
charged for the proprietary data and connectivity services pursuant to
the individual exchange fee schedules. In this case, the potential
price gain would be limited to the price decline for the portion of the
data corresponding to the proposed consolidated market data. The
Commission is uncertain about the extent of this effect.
    Market participants that currently effectively act as self-
aggregators and that would choose to become self-aggregators under the
proposed decentralized consolidation model may incur some switching
costs, especially if the exchanges provide components of the
consolidated market data with feeds and connections other than what
these market participants currently use. However, since these market
participants already have the infrastructure to receive the proprietary
data products from the exchanges, the Commission expects these
switching costs to be minimal.
(g) Other Conforming Changes
    The Commission is proposing conforming changes for some of the
previous Commission or SRO rules and regulations, which themselves can
have economic effects. This section discusses the conforming changes
and corresponding economic effects.
(i) Amendments to Regulation SHO
    As described above in section III.D.1, the Commission is proposing
amendments to Regulation SHO to adjust the process of determining
whether a Short Sale Circuit Breaker has been triggered and
disseminating such trigger information. First, the primary listing
exchange would decide how to obtain the consolidated data necessary to
determine whether a Short Sale Circuit Breaker should be triggered.
Second, the primary listing exchange would be responsible for notifying
competing consolidators and self-aggregators rather than a single plan
processor. The first change allows the primary listing exchange to
select the most cost-effective means of fulfilling its
responsibilities. The second change could entail some compliance costs
for competing consolidators but is necessary to ensure that all
competing consolidators are on a level playing field. The resulting
compliance costs for exchanges are included in the Commission's general
compliance estimate above.\1098\ The resulting compliance costs for
competing consolidators are included in the Commission's estimate of
the general costs to becoming a competing consolidator above.\1099\
---------------------------------------------------------------------------

    \1098\ See supra Section V.D.6.
    \1099\ See supra Section V.B.2.
---------------------------------------------------------------------------

    In addition, the Commission is proposing to define ``primary
listing exchange'' in Regulation NMS and to amend the definition of
``listing market'' in Regulation SHO to refer to the proposed
definition of primary listing exchange. The Commission preliminarily
believes that this change would have no direct economic effects, other
than harmonizing Regulation SHO with Regulation NMS.
(ii) Effective Changes to Responsibilities Under the Limit Up Limit
Down Plan and Market Wide Circuit Breaker Rules
    The proposed definition of ``regulatory data'' requires the primary
listing exchange to be the entity responsible for monitoring,
calculating, and disseminating certain information necessary to
implement the LULD Plan and the MWCB rules. These functions are
currently the responsibility of a single exclusive SIP, however, the
Commission is proposing that the primary listing exchanges be
responsible for disseminating information regarding Price Bands and
Limit States and the primary listing exchange with the largest portion
of S&P 500 Index stocks be responsible for determining whether an MWCB
has been triggered. While the Commission preliminarily believes that
these amendments could result in implementation and ongoing costs for
primary listing markets that currently do not operate a SIP, these
amendments ensure a single set of Price Bands and a consistent message
that MWCBs have triggered. The Commission preliminarily believes that
the additional cost of calculating the information necessary to
implement the LULD Plan and WMCB rules would be minimal. The cost
imposed on these primary listing markets is included in the general
compliance cost the Commission has estimated for SROs above.\1100\
---------------------------------------------------------------------------

    \1100\ See id.
---------------------------------------------------------------------------

(h) Request for Comments
    The Commission requests comments on its analysis of the economic
effects pertaining to the proposed decentralized consolidation model.
In particular, the Commission solicits comment on the following:
    228. Do you agree with the reasonableness of the Commission's
assumption that the proposed amendments would lead to multiple
competing consolidators participating in

