[Federal Register Volume 85, Number 205 (Thursday, October 22, 2020)]
[Notices]
[Pages 67392-67401]
[FR Doc No: 2020-23367]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90217; File No. SR-NYSENAT-2020-05]

Self-Regulatory Organizations; NYSE National, Inc.; Order
Approving a Proposed Rule Change To Establish Fees for the NYSE
National Integrated Feed

October 16, 2020.

I. Introduction

    On February 3, 2020, NYSE National, Inc. (``NYSE National'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to establish fees for the NYSE
National Integrated Feed. The proposed rule change was immediately
effective upon filing with the Commission pursuant to Section
19(b)(3)(A) of the Act.\3\ The proposed rule change was published for
comment in the Federal Register on February 20, 2020.\4\ On April 1,
2020, the Division of Trading and Markets (``Division''), for the
Commission pursuant to delegated authority, temporarily suspended the
proposed rule change and instituted proceedings to determine whether to
approve or disapprove the proposed rule change.\5\ On June 12, 2020,
the Commission issued a request for information and additional comment
on the proposed rule change.\6\ On August 18, 2020, pursuant to Section
19(b)(2) of the Act,\7\ the Division, for the Commission pursuant to
delegated authority, designated a longer period within which to issue
an order approving or disapproving the proposed rule change.\8\ This
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ See Securities Exchange Act Release No. 88211 (February 14,
2020), 85 FR 9847 (``Notice''). Comments received on the Notice are
available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2020-05/srnysenat202005.htm. The Commission
notes that, on December 4, 2019, NYSE National filed a proposed rule
change to establish fees for the NYSE National Integrated Feed that
are identical to the fees proposed in this filing. See Securities
Exchange Act Release No. 87797 (December 18, 2019), 84 FR 71025
(December 26, 2019) (SR-NYSENAT-2019-31). Comments received on SR-
NYSENAT-2019-31 are available on the Commission's website at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931.htm. On
January 31, 2020, the Division of Trading and Markets, for the
Commission pursuant to delegated authority, temporarily suspended
SR-NYSENAT-2019-31 and instituted proceedings to determine whether
to approve or disapprove that proposed rule change. See Securities
Exchange Act Release No. 88109, 85 FR 6982 (February 6, 2020) (``SR-
NYSENAT-2019-31 OIP''). On February 3, 2020, NYSE National withdrew
SR-NYSENAT-2019-31. See Securities Exchange Act Release No. 88118
(February 4, 2020), 85 FR 7611 (February 10, 2020).
    \5\ See Securities Exchange Act Release No. 88538, 85 FR 19541
(April 7, 2020).
    \6\ See Securities Exchange Act Release No. 89065, 85 FR 37123
(June 19, 2020) (``Request for Comment''). Comments received on the
Request for Comment are available on the Commission's website at
https://www.sec.gov/comments/sr-nysenat-2020-05/srnysenat202005.htm.
    \7\ 15 U.S.C. 78s(b)(2).
    \8\ See Securities Exchange Act Release No. 89592, 85 FR 52174
(August 24, 2020).
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II. Description of the Proposed Rule Change

    NYSE National proposes to establish fees for the NYSE National
Integrated Feed.\9\ According to NYSE National, the NYSE National
Integrated Feed is a NYSE National-only market data feed that provides
vendors and subscribers on a real-time basis with a unified view of
events, in sequence, as they appear on the NYSE National matching
engine.\10\ The NYSE National Integrated Feed includes depth-of-book
order data, last sale data, security status updates (e.g., trade
corrections and trading halts), and stock summary messages.\11\ It also
includes information about NYSE National's best bid or offer at any
given time.\12\ NYSE National proposes the following fees for the NYSE
National Integrated Feed:
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    \9\ The fees became effective on February 3, 2020. Prior to
February 3, 2020, NYSE National did not charge any fees for the NYSE
National Integrated Feed. See Notice, supra note 4, at 9847.
    \10\ See id.
    \11\ See id.
    \12\ See id.
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     $2,500 per month access fee, which would be charged (once
per firm) to any data recipient that receives a data feed of the NYSE
National Integrated Feed; \13\
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    \13\ Data recipients that only use display devices to view NYSE
National Integrated Feed data and do not separately receive a data
feed would not be charged an access fee. See id. at 9848.
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     $1,500 per month redistribution fee, which would be
charged (once per redistributor account) to any redistributor \14\ of
the NYSE National Integrated Feed;
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    \14\ A redistributor would be a vendor or person that provides a
real-time NYSE National market data product externally to a data
recipient that is not its affiliate or wholly-owned subsidiary, or
to any system that an external data recipient uses, irrespective of
the means of transmission or access. See id.
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     $10 per month professional per user fee and $1 per month
non-professional per user fee, which would apply to each display device
that has access to the NYSE National Integrated Feed; \15\
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    \15\ See id.
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     Non-display use \16\ fees:
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    \16\ Non-display use would mean accessing, processing, or
consuming the NYSE National Integrated Feed, delivered directly or
through a redistributor, for a purpose other than in support of a
data recipient's display or further internal or external
redistribution. See id. As proposed, non-display use would include
trading uses such as high frequency or algorithmic trading, as well
as any trading in any asset class, automated order or quote
generation and order pegging, price referencing for algorithmic
trading or smart order routing, operations controls programs,
investment analysis, order verification, surveillance programs, risk
management, compliance, and portfolio management. See id. One, two,
or three categories of non-display use may apply to a data
recipient. See id. at 9848-49. Moreover, data recipients that
receive the NYSE National Integrated Feed for non-display use would
be required to complete and submit a non-display use declaration
before they would be authorized to receive the feed. See id. at
9849. In addition, if a data recipient's use of the NYSE National
Integrated Feed data changes at any time after the data recipient
submits a non-display use declaration, the data recipient must
inform NYSE National of the change by completing and submitting an
updated declaration reflecting the change of use at the time of the
change. See id.

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    [cir] $5,000 per month category 1 non-display fee, which would
apply when a data recipient's non-display use of real-time market data
is on its own behalf;
    [cir] $5,000 per month category 2 non-display fee, which would
apply when a data recipient's non-display use of real-time market data
is on behalf of its clients;
    [cir] $5,000 per platform per month category 3 non-display fee
(capped at $15,000), which would apply when a data recipient's non-
display use of real-time market data is for the purpose of internally
matching buy and sell orders within an organization, including matching
customer orders on a data recipient's own behalf and on behalf of its
clients; \17\
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    \17\ According to NYSE National, category 3 non-display fees
would apply to non-display use in trading platforms, such as, but
not limited to, alternative trading systems (``ATSs''), broker
crossing networks, broker crossing systems not filed as ATSs, dark
pools, multilateral trading facilities, exchanges, and systematic
internalization systems. See id. at 9848-49.
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     $1,000 per month non-display use declaration late fee,
which would apply to any data recipient that is paying an access fee
for the NYSE National Integrated Feed and that fails to complete and
submit the annual non-display use declaration by December 31 of the
year, and would apply beginning January 1 and for each month thereafter
until the data recipient has completed and submitted the annual non-
display use declaration; \18\ and
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    \18\ See id. at 9849.
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     $200 per month multiple data feed fee, which would apply
to any data recipient that takes a data feed for a market data product
in more than two locations, and would apply to each location, beyond
the first two locations, where the data recipient receives a data
feed.\19\
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    \19\ See id.
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    The access fees, professional user fees, and non-display fees would
not apply to Federal agencies \20\ that subscribe to the products
listed on the proposed fee schedule that includes such fees.\21\
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    \20\ NYSE National states that the term ``Federal agencies'' as
used in the proposed fee schedule would include all Federal agencies
subject to the Federal Acquisition Regulation (``FAR''), as well as
any Federal agency not subject to FAR that has promulgated its own
procurement rules. See id. NYSE National further states that all
Federal agencies that subscribe to the NYSE National real-time
proprietary market data products would continue to be required to
execute the appropriate subscriber agreement, which includes, among
other things, provisions against the redistribution of data. See id.
    \21\ The proposed fee schedule lists NYSE National BBO, NYSE
National Trades, and NYSE National Integrated Feed, and specifies
that there would be no fees for NYSE National BBO and NYSE National
Trades.
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    Finally, first-time subscribers \22\ would be eligible for a free
trial by contacting NYSE National and would not be charged the access
fee, the non-display fee, any applicable professional and non-
professional user fee, and the redistribution fee for one calendar
month for each of the products listed on the proposed fee schedule.\23\
The free trial would be for the first full calendar month following the
date a subscriber is approved to receive trial access to NYSE National
market data.\24\ As proposed, NYSE National would provide the one-month
free trial for a particular product to each subscriber only once.\25\
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    \22\ A first-time subscriber would be any firm that has not
previously subscribed to a particular product listed on the proposed
fee schedule. See Notice, supra note 4, at 9849.
    \23\ See id.
    \24\ See id. at 9849-50.
    \25\ See id. at 9850.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
exchange.\26\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(4) of the Act,\27\ which
requires that the rules of a national securities exchange provide for
the equitable allocation of reasonable dues, fees, and other charges
among its members and issuers and other persons using its facilities;
Section 6(b)(5) of the Act,\28\ which requires, among other things,
that the rules of a national securities exchange not be designed to
permit unfair discrimination between customers, issuers, brokers, or
dealers; and Section 6(b)(8) of the Act,\29\ which requires that the
rules of a national securities exchange not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. The Commission also finds that the proposed rule
change is consistent with Rule 603(a) of Regulation NMS,\30\ which
requires an exclusive processor that distributes information with
respect to quotations for or transactions in an NMS stock do so on
terms that are fair and reasonable and that are not unreasonably
discriminatory.\31\
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    \26\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f). See infra Sections
III.A-C.
    \27\ 15 U.S.C. 78f(b)(4).
    \28\ 15 U.S.C. 78f(b)(5).
    \29\ 15 U.S.C. 78f(b)(8).
    \30\ 17 CFR 242.603(a).
    \31\ NYSE National is an exclusive processor of securities
information under the Act because it distributes on its own behalf
information regarding its quotations and transactions. See 15 U.S.C.
78c(a)(22)(B) (emphasis added) (defining ``exclusive processor'' to
mean ``any securities information processor or self-regulatory
organization which, directly or indirectly, engages on an exclusive
basis on behalf of any national securities exchange or registered
securities association, or any national securities exchange or
registered securities association which engages on an exclusive
basis on its own behalf, in collecting, processing, or preparing for
distribution or publication any information with respect to (i)
transactions or quotations on or effected or made by means of any
facility of such exchange or (ii) quotations distributed or
published by means of any electronic system operated or controlled
by such association'').
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    The Commission has historically applied a ``market-based'' test in
its assessment of market data fees, such as the fees proposed herein.
Under that test, the Commission considers ``whether the exchange was
subject to significant competitive forces in setting the terms of its
proposal for [market data], including the level of any fees.'' \32\ If
an exchange meets this burden, the Commission will find that its fee
rule is consistent with the Act unless ``there is a substantial
countervailing basis to find that the terms'' of the rule violate the

