continue to be a single point of failure, in that one of the exchanges
could experience a systems issue leading to a market-wide effect just
like they could today if they experience a systems issue when
delivering their data content to the exclusive SIPs.
    Under the amendments, with the availability of multiple competing
consolidators, there could be multiple copies of consolidated market
data, which will contribute to market resiliency.\2251\ Some commenters
stated that having multiple competing consolidators will reduce the
probability of market-wide failures and

instead increase market resiliency.\2252\ The Commission agrees.
Currently, each exclusive SIP consolidates and disseminates unique
market data and if either or both of the exclusive SIPs experience a
systems problem the whole market is affected. However, under the
amendments, with multiple competing consolidators serving the market,
no single competing consolidator's systems issue will be a market-wide
problem. At most, it will affect all of its customers or some of its
customers if others retained a back-up competing consolidator.
---------------------------------------------------------------------------

    \2251\ See infra Section V.C.2(e)(i) for a discussion of how
Regulation SCI could also contribute to market resiliency.
    \2252\ See, e.g., BlackRock Letter at 5; Committee on Capital
Markets Regulation Letter at 3; Clearpool Letter at 7-8; BestEx
Research Letter at 5. See also Section III.C.2.
---------------------------------------------------------------------------

    Other commenters stated that competing consolidators will move the
market from single point of failure to multiple points of failure and
reduce resiliency.\2253\ The Commission agrees that with multiple
competing consolidators, each of their systems issues might cause
problems for a certain portion of the market participants. However,
that will still decrease the probability of market-wide failures in
data consolidation and dissemination because all competing
consolidators would have to have a simultaneous systems issue for there
to be a market-wide failure in data consolidation and dissemination.
That is unlike today, when a single exclusive SIP's systems issue can
create a market-wide failure in data consolidation and dissemination.
Additionally, with multiple competing consolidators, market
participants will have a choice if they decide to retain a back-up
competing consolidator based on their business needs. However,
currently, for market participants that primarily rely on SIP data
there is no secondary back-up consolidator option. Thus, as discussed
above,\2254\ the Commission does not believe that the decentralized
consolidation model reduces resiliency.
---------------------------------------------------------------------------

    \2253\ See, e.g., NYSE Letter II at 24; Nasdaq Letter IV at 7,
8, 36; Cboe Letter at 23-24, 25; TechNet Letter II at 2; Data Boiler
Letter II at 4.
    \2254\ See supra Section III.C.2.
---------------------------------------------------------------------------

    Finally, one commenter expressed concerns about low-cost providers
being less resilient.\2255\ The Commission believes that low cost data
providers would not necessarily be less resilient and, if any are less
resilient, that would not necessarily lead to lower resiliency in the
market because market participants could review competing
consolidators' monthly disclosures and decide whether to retain a
backup consolidator. First, any low cost competing consolidators that
are above the five percent (5%) market data revenue threshold will be
subject to Regulation SCI with geographically diverse backup
requirements. Second, all competing consolidators are required to
publicly disclose, on a monthly basis, their system availability and
performance statistics. In a competitive market, this will encourage
competing consolidators to invest in their systems to make sure that
they have high rates of system ``up-time.'' Additionally, it will give
market participants information to anticipate their backup needs and
decide whether they need to get a backup consolidator based on their
data providers' system availability and performance statistics.
---------------------------------------------------------------------------

    \2255\ See Nasdaq Letter IV at 35.
---------------------------------------------------------------------------

(d) Costs of the Decentralized Consolidation Model
    The Commission believes that the amendments are likely to have
direct costs on potential competing consolidators and SROs, and
indirect costs on existing exclusive SIPs, certain market participants
and investors, and SROs. As explained below, the Commission estimates
that the direct costs to each potential competing consolidator will be
between approximately $5.6 million in ongoing annual costs, and total
one-time costs of up to between approximately $1.7 million and $5.7
million, depending on entity type.\2256\ Further, the Commission
estimates that SROs will jointly have approximately $175,000 in direct
one-time costs and approximately $102,000 in ongoing costs for the
amendments to the effective national market system plan(s). Each SRO
will also incur approximately $71,000 in one-time direct costs and
approximately $128,000 in ongoing costs for the collection and
dissemination of information. The Commission expects, however, that the
amendments that introduce a decentralized consolidation model will have
additional indirect costs. Some of these direct and indirect costs are
likely to be passed on to investors in terms of the prices they will
pay.
---------------------------------------------------------------------------

    \2256\ These costs do not include the costs of compliance with
Regulation SCI, which are discussed below. See infra Section
V.C.2(e)(ii). The direct cost of compliance with Regulation SCI
(i.e., PRA plus non-PRA costs) is approximately between $1 million
and $2.4 million in ongoing costs and is approximately between
$300,000 and $3 million in one-time costs, depending on entity type.
Therefore, the total direct cost of the decentralized consolidation
model, including the costs of compliance with Regulation SCI is
approximately between $6.6 million and $8 million in ongoing costs
and is approximately between $2 million and $8.4 million in one-time
costs, depending on entity type. However, these costs could be lower
for some competing consolidators that choose not to take in and
offer the entirety of consolidated market data as well as for some
that do not have to comply with Regulation SCI.
---------------------------------------------------------------------------

(i) Direct Costs to Potential Competing Consolidators
    As mentioned in the Proposing Release and discussed above,\2257\
the Commission believes that five types of entities may register to
become competing consolidators and will have to build systems, or
modify existing systems, that comply with the 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 estimates that all direct
ongoing annual costs and some one-time costs will be common among all
competing consolidators and that some one-time costs will vary
depending on entity type.
---------------------------------------------------------------------------

    \2257\ See Proposing Release, 85 FR at Section V.D.2; supra
Section IV.D.3.
---------------------------------------------------------------------------

    For purposes of the PRA,\2258\ the Commission estimates that direct
ongoing costs for each competing consolidator will be approximately
$5.63 million and consist of the following costs: Costs of $16,812 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; \2259\ costs of $50 to obtain digital IDs for
the purposes of signing the Form CC annually,\2260\ costs of
approximately $5.56 million associated with operating and maintaining a
competing consolidator system; \2261\ costs of $362 to ensure that it
has posted the correct direct URL hyperlink to the Commission's website
on its own website; \2262\ costs of $4,360 of recordkeeping; \2263\ and
costs of $45,222 to prepare and make publicly available a monthly
report.\2264\
---------------------------------------------------------------------------

    \2258\ Direct costs cited in this section are quantified from
estimates in the PRA. See supra Section IV.
    \2259\ See supra Section IV.D.1(b)(iii); supra note 1412.
    \2260\ See supra Section IV.D.1(a).
    \2261\ These costs are composed of labor costs of $418,290,
external costs of $371,175 to operate and maintain systems to comply
with Rules 614(d)(1) through (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 IV.D.3(g)(iii).
    \2262\ See supra Section IV.D.2(b)(iii); supra note 1423.
    \2263\ See supra Section IV.D.4(b)(iii).
    \2264\ See supra Section IV.D.5(b)(iii); supra note 1543.
---------------------------------------------------------------------------

    The Commission estimates that direct one-time costs that are common
across all competing consolidators will be

$189,342 and consist of the following costs: Costs $93,540 to complete
an initial Form CC; \2265\ costs of $50 to obtain digital IDs the
purposes of signing the initial Form CC; \2266\ costs of $5,604 to file
material amendments to Form CC; \2267\ costs of $121 to publicly post
the Commission's direct URL hyperlink to its website upon filing of the
initial Form CC; \2268\ 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; \2269\ costs of $80,507 to
produce the monthly reports and costs of $800 for an external website
developer to create the website that will post and keep the monthly
reports.\2270\
---------------------------------------------------------------------------

    \2265\ See supra Section IV.D.1(a); supra note 1402.
    \2266\ See supra Section IV.D.1(a).
    \2267\ See id.
    \2268\ See supra Section IV.D.2(a)(iii).
    \2269\ See supra Section IV.D.4(a)(iii).
    \2270\ See supra Section IV.D.5(a)(iii).
---------------------------------------------------------------------------

    The Commission 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 will decide to register as a
competing consolidator will include approximately $5.63 million in
ongoing annual costs, as discussed above, and total one-time costs of
approximately $1.71 million. The one-time costs are composed of labor
costs of $697,150; \2271\ external costs of $618,750 to modify its
systems to comply with Rules 614(d)(1) through (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; \2272\ as well as $189,342 in costs that are common to all
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2271\ See supra Sections IV.D.3(b)(iii), IV.D.3(c)(iii).
    \2272\ Id.
---------------------------------------------------------------------------

    The Commission estimates that the total direct costs to each
existing exclusive SIP that will decide to enter as a competing
consolidator will include $5.63 million in ongoing annual costs, as
discussed above, and total one-time costs of approximately $3 million.
The one-time costs per existing exclusive SIP are composed of labor
costs of $1,394,300; \2273\ external costs of $1,237,500 to modify its
systems to comply with Rules 614(d)(1) through (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; \2274\ as well as $189,342 in costs that are common to all
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2273\ See supra Section IV.D.3(d)(iii).
    \2274\ Id.
---------------------------------------------------------------------------

    The Commission estimates that the total direct costs to each new
entrant that is not an SRO or a data aggregator, in the competing
consolidator space and to each SRO that will decide to enter as a
competing consolidator will include approximately $5.63 million in
ongoing annual costs, as discussed above, and total one-time costs of
approximately $5.66 million.\2275\ The one-time costs are composed of
labor costs of $2,788,600,\2276\ external costs of $2,475,000 to build
its systems to comply with Rules 614(d)(1) through (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; \2277\ as well as $189,342 in costs that are common to all
competing consolidators, as described above.
---------------------------------------------------------------------------