the consolidated market data business and distributing data to market
participants? Why or why not? Please explain in detail.
    229. Are you an organization that would want to provide the
competing consolidator service described? If so, please include an
estimate of how much effort would be required for you to begin
providing this service in the market. If you are willing to provide
price estimates, please do so as well.
    230. What factors are likely to influence the decision of various
market participants to become competing consolidators? How large would
be the barriers to entry to becoming a competing consolidator? Would
there be any sources of barriers to entry other than building the
technological infrastructure, filing Form CC, and complying with the
other regulatory requirements associated with being a competing
consolidator?
    231. Which market participants would be likely to become competing
consolidators? Are the current exclusive SIPs likely to become
competing consolidators? Why or why not? Would existing market
aggregation firms become competing consolidators? Why or why not? Would
any other types of firms likely become competing consolidators? Why or
why not?
    232. How would the Commission's assessment of the economic effects
of the rule be affected by too few competing consolidators? Please be
specific.
    233. To what extent would the adoption of the various proposals in
Section III independently respond to some or all of the issues the
proposed competing consolidator model is intended to address?
    234. Do you agree with the Commission's assessment of the potential
effect of the proposal on data fees? In particular, do commenters agree
with the Commission's conclusion that the proposal could reduce overall
data fees? What is the likely effect of the proposal on each of the
components of the overall data fees, fees for consolidated market data,
fees for proprietary market data, and fees for connectivity? What are
some of the important factors that could result in fee increases and
decreases? Please explain in detail.
    235. The Commission requests that commenters provide any insights
or data they may have as to potential changes in connectivity fees and
the effect of these new connectivity fees on the proposed competing
consolidator business.
    236. Do you agree that there would be three potential benefits from
the increased competition provided by the decentralized consolidation
model: Efficiency gains in the delivery of consolidated market data,
improvements in technological innovation in consolidated market data,
and reductions in latency? Why or why not? If not, which benefits do
you disagree with? Please explain.
    237. What are the benefits of expanding Regulation SCI to define
competing consolidators as ``SCI entities''? What are the costs of
expanding Regulation SCI to define competing consolidators as ``SCI
entities''? Please explain and provide cost estimates, if available.
    238. The Commission requests that commenters provide relevant data
and analysis to assist in analyzing how the total price of proposed
consolidated market data (including the data fee paid to the operating
committee(s) of the effective national market system plan(s) for NMS
stocks and service fees paid to competing consolidators) in the
decentralized consolidation model would compare to current pricing of
SIP data. More specifically, how would the aggregate fees paid by
various types of market participants under the decentralized
consolidation model likely compare to the aggregate fees paid by the
same types of market participants for the same data today, assuming the
content of the data consumed by market participants remains constant
but the providers of that data change? Would any market participant
types be likely to expand the data they purchase if such data is
included in the definition of consolidated market data? Please explain.
How would the aggregate fees paid by such market participants under the
decentralized consolidation model likely compare to the aggregate fees
paid by them today, assuming such market participants expand the data
they purchase? Please quantify if possible.
    239. Do you agree with the Commission's assessment of the costs
incurred by potential competing consolidators as a result of the
proposal? Specifically, do you agree that potential competing
consolidators would incur initial costs of $0.6 million to $3.9 million
and ongoing costs of $2 million and $2.6 million? Why or why not?
Please provide revised cost estimates, if possible. How would these
costs vary across the types of entities likely to become competing
consolidators? What costs would be common across competing
consolidators?
    240. Do you agree with the Commission's assessment of the costs to
each SRO of amending effective national market system plan(s) for NMS
stocks to implement the proposed decentralized consolidation model? Why
or why not? Please explain and provide alternative cost estimates, if
possible.
    241. Would existing SIPs and exchanges lose business as a result of
the proposed decentralized consolidation model? If so, what is the
nature and potential magnitude of the business they would lose? Could
any exclusive SIPs or exchanges gain business as a result of the
decentralized consolidation model? Please explain.
    242. Would the proposed decentralized consolidation model result in
more NBBOs than could be viewed today? If so, would this increase the
complexity of our markets? Why or why not? Please describe any economic
effects resulting from an increase in multiple NBBOs.
    243. Do you agree with the Commission's assessment of the costs to
data users of potentially switching from purchasing market data from
exclusive SIPs and/or exchanges to purchasing market data from
competing consolidators? Why or why not? Please explain. Do you agree
that these costs are likely to vary among types of market participants?
    244. Would the proposed amendments result in the interruption of
data available for research by the academic community and investors,
such as TAQ data? If so, the Commission requests that commenters
provide relevant data and analysis to assist us in determining the
incremental social welfare cost of such interruption of data to the
academic community and investors.
    245. How costly would be the proposed changes to the entities
responsible for requirements of Regulation SHO, LULD and MWCB for
listing exchanges? What is the magnitude of such costs that derive from
implementing processes to continuously calculate and track data metrics
for compliance with the proposed changes? What is the magnitude of such
costs that derive from notifying the competing consolidators and others
of price bands and triggers? Does the magnitude of such costs depend on
the number of competing consolidators?
    246. Do you agree with the Commission's assessment of the benefits
of subjecting competing consolidators to Regulation SCI requirements?
Why or why not?
    247. Do you agree with the Commission's assessment of the costs of
subjecting competing consolidators to Regulation SCI requirements? Why
or why not? Do you agree with the Commission's estimates of the costs
involved? Please explain in detail.

    248. Are geographically diverse backup systems a standard practice
among firms likely to become competing consolidators today? What effect
does the answer to this question have on the likely cost for competing
consolidators to maintain geographically diverse backup systems?
    249. Do you agree with the Commission's assessment on the impact of
Regulation SCI requirements on third-party vendors employed by
competing consolidators? Why or why not? To what extent do potential
competing consolidators contract with third-party vendors for systems
that would meet the definition of an SCI system? What is the magnitude
of costs to third-party vendors who operate these systems to make sure
these systems meet the requirements of Regulation SCI? What effect will
this impact have on the ability of competing consolidators to provide
reliable data products? Please explain and provide estimates, if
possible.
    250. Do you believe that the amendments to Regulation SCI could
reduce innovation among new competing consolidators? Please explain. If
so, which provisions of Regulation SCI affect innovation the most and
how? Please explain.
    251. How significant is the barrier to entry provided by Regulation
SCI requirements on potential competing consolidators? Do you believe
this will have a significant impact on the number of entities who enter
the competing consolidator business? Why or why not?
3. Economic Effects of Form CC
    As discussed above in Section IV.B, the proposed amendments would
not let a person, other than an SRO, act as a competing consolidator,
i.e., generating proposed consolidated market data for dissemination to
non-affiliated persons, unless that person files with the Commission an
initial Form CC and the initial Form CC has become effective. The
proposed amendments would require the public disclosure of Form CC,
which requires a number of disclosures about a competing consolidator's
services and fees and operations, and metrics related to the
performance of competing consolidators. As a result, the proposed
amendments would provide transparency for investors who might purchase
the products and services of a competing consolidator. The Commission
preliminarily believes that the information provided in Form CC and the
resulting transparency would help market participants make better-
informed decisions about which competing consolidator to subscribe to
in order to achieve their trading or investment objectives.
    Additionally, the Commission preliminarily believes that the
process for the Commission to declare an initial Form CC ineffective
would improve the quality of information the Commission receives from
competing consolidators, which would allow the Commission to better
protect investors from potentially incomprehensible or incomplete
disclosures that would misinform market participants about the
operations and services of a competing consolidator.
(a) Public Disclosure of Form CC and Other Competing Consolidator
Information
    The proposed Form CC would require competing consolidators to
publicly disclose four sets of information on the Commission
website.\1101\ First, proposed Form CC would require competing
consolidators to disclose general information, along with contact
information. Second, proposed Form CC would require competing
consolidators to disclose information regarding their business
organizations. Third, proposed Form CC would require competing
consolidators to disclose information regarding their operational
capabilities. Fourth, proposed Form CC would require competing
consolidators to disclose information regarding their services and
fees. The proposed rule also includes requirements for amendments under
defined circumstances and a notice of cessation of operations at least
30 business days before the date the competing consolidator ceases to
operate as a competing consolidator. Proposed Form CC, any amendments
to it, and any notices of cessation would be made public via posting on
the Commission's website. The proposed rule also has a disclosure
requirement about competing consolidators' performance metrics on their
own websites. Additionally, the proposed rule would require competing
consolidators to disclose operational information on their websites
related to vendor alerts, data quality and systems issues, and clock
drift in the clocks they use to create timestamps. Generally, these
requirements promote transparency and competition among competing
consolidators and effective regulatory oversight within a streamlined
approach to avoid significant barriers to entry.
---------------------------------------------------------------------------