Act or the rules thereunder.\33\ If an exchange cannot demonstrate that
it was subject to significant competitive forces, it must ``provide a
substantial basis, other than competitive forces . . . demonstrating
that the terms of the [fee] proposal are equitable, fair, reasonable,
and not unreasonably discriminatory.'' \34\
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    \32\ Securities Exchange Act Release No. 59039 (December 2,
2008), 73 FR 74770, 74781 (December 9, 2008) (``2008 ArcaBook
Approval Order'') (approving proposed rule change to establish fees
for a depth-of-book market data product). In 2010, the D.C. Circuit
vacated the Commission's 2008 ArcaBook Approval Order. The court
held that focusing on whether competitive market forces constrained
the exchange's pricing decisions was an acceptable basis for
assessing the fairness and reasonableness of the fees, but
determined that the record did not factually support the conclusion
that significant competitive forces limited the ability of NYSE
Arca, Inc. (``NYSE Arca'') to set unfair or unreasonable prices. The
D.C. Circuit vacated and remanded for further proceedings. See
NetCoalition v. SEC, 615 F.3d 525, 535 (D.C. Cir. 2010)
(``NetCoalition I'') (``We conclude the SEC's interpretation--that a
market-based approach to evaluating whether NYSE Arca's non-core
data fees are `fair and reasonable'--is a permissible one.'').
    \33\ 2008 ArcaBook Approval Order, supra note 32, at 74781. See
also NetCoalition I, 615 F.3d at 532.
    \34\ 2008 ArcaBook Approval Order, supra note 32, at 74781. See
also NetCoalition I, 615 F.3d at 532.
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A. Substitution-Based Arguments

    In support of the proposed fees, NYSE National argues that the NYSE
National Integrated Feed is sold in a competitive market.\35\ NYSE
National asserts that exchanges compete with each other in selling
proprietary market data products, as well as with consolidated data
feeds (i.e., SIP feeds) and with data provided by ATSs.\36\ In
addition, NYSE National states that NYSE National BBO (which includes
best bid and offer information for NYSE National on a real-time basis)
and NYSE National Trades (which includes NYSE National last sale
information on a real-time basis) are substitutes for the NYSE National
Integrated Feed and constrain NYSE National's ability to charge
supracompetitive prices for the feed.\37\ In support of its claim, NYSE
National states that, since the date of filing of SR-NYSENAT-2019-31
and before the proposed fees went into effect on February 3, 2020, five
subscribers to the NYSE National Integrated Feed (i.e., nearly 9% of
the prior subscriber base) have cancelled their subscriptions due to
the imminent imposition of the fees.\38\ Moreover, NYSE National states
that a sixth customer informed NYSE National that if NYSE National is
permitted to impose the fees, the customer would cancel its
subscription to the NYSE National Integrated Feed and instead subscribe
to the NYSE National BBO feed, which NYSE National states will remain
available for free.\39\
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    \35\ See Notice, supra note 4, at 9851. NYSE National's initial
proposal and subsequent comment letters focused on a platform-based
argument and a substitution-based argument to demonstrate that the
fees are constrained by significant competitive forces. The
Commission discusses NYSE National's platform-based argument in
Section III.B below.
    \36\ See id. NYSE National provides a report by Charles M. Jones
to support these arguments. See Charles M. Jones, Understanding the
Market for U.S. Equity Market Data (August 31, 2018) (``Jones
Paper''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3a.pdf.
    \37\ See Notice, supra note 4, at 9854.
    \38\ See id. at 9848.
    \39\ NYSE National states that these six lost subscribers
constitute 10.5% of the prior number of subscribers to the NYSE
National Integrated Feed. See id.
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    In response to the proposal, one commenter argues that the NYSE
National Integrated Feed is not subject to competitive forces because
there are no available substitutes to NYSE National's depth-of-book
product,\40\ as the NYSE National Integrated Feed is the only source of
depth-of-book information on NYSE National.\41\ This commenter also
argues that NYSE National makes an unpersuasive attempt to show
elasticity of demand for the NYSE National Integrated Feed (i.e., in
response to the fee increase, five of the 57 subscribers notified NYSE
National of their intent to cancel their subscriptions before the fees
went into effect, which the commenter considers to be a low proportion
of subscribers).\42\
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    \40\ See letters from Ellen Greene, Managing Director, Equities
& Options Market Structure, SIFMA, to Vanessa Countryman, Secretary,
Commission, dated March 11, 2020, at 2 (``SIFMA Letter I''); July
10, 2020, at 3-4 (``SIFMA Letter II''); and August 14, 2020, at 1-3
(``SIFMA Letter III''). This commenter also more generally argues
that NYSE National fails to provide the necessary information for
the Commission to determine whether the proposed fees meet the
requirements of the Act. See SIFMA Letter I, supra. See also SIFMA
Letter II, supra, at 1-2 (reiterating arguments made in SIFMA Letter
I). In addition, this commenter refers to the comment letter it
submitted on SR-NYSENAT-2019-31 in stating that the proposal does
not meet the requirements of the Act. See SIFMA Letter I, supra, at
2. See also SR-NYSENAT-2019-31 OIP, supra note 4, at 6984-85
(describing the commenter's letter on SR-NYSENAT-2019-31); letter
from Robert Toomey, Managing Director and Associate General Counsel,
SIFMA, to Vanessa Countryman, Secretary, Commission, dated January
21, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6678406-204968.pdf.
    \41\ See SIFMA Letter II, supra note 40, at 4.
    \42\ See SIFMA Letter I, supra note 40, at 2.
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    This commenter also argues that market data products are
complementary because the ability of participants to evaluate the
market, and therefore the utility and value of market data, increases
with the addition of market data products from other exchanges.\43\
Therefore, according to the commenter, exchanges have little incentive
to reduce the prices for their own data because any theoretical
increase in demand would be shared with other exchanges.\44\ In
addition, this commenter argues that other data feeds offered by NYSE
National or other exchanges are not alternatives to the NYSE National
Integrated Feed because only this feed provides depth-of-book
information on NYSE National.\45\ According to this commenter, broker-
dealers feel obligated to obtain direct feeds across multiple exchanges
to have the most robust view of the market, regardless of a given
exchange's market share and, while not mandated by regulation to use
direct feeds, a large number of broker-dealers feel that direct feeds
are necessary for competitive and best execution reasons.\46\ In this
regard, the commenter states that a number of broker-dealers feel that
they cannot ignore the NYSE National Integrated Feed and solely rely on
consolidated data to meet their best execution obligations, and
specifically that NYSE National has quotations at one side of the
National Best Bid and Offer (``NBBO'') 37.7% of the time and at both
sides of the NBBO 7.76% of the time.\47\ This commenter also states
that odd lot trades represented 36.6% of total trades at NYSE National,
and the only way to see these odd lot quotes is to subscribe to the
NYSE National Integrated Feed.\48\ Finally, this commenter states that,
despite a relatively small overall market share, NYSE National has a
significant market share for certain stocks and exchange-traded
products (``ETPs'').\49\
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    \43\ See SIFMA Letter II, supra note 40, at 3 (citing Lawrence
R. Glosten, Economics of the Stock Exchange Business: Proprietary
Market Data (January 2020) (``Glosten Paper'')).
    \44\ See id.
    \45\ See id. at 4. This commenter also states that NYSE
National's monopoly over this integrated data precludes the
development of competing products to constrain its pricing. See id.
    \46\ See SIFMA Letter III, supra note 40, at 1-3 (citing Credit
Suisse Securities, BofA Securities, Morgan Stanley, and Barclays as
examples). See also SIFMA Letter II, supra note 40, at 4.
    \47\ See SIFMA Letter III, supra note 40, at 2 (citing data from
June 2020).
    \48\ See id.
    \49\ See id. at 3. Specifically, the commenter states that once
trading volume associated with the opening and closing auctions is
excluded, the data indicate that NYSE National holds a larger market
share for certain types of securities during regular trading hours.
See id. According to the commenter, of the stocks that trade on NYSE
National, in the 30-day period ending July 17, 2020, over 22% were
small-cap stocks; with regard to 35% of those small-cap stocks, NYSE
National had a continuous market share of between 2% and 5%, and
with regard to 6% of those small-cap stocks, NYSE National had a
continuous market share of between 5% and 10%. See id. The commenter
also states that over 26% of the stocks traded on NYSE National in
the same time period were mid-cap stocks; with regard to 27% of
those mid cap stocks, NYSE National had a continuous market share of
between 2% and 5%, and with regard to 8% of those mid-cap stocks,
NYSE National had a continuous market share of between 5% and 10%.
See id. In addition, the commenter states that, during the same
period, NYSE National had ``significant market share'' in certain
smaller, less liquid ETPs and, for at least some individual common
stocks and ETPs, NYSE National had a market share of greater than
10%. See id. Further, according to the commenter, there were
``significant changes'' in the stocks and ETPs that had the highest
market shares on NYSE National in the 30-day periods ending July 17,
2020 and May 17, 2020. See id. Finally, this commenter ranks common
stocks and ETPs traded on NYSE National based on their percentage of
continuous market volume (excluding primary exchange opening and
closing auction volume) on NYSE National, and states that NYSE
National had 14% market share for the top common stock and 7-8%
market share for the next six common stocks in July 2020, and 12%
market share for the top common stock and 6-7% market share for the
next six common stocks in May 2020. See id. at 5. This commenter
also states that NYSE National had 17% market share for the top ETP
and 7-10% market share for the next six ETPs in July 2020, and 9%
market share for the top ETP and 6-8% market share for the next six
ETPs in May 2020. See id.