    \2275\ The Commission believes that competing consolidators that
are affiliated with exchanges will choose to operate under the
provisions of the exemption. See supra Section V.C.2(a)(i)a.
    \2276\ See supra Section IV.D.3(e)(iii).
    \2277\ Id.
---------------------------------------------------------------------------

    One commenter stated that the Proposing Release underestimates the
direct costs to become a competing consolidator. The commenter said
that ``[t]he Commission estimates that potential competing
consolidators would incur `total one time costs of up to between
approximately $897,000 and $2.40 MM, depending on entity type.' Even
the higher end of that range is a fraction of what ICE believes it
would cost to build the necessary infrastructure to be a competing
consolidator.'' \2278\ On the other hand, one commenter stated that the
existing exclusive SIPs would have a competitive advantage over other
potential competing consolidators, ``because they would not incur the
upfront capital expenditures to build a Competing Consolidator model.''
\2279\ While acknowledging that some potential competing consolidators
might incur lower costs than others to become a competing consolidator,
the Commission is revising up its cost estimates from the Proposing
Release.\2280\ The Commission estimates that the direct costs to each
potential competing consolidator will be between approximately $5.6
million in ongoing annual costs, and total one-time costs of up to
between approximately $1.7 million and $5.7 million, depending on
entity type.\2281\
---------------------------------------------------------------------------

    \2278\ The commenter also stated that ``the capital expenditure
costs to build the NMS network were estimated at $3.8 million, and
the ongoing costs to maintain and operate the NMS network are
estimated to be $215,000 annually.'' See IDS Letter I at 13. The
Commission believes this is informative but not directly applicable
to the costs that potential competing consolidators could incur when
building or modifying their systems to operate as a competing
consolidator for two reasons. First, unlike the potential competing
consolidators with one of their main functions being data
consolidation, the NMS network is not a system that consolidates
market data. Second, the NMS network costs include the transmission
of options data, which competing consolidators will not consolidate
or disseminate.
    \2279\ See MIAX Letter at 2-3.
    \2280\ See Proposing Release, 85 FR at 16843 for a discussion on
the costs to becoming a competing consolidator.
    \2281\ See supra note 2256 for a discussion on costs including
the costs to comply with Regulation SCI.
---------------------------------------------------------------------------

(ii) Direct Costs to SROs
    Separately, the Commission estimates that the SROs will jointly
have approximately $175,000 in direct one-time costs and approximately
$102,000 in ongoing costs for the amendments to the effective national
market system plan(s).\2282\ These costs include the costs SROs will
incur when conducting an assessment of competing consolidator
performance and developing an annual report of such assessment to be
provided to the Commission. Additionally, each SRO will incur
approximately $71,000 in one-time direct costs \2283\ and approximately
$128,000 in ongoing costs for the collection and dissemination of
information necessary to generate consolidated market data required by
Rule 603(b).\2284\
---------------------------------------------------------------------------

    \2282\ See supra Section IV.D.6(c).
    \2283\ See supra Section IV.D.7(a)(iii); supra note 1553.
    \2284\ See supra Section IV.D.7(b)(iii); supra note 1559.
---------------------------------------------------------------------------

    One commenter mentioned that the amendments will ``require the SROs
to continue to incur costs associated with managing an NMS plan while
overseeing and reporting on competing consolidators.'' \2285\ The
requirement that the SROs conduct an assessment of and report on
competing consolidators' performance is new and the Commission did not
include ongoing direct costs from this requirement to the SROs in the
Proposing Release. However, with the amendments, the Commission revises
its estimates to include $102,165 of ongoing direct costs jointly
incurred by the SROs.\2286\ The SROs and the Operating Committee will
have access to information made publicly available by competing

consolidators, which could be used as part of their assessment of
competing consolidators. The SROs can mitigate some of their costs by
using this information.
---------------------------------------------------------------------------

    \2285\ See NYSE Letter II at 28.
    \2286\ This ongoing direct cost number is calculated using the
PRA ongoing burden hours for maintaining the required timestamps,
conducting assessments of competing consolidators, preparing an
annual report, maintaining the list of the primary listing exchange
for each NMS stock, and calculating gross revenues (Attorney at $417
for 245 hours equals $102,165). See supra Section IV.D.6(c).
---------------------------------------------------------------------------

    The commenter also stated that the Commission ``also places on
exchanges the costs of calculating and disseminating certain regulatory
data (such as LULD bands) to competing consolidators and self-
aggregators.'' \2287\ The commenter said that the cost to obtain data
from other exchanges needed to perform these calculations should be
considered by the Commission. The Commission disagrees that calculation
of the regulatory data required by this rule will impose any major new
data costs on the exchanges and the Commission's estimates of the costs
to collect and disseminate this certain regulatory data are included in
the estimates of direct costs to the SROs. The national securities
exchanges currently aggregate market data obtained from the exclusive
SIPs and from proprietary data feeds to perform several exchange
functions, including order handling and execution, order routing, and
regulatory compliance. Therefore, if they continue to use the same
proprietary data for their regulatory data calculations, there would
not be major new costs. To the extent they can use the new consolidated
market data to perform the regulatory data calculations, the exchanges
can become self-aggregators \2288\ and benefit from potentially lower
data content costs.
---------------------------------------------------------------------------

    \2287\ See NYSE Letter II at 20-21.
    \2288\ See supra Section III.D.2(a) for a discussion on the
scope of the definition of self-aggregator.
---------------------------------------------------------------------------

(iii) Indirect Costs to the Exclusive SIPs
    The Commission believes that the amendments may impose a
substantial cost for existing exclusive SIPs in terms of loss of data
processing revenues because exclusive SIPs will no longer be exclusive
consolidators and disseminators of market data, and at least one of the
exclusive SIPs--Nasdaq UTP--will no longer be paid out of the plan for
its processing costs.\2289\ The Commission believes that the exclusive
SIPs' loss of revenue will be mitigated by the opportunity to become
competing consolidators. If the exclusive SIPs decide to become
competing consolidators, they will compete for business with each other
and with other competing consolidators. This competition may lead to
revenue that is lower than their current revenues. This potential
decrease in revenue will represent a transfer of resources to other
competing consolidators and to market participants potentially
increasing social welfare. On the other hand, 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. The exclusive SIPs have the benefit of having
been in this business for a long time. They have significant
connectivity to market participants and vendors and can leverage their
existing customer base and established relationships with vendors and
purchasers at firms. Additionally, as mentioned below, the CTA SIP
received some improvements from recent investments.
---------------------------------------------------------------------------

    \2289\ This does not apply to CTA/CQ Plan that, as discussed
above, is paid differently. See supra Section V.B.2(d).
---------------------------------------------------------------------------

(iv) Direct and Indirect Costs to Certain Market Participants and
Investors
    The Commission believes that the amendments are likely to have
indirect costs--such as potentially paying for unused data content and
implementation costs of switching from SIP or proprietary data to
consolidated market data--to certain market participants and investors.
    First, the Commission believes that there will 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
consolidated market data products from competing consolidators will
need, for example, to establish new connectivity and integrate a larger
set of data into their operations. This implementation cost will
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. One of the
commenters stated that the cost to replace or integrate a new data feed
might be approximately $1 million and that ``[s]maller firms would try
to do the same at lower cost.'' \2290\ The Commission is uncertain
whether the cost number mentioned in this comment letter covers costs
to get this new feed from a competing consolidator or from the
exchanges directly. The Commission believes that the ultimate size of
these costs will likely vary by market participant. For example, for
market participants that currently use proprietary data feeds and that
will continue to use their existing systems and infrastructure after
switching to consolidated market data, these costs are likely lower. On
the other hand, for market participants who need to build brand new
systems and infrastructure to be able to receive consolidated market
data, these costs could be higher and closer to the number the
commenter states.
---------------------------------------------------------------------------

    \2290\ See Data Boiler Letter I at 79-80.
---------------------------------------------------------------------------

    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 will create a cost for both the academic community and investors
that otherwise benefit from academic and regulatory use of this dataset
and the research derived from it. On the other hand, other data vendors
also provide comprehensive historical data products and that may become
more readily or more affordably available from competing consolidators,
especially because competing consolidators do not have to take in all
data content underlying consolidated market data and offer a data
product with the entirety of consolidated market data.\2291\ The
Commission is uncertain and acknowledges the possibility that TAQ may
no longer be available and consolidated market data products may not be
affordable to the academic community.\2292\ The Commission is unable to
quantify the incremental social welfare cost of the interruption of
availability of the TAQ dataset.
---------------------------------------------------------------------------

    \2291\ See, e.g., MayStreet, Market Data, available at http://maystreet.com/products/market-data/ (last accessed Jan. 2, 2020).
    \2292\ One commenter stated that ``NYSE's TAQ product is
licensed to the academic community at a steep discount to its true
cost.'' See Wharton Letter at 2.
---------------------------------------------------------------------------

    Some commenters stated that the decentralized consolidation model
will increase costs for market participants because they would have to
contract with a backup competing consolidator to avoid disruptions
should their primary competing consolidator experience a
disruption.\2293\ One commenter said that ``[i]n a world of multiple
consolidators, business continuity concerns will force many market
participants to subscribe to more than one consolidator as a backup.''
\2294\ Other commenters stated that in absence of a backup, a competing
consolidator's customers would be significantly impacted by a
disruption of their original data source.\2295\
---------------------------------------------------------------------------

    \2293\ See, e.g., Angel Letter at 20; NYSE Letter II at 24;
FINRA Letter at 4.
    \2294\ See Angel Letter at 20.
    \2295\ See NYSE Letter II at 24; Nasdaq Letter IV at 8, 36.