    \1101\ See supra Section IV.B.2(e).
---------------------------------------------------------------------------

    The business organization disclosures would give market
participants a window into the ownership as well as the organizational
structures of competing consolidators. The Commission preliminarily
believes that this information would help market participants make
better-informed decisions about which competing consolidator to
subscribe to as well as how to avoid any potential conflicts of
interest. For example, if a broker-dealer is considering subscribing to
a competing consolidator for consolidated data and any other potential
additional services such as analytics, they may search for a competing
consolidator that is not owned by a competitor or an affiliate of a
competitor in the broker-dealer space. Purchases of data and additional
market intelligence services between two competitors could potentially
create conflicts of interest. Thus, the required disclosure of a
competing consolidator's business organization--which would, for
example, clarify the ownership information--would provide transparency
on its potential conflicts of interest.
    The information on operational capabilities would provide market
participants detailed information about each competing consolidator's
product portfolio and technical capabilities. Since market participants
vary in their data and technical capability needs, information on
competing consolidators operational capabilities would allow the market
participants to make better-informed purchase decision. For example,
market participants who trade frequently and who need robust backup
systems might choose competing consolidators with those capabilities.
Whereas other market participants who have longer term investment
strategies with potentially less frequent trades might prefer competing
consolidators with less aggressive backup systems. Proposed Form CC
disclosures would facilitate a better match between market
participants' needs and competing consolidators' offerings, and would
also help to ensure consistent disclosures between competing
consolidators.
    With the consistent disclosures on services and fees, market
participants could compare and contrast the various services provided
and the corresponding fees asked by competing consolidators. Market
participants could then make better purchase decisions, based on their
individual needs. Additionally, the service and fee transparency
resulting from these disclosures would promote competition in similar
products and/or services across different competing consolidators,
which could result in similar prices, and would help to protect market
participants from unfair and unreasonable prices.

    The Commission preliminarily believes that the proposed requirement
for competing consolidators to amend Form CC prior to implementing
material changes to their pricing, products, or connectivity options
would provide transparency into changes in the operations of competing
consolidators and better inform subscribers and other market
participants about significant changes in the fees and services offered
by a competing consolidator. This would allow subscribers to a
competing consolidator to better evaluate if it would continue to serve
their business needs. Additionally, it would facilitate effective
oversight by the Commission.
    Similarly, the Commission preliminarily believes that the
requirement for a notice of cessation would also benefit subscribers to
the competing consolidator, because it would give them advanced notice
before the competing consolidator ceases to operate. Thus those
subscribers would have more time to find another competing consolidator
to supply them with consolidated market data.
    The fact that the information on Form CC would be in a single
location instead of dispersed across the competing consolidators' own
websites would aid market participants by introducing only minimal
search costs when evaluating and comparing potential competing
consolidators to decide which one best suits their business interests.
    As discussed above,\1102\ the Commission preliminarily believes the
proposed rule would cause each competing consolidator, except for SROs,
to incur an approximately $93,540 in implementation compliance cost in
order to collect the information required to fill out and file an
initial Form CC as well as $5,744 in ongoing costs in order to file
amendments to an effective Form CC. The Commission believes these
requirements are streamlined to include only what is necessary to
achieve the benefits discussed above without creating significant
barriers to entry that would discourage entities from becoming
competing consolidators.
---------------------------------------------------------------------------

    \1102\ See supra Sections V.D.1(a), VI.C.2(d); supra note 664.
---------------------------------------------------------------------------