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    Similarly, another commenter questions whether third parties can
compete with NYSE National in offering data related to activity on NYSE
National.\50\ This commenter also questions NYSE National's assertion
that market participants have a meaningful ability to choose whether or
not to connect to the NYSE National Integrated Feed and believes
instead that many market participants must buy the feed.\51\ This
commenter acknowledges that NYSE National provides the number of
customers that discontinued using the NYSE National Integrated Feed in
response to the proposed fees, but expresses concern that NYSE National
has not provided any relevant information about these customers (e.g.,
why they subscribed to the NYSE National Integrated Feed in the first
place; whether they were proprietary trading firms, agency brokers, or
data vendors; and whether and how often they sent orders to NYSE
National).\52\ This commenter also states that NYSE National should
update and further elaborate on information about the remaining
subscribers.\53\
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    \50\ See letter from Tyler Gellasch, Executive Director, The
Healthy Markets Association, to Vanessa Countryman, Office of the
Secretary, Commission, dated March 12, 2020, at 6-8 (``Healthy
Markets Letter''). This commenter states that NYSE National controls
who, under what terms, and when anyone other than NYSE National can
obtain order-related information about NYSE National. See id. at 7.
This commenter also more generally argues that the information
provided by NYSE National is not adequate to establish that the
proposed fees are consistent with the Act and Commission rules. See
id. at 3-4. See also SR-NYSENAT-2019-31 OIP, supra note 4, at 6984
(describing the commenter's letter on SR-NYSENAT-2019-31); letter
from Tyler Gellasch, Executive Director, The Healthy Markets
Association, to Vanessa Countryman, Office of the Secretary,
Commission, dated January 16, 2020, available at https://www.sec.gov/comments/sr-nysenat-2019-31/srnysenat201931-6663540-203934.pdf.
    \51\ See Healthy Markets Letter, supra note 50, at 4-5.
According to this commenter, if one set of market participants has
access to a faster, richer data set, then those without that
information will not be as competitive and may not be able to quote
or otherwise route orders in a manner that could effectively achieve
best execution. See id. at 8.
    \52\ See id. at 5-6.
    \53\ See id. at 6.
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    Finally, another commenter argues that other NYSE market data
offerings and consolidated data cannot be considered to be competitors
or substitutes that would constrain the pricing of the NYSE National
Integrated Feed.\54\ This commenter similarly states that data from one
exchange is not a substitute for data from other exchanges, and that an
exchange's depth-of-book data are unique to that exchange and cannot be
obtained from any other source.\55\
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    \54\ See letter from Gregory Babyak, Global Head of Regulatory
Affairs, Bloomberg L.P., to Vanessa Countryman, Secretary,
Commission, dated July 10, 2020, at 4, 6 (``Bloomberg Letter'').
According to the commenter, if depth-of-book data products from
different exchanges were close substitutes, it would be expected
that customers purchase only from the lowest-priced provider. See
id. at 6. Yet this commenter argues that such ``prices have not
converged.'' See id.
    \55\ See id. at 6.
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    In response to the Commission's Request for Comment and the comment
letters received, NYSE National argues that the observation that some
firms buy proprietary data from all exchanges is not sufficient to show
that these products are complements,\56\ and that the concept of
``monopolistic competition'' does not apply to exchanges' pricing of
proprietary market data products because the Glosten Paper fails to
address a key component of ``monopolistic competition.'' \57\ In
addition, NYSE National disagrees with commenters' assertions that
customers are ``required'' to purchase the NYSE National Integrated
Feed.\58\ NYSE National asserts that there is no regulatory mandate
(e.g., best execution obligations) requiring any specific customers to
purchase proprietary market data products from exchanges; rather,
subscription to proprietary market data products is a business decision
where individual market participants weigh the value of individual
proprietary market data products to their individual business models
and choose to invest in those products whose cost is justified by the
expected benefits.\59\ According to NYSE National, the fact that some
number of broker-dealers choose to buy certain data products in order
to compete with each other does not mean that the purchase of such
products is ``required.'' \60\
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    \56\ See letter from Elizabeth K. King, Chief Regulatory
Officer, ICE, General Counsel and Corporate Secretary, NYSE, to
Vanessa Countryman, Secretary, Commission, dated August 14, 2020, at
15 (``NYSE National Letter I''). NYSE National also provides a
report by Marc Rysman, which states that a standard definition of
``complements'' is ``two goods for which an increase in the price of
one leads to a decrease in demand for the other'' and that a closely
related definition of ``complementarity'' is that two goods are
considered complements if the incremental value of consuming one
good is greater when the other good is being consumed than when it
is not. See Marc Rysman, Complements, Competition, and Exchange
Proprietary Data Products, at 6-7 (August 13, 2020) (``Rysman Paper
II''). Rysman Paper II states that the Glosten Paper does not test
or directly argue that this definition of complements actually
applies to any specific exchange data products, and that an
observation that some buyers purchase all available products (even
if true) does not imply that those products are complements. See id.
at 6-8. Rather, Rysman Paper II provides an example designed to show
that purchasing proprietary data products from several exchanges has
decreasing marginal returns for the firms that purchase the data.
See id. at 14-18. Rysman Paper II also states that goods for which
an increase in the price of one leads to an increase in the demand
for the other are ``substitutes.'' See id. at 6.
    \57\ See NYSE National Letter I, supra note 56, at 15-16
(stating that Glosten's concept of ``monopolistic competition'' is
inconsistent with platform economics, and that while the Glosten
Paper refers to ``monopolistic competitors,'' it does not engage in
any meaningful analysis of new exchange competitors). See also
Rysman Paper II, supra note 56, at 5, 20-21 (stating that the
evocation of the monopolistic competition framework in the Glosten
Paper is ``puzzling'' because the author does not engage with one of
its characteristics, that there is free entry into the market for
trading venues and that producers of market data make zero profits).
    \58\ See NYSE National Letter I, supra note 56, at 3, 17-21;
letter from Elizabeth K. King, Chief Regulatory Officer, ICE,
General Counsel and Corporate Secretary, NYSE, to Vanessa
Countryman, Secretary, Commission, dated September 22, 2020, at 1-2
(``NYSE National Letter II'').
    \59\ See NYSE National Letter I, supra note 56, at 17-18. See
also Rysman Paper II, supra note 56, at 9 (stating that competition
among brokers can drive them to offer higher quality execution
services and, to this end, to purchase proprietary data from more
exchanges than they might otherwise have chosen to subscribe to,
even though those data products deliver decreasing marginal returns
in creating trading opportunities; and that proprietary traders
compete to identify and take advantage of profitable trading
opportunities, and may be driven to possibly purchase more of the
data products offered by exchanges).
    \60\ See NYSE National Letter I, supra note 56, at 18. See also
Rysman Paper II, supra note 56, at 19 (stating that even if
exchanges' proprietary data products are complements to a limited
set of traders, that does not imply that such data products are
complements in terms of the overall demand for these products or
that these products will be priced at supracompetitive levels). In
addition, NYSE National cites a recent Commission order approving a
new ``D-Limit discretionary limit order type'' offered by Investors
Exchange LLC (``IEX''), in which the Commission stated that ``most
broker-dealers have not purchased the fastest connectivity and
market data from multiple individual exchanges that are necessary to
be able to trade at the precise moments in time identified by the
[crumbling quote indicator]'' used in conjunction with IEX's new
order type. See NYSE National Letter II, supra note 58, at 2 (citing
Securities Exchange Act Release No. 89686 (August 26, 2020), 85 FR
54438 (September 1, 2020) (SR-IEX-2019-15) (order approving a
proposed rule change to add a new discretionary limit order type
called D-Limit)). NYSE National argues that this finding means that
``the Commission is not free to accept SIFMA's unsupported
contention that broker-dealers are `required' to purchase the NYSE
National Integrated Feed.'' See id. at 3. The Commission notes,
however, that the statement made in the context of the IEX proposed
rule change does not constitute a specific finding regarding the
extent to which market participants purchase depth-of-book data from
a particular exchange.
---------------------------------------------------------------------------