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

    Under the amendments, market participants will not be required to
incur the costs of retaining a back-up competing consolidator, though
some may choose to do so after evaluating the needs of their business
and their customers. Currently, many market participants that rely on
proprietary data use SIP data as their back-up \2296\ and market
participants that rely on SIP data do not have a back-up option besides
the exclusive SIPs' geographically diverse back-up system as required
by Regulation SCI. Under amendments, market participants subscribing to
``SCI competing consolidators'' will similarly benefit from the
requirements that those competing consolidators have geographically
diverse backup and recovery capabilities, pursuant to Regulation SCI.
---------------------------------------------------------------------------

    \2296\ One commenter said that some of the ATSs use SIP data
``as a backstop'' to their proprietary data feeds. See BestEx
Research Letter at 3.
---------------------------------------------------------------------------

    On the other hand, market participants that will receive
consolidated market data products from competing consolidators that are
not SCI entities might decide to maintain a connection to a back-up
competing consolidator (i.e., from a secondary source) based on their
business needs. The Commission is uncertain what costs may be
associated with the need for backup competing consolidators in the
decentralized consolidation model, but does not believe they are
necessarily higher than costs to maintain backups today. This is
because the new competing consolidator business might generate a
secondary market where some competing consolidators compete to provide
backup options, which might lower backup costs.\2297\ For example, some
competing consolidators might provide a backup option with narrower
data content and higher latency, similar to the current SIP data. But
unlike the exclusive SIPs providing the current SIP data, these
competing consolidators would be under competitive pressure and would
be more likely to provide cheaper backup data and connectivity options
than the SIP data. New backup costs will likely differ for different
market participants and will be affected by the new competitive
competing consolidator market as well as the new market data fees, both
of which will have pricing decisions to make about the provision of
backup services. The costs may also depend on decisions competing
consolidators may make regarding the resiliency of their own products
and what backup requirements would be necessary for their customers in
light of such decisions.
---------------------------------------------------------------------------

    \2297\ One commenter said that ``[t]he existence of multiple SIP
vendors will allow firms to choose the best offering for their
purposes and others as backstops, reducing the reliance on a single
SIP feed vendor.'' See BestEx Research Letter at 5.
---------------------------------------------------------------------------

(v) Indirect Costs to SROs
    One commenter said that the Proposing Release ``requires SROs to
`make available' to every competing consolidator and self-aggregator
`all data necessary to generate consolidated market data'--but does not
make clear how SROs would be compensated for the cost of delivering
such market data information.'' \2298\ The Proposing Release discusses
that the SROs will receive data content fees and connectivity fees as
well as how the various fees will need to be filed.\2299\ As discussed
above, the SROs are allowed to provide their core data to competing
consolidators and self-aggregators via the existing proprietary data
feeds, a combination of proprietary data feeds, or a newly developed
core data feed.\2300\ While the SROs are not required to, if they
choose to offer core data via a newly developed core data feed, they
might incur some development costs to provide that new data feed.
However, the Commission believes that the SROs may not have an
incentive to develop a dedicated core data feed because they could
incur costs of doing so.\2301\ For example, if an SRO developed a
dedicated core data feed, the SRO would have to take steps to ensure
that any proprietary data feed is not made available on a more timely
basis (i.e., by any time increment that could be measured by the SRO)
than a core data feed. This means that if the core data feed were
slower than the proprietary data feeds, the exchange would need to
throttle any order-by-order proprietary data feeds.\2302\ An exchange
lowering its proprietary data speeds might also increase the number of
market participants that might switch from using the exchange's
proprietary data feeds to consolidated market data, providing an
incentive for exchanges to not create a slower dedicated core data
feed.
---------------------------------------------------------------------------

    \2298\ See NYSE Letter II at 21.
    \2299\ The fees for consolidated market data content will be
established by the effective national market system plan(s) and file
with the Commission under Rule 608. Each SRO will have to file with
the Commission any proposed new fees for connectivity to its
individual data that underlies consolidated market data pursuant to
Section 19(b) of the Exchange Act and Rule 19b-4 thereunder and any
proposed connectivity fee must satisfy the statutory standards. See
Proposing Release, 85 FR at 16769, n. 433.
    \2300\ See supra Section III.B.9. See also supra note 795 for a
discussion on how competing consolidators and self-aggregators are
permitted to choose among the data feed options offered by the SROs
to provide consolidated market data.
    \2301\ None of the commenters indicated that they would provide
a dedicated core data feed instead of using their existing
proprietary data infrastructure.
    \2302\ See supra Section III.B.9(b).
---------------------------------------------------------------------------

    One commenter said that one of the exchanges ``invested $4 million
to build a new, dedicated network for consolidated tape data that will
allow exchanges and subscribers to access CTA SIP data more quickly''
\2303\ and that this investment is undermined with the discontinuation
of the centralized consolidation model.\2304\ The Commission
understands that the commenter was planning to recover that investment
cost with future revenue. The Commission acknowledges that the final
amendments will impose a cost for SROs from losing SIP data content and
access fees. However, the Commission believes that this loss of revenue
will be offset by the data content and access fees paid to SROs by
competing consolidators. Additionally, the exclusive SIPs' loss of
consolidation and dissemination revenue will be mitigated by the
opportunity to become competing consolidators.
---------------------------------------------------------------------------

    \2303\ See NYSE Letter II at 10-11.
    \2304\ See id. at 13.
---------------------------------------------------------------------------

    One commenter stated that the rules would ``eliminate'' the
incentive for exchanges to compete for order flow in order to increase
the amount of time that exchange offers the NBBO and thus increase its
share of the equity plan(s) revenues, because the rule eliminates the
exclusive SIPs.\2305\ The Commission disagrees with this commenter's
description of the effects of the rule. Nothing about the final rules
prohibits the national market system plan(s) from continuing to share
NMS data revenues according to rules that reward exchanges for time
during which the exchange has the NBBO quote. Further, any changes to
the revenue allocation formula can be adopted as Plan amendments, which
would then have to be filed with the Commission pursuant to Rule 608
and would be subject to notice and comment and Commission review.
Therefore, the Commission does not believe that these rules will effect
exchange incentives to compete for order flow in the way described by
this commenter.
---------------------------------------------------------------------------

    \2305\ See Nasdaq Letter IV at 29.
---------------------------------------------------------------------------

(vi) Multiple NBBOs
    Finally, the Commission recognizes 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. However, currently market participants may
already observe

multiple NBBO quotes.\2306\ Therefore, the Commission believes that the
decentralized consolidation model will result in no meaningful
difference with respect to the existence of multiple NBBOs.
---------------------------------------------------------------------------

    \2306\ See supra Sections V.B.2(b), V.B.2(f).
---------------------------------------------------------------------------

    Several commenters disagreed with this conclusion, raising concerns
related to the possibility of multiple NBBOs being observed as a result
of the final rules.\2307\ In particular, commenters expressed the view
that there would be significant costs to the market as a result of this
possibility and expressed concern that these costs were not discussed
in the Commission's proposal.\2308\ These commenters stated that the
emergence of multiple NBBOs would complicate market structure; \2309\
hinder market surveillance and enforcement by SROs, including by adding
reprogramming costs for surveillance systems and creating the
likelihood of uneven enforcement; \2310\ decrease the accuracy and
standardization of Rule 605 statistics; \2311\ introduce new sources of
differing NBBOs through differences in NBBO calculation method among
competing consolidators; \2312\ confuse investors, including retail
investors, who might see more than one NBBO for the same stock at the
same time; \2313\ and complicate and increase the cost of compliance
with best execution obligations.\2314\
---------------------------------------------------------------------------

    \2307\ See supra Section III.B.10(b) for a discussion of the
comments on complexity and confusion resulting from multiple NBBOs.
    \2308\ See, e.g., Joint CRO Letter at 2 (``Moreover, we are
surprised and concerned by the Commission's limited analysis of the
Proposal's potential downstream impacts on the regulation of U.S.
markets, particularly those resulting from multiple competing
consolidators and self-aggregators, as this analysis appears
incomplete.'').
    \2309\ See, e.g., Nasdaq Letter IV at 3 (``A particularly
worrisome result is that product differentiation among competing
consolidators will render a single ``gold source'' National Best Bid
and Offer (``NBBO'') a relic of the past.''); Angel Letter at 18-19.
    \2310\ See, e.g., Nasdaq Letter IV at 37 (``Even with these
changes, the risk of differential treatment among similarly situated
market participants will increase because an NBBO that applies to
one market participant will simply not apply to another, creating a
risk of uneven enforcement of the Exchange Act by introducing the
subjective review of which NBBO to apply.''), Joint CRO Letter at 4
(``Throughout the Proposal, hundreds of questions are posed to
commenters, but none solicited feedback from SROs on the Proposal's
impact on surveillance, any increased risk to investor protection,
or whether reprogramming our systems to accommodate the proposed
rules would create any burdens or complications for us.'').
    \2311\ See, e.g., Nasdaq Letter IV at 20; NYSE Letter II at 24.
    \2312\ See, e.g., TD Ameritrade Letter at 12.
    \2313\ See, e.g., Fidelity Letter at 10; TechNet Letter II at 2.
    \2314\ See, e.g., Nasdaq Letter IV at 3.
---------------------------------------------------------------------------

    The Commission continues to believe that the possibility of
multiple NBBOs resulting from the decentralized consolidation model
does not represent a significant cost. In the case of each specific
issue raised, the potential difficulties that multiple NBBOs could
create are already handled by the market (including SROs) today,
because of the fact that multiple NBBOs at a given instant in time are
a staple of today's financial markets.\2315\
---------------------------------------------------------------------------

    \2315\ See supra Section V.B.2(f).
---------------------------------------------------------------------------

    Specifically, the Commission does not believe that the potential
for multiple NBBOs as a result of the decentralized consolidation model
will complicate market structure. The market today has already
developed adaptations to deal with the fact that meaningful differences
in the observations of market participants about the prevailing NBBO
can emerge.\2316\ As a result, the market structure in place today will
be able to handle the potential multiple NBBOs resulting from the
decentralized consolidation model in much the same way as it handles
existing multiple NBBOs today.
---------------------------------------------------------------------------