    Competing consolidators would also experience implementation costs
because initial Form CC and any amendments to Form CC would be required
to be filed electronically with the Commission. The Commission
preliminarily believes that requiring Form CC to be filed
electronically would reduce filing costs compared to requiring the
competing consolidator to file paper forms.
    To file a form CC, competing consolidators would need to access the
Commission's EFFS system. Each competing consolidator would have to
submit an application and register each individual who would access the
EFFS system on behalf of the competing consolidator. The Commission
believes that each competing consolidator would initially designate two
individuals to access the EFFS system, with each application taking
0.15 hours for a total of 0.3 hours per competing consolidator. On an
ongoing basis, each competing consolidator will add one individual to
access the EFFS system for amendments, adding 0.15 hours per competing
consolidator. To make a submission into the EFFS system, the competing
consolidator must download a proprietary viewer; however, the
Commission would cover the cost of the license for all competing
consolidators, as it currently does for other filers that use the EFFS
system.
    Because the EFFS system is not available to the public, when the
Commission makes an effective Form CC available to the public, the
Commission will transform the data into an unstructured format, meaning
that it is not machine-readable. Market participants that would use the
Form CC data to evaluate and compare competing consolidators would bear
the costs of locating, comparing, and evaluating the information on the
Commission's website and take steps to put the information ``side by
side'' for comparison purposes.
    The Commission preliminarily believes that the public disclosure of
performance metrics and additional information would introduce
transparency to the operations of competing consolidators. These
metrics would allow subscribers and potential subscribers to better
evaluate the performance and current and future capabilities of a
competing consolidator. Market participants, based on their individual
needs, could review competing consolidators' performance statistics and
choose ones that would best serve their trading needs. While the
requirements to post the monthly performance metrics and operational
information on websites would introduce transparency, it would not
completely eliminate costs incurred when market participants want to
compare competing consolidators because collecting the information
would involve market participants expending some resources to go to
each competing consolidator's website.
    Competing consolidators would also incur implementation and ongoing
compliance costs in order to setup and maintain systems required to
calculate and produce the information for the performance metrics as
well as other information the competing consolidator would be required
to post to its website.
    Each month, competing consolidators would be required to post the
monthly performance metrics and operational information on their own
websites. Excluding the cost of preparing the information, the
Commission estimates an average competing consolidator would incur a
one-time cost of $2,651 (6 hours (for website development) x $308.50
per hour (blended rate for a senior systems analyst ($285) and senior
programmer ($332)) + $800 for an external website developer to develop
the web page = $2,651) for posting the required information to a
website, and would incur an ongoing annual cost of up to $3,702 (1 hour
(for website updates) x $308.50 per hour (blended rate for a senior
systems analyst ($285) and senior programmer ($332)) x 12 monthly
postings = $3,702) to update the relevant web page each month. Because
the monthly performance metrics and operational information may be
posted in any format the competing consolidator finds most convenient,
market participants that would use the data to evaluate and compare
competing consolidators would bear the costs of locating, comparing,
and evaluating the information on each competing consolidator's
website. The Commission preliminarily believes that the operational
information that competing consolidators would be required to publicly
disclose on their websites would create a mechanism for market
participants to hold competing consolidators accountable for any
systems issues they may experience. One strong accountability mechanism
market participants have is their purchasing power. The disclosure
requirements would alert market participants to any system breaches or
any data quality or systems issues a competing consolidator
experiences. Market participants could hold competing consolidators
accountable by abandoning competing consolidators that repeatedly
experience system issues and gravitating toward competing consolidators
that demonstrate more reliable systems through their disclosures. This
demand shift could cause competing consolidators with less reliable
systems to exit the market.
    In addition to the requirements of Regulation SCI promoting
competing consolidators to develop resilient

systems,\1103\ the requirement that competing consolidators publicly
disclose information on systems issues as well as performance metrics
regarding system availability could also encourage competing
consolidators to make investments that would ensure the resiliency of
their systems. These disclosures would help market participants
determine which competing consolidators have more reliable systems.
Competing consolidators who display more reliable systems with greater
system availability would attract more subscribers. This should
incentivize competing consolidators to invest in better backup systems
or other technology that would improve the resiliency of their systems
and increase their system uptime.
---------------------------------------------------------------------------

    \1103\ See supra Section VI.C.2(e)(i).
---------------------------------------------------------------------------

    The Commission preliminarily believes that information from the
disclosures in Form CC and the performance metrics and operational
information competing consolidators would provide on their websites
would promote effective regulatory oversight of competing consolidators
and increased investor protection by providing the Commission and
relevant SROs with information about competing consolidators. With this
information, the Commission and the SROs could identify competing
consolidators that are not properly complying with the proposed
amendments or parts of them. The Commission and SROs, then, could
utilize this information to help prioritize examinations and possibly
help identify potential issues.
    The Commission preliminarily believes that the public disclosure of
the information in Form CC and the performance metrics and operational
information competing consolidators would provide on their websites
could also increase competition between competing consolidators and
also expose some competing consolidators to certain competitive
effects. If the public disclosures show that certain competing
consolidators have higher fees or poorer performance, it may result in
those competing consolidators losing subscribers and earning lower
revenues. Similarly, competing consolidators who display lower prices
or superior system performance may be able to attract more subscribers
and earn more revenue. The public disclosure of the fee and performance
information on the Commission and competing consolidator websites would
facilitate competing consolidator comparison and would also promote
competition. Greater competition between competing consolidators could
in turn incentivize competing consolidators to innovate--particularly
in terms of their technology--so that they can attract more
subscribers.\1104\
---------------------------------------------------------------------------

    \1104\ See infra Section VI.D.2 (discussing the potential
effects of the proposal on competition).
---------------------------------------------------------------------------

(b) Commission Review and Process for Declaring Initial Form CC
Ineffective
    The Commission preliminarily believes that the process of reviewing
an initial Form CC would allow the Commission to evaluate, among other
things, the completeness and comprehensibility of the competing
consolidators' disclosures and, if necessary, declare the Form CC
ineffective. To be a consolidated market data provider, a competing
consolidator is required to have a Form CC that has become effective
pursuant to proposed Rule 614(a)(1)(v). Thus, for competing
consolidators that submit low quality and potentially inaccurate data,
the Commission's review and declaration of their Form CC ineffective
could start an iterative cycle of increasingly better information
provision, until the competing consolidator can have an effective Form
CC. The Commission preliminarily believes that this public disclosure
and review process would improve the quality of information the
Commission receives from competing consolidators, which would allow the
Commission to better protect investors from potentially
incomprehensible or incomplete disclosures that would misinform market
participants about the operations of the competing consolidator.
Additionally, an entity cannot operate as a competing consolidator
without an effective Form CC. The Commission's review would be designed
to ensure that the competing consolidators serving the investors would
be the ones that meet the Commission's qualification requirements.
    The Commission preliminarily believes that the filing requirements
of Form CC and the Commission review period could impose costs on
competing consolidators. The Commission preliminarily believes that
declaring a Form CC ineffective could impose costs on a competing
consolidator--such as delaying the start of operations while the
competing consolidator resubmits its Form CC--and could impose costs on
individual market participants and the overall market for competing
consolidators resulting from a potential reduction in competition.
However, competing consolidators and market participants would not
incur these costs unless the competing consolidator submitted a
deficient Form CC. Therefore, the Commission preliminarily believes
that a competing consolidator would be incentivized to submit Form CC
disclosures that are complete and comprehensive to avoid bearing the
costs of resubmitting a Form CC filing or of having its Form CC
declared ineffective.
    The Commission recognizes that the registration process would
create uncertainty about whether the form would be declared
ineffective. This uncertainty could create a disincentive for entities
to become competing consolidators, which could potentially reduce
competition in the competing consolidator market.\1105\
---------------------------------------------------------------------------