    In support of its arguments, NYSE National provides information
regarding

New York Stock Exchange LLC (``NYSE''), NYSE American LLC (``NYSE
American''), NYSE Arca, and NYSE National (collectively, ``NYSE
Group'') market data subscriptions by firms that trade on NYSE, which
according to NYSE National indicates that many firms that trade on NYSE
do not subscribe to the proprietary market data products of each of the
NYSE Group exchanges and a significant percentage of such firms
subscribe to no proprietary market data products at all.\61\ NYSE
National also states that 28 out of 49 total NYSE National member firms
subscribed to the NYSE National Integrated Feed in February 2020 (when
fees were charged for the feed) and 30 out of 48 total NYSE National
member firms subscribed to the NYSE National Integrated Feed in June
2020 (when the feed was offered free of charge).\62\ According to NYSE
National, members that did not subscribe to the feed included several
broker-dealers affiliated with global banks and other trading
firms.\63\ In addition, NYSE National states that five subscribers
cancelled their subscriptions before the new fees went into effect due
to the imminent imposition of the fees,\64\ and that the sixth customer
who warned it would cancel its subscription did in fact do so.\65\
According to NYSE National, these former subscribers include at least
one well-known hedge fund, a brokerage firm and investment adviser
affiliated with a global bank, and several broker-dealers and
investment management firms.\66\ In addition, the Exchange states that
two more subscribers requested cancellation of their subscriptions
after paying the fees in February and March 2020, citing the fees as
their reason for cancelling, but ultimately did not pursue cancellation
once the feed became free again in April 2020.\67\ NYSE National
further states that an additional prospective customer ``walked away''
upon learning of the fees it would have to pay.\68\
---------------------------------------------------------------------------

    \61\ According to NYSE National, this data show that in December
2018 and June 2020: (1) Less than one-third of the firms subscribed
to proprietary market data from all of the four NYSE Group
exchanges; (2) approximately one-third of the firms subscribed to
proprietary market data from only one of these four exchanges; and
(3) 14.6% (in December 2018) and 12.8% (in June 2020) of the firms
did not subscribe to any proprietary market data products from any
of these four exchanges. See NYSE National Letter I, supra note 56,
at 18; Rysman Paper II, supra note 56, at 10-11. This data also show
that in December 2018 and June 2020: (1) Less than 20% of the firms
subscribed to the Integrated Feeds from all of NYSE, NYSE American,
NYSE Arca, and NYSE National; and (2) 66.0% (in December 2018) and
59.6% (in June 2020) of the firms did not subscribe to any
Integrated Feed from any of these four exchanges. See NYSE National
Letter I, supra note 56, at 18; Rysman Paper II, supra note 56, at
11-12.
    \62\ See NYSE National Letter I, supra note 56, at 19.
    \63\ See id.
    \64\ See id. See also supra note 38 and accompanying text.
    \65\ See NYSE National Letter I, supra note 56, at 19-20. See
also supra note 39 and accompanying text.
    \66\ See NYSE National Letter I, supra note 56, at 20.
    \67\ See id.
    \68\ See id.
---------------------------------------------------------------------------

    As discussed below in this Section III.A., in light of NYSE
National's consistently low percentage of market share, the relatively
small number of subscribers to the NYSE National Integrated Feed, and
the sizeable portion of subscribers that terminated their subscriptions
following the proposal of the fees, the Commission finds that the
proposed rule change is consistent with the Act. In particular, the
Commission believes that NYSE National has provided sufficient
information to demonstrate that it was subject to significant
substitution-based competitive forces in setting the terms of its
proposal for NYSE National Integrated Feed fees.\69\
---------------------------------------------------------------------------

    \69\ Under Commission Rule of Practice 700(b)(3), NYSE National
has the ``burden to demonstrate that a proposed rule change is
consistent with the [Act] and the rules and regulations issued
thereunder.'' 17 CFR 201.700(b)(3). Based on the discussion below,
the Commission does not agree with commenter arguments that the
information provided by NYSE National is not adequate to establish
that the proposed fees are consistent with the Act and Commission
rules. See supra notes 40, 50.
---------------------------------------------------------------------------

    In NetCoalition I, while vacating the Commission's 2008 ArcaBook
Approval Order, the D.C. Circuit stated that ``the existence of a
substitute does not necessarily preclude market power,'' that ``whether
a market is competitive notwithstanding potential alternatives depends
on factors such as the number of buyers who consider other products
interchangeable and at what prices,'' and that ``[t]he inquiry into
whether a market for a product is competitive . . . focuses on . . .
the product's elasticity of demand.'' \70\ The court found that the
Commission's analysis of alternatives in the 2008 ArcaBook Approval
Order did not reveal the number of potential users of the data or how
they might react to a change in price.\71\ The court stated that there
was no information regarding how many traders accessed NYSE Arca's
depth-of-book data during the period it was offered without charge (and
thus how many traders might have been interested in paying for NYSE
Arca's depth-of-book data), or whether the traders who wanted depth-of-
book data would have declined to purchase it if met with a
supracompetitive price.\72\
---------------------------------------------------------------------------

    \70\ See NetCoalition I, 615 F.3d at 542 (internal quotation
marks omitted). See also id. at 539-41 (considering order flow
competition); id. at 537 (stating that ``[a]lthough we uphold the
SEC's market-based approach against the petitioners' cost-based
challenges, we do not mean to say that a cost analysis is
irrelevant'' and that because ``in a competitive market, the price
of a product is supposed to approach its marginal cost, i.e., the
seller's cost of producing one additional unit,'' ``the costs of
collecting and distributing market data can indicate whether an
exchange is taking `excessive profits' or subsidizing its service
with another source of revenue'').
    \71\ See id. at 542.
    \72\ See id. at 542-43. Moreover, the court in NetCoalition I
noted that, as of July 2008, about 15% of International Securities
Exchange (``ISE'') members--20 out of 140--subscribed to ISE's
depth-of-book product even though it was free, and stated that,
given that ISE's share volume in U.S.-listed stocks was
significantly smaller than that of NYSE Arca (0.9% compared to 16.5%
in June 2008), it was no surprise that its market data was less in
demand. See id. at 543. Similar to ISE in 2008, NYSE National has
had less than 2% of total share volume on all but 16 days since it
re-launched trading in May 2018 (and never above 2.2%) and, as
demonstrated by the number of NYSE National Integrated Feed
subscribers, faces a lower demand for the NYSE National Integrated
Feed as compared to demand for the data feeds of other exchanges.
See Cboe Global Markets, U.S. Equities Market Volume Summary,
available at https://markets.cboe.com/us/equities/market_statistics/venue/nysenational/all_market/ (showing that NYSE National has had
2% or more of total market share on only 16 days since it re-
launched trading in May 2018). See also infra note 83 (discussing
the Commission's analysis of NYSE National's market share).
---------------------------------------------------------------------------