    \2316\ See supra Section V.B.2(f) for a discussion of these
adaptations to deal with multiple NBBOs.
---------------------------------------------------------------------------

    The Commission believes that the decentralized consolidation model
will not increase costs or impair the evenness of enforcement and
surveillance by SROs. The fact that order routing decisions made at the
same time but at different data centers will necessarily be based on
different observations of the market is understood by SROs today, and
surveillance programs and enforcement inspections already take this
into account.\2317\ In fact, such programs already deal with the even
larger discrepancy in market snapshots that emerge from the use of
proprietary data feeds as a substitute for SIP data feeds in the
routing of orders.\2318\
---------------------------------------------------------------------------

    \2317\ See supra Section V.B.2(f) for additional discussion of
this point.
    \2318\ See supra Section III.B.10(d) for a discussion of the
comments on impact of multiple NBBOs on surveillance and
enforcement.
---------------------------------------------------------------------------

    The Commission does not believe that the decentralized
consolidation model will contribute to confusion or a lack of
standardization in the calculation of Rule 605 statistics. In the
process of calculating Rule 605 statistics, firms must use the quote
prevailing at the time the order is received. As discussed above, it is
inevitable even today that different market centers will have different
quotes in the space of small but meaningful time intervals given the
amount of time it takes new quotes to travel to the geographically
dispersed data centers where orders are received.\2319\ This remains
true even if all market participants are using only a single source for
the NBBO.
---------------------------------------------------------------------------

    \2319\ See supra Section V.B.2(f).
---------------------------------------------------------------------------

    The Commission does not believe that it is possible to
``calculate'' the NBBO in more than one way. That is, we do not believe
that, for a given set of quotes in the market at a given instant in
time, it is possible to arrive at different conclusions as to what is
the NBBO depending on different methods for determining the NBBO.
Therefore, differences in aggregation methodology employed by competing
consolidators and self-aggregators are unlikely to introduce further
differences in the NBBO perceived by the various market participants by
offering alternative ``calculations'' of the NBBO for a given moment in
time.
    The Commission does not believe the decentralized consolidation
model will cause confusion for investors through the propagation of
multiple NBBOs. Those investors who have the technology and
sophistication to detect differences in the NBBOs produced by different
competing consolidators are, today, already aware of the potential for
such differences and how to deal with them. On the other hand, those
investors who typically do not have such latency-sensitive concerns
(such as retail investors) are unlikely to detect differences in
quotes, even if they are looking at multiple competing consolidator
feeds.
    The Commission does not believe that the decentralized
consolidation model will complicate and increase the cost of complying
with best execution obligations through the propagation of multiple
NBBOs. Since multiple NBBOs from different competing consolidators and
self-aggregators will not represent a change from current market
practice,\2320\ the Commission does not believe this introduces changes
to the cost of compliance with best execution obligations.
---------------------------------------------------------------------------

    \2320\ See supra Section V.B.2(f), discussing current market
practice with respect to obtaining NBBOs.
---------------------------------------------------------------------------

(e) Economic Effects of Competing Consolidators Being Subject to
Regulation Systems Compliance and Integrity
    During the initial transition period all competing consolidators
will be subject to the requirements of Rule 614(d)(9), which include
requirements substantially similar to some of the key provisions of
Regulation SCI.\2321\ After

the initial transition period, competing consolidators that are below
the five percent (5%) market data revenue threshold will continue to be
subject to Rule 614(d)(9), while competing consolidators above the
threshold will be ``SCI competing consolidators'' and will be subject
to the requirements of Regulation SCI.\2322\ The Commission expects
that, under this approach, the requirements of Regulation SCI will
apply to most competing consolidators following the initial transition
period.\2323\
---------------------------------------------------------------------------

    \2321\ See supra Section III.F. Competing consolidators that are
affiliated with exchanges that do not operate under the limited
exemptive relief would be subject to Regulation SCI. However, the
Commission believes that all competing consolidators that are
affiliated with exchanges will choose to operate under the limited
exemptive relief for competitive reasons. See supra Section
V.C.2(a)(i)a.
    \2322\ See id.
    \2323\ See supra Section IV.G.
---------------------------------------------------------------------------

    The Commission believes that the requirements of Rule 614(d)(9) and
Regulation SCI will help prevent market disruptions due to one or more
competing consolidators' systems issues or cybersecurity incidents and
reduce the severity and duration of any effects that may result if a
systems issue or cybersecurity incident were to occur for a competing
consolidator. The requirements of Rule 614(d)(9) will also impose
direct and indirect costs on various entities. The requirements of
Regulation SCI will also impose additional direct and indirect costs on
competing consolidators that meet the threshold for being an SCI
competing consolidator, as well as some indirect costs on other market
participants because of their specific business relationships with SCI
competing consolidators. However, competing consolidators will not need
to incur the incremental costs associated with being an SCI competing
consolidator until the end of the initial one year transition period or
until they meet the threshold requirements for being an SCI competing
consolidator.
(i) Benefits To Expanding Regulation SCI To Include Competing
Consolidators
    Currently, the exclusive SIPs are SCI entities and the benefits
discussed in Regulation SCI currently apply to them and to market
participants.\2324\ Because many of the requirements of Rule 614(d)(9)
are similar to the requirements of Regulation SCI and because competing
consolidators that meet the five percent (5%) market data revenue
threshold will be SCI entities,\2325\ the Commission believes that the
benefits of Regulation SCI will apply to competing consolidators and
will 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 will apply to
competing consolidators and will continue to apply to market
participants from the requirements of Rule 614(d)(9) and the addition
of the definition of SCI competing consolidator to Regulation
SCI.\2326\
---------------------------------------------------------------------------

    \2324\ See SCI Adopting Release, supra note 1233, at 72404.
    \2325\ See supra Section III.F.
    \2326\ More specifically, the benefits discussed in this section
are not measuring a change from the baseline but are discussing the
benefits that will continue to apply to market participants from the
requirements of Rule 614(d)(9) and the addition of the definition of
SCI competing consolidator to Regulation SCI.
---------------------------------------------------------------------------

    The Commission believes that at least three benefits from
Regulation SCI will continue to apply to market participants from the
requirements of Rule 614(d)(9) and the addition of the definition of
SCI competing consolidator to Regulation SCI.\2327\ First, the
requirements of Rule 614(d)(9) and the addition of the definition of
SCI competing consolidator to Regulation SCI will help prevent market
disruptions due to one or more competing consolidators' systems issues
or cybersecurity incidents. Second, they will help reduce the severity
and duration of any effects that may result if a systems issue or
cybersecurity incident were to occur for one of these competing
consolidators. This may 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, they will help ensure
effective Commission oversight of competing consolidators' systems.
---------------------------------------------------------------------------

    \2327\ As discussed in detail above, the Commission believes
that some entities who will become competing consolidators are
already subject to Regulation SCI. The Commission believes that many
of the benefits described below will not apply to these entities,
because they already are required to have systems that meet the
requirements for Regulation SCI. Instead, the Commission believes
that many of the benefits from the requirements of Rule 614(d)(9)
and the addition of the definition of SCI competing consolidator to
Regulation SCI will come from new entities who become competing
consolidators who are not currently subject to Regulation SCI. See
supra Section IV.F.4.
---------------------------------------------------------------------------

    First, the requirements of Rule 614(d)(9)(ii) and the addition of
the definition of SCI competing consolidator to Regulation SCI will
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.\2328\ The Commission believes that
some potential new competing consolidators may already have policies
and procedures in place to maintain and test critical systems. However,
the Commission believes that requirements of Rule 614(d)(9)(ii) and the
addition of the definition of SCI competing consolidator to Regulation
SCI will strengthen these policies and procedures, which will help
improve the robustness of critical systems.
---------------------------------------------------------------------------

    \2328\ Commenters agreed that applying Regulation SCI to
competing consolidators would improve their resiliency and
reliability. See, e.g., Clearpool Letter at 9; MEMX Letter at 8;
Fidelity Letter at 10.
---------------------------------------------------------------------------

    Second, the requirements of Rule 614(d)(9)(iii) and the addition of
the definition of SCI competing consolidator to Regulation SCI will
help reduce the severity and duration of any effects that may result if
a systems issue or cybersecurity incident were to occur for one of the
new competing consolidators who are not currently SCI entities. For
example, Rule 614(d)(9)(iii) and Rule 1002(a) of Regulation SCI, will
require a competing consolidator to notify the public and take
corrective action if a system disruption, system intrusion, or
cybersecurity incident occurs. This may reduce the length of these
events and thus reduce the negative effects of those interruptions on
the competing consolidator and market participants.
    Additionally, Rule 1001(a)(2) of Regulation SCI, which, among other
things, will require an SCI competing consolidator to maintain
geographically diverse backup and recovery systems that are reasonably
designed to achieve next business day resumption and will help SCI
competing consolidators restore their systems more quickly in the event
of a disruption. The Commission acknowledges that Rule 614(d)(9) does
not contain this geographically diverse backup requirement. Therefore,
competing consolidators will not be subject to the requirement during
the initial one year transition period and competing consolidators
below the SCI threshold level will not be subject to it thereafter.
Lack of a geographically diverse backup may reduce the reliability of a
competing consolidator's systems. However, as discussed above, because
of competitive pressures, competing consolidators that are not subject
to Regulation SCI may still choose to develop robust backup systems in
order to attract subscribers.\2329\ Additionally, the Commission
believes most competing consolidators will meet the threshold to be SCI
competing consolidators. Therefore, the Commission does not believe
that the lack of a requirement for a geographical diverse backup system
under Rule

614(d)(9) will significantly increase the risk of market participants
being exposed to a competing consolidator system disruption.\2330\
---------------------------------------------------------------------------