    \1105\ See infra Section VI.D.2 (discussing the potential
effects of the proposal on competition).
---------------------------------------------------------------------------

(c) Request for Comments
    The Commission requests comments on its analysis of the economic
effects of proposed Form CC. In particular, the Commission solicits
comment on the following:
    252. Do you agree that Form CC would help market participants make
better-informed decisions about which competing consolidators to
subscribe to in order to achieve their trading or investment
objectives? Why or why not?
    253. Do you agree that the process for the Commission to declare an
initial Form CC ineffective would promote the quality of information
the Commission receives from competing consolidators? Do you agree that
the quality would affect the ability of the Commission to protect
investors? Why or why not?
    254. Do you agree with the Commission's assessment of the costs of
Form CC? Please explain and provide cost estimates, if available.
    255. Do you agree that filing initial Form CC and amendments to
Form CC electronically with the Commission through the EFFS system
would reduce filing costs and increase benefits compared to filing
paper forms? Please explain.
    256. The Commission has provided cost estimates that competing
consolidators would incur for accessing and filing using the
Commission's EFFS system. Do you believe these cost estimates are
accurate? If not, please explain. Do you believe there are other costs
potential competing consolidators would incur related to using the EFFS
system that the Commission should consider?
    257. Do you agree that the proposed performance metrics would
create operational transparency of competing consolidators and allow
subscribers and potential subscribers to evaluate and compare the
performance of competing

consolidators? Please explain. Do you agree that posting the monthly
performance metrics on the websites of the competing consolidators
would limit the ability to compare competing consolidators relative to
posting or filing the metrics in a central location? Please explain.
    258. How costly would it be for competing consolidators to
calculate and post the performance metrics? Please explain and provide
cost estimates.
    259. The Commission has provided cost estimates that competing
consolidators would incur for posting monthly statistics on their
websites. Do you believe these cost estimates are accurate? If not,
please explain. Do you believe there are other costs competing
consolidators would incur related to posting monthly statistics on
their websites that the Commission should consider? Please explain.
    260. Do you agree with the Commission's assessment of the costs
imposed by the process for declaring an initial Form CC ineffective,
including the uncertainty it would create? Please explain.
4. Economic Effects From the Interaction of Changes to Core Data and
the Decentralized Consolidation Model
    The Commission preliminarily believes that the proposed amendments
would have a number of economic effects that are only possible as a
result of a combination of the expanded content of core data and
latency reductions due to the introduction of the decentralized
consolidation model.\1106\ Specifically, the Commission preliminarily
believes that the combination of these factors would affect proprietary
data feed business; market participants who choose to engage in market
making, smart order routing, and other latency sensitive trading
businesses; the Consolidated Audit Trail; and data vendor business.
---------------------------------------------------------------------------

    \1106\ See supra Section VI.C.2(c) (discussing the effect of the
decentralized consolidation model on consolidated market data
latency).
---------------------------------------------------------------------------

(a) Economic Effects on the Proprietary Data Feed Business
    The Commission preliminarily believes that the expanded content of
core data and latency reduction due the introduction of the
decentralized consolidation model could make proposed consolidated
market data a reasonable alternative to exchange proprietary data feeds
for some market participants. This would have the effect of providing
these market participants with a potentially lower cost option
(relative to proprietary feeds) for low latency, high content market
data. The lower cost of either self-aggregating proposed consolidated
market data or obtaining a competing consolidator's data feed would
come at the expense of losing the full set of data currently available
via proprietary feeds, because the proposed consolidated market data
definition does not include all data elements currently available via
proprietary data feeds. Nevertheless, some market participants may find
that the expanded content of core data makes the trade-off worth it and
may choose to drop their proprietary feed subscriptions in favor of the
proposed consolidated market data.
    This effect would represent a transfer from exchanges who sell
proprietary data feeds to the market participants who would save money
by either self-aggregating proposed consolidated market data or
subscribing to a competing consolidator's data feed. In the latter
case, a portion of the benefit is also transferred to the competing
consolidator in the form of additional business. The Commission
preliminarily believes that a transfer from the exchanges to market
participants may help market participants enhance their product and
service offerings to their customers. Additional business and revenues
for competing consolidators may enhance competing consolidators'
efforts to offer higher quality products and a wider range of product
offerings.\1107\
---------------------------------------------------------------------------

    \1107\ See supra Section VI.C.2(c).
---------------------------------------------------------------------------