    With respect to the current proposal, NYSE National provides the
information identified by the court in NetCoalition I as information it
considers useful to demonstrate whether an exchange is subject to
significant competitive forces in pricing its market data.
Specifically, NYSE National provides information regarding the number
of potential users of the NYSE National Integrated Feed--in November
2019, prior to NYSE National's first filing to adopt fees for the feed,
when the feed was offered without charge, there were 57 subscribers to
the feed.\73\ NYSE National also provides information regarding how
potential users of the feed reacted to the introduction of the fees--
six out of the 57 subscribers cancelled their subscriptions due to the
proposed fees after they were first filed in December 2019, and two
more subscribers requested cancellation of their subscriptions after
paying the fees in February and March 2020, citing the fees as their
reason for cancelling, but ultimately did not pursue cancellation once
the feed became free again in April 2020.\74\ NYSE National also states
that an additional prospective customer ``walked away'' upon learning
of the fees it would have to pay.\75\

Accordingly, approximately 14% of the NYSE National Integrated Feed
subscribers were willing to drop or did drop the feed in response to
the proposed fees.
---------------------------------------------------------------------------

    \73\ See supra note 64 and accompanying text.
    \74\ See supra notes 64-67 and accompanying text.
    \75\ See supra note 68 and accompanying text.
---------------------------------------------------------------------------

    Other information also shows that many market participants
(including executing broker-dealers and other trading venues) do not
subscribe to (i.e., have access to one or more substitutes for) the
NYSE National Integrated Feed, even when the feed is offered without
charge, which further demonstrates that NYSE National was subject to
significant competitive forces in pricing the NYSE National Integrated
Feed. In particular, many of the NYSE National member firms do not
subscribe to the NYSE National Integrated Feed, even when it was
available for free: NYSE National states that 28 out of 49 NYSE
National member firms subscribed to the NYSE National Integrated Feed
in February 2020 (when fees were charged for the feed) and 30 out of 48
NYSE National member firms subscribed to the NYSE National Integrated
Feed in June 2020 (when the feed was again offered free of charge).\76\
In addition, NYSE National states that at least ten firms would have
been subject to the Category 3 Non-Display Use fees at the time NYSE
National first filed these fees with the Commission in December
2019.\77\ Given that, in December 2019, there were 12 equities
exchanges (not including NYSE National) \78\ and 31 NMS Stock ATSs that
had an effective Form ATS-N on file with the Commission \79\ that would
be subject to the Category 3 Non-Display Use fees if they subscribed to
the NYSE National Integrated Feed, it appears that more than three-
quarters of trading platforms that would be subject to the Category 3
Non-Display Use fees have chosen not to subscribe to the NYSE National
Integrated Feed. Moreover, a recent Commission decision on market data
fees included an argument from The Nasdaq Stock Market LLC that
approximately 100 trading firms pursue algorithmic trading strategies
that may require all depth-of-book data from every exchange.\80\
However, given that there were only 57 subscribers to the NYSE National
Integrated Feed when it was offered for free and six subscribers
discontinued their subscriptions in response to the fees, it is likely
that a significant number of firms that typically require exchange
depth-of-book data products are using a substitute to the NYSE National
Integrated Feed (and any substitute may include the option to forgo
access to such proprietary data for certain firms).
---------------------------------------------------------------------------

    \76\ See supra note 62 and accompanying text.
    \77\ See Notice, supra note 4, at 9850.
    \78\ A list of national securities exchanges is available on the
Commission's website at https://www.sec.gov/rules/sro.shtml.
    \79\ A list of NMS Stock ATSs is available on the Commission's
website at https://www.sec.gov/divisions/marketreg/form-ats-n-filings.htm.
    \80\ In the Matter of the Application of SIFMA, Securities
Exchange Act Release No. 84432, 29 (October 16, 2018), available at
https://www.sec.gov/litigation/opinions/2018/34-84432.pdf (``SIFMA
Decision'').
---------------------------------------------------------------------------

    Based on the foregoing, the Commission finds that NYSE National was
subject to significant competitive forces in setting the terms of its
proposed fees. The Commission believes that market participants have
access to a substitute for the NYSE National Integrated Feed in light
of NYSE National's consistently low percentage of market share, and as
demonstrated by the relatively small number of subscribers to the NYSE
National Integrated Feed and the sizeable portion of subscribers that
terminated their subscriptions following the proposal of the fees. In
addition, the Commission believes that, despite commenters' arguments
to the contrary,\81\ and while it has not been substantiated that data
from another exchange are a substitute for data from NYSE National, the
information provided by NYSE National demonstrates that a number of
executing broker-dealers \82\ do not subscribe to the NYSE National
Integrated Feed and executing broker-dealers can otherwise obtain NYSE
National best bid and offer information from the consolidated data
feeds.\83\
---------------------------------------------------------------------------

    \81\ See supra notes 40, 47-49, 51, 54, and accompanying text
(describing commenters' arguments that NYSE National has quotations
at the NBBO a notable percentage of the time, a notable percentage
of odd lot trades, and a ``significant'' market share for certain
securities, and that market participants do not have a meaningful
ability to choose not to subscribe to the NYSE National Integrated
Feed).
    \82\ The Commission believes that different types of market
participants have different needs for market data products. For
example, executing broker-dealers, or those that are directly
involved in the submission of orders to an exchange, may have a
greater need for the exchange's market data products than other
market participants that do not submit and execute orders on the
exchange, and executing broker-dealers who purchase the exchange's
market data products may execute a significant portion of volume on
the exchange.
    \83\ Moreover, while a commenter provides data to support its
argument that NYSE National has a ``significant'' market share for
certain securities, the commenter's data only show NYSE National's
market share over two 30-day periods and do not take into account
primary exchange opening and closing auction volume. See supra note
49. The Commission has analyzed the securities that traded at least
one day on NYSE National during the period from May 21, 2018 (i.e.,
the re-launch of trading on NYSE National) through July 23, 2020,
and finds that during this period, on a monthly basis, the percent
of shares traded on NYSE National averaged less than 2% of total
shares traded for over 94% of the securities. Of the 21 securities
in which the commenter claims NYSE National has a ``significant
market share,'' average market share (for all trading, including
regular trading hours, extended hours, and auctions) during the 27-
month period from May 21, 2018 through July 23, 2020 was, in all
cases, lower than what the commenter shows for the two months that
it has selected.
---------------------------------------------------------------------------

    As discussed above,\84\ the Commission's market-based test
considers ``whether the exchange was subject to significant competitive
forces in setting the terms of its proposal for [market data],
including the level of any fees.'' \85\ If an exchange meets this
burden, the Commission will find that its fee rule is consistent with
the Act unless ``there is a substantial countervailing basis to find
that the terms'' of the rule violate the Act or the rules
thereunder.\86\ The Commission has stated that it ``believes that the
existence of significant competition provides a substantial basis for
finding that the terms of an exchange's fee proposal are equitable,
fair, reasonable, and not unreasonably or unfairly discriminatory.''
\87\ With the current proposed rule change, because NYSE National has
demonstrated that it was subject to significant competitive forces in
setting the terms of its proposed fees, the Commission finds that the
proposal is consistent with Sections 6(b)(4), 6(b)(5), and 6(b)(8) of
the Act and Rule 603(a) of Regulation NMS.
---------------------------------------------------------------------------

    \84\ See supra notes 32-34 and accompanying text.
    \85\ 2008 ArcaBook Approval Order, supra note 32, at 74781.
    \86\ Id.
    \87\ Id. at 74781-82. In this regard, the Commission has also
indicated that the availability of substitutes can impose
competitive restraints to ensure that an exchange acts equitably,
fairly, and reasonably. See id. at 74785.
---------------------------------------------------------------------------

    The Commission notes that its finding is specific to the fees
proposed by NYSE National and the information provided by NYSE National
in connection with the current proposed rule change, and that any
proposed rule change by any SRO will be considered based on the
specific factual information before the Commission in the record at
issue.