    \2329\ See supra Section III.F.
    \2330\ As discussed above, market participants who subscribe to
a competing consolidator that is not an SCI entity (or that does not
have a sufficiently resilient backup system) may choose to subscribe
to another competing consolidator as a backup in order to ensure
they can still operate if their competing consolidator experiences a
system disruption. See id. Market participants may incur additional
costs for this. See supra Section V.C.2(d).
---------------------------------------------------------------------------

    The requirement for competing consolidators to establish procedures
to disseminate information about system disruptions to responsible
personnel, competing consolidator subscribers, the public, and the
Commission will 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 will 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 requirement, under Rule 614(d)(9)(iv) and Rule
1004(c) of Regulation SCI, for a competing consolidator to conduct
testing of its business continuity and disaster recovery plans with its
designated participants and other industry SCI entities will help
detect and improve the coordination of responses to system issues that
could affect multiple market participants in the NMS stock market. This
testing will help prevent these system disruptions from occurring and
help reduce the severity of their effects, if they do occur.
    Third, Rule 614(d)(9) and the addition of the definition of SCI
competing consolidator to Regulation SCI will help ensure effective
Commission oversight of new competing consolidators who are not
currently SCI entities. Both Regulation SCI and Rule 614(d)(9)(iii)(C)
will require a competing consolidator to notify the Commission \2331\
and provide the Commission with updates if it experiences a systems
disruption or systems intrusion that has more than a de minimis
impact.\2332\ Each quarter, an SCI competing consolidator will have to
inform the Commission of any planned material changes to its SCI
systems and the security of indirect SCI systems. Each year an SCI
competing consolidator also will have to provide the Commission with an
SCI review of their compliance with Regulation SCI. This information
will help ensure 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.
---------------------------------------------------------------------------

    \2331\ Regulation SCI requires SCI entities to notify the
Commission immediately upon any responsible SCI personnel having a
reasonable basis to conclude that an SCI event has occurred.
Similarly, Rule 614(d)(9)(iii)(C) requires competing consolidators
to promptly notify the Commission upon responsible personnel having
a reasonable basis to conclude that a system disruption or systems
intrusion has occurred. The requirement for immediate or prompt
notification, as applicable, does not apply to such events that a
competing consolidator reasonably estimates would have no, or a de
minimis, impact on the competing consolidator's operations or on
market participants. See e.g., Rule 614(d)(9)(iii)(B)-(C);
Regulation SCI Rule 1002(b)(5).
    \2332\ An SCI competing consolidator will be required to notify
the Commission on Form SCI, and a competing consolidator that is not
an SCI competing consolidator will be required to notify the
Commission on Form CC. Additionally, each quarter SCI competing
consolidators will be required to submit a report to the Commission
on Form SCI of systems disruptions or systems intrusions that had no
or a de minimis impact.
---------------------------------------------------------------------------

    Additionally, the Commission believes that an exclusive SIP that
becomes a competing consolidator may realize an incremental benefit
relative to the baseline from lower SCI-related costs.\2333\ Because
the Commission assumes that enough competing consolidators will enter
the market to provide for multiple viable sources of consolidated
market data products,\2334\ the Commission believes that an exclusive
SIP will not need to incur the additional costs associated with being
subject to the heightened requirements applicable to ``critical SCI
systems'' if it chooses to operate a competing consolidator after the
initial transition period.
---------------------------------------------------------------------------

    \2333\ The systems of the exclusive SIPs are ``critical SCI
systems'' and are subject to heightened requirements. For example a
critical SCI system needs to maintain backup systems that are
designed to allow them to resume operations within two hours of a
system outage (SCI entities only have the requirement to resume
operations the day following a system outage). See Proposing
Release, 85 FR at Section IV.B.2(f).
    \2334\ See supra Section V.C.2(a) for a discussion of this
assumption.
---------------------------------------------------------------------------

(ii) Costs of Expanding Regulation SCI To Include Competing
Consolidators
    Competing consolidators will incur both direct and indirect
compliance costs related to Rule 614(d)(9) and the addition of the
definition of SCI competing consolidator to Regulation SCI.\2335\
Although all competing consolidators will initially be subject to Rule
614(d)(9) during the initial transition period, the Commission believes
that, after the transition period, many competing consolidators will be
above the SCI competing consolidator threshold and eventually need to
bear the higher costs Regulation SCI.\2336\ 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 will also incur indirect costs
from SCI competing consolidators.
---------------------------------------------------------------------------

    \2335\ Direct compliance costs will include both costs that
included in the PRA burden estimates as well as compliance costs
that are not reflected in the PRA (``non-PRA''). See supra Section
IV.D (for a discussion of the PRA burden estimates).
    \2336\ See supra Section IV.G.3.
---------------------------------------------------------------------------

    Competing consolidators will incur initial and ongoing direct PRA
and non-PRA compliance costs related to Rule 614(d)(9) and Regulation
SCI. These costs will vary based on whether the competing consolidator
is an SCI competing consolidator or whether it is subject to the
provisions of Rule 614(d)(9).\2337\
---------------------------------------------------------------------------

    \2337\ See id.
---------------------------------------------------------------------------

    The Commission believes that the 2018 estimates of initial PRA
costs for new SCI entities and ongoing PRA costs for all SCI entities
under Regulation SCI are largely applicable to SCI competing
consolidators because the requirements are the same for all SCI
entities and because the 2018 burden estimates were based on the
Commission's experience over three years subsequent to Regulation SCI's
adoption in 2014 including, for example, Commission staff's experience
in conducting examinations of SCI entities and receiving and reviewing
notifications and reports required by Regulation SCI.\2338\ The 2018
SCI PRA Extension includes estimates distinguishing between new versus
existing SCI entities. The Commission believes that, using the same new
versus existing SCI entity framework, entrants that could become SCI
competing consolidators can be divided into three groups: The existing
exclusive SIPs; entrants that are existing SCI entities but with no
direct experience operating in the consolidated market data business
and needing to perform 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 entrants that are not currently subject to Regulation SCI (e.g.,
third-party aggregators that are not currently subject to Regulation
SCI). The Commission estimates that the exclusive SIPs will not have
any initial PRA costs related to Regulation SCI from becoming a
competing consolidator because they are already SCI entities and would
be operating a substantially similar business and performing a similar
function in their role as competing consolidators.\2339\ Because they
would be entering an entirely new business and performing a new
function with new SCI systems, SCI entities without direct experience
operating in the consolidated market data business will each incur an
initial PRA cost of approximately $326,000, which is approximately 50%
of the Commission's initial cost estimates for an entirely new SCI
entity.\2340\ SCI competing consolidators that are not currently
subject to regulation SCI will each incur an initial PRA cost of
approximately $625,000, which is the same estimated initial paperwork
cost as those estimated for new SCI entities.\2341\ The Commission
estimates that all SCI competing consolidators will each incur ongoing
annual PRA costs of approximately $804,000, which is the same as the
ongoing costs for existing SCI entities estimated in the 2018 SCI PRA
Extension.\2342\
---------------------------------------------------------------------------

    \2338\ See supra note 1567. Two commenters stated that the
Commission underestimated the costs of Regulation SCI in the
Proposing Release. See IDS Letter I at 13 and STANY Letter II at 6-
7. As discussed in detail above, the Commission disagrees with these
commenters and believes it did not underestimate the costs
associated with Regulation SCI. See supra Section IV.G.2.
    \2339\ See supra note 1572 and accompanying text.
    \2340\ These cost estimates are based on the 2018 SCI PRA
Extension. See 2018 SCI PRA Extension, supra note 1567. See also
supra Section IV.G discussing PRA burden estimates related to
compliance with Regulation SCI and supra note 1573 and accompanying
text.
    \2341\ See supra note 1575 and accompanying text.
    \2342\ See supra Section IV.G.
---------------------------------------------------------------------------

    Although the requirements of Rule 614(d)(9) are similar to some of
the key provisions of Regulation SCI, Rule 614(d)(9) does not contain
all of the provisions of Regulation SCI and will have lower compliance
costs than Regulation SCI.\2343\ For example, Rule 614(d)(9) does not
contain a provision similar to the requirement for geographically
diverse backup and recovery capabilities that is contained in Rule
1001(a)(2) of Regulation SCI. Therefore, the Commission estimates that
the requirements of Rule 614(d)(9) will have initial and ongoing PRA
costs that are approximately 33% of the PRA costs for compliance with
all of the provisions of Regulation SCI.\2344\ The Commission estimates
that competing consolidators that are below the SCI competing
consolidator threshold will each incur initial PRA costs of
approximately $217,000 and ongoing annual PRA costs of approximately
$268,000.
---------------------------------------------------------------------------

    \2343\ See supra Section III.F.
    \2344\ See supra note 1589 and accompanying text (discussing the
PRA burden estimates for Rule 614(d)(9)).
---------------------------------------------------------------------------

    As SCI entities, SCI competing consolidators will also incur direct
non-PRA related compliance costs. In 2014, the Regulation SCI adopting
release estimated that an SCI entity will incur an initial non-PRA cost
of between approximately $320,000 and $2.4 million.\2345\ Additionally,
an SCI entity will incur an annual ongoing non-PRA cost of between
approximately $213,600 and $1.6 million.\2346\ The Commission believes
that similar to the PRA cost estimates, these non-PRA related costs are
also largely applicable to SCI competing consolidators. But the
Commission is uncertain about the actual level of costs SCI competing
consolidators will incur, because these costs could differ based on the
type of potential entrant that becomes an SCI competing consolidator.
The Commission believes that there are two reasons why SCI competing
consolidators' non-PRA costs are likely to be on the lower end of these
cost estimates.
---------------------------------------------------------------------------

    \2345\ SCI Adopting Release, supra note 1233, at nn. 1943-44.
    \2346\ Id. at nn. 1945-46.
---------------------------------------------------------------------------