    It is possible that changes to the pricing and customer base of
core and proprietary data feeds may not have a uniform impact across
all exchanges. Some exchanges currently have more proprietary feed
revenue than others, and some exchanges may currently rely more on
revenue from SIP data fees than other exchanges. To the extent that an
exchange receives a large share of revenue from its proprietary feed
business, the impact of these potential reductions in proprietary feed
subscriptions could be large for that exchange. To the extent that an
exchange receives only a small portion of its revenue from proprietary
feed subscriptions, the impact of these potential reductions in
subscriptions could be small for that exchange. The Commission invites
comment on the issue.
    The Commission also notes that the exchanges' revenues from
connectivity services may increase or decrease, depending on any new
data connectivity fees that the exchanges may propose for data content
use cases. The connectivity fees for proposed consolidated market data
must be fair and reasonable and not unreasonably discriminatory.\1108\
If these new connectivity fees are higher than current fees, there is a
possibility that the exchanges' overall revenue from connectivity
services would increase. It is also possible that exchanges could lose
revenue from existing customers reducing the number of ports or the
amount of bandwidth they purchase as they switch to competing
consolidators for some use cases. The overall effect on the exchanges'
connectivity revenues is uncertain, and the impact on connectivity
revenues could differ across different exchanges.
---------------------------------------------------------------------------

    \1108\ See supra note 620.
---------------------------------------------------------------------------

    The Commission preliminarily believes that these competitive
pressures on the exchange proprietary feed and connectivity business
could also have the effect of causing the exchanges to lower the fees
they charge for these services in an effort to stay competitive with
the proposed consolidated market data. This effect represents a
transfer from the exchanges to the customers of these services. To the
extent that existing customers of these services invest the money saved
from lower fees in new products (such as expanding brokerage services)
this effect will also have benefit of encouraging the creation of new
products and services. To the extent that the lower fees for these
services enable new market participants to subscribe to these feeds and
offer the services that these feeds are required for (such as high
quality execution brokerage services), this effect will also represent
a benefit in the form of new competition in the broker-dealer business.
    The Commission preliminarily believes, however, that if a small
latency differential between competing consolidator feeds and the
proprietary data feeds remains, then the above effects are likely to be
small, owing to the nature of high speed competition.\1109\ However,
this limitation would only be for the case where current subscribers to
proprietary data feeds switch to using a competing consolidator feed.
In the case of those proprietary feed subscribers who become self-
aggregators, the Commission preliminarily believes that it is unlikely
that this would result in a latency differential compared to receiving
proprietary data.\1110\ It is also

possible that the data that would remain exclusive to proprietary feeds
would also reduce the incentives for market participants to switch to
using consolidated market data only, further reducing the size of the
above effects.
---------------------------------------------------------------------------

    \1109\ See supra Section VI.B.2(b).
    \1110\ More generally, the proposed rule would enable some
reduction in the latency differential between current market
participants to the extent that such market participants would be
willing to make the necessary technology and personnel investments
to take advantage of the latency reductions provided by the
decentralized consolidation model. Thus, while some differences in
latency may remain, the barriers to entry for market participants to
compete in the latency sensitive businesses at various levels of
sophistication and competitiveness would be reduced.
---------------------------------------------------------------------------

    In the event that proprietary data feed subscribers are willing to
switch to receiving new consolidated market data and a latency
differential remains between these feeds and feeds provided by
competing consolidators, the effects discussed in this section would
apply only to those market participants who become self-aggregators.
The Commission preliminarily believes that the set of current
subscribers of proprietary feeds willing to become self-aggregators may
be smaller than the set of current subscribers willing to switch to
using a competing consolidator, as it is possible that subscribing to a
competing consolidator would be more convenient or less costly. To the
extent this is the case, the size of the effects described in this
section will be reduced. Furthermore, these self-aggregators may
continue to enjoy a latency advantage over customers of competing
consolidators.
    To the extent that the changes to proprietary feed subscriptions
described above are realized, the exchanges would have corresponding
losses in revenue or profit from the provision of proprietary data.
Since the Commission is unable to determine how many broker-dealers or
other market participants would no longer want to use proprietary data
feeds as a result of this rule, it is unable to determine the size of
this potential reduction in revenue or profit.
(b) New Entrants Into the Market Making, Broker-Dealer and Other
Latency Sensitive Trading Businesses
    The Commission preliminarily believes that proposed amendments may
lead to new market participants entering the market making, smart order
routing broker-dealer, and other latency sensitive trading businesses.
For instance, it is possible that currently there are broker-dealers
who would try to compete in the business of sophisticated order routing
but choose not to because of the cost of the market data necessary to
be competitive. To the extent that the expanded content of new core
data and the latency reductions due to the introduction of the
decentralized consolidation model make consolidated market data a
viable data product for smart order routing, the Commission
preliminarily believes that these changes could induce these broker-
dealers to enter the business.\1111\ This would have the benefit of
increasing competition in the sophisticated order routing broker-dealer
business.
---------------------------------------------------------------------------

    \1111\ These would be broker dealers who have not entered these
businesses because, currently, the only way to obtain the benefits
associated with the new, expanded core data and decentralized
consolidation model is to subscribe to proprietary data feeds, which
the Commission preliminarily expects to remain more expensive than
core data.
---------------------------------------------------------------------------

    The Commission preliminarily believes that access to this new,
faster consolidated market data could encourage new entrants into the
automated market maker business. This would not only improve the
competitiveness of this business but also may increase liquidity in the
corresponding markets.
    The Commission preliminarily believes that if these new entrants
would want to use a competing consolidator, and if a small latency
differential between competing consolidator feeds and the proprietary
data feeds remains, then this effect is likely to be small.\1112\ If
instead these potential new entrants were to become self-aggregators,
then this limitation would be reduced, because the Commission
preliminarily believes that there is unlikely to be a significant
latency differential between being a self-aggregator and using
proprietary data feeds. However, if self-aggregation is required to be
a new entrant in these businesses, the number of potential new entrants
could be small, since using a competing consolidator may be more
convenient or less costly than self-aggregating.\1113\ It is also
possible that potential participants in the sophisticated SOR,
automated market making, and other latency sensitive trading businesses
find that they cannot compete effectively without using the data that
would remain exclusive to proprietary feeds. To the extent this is the
case, the effects discussed above would be further limited.
---------------------------------------------------------------------------