B. Platform Competition-Based Arguments

    In support of its belief that the proposed fees are reasonable,
NYSE National states that exchanges in general function as platforms
between consumers of market data and consumers of trading services, and
that overall competition between exchanges will limit their overall
profitability.\88\ In

connection with these arguments, NYSE National asserts that the
introduction of the NYSE Integrated Feed in 2015 attracted more trading
to NYSE by both subscribers and non-subscribers to the NYSE Integrated
Feed,\89\ and concludes that overall competition between exchanges will
limit exchanges' overall profitability (not margins on any particular
side of the platform).\90\
---------------------------------------------------------------------------

    \88\ See Notice, supra note 4, at 9852. According to NYSE
National, exchanges are platforms for market data and transaction
services and competition for order flow on the trading side of the
platform acts to constrain the pricing of market data on the other
side of the platform. See id. at 9853.
    \89\ See id. at 9852. NYSE National provides a report by Marc
Rysman to support these arguments. See Marc Rysman, Stock Exchanges
as Platforms for Data and Trading (December 2, 2019) (``Rysman Paper
I''), available at https://www.sec.gov/rules/sro/nysenat/2020/34-88211-ex3b.pdf. NYSE National also states that, since May 2018, when
NYSE National re-launched trading, it has observed a direct
correlation between the steady increase of subscribers to the NYSE
National Integrated Feed and the increase in NYSE National's
transaction market share volume over the same period. See Notice,
supra note 4, at 9850. NYSE National states that, between May 2018
and October 2019, it has grown from 0% to nearly 2% market share of
consolidated trading volume and, between May 2018 and November 2019,
the number of NYSE National Integrated Feed subscribers increased
from 12 to 57. See id. at 9847-48, 9852.
    \90\ See Notice, supra note 4, at 9852 (citing Rysman Paper I,
supra note 89).
---------------------------------------------------------------------------

    In addition, NYSE National argues that, due to the ready
availability of substitutes and the low cost to move order flow to
substitute trading venues, an exchange setting market data fees that
are not at competitive levels would expect to quickly lose business to
alternative platforms with more attractive pricing.\91\ NYSE National
argues that subscribing to the NYSE National Integrated Feed is
optional, that its customers may choose to discontinue using the feed
once the proposed fees are effective, and that any customers who choose
to discontinue using the feed may choose to shift order flow away from
NYSE National.\92\ Similarly, NYSE National argues that its market data
pricing is constrained by the availability of numerous substitute
platforms offering competing proprietary market data products and
trading services.\93\
---------------------------------------------------------------------------

    \91\ See id. at 9853. See also Jones Paper, supra note 36
(stating that the market for order flow and the market for market
data are closely linked, and that an exchange needs to consider the
negative impact on its order flow if it raises the price of market
data).
    \92\ See Notice, supra note 4, at 9850, 9853.
    \93\ See id. at 9853.
---------------------------------------------------------------------------

    In response to the proposal, one commenter argues that competition
for order flow under the ``platform theory'' does not constrain the
cost of market data, but instead results in ``supra-monopoly'' prices
for market data products.\94\ This commenter also argues that an
exchange has yet to show an increase (or decrease) in trading volume
after reducing (or increasing) its price of market data, and that NYSE
National does not state the anticipated impact on order flow from
losing subscribers to the NYSE National Integrated Feed.\95\ In
addition, this commenter argues that, because it believes competitive
forces have not constrained the cost of market data, NYSE National
should provide additional information on cost.\96\
---------------------------------------------------------------------------

    \94\ See SIFMA Letter I, supra note 40, at 2. In a subsequent
letter, this commenter also cites a report concluding that exchanges
charge ``reasonable'' prices for trading because trading services
are substitutes and subject to ``strong'' competitive forces, while
charging ``high'' prices for data because exchanges' data products
are complements, resulting in ``supra-monopoly'' prices for such
complementary products. See SIFMA Letter II, supra note 40, at 2-3
(citing Glosten Paper, supra note 43).
    \95\ See SIFMA Letter I, supra note 40, at 2. See also SIFMA
Letter II, supra note 40, at 3 (stating that, despite a meaningful
decrease in market share by NYSE and NYSE Arca between May 2018 and
December 2019, those exchanges did not respond by reducing the cost
of their market data due to the loss of market share, and that the
introduction of the NYSE National Integrated Feed fees would
significantly increase the overall cost of market data for the NYSE
exchanges when the overall market share for those exchanges
collectively increased by only 0.34% between May 2018 and December
2019).
    \96\ See SIFMA Letter I, supra note 40, at 2; SIFMA Letter II,
supra note 40, at 4.
---------------------------------------------------------------------------

    Another commenter argues that regulatory requirements and
commercial realities regarding brokers' execution obligations preclude
firms from diverting orders from an exchange to protest market data
fees, and that ``protests'' and ``threats'' do not equate to
competition.\97\ According to this commenter, abandoning an exchange
with substantial volume means forgoing valuable trading opportunities
and hurting execution quality.\98\ Moreover, this commenter maintains
that NYSE National's characterization of platform competition, and
characterization of market data and transaction services as two sides
of an exchange platform, are incorrect.\99\ This commenter argues that
because an exchange's trading services and market data subscriptions
are different services that are sold separately to different (albeit
overlapping) customers at different times, they are not on opposite
sides of the same transaction--the ``key feature'' of multisided
platforms.\100\ This commenter further argues that NYSE National has
not substantiated the assertion that ``traders base their decisions
regarding where to execute trades based on the combined cost of
execution and data services.'' \101\ Lastly, this commenter argues that
NYSE National's interpretation of platform theory would lead to
inconsistencies with the Act, as it would allow NYSE National to set
supracompetitive depth-of-book data prices so long as it charged less
for other services, whereas the Act requires data prices themselves to
be fair and reasonable to protect investors and ensure that market data
are widely disseminated.\102\
---------------------------------------------------------------------------

    \97\ See Bloomberg Letter, supra note 54, at 5.
    \98\ See id. The commenter states that if any firm unilaterally
abandons a major exchange to protest market data fees, it would put
itself at a significant competitive disadvantage. See id.
    \99\ See id. at 7-8. Rather, this commenter believes that
exchanges are two-sided platforms only insofar as they intermediate
between liquidity providers and liquidity takers. See id. at 7.
    \100\ See id. at 8. In that vein, this commenter argues that
NYSE National's interpretation of platform theory incorrectly
assumes that traders can readily shift orders to another exchange in
response to market data fees and thereby lower their overall costs
of trading, and that regulatory and business considerations
constrain traders' ability to shift order flow based on market data
fees. See id.
    \101\ See id. Further, this commenter states that even if a
trader were somehow to shift all of its orders to a different
exchange, this would not obviate the trader's need to purchase
market data from that exchange, as sophisticated traders purchase
substantially all exchanges' market data to optimize trading
decisions. See id.
    \102\ See id. at 8-9.
---------------------------------------------------------------------------

    Finally, another commenter objects to NYSE National's platform-
based arguments, stating that the supply and demand functions for order
flow and market data are separate.\103\ This commenter also states that
NYSE National does not provide any information about the costs of
production for the NYSE National Integrated Feed and the expected
revenue NYSE National projects to generate from the proposed fees.\104\
---------------------------------------------------------------------------

    \103\ See Healthy Markets Letter, supra note 50, at 9-10. See
also SIFMA Letter III, supra note 40, at 3 (stating that market data
fees are charged on a monthly basis and such fees are not one of the
best execution factors used by broker-dealers when routing client
orders).
    \104\ See Healthy Markets Letter, supra note 50, at 9. In
addition, this commenter states that NYSE National does not provide
any information about the latency difference between the NYSE
National Integrated Feed and the consolidated data feed or other
methods of transmitting data. See id.
---------------------------------------------------------------------------

    In response to the Commission's Request for Comment and the comment
letters received, NYSE National reiterates that, under the market-based
approach, it has already demonstrated that pricing for proprietary
market data products such as the NYSE National Integrated Feed is
constrained by competition among exchanges.\105\ In support of this
argument, NYSE National references statements by the Antitrust Division
of the U.S. Department of Justice for the merger of NYSE Euronext with
Deutsche B[ouml]rse AG from 2011, which stated that real-time
proprietary market data products constitute a separate ``relevant
market'' for antitrust purposes and that at that time there were four
``major

competitors'' in that market.\106\ NYSE National also argues that there
is a high degree of fragmentation among trading venues and low barriers
to entry.\107\ According to NYSE National, these factors demonstrate
that the market for proprietary market data products is highly
competitive, and that customers dissatisfied with exchanges' pricing
for market data products may respond by moving their order flow to a
different venue, or even by establishing competing exchanges with
different pricing models (e.g., BATS Exchange, Inc. (``BATS''), or MEMX
LLC).\108\
---------------------------------------------------------------------------