    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. SCI competing consolidators' systems are
not included within the scope of ``critical SCI systems.'' \2347\ The
Commission believes that if SCI competing consolidators' systems are
subject to the standard requirements of Regulation SCI, they will not
have to 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 will be low.
---------------------------------------------------------------------------

    \2347\ See supra Section III.F.
---------------------------------------------------------------------------

    Second, among all of the SCI entities, SCI competing consolidators
have relatively simpler systems and fewer functions, and thus will have
compliance costs closer to the lower end of the above non-PRA cost
estimates. The above non-PRA 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 will depend on the complexity of SCI entities'
systems and they would be higher for SCI entities with more complex
systems.\2348\ SCI competing consolidators will likely have simpler
systems and fewer functions relative to some of the other SCI entities,
such as exchanges. As a result, the Commission believes that SCI
competing consolidators' compliance costs are likely to be on the lower
end of the average non-PRA cost estimates for all SCI entities.
---------------------------------------------------------------------------

    \2348\ SCI Adopting Release, supra note 1233, at 634.
---------------------------------------------------------------------------

    Because Rule 614(d)(9) does not contain all of the provisions of
Regulation SCI, the Commission believes that Rule 614(d)(9) will have
lower initial and ongoing non-PRA compliance costs than Regulation
SCI.\2349\ Similar to the PRA cost estimates, the Commission estimates
that the requirements of Rule 619(d)(9) will have initial and ongoing
non-PRA costs that are approximately 33% of the non-PRA costs for
compliance with all of the provisions of Regulation SCI. The Commission
estimates that competing consolidators below the SCI competing
consolidator threshold will each incur an initial non-PRA cost of
between approximately $107,000 and $800,000.\2350\ Additionally,
competing consolidators below the SCI competing consolidator threshold
will also each incur an annual ongoing non-PRA cost of between
approximately $71,000 and $533,000. The Commission is uncertain about
the actual level of costs competing consolidators below the SCI
competing consolidator threshold will incur, because these costs could
differ based on the state of the systems of the entrant that becomes a
competing consolidator. Should a competing consolidator meet the
threshold to become an SCI entity after the initial transition period,
there would be additional costs at that time in order to comply with
Regulation SCI, which will vary depending on the type of competing
consolidator.\2351\
---------------------------------------------------------------------------

    \2349\ See supra Section III.F.
    \2350\ SCI Adopting Release, supra note 1233, at nn.1943-44.
    \2351\ The Commission believes that the initial implementation
costs for these entities to comply with Regulation SCI will
approximately be the difference between their initial PRA and non-
PRA costs under Rule 614(d)(9)(iv) and the initial PRA and non-PRA
burdens based on their entity type, as described above in this
section.
---------------------------------------------------------------------------

    Additionally, the Commission believes that some competing
consolidators' subscribers associated

with the testing of business continuity and disaster recovery plans
will 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. Rule 614(d)(9)(iv) requires competing
consolidators that are not affiliated with exchanges that do not meet
the threshold requirements for being an SCI competing consolidator to
participate in the testing outlined in Rule 1004 of Regulation SCI.
Competing consolidators and their designated subscribers would be
subject to these same costs.\2352\ 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.\2353\ The Commission believes that these
connectivity cost estimates will also be applicable to competing
consolidators' designated subscribers.
---------------------------------------------------------------------------

    \2352\ See supra Section III.F.
    \2353\ See SCI Adopting Release at n. 2065.
---------------------------------------------------------------------------

    The Commission believes that competing consolidators and various
other market participants will incur certain indirect costs related to
compliance requirements for SCI competing consolidators. The Commission
believes that the costs to comply with Regulation SCI discussed above
will also fall on third-party vendors employed by SCI 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 believes that all costs discussed
above for competing consolidators to comply with Regulation SCI will
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 SCI competing
consolidators to transport data from exchanges to the SCI competing
consolidator's aggregation servers at various data centers. If many
third-party vendors are employed by SCI competing consolidators in
their consolidated market data business, the size of this cost may be
significant.
    Additionally, the Commission believes there is the potential for
these costs to cause vendors to end certain existing business
relationships with market participants who become SCI competing
consolidators. It is possible that third-party vendors will not want to
incur the costs that SCI competing consolidators may impose to assure
that the SCI competing consolidator can comply with Regulation SCI
requirements, and as a result be unwilling to provide services to the
SCI competing consolidator's consolidated market data business. To the
extent that this occurs, SCI competing consolidators will incur costs
from having to find new vendors, form a new business relationship, and
adapt their systems to the infrastructure of the new vendor. SCI
competing consolidators may also elect to perform the relevant
functions internally. To the extent that SCI competing consolidators
either find new vendors or perform the functions internally, it will
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 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 SCI competing consolidators from using these
vendors, the ability of SCI competing consolidators to provide
consolidated market data in a manner that rivals current third-party
aggregation practices may be significantly reduced.
(f) Economic Effects of the Decentralized Consolidation Model
Pertaining to Self-Aggregators
    As discussed above a number of market participants currently
purchase proprietary data products from the exchanges and consolidate
this data for their internal use or regulatory compliance.\2354\ To
permit self-aggregation under the decentralized consolidation model,
the Commission defines a new type of market data user, self-
aggregators.\2355\
---------------------------------------------------------------------------

    \2354\ Some commenters agreed. See, e.g., MEMX Letter at 7; NYSE
Letter II at 18. See also supra Section III.D.
    \2355\ See supra Section III.D.2 for a definition of a self-
aggregator.
---------------------------------------------------------------------------

    Market participants that currently effectively self-aggregate and
that decide to become self-aggregators under the decentralized
consolidation model will have two choices. First, they may decide to
limit the use of exchange data to the creation of consolidated market
data, in which case they will be charged for data content underlying
consolidated market data pursuant to the fee schedules of the effective
national market system plan(s) for NMS stocks. In this case, market
participants will likely benefit from lower data fees as compared to
current fees they pay for proprietary data and connectivity
products.\2356\
---------------------------------------------------------------------------

    \2356\ See infra Section V.C.4.
---------------------------------------------------------------------------

    Second, they may decide they need data beyond the scope of
consolidated market data, in which case they will be additionally
charged for the proprietary data and connectivity services pursuant to
the individual exchange fee schedules. In this case, the potential
price gain will be limited to the price decline for the portion of the
data corresponding to the consolidated market data. The Commission is
uncertain about the extent of this effect.
    Market participants that currently effectively act as self-
aggregators and that will choose to become self-aggregators under the
decentralized consolidation model may incur some costs switching from
proprietary data to consolidated market data. They could incur these
costs especially if the exchanges provide components of the
consolidated market data with feeds and connections other than what
these market participants currently use and market participants choose
to receive the data via those new feeds and connections.\2357\ Market
participants could also incur some costs even if they choose to use
their existing proprietary feeds and connections to receive
consolidated market data, but, they do not currently consume all
proprietary data needed to create consolidated market data.\2358\
However, since these market participants already have the
infrastructure to receive proprietary data products from the exchanges,
the Commission expects these costs to be minimal. Additionally, self-
aggregators may choose not to receive the entirety of consolidated
market data, which could mitigate some of these costs.
---------------------------------------------------------------------------

    \2357\ See supra note 795 for a discussion on competing
consolidators' and self-aggregators' permission to choose the feeds
through which they receive the data content underlying consolidated
market data from the SROs.
    \2358\ See supra note 795 for a discussion on the competing
consolidators' and self-aggregators' option to choose how they
receive consolidated market data or a subset of it.
---------------------------------------------------------------------------

    Some commenters stated that the introduction of a self-aggregator
category will maintain the latency gap between different market
participants.\2359\ One comment said that ``the Proposal would continue
this two-tiered structure--with participants that can afford to act as
self-aggregators able to obtain and use that data faster than

those relying on competing consolidators.'' \2360\ Another commenter
said that even having multiple competing consolidators would not reduce
the latency gap because competing consolidators ``would not be able to
distribute consolidated data as quickly as the direct exchange feeds
and their customers would not be able to consume it as quickly as self-
aggregators.'' \2361\ Another commenter stated that receiving data from
competing consolidators will be a ``two-step process'' and can never be
as fast as getting data directly from the exchanges, a ``one-step
process.'' \2362\ On the other hand, one commenter said that self-
aggregators might enjoy a minor latency advantage and that they do not
``believe this latency advantage would be material and therefore should
not be an issue.'' \2363\ The Commission discusses the relationship
between self-aggregators and competing consolidators and the related
latency below.\2364\
---------------------------------------------------------------------------

    \2359\ See, e.g., NYSE Letter II at 23; Nasdaq Letter IV at 8;
FINRA Letter at 8.
    \2360\ See NYSE Letter II at 23.
    \2361\ See Nasdaq Letter IV at 8.
    \2362\ See FINRA Letter at 8.
    \2363\ See Clearpool Letter at 10.
    \2364\ See infra Section V.C.4(b).
---------------------------------------------------------------------------

    Some commenters stated that the decentralized consolidation model
will increase costs for market participants because they would have to
contract with a backup competing consolidator to avoid disruptions
should their primary competing consolidator experience a
disruption.\2365\ The Commission believes these issues apply to self-
aggregators as well, in that self-aggregators may wish to obtain a
backup feed in addition to their self-aggregated feed. To the extent
this is the case the Commission believes that the primary means of
obtaining a backup feed is likely to be through a competing
consolidator, and as such the discussion of the associated costs
discussed in Section V.C.2(d)(iv) applies to self-aggregators as well.
---------------------------------------------------------------------------

    \2365\ See, e.g., Angel Letter at 20; NYSE Letter II at 24;
FINRA Letter at 4.
---------------------------------------------------------------------------

