disseminated by competing consolidators pursuant to Rule
614(d)(9)(iii)(B) is not confidential.
(e) Respondents
    As described above, the Commission estimates that, following the
SCI CC Phase-In Period, one of the eight competing consolidators will
not meet the definition of ``SCI competing consolidator'' and will be
subject to the requirements of paragraph (d)(9) of Rule 619.
(f) Total Initial and Annual Reporting and Recordkeeping Burden
    As described in detail above, the requirements under Rule 614(d)(9)
are substantially similar to a subset of the requirements of Regulation
SCI. In particular, these provisions largely mirror the requirements of
Regulation SCI Rules 1001(a)(1), (a)(2)(vi), (a)(3) and (4), and (c),
1002(a) and (c), and 1004(c). Accordingly, the Commission believes that
its 2018 burden estimates for these rules would be applicable to the
corresponding requirements under Rule 619(d)(9). With regard to the
Commission notification provision in

paragraph (d)(9)(ii)(C), as described above, the Commission believes
that this provision is significantly more streamlined than the
requirements under Rule 1002(b), and therefore competing consolidators
would incur only a small portion of the estimated burdens for Rule
1002(b). Considering its prior burden estimates for the Regulation SCI
rules, the Commission estimates that the one competing consolidator
subject to the requirements of Rule 619(d)(9) following the SCI CC
Phase-In Period will have initial and ongoing burdens that are
approximately 33% of the burdens estimated for compliance with all of
the provisions of Regulation SCI.\1589\ This estimate of 33% includes
the paperwork burdens estimated for Rules 1001(a)(1), (a)(2)(vi),
(a)(3) and (4), and (c), 1002(a) and (c), and 1004(c) of Regulation
SCI, with the addition of an incremental burden associated with
notifying the Commission of systems disruptions and systems intrusions
on Form CC, as compared to the burden estimates for all of the
requirements of Regulation SCI that will be applicable to SCI competing
consolidators.
---------------------------------------------------------------------------

    \1589\ See 2018 PRA Extension, supra note 1567.
---------------------------------------------------------------------------

V. Economic Analysis

A. Introduction and Market Failures

1. Introduction
    Section 3(f) of the Exchange Act requires the Commission, whenever
it engages in rulemaking and is required to consider or determine
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital
formation.\1590\ In addition, Section 23(a)(2) of the Exchange Act
requires the Commission, when making rules under the Exchange Act, to
consider the impact such rules would have on competition.\1591\
Exchange Act Section 23(a)(2) prohibits the Commission from adopting
any rule that would impose a burden on competition not necessary or
appropriate in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \1590\ 15 U.S.C. 78c(f).
    \1591\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission believes that the economic benefits of the
amendments justify the costs. The amendments will generally enhance the
consolidated market data content, reduce the latency of consolidated
market data, and improve the dissemination of consolidated market data.
This will reduce information asymmetries that exist between market
participants who subscribe to proprietary DOB and other proprietary
products and market participants who only subscribe to SIP data, and
may allow some market participants who subscribe to proprietary DOB
products to replace them with potentially cheaper consolidated market
data feeds. Improvements to the content and latency of consolidated
market data from the amendments may also help market participants that
currently rely on SIP data to make more informed trading decisions,
which will facilitate their ability to trade competitively and improve
their execution quality, and will facilitate best execution.
    The Commission perceives three main benefits from the new round lot
definition and the expanded content of consolidated market data, which
as noted above includes ``core data.'' First, the expanded content of
consolidated market data will enable market participants \1592\ that
currently only subscribe to SIP data to get additional content from
expanded consolidated market data and to experience increased gains
from trade by allowing them to take advantage of trading opportunities
they may not have been aware of due to the lack of information in
existing SIP data.\1593\ Second, the expanded content of consolidated
market data may also allow these market participants to make more
informed trading decisions and improve their order routing and order
execution capabilities, potentially lowering investor transaction
costs. Finally, the changes in the definition of the round lot will
result in a narrower NBBO in some higher priced stocks, which may
improve execution quality. A narrower NBBO could also affect the amount
of price improvement that trading venues, including ATSs, exchanges,
and internalizers could offer. Changes in the NBBO could also affect
other Commission and SRO rules. Market participants should benefit from
these changes independently of any benefits from the decentralized
consolidation model.
---------------------------------------------------------------------------

    \1592\ Here, market participants may include investors,
including retail investors. Market participants that do not receive
the additional content from expanded consolidated market data may
benefit indirectly if the broker-dealers that handle their orders
subscribe to the expanded content. The extent to which particular
kinds of market participants will incur benefits or costs from these
final rules is discussed more fully in the relevant parts of Section
V.C.
    \1593\ Here and throughout, the phrase ``gains from trade''
refers to a situation in which two market participants would each be
better off if they exchanged their respective property. It captures
the idea of a potential welfare benefit that could be realized if
trade was allowed and possible. Generally, in this release the
relevant property will be securities and cash. Market participants
that post the orders that are traded against would also benefit from
realizing additional gains from trade.
---------------------------------------------------------------------------