    \105\ See NYSE National Letter I, supra note 56, at 2.
    \106\ See id. at 2, 5-6. The question posed in a proceeding
under Section 7 of the Clayton Act is distinct from that necessary
for the Commission to determine whether there is sufficient market
competition to constrain the prices charged for the NYSE National
Integrated Feed, such that fees are fair and reasonable under the
Act.
    \107\ See NYSE National Letter I, supra note 56, at 2, 6-9
(noting that today, equities trading is dispersed across 13 equities
exchanges (with three additional exchanges expected to enter the
market in 2020) and 31 ATSs and numerous broker-dealer internalizers
and wholesalers, that no single exchange has more than 20% market
share, and that NYSE National has less than 2% market share). See
also Rysman Paper II, supra note 56, at 5 (stating that the NYSE
exchanges' share of U.S. equities trading is below thresholds
considered indicative of substantial market power).
    \108\ See NYSE National Letter I, supra note 56, at 9.
---------------------------------------------------------------------------

    In addition, NYSE National reiterates that exchanges are platforms
for market data and trading, that fierce competition for order flow on
the trading side of the platform acts to discipline the pricing of
market data on the other side of the platform, and that NYSE National
is thereby constrained from pricing the NYSE National Integrated Feed
at a supracompetitive price.\109\ NYSE National argues that the
different timing of decisions for purchasing data and order routing is
not inconsistent with trade executions and market data being joint
products.\110\ NYSE National also argues that the Glosten Paper
provides no empirical analysis or data to support its conclusions that
exchanges are not platforms and that exchanges' proprietary market data
products are complements offered by monopolistic competitors charging
supracompetitive prices.\111\ NYSE National further states that
conclusions about the existence of exchange-versus-exchange competition
in the market for trading services and data are not dependent on any
assessment of its costs to produce the NYSE National Integrated Feed,
its return on that investment, or its profit margin.\112\
---------------------------------------------------------------------------

    \109\ See id. at 2, 9-11 (reiterating conclusions from Rysman
Paper I, supra note 89). NYSE National disagrees with a commenter's
view that exchanges are platforms insofar as they intermediate
between liquidity providers and liquidity takers. See id. at 11
n.42. According to NYSE National, from an ``economic perspective,''
firms are platforms if they act as intermediaries between two or
more sets of agents in a setting where the decisions of each set of
agents affects the outcomes of the other set of agents, typically
through an externality. See id. NYSE National also states that
platform theory does not assume that traders can readily shift
orders to another exchange in response to market data fees and
thereby lower their overall cost of trading. See id. Rather, firms
may respond to market data fees by choosing to purchase or not to
purchase a particular data product, and such choices have
implications for that firm's order routing decisions. See id. In a
subsequent comment letter, NYSE National provides a report that
tests whether the introduction of certain market data fees by NYSE
Arca, EDGX Exchange, Inc. (``EDGX''), and BATS affected the
exchanges' market share, and states that the introduction of these
fees led to a decrease in the exchanges' market share. See letter
from Elizabeth K. King, Chief Regulatory Officer, ICE, General
Counsel and Corporate Secretary, NYSE, to Vanessa Countryman,
Secretary, Commission, dated October 12, 2020 (introducing Jonathan
Brogaard and James Brugler, Competition and Exchange Data Fees
(October 2, 2020) (``Brogaard and Brugler Paper'')). NYSE National
submitted the Brogaard and Brugler Paper less than four days before
the date by which the Commission must approve or disapprove the
proposed rule change, which does not allow sufficient time to
meaningfully engage with the complex analysis in the paper. Thus,
the paper has not been fully considered. The Commission staff
reminded NYSE National of the option to withdraw the proposed rule
change and resubmit with the paper so it could be appropriately
reviewed. In any event, the Commission need not consider an argument
premised on this study because the Commission concludes there is an
adequate basis for approval without the study.
    \110\ See id. at 15. See also Rysman Paper II, supra note 56, at
22 (stating that this type of mismatch in timescales is common on
platforms, and if data are useful for deciding what exchange to
route orders to, the data subscription decisions made each month can
impact the order routing decisions made at high frequencies; that
having additional trading on an exchange makes its data more
valuable so that a trader should be more willing to pay for it; and
that therefore there are reasons to expect linkages running in both
directions, from trading to data and from data to trading, despite
the difference in timeframes).
    \111\ See NYSE National Letter I, supra note 56, at 2, 14-16.
Rysman Paper II also states that the ``central implication of
platform theory for the assessment of exchange proprietary data
fees, that they cannot be considered independently of competition
for order flow, does not depend on the size of a platform.'' Rysman
Paper II, supra note 56, at 23.
    \112\ See NYSE National Letter I, supra note 56, at 11-12.
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    Moreover, in response to the Commission's Request for Comment, NYSE
National argues that under NetCoalition I, an exchange does not have to
provide both a cost-based analysis and a market-based approach to
demonstrate that the proposed fees are constrained by competition.\113\
According to NYSE National, it has provided ample evidence that pricing
for the NYSE National Integrated Feed is constrained by
competition.\114\ NYSE National also states that the cost data
requested by the Commission to assess the presence of competition would
not accurately reveal the profitability of NYSE National's market data
products for the following reasons: (1) Such accounting data do not
always accurately reflect economic profitability and therefore can be
unreliable for evaluating the competitiveness of an industry,
especially where such costs are disaggregated and allocated across
various units within a firm; \115\ (2) transaction services and market
data are two sides of the same coin, and artificially dividing costs
between these two products would result in data that are inaccurate and
unreliable; \116\ and (3) NetCoalition I incorrectly assumed that in a
competitive market, the price of a product approaches its marginal
cost, and this theory has limited real-world application.\117\
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    \113\ See id. at 2-4.
    \114\ See id.
    \115\ See id. at 12. NYSE National states that data regarding
its costs are not kept in the disaggregated manner requested by the
Commission, meaning that cost data would have to be imperfectly
allocated across business lines. See id.
    \116\ See id. at 12-13 (referencing a 2014 report prepared by
Oxera for the European Commission, which: (1) Observed that market
data products and trading services are joint products because it is
not possible to provide transaction services without generating
market data, and it is not possible to generate trade transaction or
market depth data without also supplying an execution service; and
(2) stated that with joint products, the production costs of the
outputs cannot be separated (i.e., they are joint costs), and that
the appropriate frame of reference for the economically efficient
recovery of the costs of trading venues is at the level of combined
transaction revenues and data revenues).
    \117\ See id. at 13-14.
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    As discussed above, in light of NYSE National's consistently low
percentage of market share, the relatively small number of subscribers
to the NYSE National Integrated Feed, and the sizeable portion of
subscribers that terminated their subscriptions following the proposal
of the fees, the Commission finds that the proposal is consistent with
the Act. The Commission reaches that conclusion, however, without
agreeing with or otherwise relying on the arguments made by NYSE
National that exchanges function as platforms between consumers of
market data and consumers of trading services, that overall competition
between exchanges will limit their overall profitability, and that
competition for order flow on the trading side of the platform acts to
constrain the pricing of market data on the other side of the platform.
    The Commission acknowledges that platform-based competition could
potentially provide a basis for demonstrating significant competitive
forces with regard to pricing market data. With respect to the current
proposal, the Commission requested information in connection with NYSE
National's platform theory arguments in

the Request for Comment.\118\ The Commission believes, however, that
more information than has been provided (including some or all of the
following information discussed below) would be necessary to
demonstrate that NYSE National was constrained by the presence of
competitive forces under the platform theory in setting the terms of
its proposed fees.
---------------------------------------------------------------------------

    \118\ See Request for Comment, supra note 6, at 37126-28. See
also infra notes 121, 124, 127, 130, 132, 134, 136, and accompanying
text.
---------------------------------------------------------------------------