(g) Other Conforming Changes
    The Commission is adopting 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 in Proposal section III.D.1, the Commission is
adopting 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 will decide how to obtain the consolidated data necessary to
determine whether a Short Sale Circuit Breaker should be triggered.
Second, the primary listing exchange will 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.\2366\ The resulting compliance costs for
competing consolidators are included in the Commission's estimate of
the general costs to becoming a competing consolidator above.\2367\
---------------------------------------------------------------------------

    \2366\ See supra Section IV.D. See also supra Section V.C.2(d).
    \2367\ See supra Section IV.D.
---------------------------------------------------------------------------

    In addition, the Commission defines ``primary listing exchange'' in
Regulation NMS and amends the definition of ``listing market'' in
Regulation SHO to refer to the new definition of primary listing
exchange. The Commission believes that this change will 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 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 requires 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
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. As discussed above, the
Commission believes that the additional cost of calculating the
information necessary to implement the LULD Plan and MWCB rules would
not be burdensome and these costs are included in the general
compliance cost the Commission has estimated for SROs above.\2368\
---------------------------------------------------------------------------

    \2368\ See supra Section IV.D.
---------------------------------------------------------------------------

    Some commenters said that the Commission overlooks additional costs
imposed on SROs from these additional responsibilities and latency
differentials.\2369\ The Commission acknowledged in the Proposing
Release that the amendments might lead to some implementation and
ongoing costs for the primary listing exchanges that do not operate an
exclusive SIP. Additionally, the Commission does not believe that the
decentralized consolidation model would make it more difficult for SROs
to conduct their market surveillance with respect to the LULD Plan and
MWCB rules, because there are currently latency differentials to
consider when SROs conduct market surveillance. The amendments will not
bring significant changes to this market reality.
---------------------------------------------------------------------------

    \2369\ See, e.g., NYSE Letter II at 20-21; Joint CRO Letter at
3.
---------------------------------------------------------------------------

3. Economic Effects of Form CC
    As discussed above in Section III.C.7, Rule 614 will prohibit a
person, other than an SRO, from acting as a competing consolidator
unless that person files with the Commission an initial Form CC and the
initial Form CC has become effective.\2370\ Rule 614 will require the
public disclosure of Form CC, which itself will require disclosures
regarding a competing consolidator's services, fees, and operations, as
well as metrics related to the performance of the competing
consolidator. As a result, Rule 614 will provide transparency regarding
the services and performance of competing consolidators for investors
who might purchase the products and services of a competing
consolidator. The Commission believes that the information contained in
Form CC and the resulting transparency will help market participants
make better-informed decisions about which competing consolidator to
subscribe to

in order to achieve their trading or investment objectives.\2371\
---------------------------------------------------------------------------

    \2370\ A competing consolidator that is affiliated with an
exchange that is operating under the provisions of the limited
exemptive relief will need to be registered as a competing
consolidator under Rule 614 and be in compliance with the disclosure
and other substantive regulatory requirements applicable to
competing consolidators in Rule 603, Rule 614, and Form CC. See
supra Section III.C.7(a)(iv). The Commission believes that competing
consolidators that are affiliated with exchanges will choose to
operate under the provisions of the exemption. See supra Section
V.C.2(a)(i)a.
    \2371\ Commenters agreed the public disclosure of the
information contained in Form CC and performance metrics would help
investors evaluate competing consolidators and decide which one to
subscribe to. See, e.g., Clearpool Letter at 9; ACS Execution
Services Letter at 6.
---------------------------------------------------------------------------

    Additionally, the Commission believes that the process for the
Commission to declare an initial Form CC ineffective will improve the
quality of information the Commission receives from competing
consolidators, which will 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
    Form CC will require competing consolidators to publicly disclose
four sets of information on the Commission website.\2372\ First, Form
CC will require competing consolidators to disclose general
information, along with contact information. Second, Form CC will
require competing consolidators to disclose information regarding their
business organizations. Third, Form CC will require competing
consolidators to disclose information regarding their operational
capabilities. Fourth, Form CC will require competing consolidators to
disclose information regarding their services and fees. Rule 614 also
includes requirements for amendments to Form CC under defined
circumstances and a notice of cessation of operations at least 90
calendar days before the date the competing consolidator ceases to
operate as a competing consolidator. Form CC, any amendments to it, and
any notices of cessation will be made public via posting on the
Commission's website. Rule 614(d)(5) also has a disclosure requirement
about competing consolidators' performance metrics on their own
websites. Additionally, Rule 614(d)(6) will 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.
---------------------------------------------------------------------------

    \2372\ See supra Section III.C.7(a)(ii). Competing consolidators
will also need to include on their websites a hyperlink to the
Commission's website containing information their Form CCs. See
supra Section III.C.7(j)
---------------------------------------------------------------------------

    The business organization disclosures will give market participants
a window into the ownership as well as the organizational structures of
competing consolidators. The Commission believes that this information
will 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 will, for example, clarify the ownership
information--will provide transparency on its potential conflicts of
interest.
    The information on operational capabilities will 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 will allow market
participants to make better-informed purchase decisions. 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. Form CC disclosures
will facilitate a better match between market participants' needs and
competing consolidators' offerings, and will also help to ensure
consistent disclosures between competing consolidators.
    One commenter stated that the disclosure of ``all procedures'' in
the operational capability section of Form CC could disclose a
competing consolidator's proprietary tech, or ``secret sauce,'' which
could discourage innovation.\2373\ The Commission disagrees with this
commenter and does not believe that the disclosures required on Form CC
will discourage innovation because the disclosures are not detailed
enough to give away a competing consolidator's proprietary information
or ``secret sauce.'' \2374\
---------------------------------------------------------------------------

    \2373\ See Data Boiler Letter I at 55.
    \2374\ See supra Section III.C.8(e)(ii).
---------------------------------------------------------------------------

    With the consistent disclosures on services and fees, market
participants will be able to compare and contrast the various services
provided and the corresponding fees asked by competing consolidators.
Market participants may then make better purchase decisions, based on
their individual needs. Additionally, the service and fee transparency
resulting from these disclosures will promote competition in similar
products and/or services across different competing consolidators,
which may result in similar prices, and will help to protect market
participants from unfair and unreasonable prices.
    The Commission believes that the requirement for competing
consolidators to amend Form CC prior to implementing material changes
to their pricing, products, or connectivity options will 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 will allow subscribers to a competing consolidator
to better evaluate if it will continue to serve their business needs.
Additionally, it will facilitate effective oversight by the Commission.
    Similarly, the Commission believes that the requirement for a
notice of cessation will also benefit subscribers to the competing
consolidator, because it will give them advanced notice before the
competing consolidator ceases to operate. Thus those subscribers will
have more time to find another competing consolidator to supply them
with consolidated market data.
    The fact that the information on Form CC will be in a single
location instead of dispersed across the competing consolidators' own
websites should 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,\2375\ the Commission believes the rule will
cause each competing consolidator to incur 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 $16,812 in
ongoing costs in order to file amendments to an effective Form CC. One
commenter believes the

costs associated with Form CC are overly burdensome and will present a
serious barrier to entry for potential competing consolidators.\2376\
The Commission disagrees with this commenter. While the Commission
acknowledges that the costs associated with preparing and filing an
initial Form CC and amendments to an effective Form CC may pose a minor
barrier to entry for potential competing consolidators, the Commission
does not believe that the costs associated with Form CC are large
enough to pose a serious barrier to entry.\2377\
---------------------------------------------------------------------------

    \2375\ See supra Sections IV.D.1(a); IV.D.1(b)(iii); V.C.2(d);
supra note 1402.
    \2376\ See ACTIV Financial Letter at 3.
    \2377\ See supra Sections IV.D.1 and V.C.2(d)(i) for discussions
of cost estimates for competing consolidators related to Form CC.
See also supra Section V.C.2(a)(i) for discussions of competing
consolidator barriers to entry.
---------------------------------------------------------------------------

    Competing consolidators will also experience implementation costs
because initial Form CC and any amendments to Form CC will be filed
electronically with the Commission. The Commission believes that
requiring Form CC to be filed electronically will reduce filing costs
compared to requiring the competing consolidator to file paper forms.
    To file a Form CC, competing consolidators will need to access
EFFS.\2378\ Each competing consolidator will have to file an
application and register each individual who will access EFFS on behalf
of the competing consolidator. The Commission believes that each
competing consolidator will initially designate two individuals to
access EFFS, 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 EFFS for amendments,
adding 0.15 hours per competing consolidator. To make a submission into
EFFS, the competing consolidator must download a proprietary viewer.
---------------------------------------------------------------------------

    \2378\ As discussed further below, those competing consolidators
that are existing SCI entities are already required to use EFFS to
make Form SCI filings, and therefore would not incur the access
costs discussed here. See infra Section V.E.5.
---------------------------------------------------------------------------

    Because EFFS 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 seek to use the Form CC data
to evaluate and compare competing consolidators will 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 believes that the public disclosure of performance
metrics and additional information will introduce transparency to the
operations of competing consolidators. These metrics should 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,
will be able to review competing consolidators' performance statistics
and choose ones that will best serve their trading needs. While the
requirements to post the monthly performance metrics and operational
information on websites will introduce transparency, they will not
completely eliminate costs incurred when market participants want to
compare competing consolidators because collecting the information will
involve market participants expending some resources to go to each
competing consolidator's website.
    Competing consolidators will 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 will be required
to post to its website.
    Each month, competing consolidators will 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 will 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 will 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 seek to use the data to evaluate and compare
competing consolidators will bear the costs of locating, comparing, and
evaluating the information on each competing consolidator's website.
    The Commission believes that the operational information that
competing consolidators will be required to publicly disclose on their
websites will 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 will 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 Rule 614(d)(9) and Regulation
SCI promoting competing consolidators to develop resilient
systems,\2379\ 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 will ensure the resiliency of
their systems. These disclosures will help market participants
determine which competing consolidators have more reliable systems.
Competing consolidators who display more reliable systems with greater
system availability will attract more subscribers. This should
incentivize competing consolidators to invest in better backup systems
or other technology that will improve the resiliency of their systems
and increase their system uptime.
---------------------------------------------------------------------------