    \1112\ See supra Section VI.B.2(b).
    \1113\ For related discussion on latency advantages, see supra
note 1110.
---------------------------------------------------------------------------

(c) Effects From the Interaction With the Consolidated Audit Trail
(i) CAT Baseline
    Rule 613 of Regulation NMS requires the national securities
exchanges and national securities associations (``self-regulatory
organizations'') to jointly develop and submit to the Commission a
national market system plan to create, implement and maintain a
consolidated audit trail (``CAT'').\1114\ At the time of adoption, and
even today, trading data was and is inconsistent across the self-
regulatory organizations and certain market activity is difficult to
compile because it is not aggregated in one, directly accessible
consolidated audit trail system. The goal of Rule 613 was to create a
system that provides regulators with more timely access to a
sufficiently comprehensive set of trading data, enabling regulators to
more efficiently and effectively reconstruct market events, monitor
market behavior, and identify and investigate misconduct. Rule 613 thus
aims to modernize a reporting infrastructure to oversee the trading
activity generated across numerous markets in today's national market
system.
---------------------------------------------------------------------------

    \1114\ See supra note 624.
---------------------------------------------------------------------------

    On November 15, 2016, the Commission approved the national market
system plan required by Rule 613 (``CAT NMS Plan'' or ``Plan'') that
was submitted by the self-regulatory organizations.\1115\ In the CAT
NMS Plan, the Participants described the numerous elements they
proposed to include in the CAT, including, (1) requirements for the
plan processor responsible for building, operating and maintaining the
Central Repository,\1116\ (2) requirements for the creation and
functioning of the Central Repository, (3) requirements applicable to
the reporting of CAT Data by plan participants and their members. ``CAT
Data'' is defined in the CAT NMS Plan as ``data derived from
Participant Data, Industry Member Data, SIP Data, and such other data
as the Operating Committee may designate as `CAT Data' from time to
time.'' \1117\
---------------------------------------------------------------------------

    \1115\ See id.
    \1116\ The Central Repository is the repository responsible for
the receipt, consolidation, and retention of all information
reported to the CAT. See CAT NMS Plan, supra note 624, at Section
1.1.
    \1117\ See id. The Operating Committee is the governing body of
the CAT NMS Plan.
---------------------------------------------------------------------------

    The CAT NMS Plan requires plan participants and their members to
record and report various data regarding orders by 8:00 a.m. the day
following an order event.\1118\ The Plan requires industry members to
record timestamps for order events in millisecond or finer increments
with a clock synchronization standard of within 50 milliseconds.\1119\
The CAT NMS Plan Processor, FINRA CAT, is then required to process the
order data into a uniform format, link the entire lifecycle of each
order, and combine it with other CAT

Data such as SIP Data.\1120\ The Plan Processor is also required to
store the CAT Data to allow the ability to return results of queries on
the status of order books at varying time intervals.\1121\ Regulators,
such as the Commission and SROs will use the resulting CAT Data only
for regulatory purposes such as reconstructing market events,
monitoring market behavior, and identifying and investigating
misconduct.\1122\ At this time, the Commission has little information
about what specific data, in addition to CAT Data, such as proprietary
depth of book and auction data, the SROs currently intend to include in
their enhanced surveillance systems.\1123\
---------------------------------------------------------------------------

    \1118\ See id. at Sections 6.3 and 6.4.
    \1119\ See id. at Section 6.8.
    \1120\ See id. at Section 6.5.
    \1121\ See id. at Section 6.5(c)(ii).
    \1122\ See id. at Section 6.5(g); CAT NMS Plan Approval Order,
supra note 624, at 84833-4.
    \1123\ See Rule 613(f) of Regulation NMS.
---------------------------------------------------------------------------