    NYSE National argues that customers who are dissatisfied with the
proposed fees may discontinue using the NYSE National Integrated Feed,
and customers who choose to discontinue using the feed may choose to
shift order flow away from NYSE National (i.e., there are substitute
exchange platforms to NYSE National).\119\ However, while NYSE National
provides information regarding the number of subscribers who
discontinued using the NYSE National Integrated Feed due to the
proposed fees,\120\ NYSE National does not address whether and to what
extent these customers also shifted order flow away from NYSE
National.\121\ NYSE National also does not address whether the
customers who continued using the NYSE National Integrated Feed shifted
order flow away from NYSE National in response to the proposed fees and
whether the shift in order flow would be sufficient to have a
disciplining effect on market data prices.\122\
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    \119\ See supra notes 91-93, 108, and accompanying text.
    \120\ See supra notes 64-67 and accompanying text.
    \121\ See Request for Comment, supra note 6, at 37127
(requesting, for time periods that would provide meaningful
comparisons, information regarding trading volume for customers and
firms on NYSE National). See also id. at 37127-28 (requesting
analogous additional information with respect to NYSE).
    \122\ See supra note 121.
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    Moreover, as discussed above, NYSE National states that it has
observed a correlation between the increase in subscribers to the NYSE
National Integrated Feed and the increase in NYSE National's
transaction market share volume.\123\ However, NYSE National has not
established a causal relationship between the increase in NYSE National
Integrated Feed subscribers and the increase in NYSE National's
transaction market share volume.\124\ Indeed, other factors could
explain the increase in transaction market share volume. For example,
during the relevant period, NYSE National's transaction fees were
priced such that NYSE National experienced negative net capture,
meaning the revenue from transaction fees was exceeded by transaction-
based expenses,\125\ and NYSE National did not address whether these
transaction fees may have been the driving cause behind its changes in
market share.\126\ Likewise, NYSE National does not explain why the
correlation supports a conclusion that competition for order flow on
NYSE National constrains the pricing of the NYSE National Integrated
Feed.\127\ Similarly, as discussed above, NYSE National states that the
introduction of the NYSE Integrated Feed (which was offered for free at
the time it was introduced \128\) attracted more trading on NYSE.\129\
However, NYSE National does not explain why this scenario is applicable
to the current proposal (i.e., adoption of fees for an existing market
data product) and why it supports a conclusion that competition for
order flow on NYSE National constrains the pricing of the NYSE National
Integrated Feed.\130\
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    \123\ See supra note 89.
    \124\ See Request for Comment, supra note 6, at 37127
(requesting ``[a]n explanation of NYSE National's characterization
that market data and transaction services are the two sides of the
exchange platform'').
    \125\ In 2019, NYSE National collected $53,810,000 in
transaction fees but incurred transaction-based expenses, exclusive
of Section 31 fees, of $57,983,000. See Exhibit I Accompanying
Amendment to Form 1 Registration Statement of NYSE National, Inc.
(June 29, 2020), available at https://www.sec.gov/Archives/edgar/vprr/2001/20012255.pdf (providing audited financial statements for
NYSE National for the year ended December 31, 2019).
    \126\ See NYSE National Schedule of Fees and Rebates as of
August 12, 2020, available at https://www.nyse.com/publicdocs/nyse/regulation/nyse/NYSE_National_Schedule_of_Fees.pdf. See also, e.g.,
Securities Exchange Act Release Nos. 84380 (October 5, 2018), 83 FR
51750 (October 12, 2018) (SR-NYSENAT-2018-22) (notice of filing and
immediate effectiveness of proposed rule change to amend NYSE
National's schedule of fees); 86618 (August 9, 2019), 84 FR 41761
(August 15, 2019) (SR-NYSENAT-2019-18) (notice of filing and
immediate effectiveness of proposed rule change to amend NYSE
National's schedule of fees and rebates).
    \127\ See Request for Comment, supra note 6, at 37127 (``NYSE
National may provide other data to substantiate its platform theory-
based argument, including the claim[] that . . . competition for
order flow on the trading side of the platform acts to constrain the
pricing of market data on the other side of the platform.'').
    \128\ See Securities Exchange Act Release Nos. 74128 (January
23, 2015), 80 FR 4951 (January 29, 2015) (SR-NYSE-2015-03) (notice
of filing and immediate effectiveness of proposed rule change to
establish the NYSE Integrated Feed); and 76485 (November 20, 2015),
80 FR 74158 (November 27, 2015) (SR-NYSE-2015-57) (notice of filing
and immediate effectiveness of proposed rule change to establish
fees for the NYSE Integrated Feed).
    \129\ See supra note 89 and accompanying text.
    \130\ See supra note 127 and accompanying text.
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    In addition, as discussed above, NYSE National argues that the
fragmentation of equities trading among trading venues and low barriers
to entry demonstrate that the market for proprietary market data
products is highly competitive, and that customers dissatisfied with
exchanges' pricing for market data products may respond by moving their
order flow to a different venue.\131\ However, NYSE National does not
provide data to show that customers moving order flow away from an
exchange because of changes in that exchange's market data fees has a
sufficiently disciplinary effect on market data pricing (or explain why
such data would be unnecessary).\132\
---------------------------------------------------------------------------

    \131\ See supra note 107 and accompanying text.
    \132\ See supra note 127.
---------------------------------------------------------------------------

    Further, as discussed above, NYSE National argues that overall
competition between exchanges will limit their overall profitability
(and not margins on any particular side of the platform).\133\ However,
NYSE National has not established that competition between exchanges
has in fact limited its overall profitability (or explain why doing so
would be unnecessary).\134\ Even though NYSE National argues that
accounting data do not always accurately reflect economic profitability
and therefore can be unreliable for evaluating the competitiveness of
an industry,\135\ NYSE National does not explain what information,
other than accounting data, would appropriately demonstrate that its
overall profitability is limited by competition with other
exchanges.\136\
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    \133\ See supra notes 88, 90, and accompanying text.
    \134\ NYSE National also does not provide information regarding
``overall profitability'' of other exchanges (e.g., changes (or lack
of changes) in ``overall profitability'' for another exchange in
connection with a market data fee change on that exchange). See
Request for Comment, supra note 6, at 37127 (requesting ``[a]ny
other information to support the argument that competition between
exchanges will limit the overall profitability of NYSE National and
meaningfully constrain NYSE National's ability to price its
proprietary market data products at supracompetitive prices''). See
also id. (``NYSE National may provide other data to substantiate its
platform theory-based argument, including the claim[] that
competition among exchanges will limit the overall profitability of
NYSE National's platform'').
    \135\ See supra note 115 and accompanying text.
    \136\ See Request for Comment, supra note 6, at 37127
(requesting information regarding profit margins, returns on assets,
or other metrics that would indicate the presence of competition).
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C. Other Arguments and Comments

    NYSE National argues that the proposed fees are equitably allocated
and not unfairly discriminatory,\137\ and do not impose an unnecessary
or

inappropriate burden on competition.\138\ In addition, NYSE National
makes specific additional arguments with respect to the redistribution
fee,\139\ the category 3 non-display fee,\140\ and the non-display use
declaration late fee and the multiple data feed fee.\141\
---------------------------------------------------------------------------

    \137\ See Notice, supra note 4, at 9856-58. NYSE National argues
that the professional and non-professional user fee structure has
long been used by NYSE National to reduce the price of data for non-
professional users and to make it more broadly available, and that
the non-display fee structure results in subscribers with greater
uses of the data paying higher fees and subscribers with fewer uses
of the data paying lower fees. See id. at 9856-57.
    \138\ See id. at 9858-59.
    \139\ See id. at 9854, 9856-57 (arguing that vendors that would
be charged the proposed fee would profit by re-transmitting NYSE
National's market data to their customers and that the proposed fee
would be charged on an equal basis to those vendors that choose to
redistribute the feed).
    \140\ See id. at 9855-58 (arguing that such use of data is
directly in competition with NYSE National and NYSE National should
be permitted to recoup some of its lost trading revenue by charging
for the data that makes such competition possible).
    \141\ See id. at 9856-58 (arguing that these fees would offset
NYSE National's administrative burdens and costs associated with
incorrect billing, late payments, and tracking data usage
locations).
---------------------------------------------------------------------------

    Commenters state their belief that NYSE National has not
demonstrated that the proposed fees represent an equitable allocation
of reasonable fees, do not permit unfair discrimination, and do not
impose an unnecessary or inappropriate burden on competition.\142\
---------------------------------------------------------------------------

    \142\ See SIFMA Letter II, supra note 40, at 4; Bloomberg
Letter, supra note 54, at 2; Healthy Markets Letter, supra note 50,
at 8-9.
---------------------------------------------------------------------------

    As discussed above, the Commission finds that NYSE National was
subject to significant competitive forces in setting fees for the NYSE
National Integrated Feed. An analysis of the proposal and of the views
of commenters does not provide a substantial countervailing basis to
suggest that the proposed fees are not consistent with the Act.
Accordingly, the Commission finds that the proposed rule change is
equitable, fair, reasonable, not unreasonably or unfairly
discriminatory, and not an undue burden on competition, and is
consistent with Sections 6(b)(4), 6(b)(5), and 6(b)(8) of the Act and
Rule 603(a) of Regulation NMS.\143\
---------------------------------------------------------------------------

    \143\ See supra notes 84-87 and accompanying text.
---------------------------------------------------------------------------

IV. Conclusion

    For the reasons set forth above, the Commission finds that the
proposed rule change is consistent with the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and in particular, Sections 6(b)(4), 6(b)(5), and 6(b)(8) of the Act,
and Rule 603(a) of Regulation NMS.
    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\144\ that the proposed rule change (SR-NYSENAT-2020-05) be, and
hereby is, approved.
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    \144\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\145\
---------------------------------------------------------------------------

    \145\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-23367 Filed 10-21-20; 8:45 am]
BILLING CODE 8011-01-P