    \2379\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

    The Commission believes that information from the disclosures in
Form CC and the performance metrics and operational information
competing consolidators will provide on their websites will 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 final 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 believes that the public disclosure of the
information in

Form CC on the Commission's website and the public disclosure of
performance metrics and operational information on competing
consolidators' websites could also increase competition between
competing consolidators and also expose some competing consolidators to
certain competitive effects.\2380\ 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 will facilitate competing consolidator comparison and will
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.\2381\
---------------------------------------------------------------------------

    \2380\ A commenter agreed the public disclosure of Form CC and
monthly performance metrics would enhance competition between
competing consolidators. See Clearpool Letter at 9.
    \2381\ See infra Section V.D.2 discussing the potential effects
of the proposal on competition.
---------------------------------------------------------------------------

    As discussed above, Rule 614(d)(9)(iii)(C) will require a competing
consolidator that is not an SCI competing consolidator to notify the
Commission and provide the Commission with updates on Form CC if it
experiences a systems disruption or intrusion.\2382\ The Commission
believes that this information will help ensure more effective
Commission oversight of competing consolidators by helping make the
Commission aware of potential areas of weakness in the competing
consolidator's systems that may pose a risk to the entity or the market
as a whole.\2383\
---------------------------------------------------------------------------

    \2382\ See supra Section III.F.
    \2383\ See supra Section V.C.2(e)(i).
---------------------------------------------------------------------------

(b) Commission Review and Process for Declaring Initial Form CC
Ineffective
    The Commission believes that the process of reviewing an initial
Form CC will allow the Commission to evaluate, among other things, the
completeness and comprehensibility of a 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 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 believes
that this public disclosure and review process will improve the quality
of information the Commission receives from competing consolidators,
which will allow the Commission to better protect investors from
potentially incomprehensible or incomplete disclosures that will
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 will
be designed to ensure that the competing consolidators serving the
investors will be the ones that meet the Commission's qualification
requirements.
    The Commission believes that the filing requirements of Form CC and
the Commission review period could impose costs on competing
consolidators. The Commission 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
refiles 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 will not incur these costs unless
the competing consolidator filed a deficient Form CC. Therefore, the
Commission believes that a competing consolidator will be incentivized
to file Form CC disclosures that are complete and comprehensive to
avoid bearing the costs of refiling a Form CC filing or of having its
Form CC declared ineffective.
    The Commission recognizes that the registration process will create
uncertainty about whether the form will be declared ineffective. This
uncertainty may create a disincentive for entities to become competing
consolidators, which could potentially reduce competition in the
competing consolidator market.\2384\
---------------------------------------------------------------------------

    \2384\ See infra Section V.D.2 (discussing the potential effects
of the proposal on competition).
---------------------------------------------------------------------------

4. Economic Effects From the Interaction of Changes to Core Data and
the Decentralized Consolidation Model
    The Commission believes that the final 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.\2385\
Specifically, the Commission 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.
---------------------------------------------------------------------------

    \2385\ See supra Section V.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 believes that the expanded content of core data and
latency reduction due to the introduction of the decentralized
consolidation model could make 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 consolidated market data or obtaining a
competing consolidator's data feed will come at the expense of losing
the full set of data currently available via proprietary feeds, because
the consolidated market data definition does not include all data
elements currently available via proprietary data feeds.\2386\
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 consolidated
market data.
---------------------------------------------------------------------------

    \2386\ Commenters agreed that switching to new consolidated
market data would come with this expense of losing some data
compared to the proprietary data feeds. One commenter stated that it
would be unable to remain competitive even after the final
amendments are in place without continuing to purchase proprietary
data feeds. See Virtu Letter at 2. See also Clearpool Letter at 3,
supporting the idea that there may be broker-dealers who will still
need proprietary feeds.
---------------------------------------------------------------------------

    This effect will represent a transfer from exchanges who sell
proprietary data feeds to the market participants who would save money
by either self-aggregating 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 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.\2387\
---------------------------------------------------------------------------

    \2387\ See supra Section V.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 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 consolidated market data must be
fair and reasonable and not unreasonably discriminatory.\2388\ 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.
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    \2388\ See supra note 1134.
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    The Commission 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 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.
    One commenter stated that the final amendments would have the
effect of increasing proprietary data fees, because ``demand is
inelastic.'' \2389\ The Commission acknowledges that if some market
participants no longer purchase proprietary data feeds after the rule
is implemented, those who continue to purchase proprietary data feeds
are likely to value those feeds more than the ones who no longer make
these purchases. This means that the exchanges could infer that their
remaining proprietary customers might actually be willing to pay more
for the data then their old customer base, and consequently attempt to
increase proprietary fees. However, the Commission believes that the
need to remain competitive against new consolidated market data could
overwhelm the effect of knowing that remaining customers might be
willing to pay more. If this is the case, then the exchanges will
instead lower their prices for proprietary data.
---------------------------------------------------------------------------

    \2389\ See Data Boiler Letter I at 2. For further support that
proprietary fees could increase, see Clearpool Letter at 3.
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    If exchanges increase proprietary fees as a result of these
potential insights into the demand elasticity of the remaining customer
base after the rules are implemented, it will result in a transfer from
those market participants who continue to purchase proprietary data to
the exchanges, while any market participants who stop purchasing
proprietary data as a result of the fee increases will represent an
economic cost. The Commission is uncertain as to whether fees will
increase or decrease for proprietary data.
    The Commission 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.\2390\ 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 believes that it is unlikely that this
would result in a latency differential compared to receiving
proprietary data.\2391\ 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.
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    \2390\ See supra Section V.B.2(b).
    \2391\ More generally, the final rule could 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. See also
Sections V.B.2(f) and V.C.4(b) for further discussion of this point.
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    In the event that proprietary data feed subscribers are willing to
switch to receiving new consolidated market data products 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 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.
    One commenter stated that if the exchanges' revenues from market
data are reduced, the price of trading services would likely increase,
because the loss of revenue ``will have to be offset.'' \2392\ The
Commission disagrees with this commenter because a reduction in total
revenue in and of itself does not necessarily make it optimal for a
firm to increase its prices. The Commission expects that prices are set
to optimize the amount of profit the firm can extract

from the market, and given that this has been done an increase in
prices today would not increase profit. A reduction in revenue by
itself does not change any of these considerations. All firms must
balance a loss in customers against an increase in the revenue received
per customer when considering a price increase, and in order for it to
be optimal to increase prices, something about this balance must
change. Thus, the Commission does not believe that a reduction in total
revenue for exchanges will necessarily make it optimal for them to
adjust any of their fees, including fees for trading services.
---------------------------------------------------------------------------

    \2392\ See Nasdaq Letter IV at 30.
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    This commenter also added that this scenario of increases in
trading fees would follow ``if the all-in price of trading is already
at the competitive level. . . .'' \2393\ It is not clear that this
assumption is met in the market today. The Commission has discussed
above the competition that exists in the market for trading
services,\2394\ and separately, discussed indicia that the market for
proprietary data may not be subject to robust competition.\2395\
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    \2393\ See Nasdaq Letter IV at 30.
    \2394\ See supra Section V.B.3(d) for a discussion of
competition in the market for trading services.
    \2395\ See supra Section V.B.3(b) for a discussion of the market
for proprietary data products.
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    To the extent that exchanges would find it profitable to increase
their trading fees following the implementation of this rule, the
Commission believes that the market for trading services is subject to
competition, as discussed above, and, as a result, any potential for
fees to increase will be constrained by this competition.\2396\
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    \2396\ See supra Section V.B.3(d).
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    A commenter stated that without profit from selling market data,
exchanges would lack the funds necessary to finance improvements to
their trading systems, including innovations in order types.\2397\ The
Commission disagrees because it believes the exchanges only fund
improvements and innovations in their trading businesses that have a
positive net present value, because this would be consistent with the
behavior of any firm seeking to maximize profit. While the Commission
acknowledges that alternative sources of funding to internally held
cash may be more expensive (or less convenient) sources of financing,
the Commission nevertheless believes that the exchanges will continue
to be able to finance their best investment opportunities, which are
the same projects the exchanges finance today. This is because such
opportunities will represent a profit opportunity to both the exchanges
and potential sources of financing.
---------------------------------------------------------------------------

    \2397\ See Nasdaq Letter IV at 50.
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(b) New Entrants Into the Market Making, Broker-Dealer and Other
Latency Sensitive Trading Businesses
    The Commission believes that the final amendments may lead to new
market participants entering the market making, smart order routing
broker-dealer, and other latency sensitive trading businesses.\2398\
This is because the final amendments may help to reduce the information
asymmetries between those who choose to rely on proprietary data feeds
and those who rely on the feeds from the exclusive SIPs.\2399\ For
instance, it is possible that currently there are broker-dealers who
might want 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 final amendments make
consolidated market data a viable data product for smart order routing,
the Commission believes that these changes could induce these broker-
dealers to enter the business.\2400\ This would have the benefit of
increasing competition in the sophisticated order routing broker-dealer
business.
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    \2398\ One commenter stated that the rule would encourage
participation in equity markets. See IEX Letter at 9.
    \2399\ One commenter said it would enhance competition, although
not completely eliminate the two-tiered structure of the data
market. See Virtu Letter at 2.
    \2400\ 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.
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    The Commission 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.
    If these new entrants use a competing consolidator, and if a small
latency differential between competing consolidator feeds and the
proprietary data feeds remains, then this effect of encouraging new
entrants is likely to be small.\2401\ If instead these potential new
entrants were to become self-aggregators, then this effect of
encouraging new entrants is not likely to be small, because the
Commission believes that there is unlikely to be a significant latency
differential between being a self-aggregator and using proprietary data