(ii) Economic Effects on CAT
    The Commission recognizes that the proposal could affect the
Consolidated Audit Trail, resulting in benefits to investors from
improved regulatory oversight, costs to CAT from potentially switching
from a current SIP to a competing consolidator, costs to CAT from
integrating consolidated market data into the CAT Data model, and costs
to SROs of updating their enhanced surveillance systems to use
consolidated market data provided by the CAT.\1124\ Specifically, the
Plan Processor for the Consolidated Audit Trail, FINRA CAT, is required
to incorporate all data from SIPs or pursuant to an NMS plan into the
Consolidated Audit Trail. If the Commission were to approve these
amendments, the CAT NMS Plan Operating Committee could choose to
purchase such data from a different entity and would be required to
purchase the expanded consolidated data.
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    \1124\ See supra Section IV.B.5 for a more detailed discussion
of how the proposal would alter the requirements of the Consolidated
Audit Trail NMS Plan.
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    The Commission believes that the incorporation of the expanded data
into CAT would improve regulatory oversight to the benefit of
investors. As explained in the Approval order for the Consolidated
Audit Trail, the expected benefits of the CAT include ``improvements in
regulatory activities such as the analysis and reconstruction of market
events, in addition to market analysis and research . . ., as well as
market surveillance, examinations, investigations, and other
enforcement functions,'' and derive from improvements in four data
qualities: Accuracy, completeness, accessibility, and timeliness.\1125\
Accuracy refers to whether the data about a particular order or trade
is correct and reliable. Completeness refers to whether a data source
represents all market activity of interest to regulators, and whether
the data is sufficiently detailed to provide the information regulators
require. Accessibility refers to how the data is stored, how practical
it is to assemble, aggregate, and process the data, and whether all
appropriate regulators could acquire the data they need. Timeliness
refers to when the data is available to regulators and how long it
would take to process before it could be used for regulatory analysis.
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    \1125\ See CAT Approval Order, supra note 624, at 84802-3.
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    The Commission believes that the expanded consolidated data from
the proposal could improve the completeness and accessibility of CAT
Data.\1126\ In particular, the proposal would improve the completeness
of CAT Data because CAT Data would contain quotes smaller than 100
shares, depth of book information, and auction information. While the
CAT will contain query functionality capable of recreating limit order
books, the depth of book information would allow regulators to see the
displayed order books that others see around the time of the order
events. While the Commission does not know if SROs plan to incorporate
depth of book and auction information into their enhanced surveillance
systems or other regulatory activities using CAT Data, the proposal
would improve the accessibility of consolidated market data for SRO and
Commission CAT-related uses because SROs would have access to such data
in a standardized format through the Consolidated Audit Trail instead
of through the variety of formats currently used in proprietary data.
The proposal would also improve accessibility because the SROs and
Commission would have such data on the same system as CAT Data.
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    \1126\ The Commission believes the proposal would not affect the
accuracy or timeliness of CAT Data. The Commission does not believe
that the proposal would alter the accuracy of timestamps of trades
and quotes. While some competing consolidators might offer data that
more accurately represents the data observed by certain market
participants at the time of an order event, the Commission does not
expect that all market participants would observe the exact same
data at that order event, much like the case today. In addition,
industry member clock synchronization and timestamps on the order
events in CAT Data are not fine enough for the latency improvements
to affect the accuracy of assigning an order event to the
consolidated market data likely observed at the time of the order
event. Finally, the order data in CAT is not required to be reported
until 8:00 a.m. the day following an order event. Hence, because
latency improvements from the proposal would be measured in
microseconds, the Commission does not believe that the proposal
would improve the timeliness of CAT Data.
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    The Commission believes that the potential improvements in
completeness and accessibility would facilitate more efficient
regulatory activities using CAT Data that would benefit investors. In
particular, the proposal could make broad-based market reconstructions
using CAT Data more efficient by increasing the depth of information
that could be incorporated into such reconstructions with CAT Data
alone. The Commission believes that depth of book information, quote
information in sizes less than 100 shares, and auction information are
all valuable in a broad-based market reconstruction. Further, the
improvements would allow for more targeted surveillances and risk-based
examinations using CAT Data alone. For example, the depth of book
information would be valuable when building surveillances to detect
spoofing or in investigating spoofing because spoofing often involves
creating a false impression of depth at prices outside of the best bid
or offer. In addition, the auction information would facilitate auction
market reconstruction to evaluate manipulation concerns and inform
policy. Quote information in sizes less than 100 shares would
facilitate analysis by regulators of broker-dealers' best execution
practices by providing potential execution prices that are better than
the current NBBO.\1127\
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    \1127\ See supra Section VI.C.1(b)(i) for data showing that odd-
lot quotes in higher priced securities often improve upon the
current NBBO.
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    The Commission recognizes that the interaction between the proposal
and the Consolidated Audit Trail could also create additional costs.
Such additional costs are likely to be borne by SROs and their members.
These costs could include switching costs, additional data costs, and
data storage and processing costs. The proposal would result in
switching costs if the CAT Central Repository has to obtain the data
from a different source. The source of the switching costs could be
from changing data input formats and technical specifications, which
would require one-time implementation costs. The Commission recognizes
that the SIP technical specifications change a few times a year such
that the switching costs associated with the proposal would be the
costs in excess of the regular costs incurred when the SIP technical
specifications change.\1128\ The

Commission at this time, cannot judge whether switching data providers
would result in higher or lower on-going data intake costs but data
intake costs presumably could be factored into the selection of a
competing consolidator. The Commission recognizes that increasing the
amount of data managed and analyzed by CAT would increase the costs of
data storage and processing to integrate the expanded data with other
CAT Data. However, the Commission does not expect the proposal to
substantially increase the costs of operating the CAT because any
marginal increase in cost associated with consolidated market data
would be dwarfed by the processing costs already incurred by CAT, which
includes processing for all options quotation activity among other
order lifecycle events and is significantly larger in size than
consolidated market data.
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    \1128\ See CTA, Technical Documents, available at https://www.ctaplan.com/tech-specs (last accessed Jan. 30, 2020) (showing
the SIP tech specs version history, which identifies the changes
over the years); UTP Data Feed Services Specification, supra note
142 (showing the SIP tech specs version history, which identifies
the changes over the years).
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    The Commission recognizes that the proposal would result in SROs
incurring costs to integrate additional CAT Data into their
surveillances. Even if the SROs would otherwise include depth of book
and auction information in the CAT-related surveillances, they would
incur costs in changing their surveillances to use the data in CAT
rather than using data from proprietary feeds.
    The Commission also considered whether the requirements in CAT
would impose costs as a result of CAT's effect on the competition among
competing consolidators. Because the Commission does not believe CAT
would significantly affect the competition among competing
consolidators,\1129\ it would not impose additional costs resulting
from this effect.
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    \1129\ See infra Section VI.D.2 for a discussion of the
interaction between the proposal and CAT on competition among
competing consolidators.
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    The Commission preliminary believes that CAT implementation
milestones will not be impacted by the infrastructure proposal given
that sufficient lead time would be available and integration efforts
could be scheduled as part of standard release planning. The Commission
believes that switching market data providers and expanding
consolidated market data within CAT would require limited resources
relative to the current implementation activities. Further, any
resources devoted by SROs to updating their surveillances are separate
from the efforts to implement CAT.
(d) Effects on Data Vendors
    The Commission preliminarily believes that the proposed amendments
would have an effect on the broad financial data services industry. To
the extent that the amendments lead to cheaper (relative to proprietary
data feeds) and higher content consolidated market data, the Commission
preliminarily expects that costs to data vendors would go down and the
ability of such vendors to grow their customer base would increase. It
is also possible that data vendors may increase the range and quality