    The Commission recognizes that there are costs to expanding the
content of consolidated market data. They include costs to new
competing consolidators related to upgrading existing infrastructure in
order to handle the dissemination of the increased message traffic;
costs relating to upgrading software and trading systems that consume
consolidated market data; costs relating to market participants
receiving consolidated market data from technological investments
required to handle increased content and message traffic.\1594\
Expanding consolidated market data will also result in transfers among
various market participants, including transfers from the current
beneficiaries of asymmetric information associated with the uneven
distribution of market data to market participants who currently do not
have access to the additional information contained in proprietary DOB
products and other proprietary products. SROs will have costs
associated with the dissemination of data content underlying
consolidated market data.
---------------------------------------------------------------------------

    \1594\ See infra Section V.C.1 for a complete discussion of
related costs.
---------------------------------------------------------------------------

    With respect to the introduction of the decentralized consolidation
model, the Commission believes that the risk of too few competing
consolidators operating in the market and precluding any of the
potential benefits from materializing is low, and in any event, certain
benefits from opening up the market to competitive forces will
materialize even with few competing consolidators because the market
will now be open to new entrants, i.e., benefits from the threat of
entry. The potential economic benefits of the decentralized
consolidation model will include a reduction in the latency (as
measured at the location of market participants using the data) and
content differential that exists between SIP data and proprietary data
feeds, improvements in innovation and efficiency in the consolidated
market data delivery space, and an increase in market resiliency.
Moreover, because today's market participants need to subscribe to both
the exclusive SIPs and proprietary data feeds to receive the same
content that will be included in consolidated market data, the
Commission expects the fees for consolidated market data will likely be
lower than fees that market participants pay for equivalent data
today.\1595\ Finally, subscribers choosing to receive a subset of
consolidated market data

will likely pay the same or lower fees than they do today for
equivalent data, depending on the fee schedule of the effective market
system plan(s).
---------------------------------------------------------------------------

    \1595\ See infra Section V.C.2(b) for an analysis of the impact
on data fees.
---------------------------------------------------------------------------

    At the same time, the introduction of the decentralized
consolidation model will impose direct costs on potential competing
consolidators and SROs.\1596\ Potential competing consolidators (such
as SROs, exclusive SIPs, and current market data aggregators) will
incur registration and compliance costs and implementation and
incremental infrastructure costs.\1597\ SROs will incur costs as part
of their SRO functions, which include costs to file amendments to the
effective national market system plan(s) and to collect and disseminate
the data content underlying new elements of consolidated market data to
competing consolidators.
---------------------------------------------------------------------------

    \1596\ See infra Section V.C.2(d).
    \1597\ Many of the potential competing consolidators have
already invested in this infrastructure for the existing business
services that they provide (e.g., proprietary data aggregation
services), which may reduce their implementation costs.
---------------------------------------------------------------------------

    The final rule will also impose indirect costs on the existing
exclusive SIPs, certain market participants and investors, and on
SROs.\1598\ The existing exclusive SIPs will incur a loss in revenue as
they lose their role as the exclusive distributors of consolidated
market data. The SROs might incur indirect costs depending on how they
choose to provide the data content underlying consolidated market data.
Finally, certain market participants will incur direct or indirect
implementation costs and switching costs to use the consolidated market
data products.
---------------------------------------------------------------------------

    \1598\ See infra Section V.C.2(d) for a discussion of the
related costs.
---------------------------------------------------------------------------

    The Commission believes that the interaction of expanding
consolidated market data and implementing a decentralized consolidation
model together should produce some benefits, including less expensive
alternatives to proprietary DOB products for market participants;
potential new entrants into the broker-dealer, market making, and other
latency sensitive trading businesses; \1599\ expansion of business
opportunities for market data aggregators; improved regulatory
oversight from the Consolidated Audit Trail; \1600\ and enhancements to
the quality of service provided by data vendors. Further, as noted
above, the Commission believes that the adopted rule will facilitate
best execution and reduce information asymmetries. These changes might
impose certain costs, such as potentially lower revenues for SROs;
potentially higher costs for the implementation of the Consolidated
Audit Trail; potentially higher costs for certain market data
vendors.\1601\ Some of these benefits and costs will result from
transfers among various market participants.
---------------------------------------------------------------------------

    \1599\ This includes the indirect benefits of improved
competition in the executing broker-dealer business and potential
increases in market liquidity from additional market makers.
    \1600\ The expanded content of core data will improve the
completeness and accessibility of Consolidated Audit Trail Data,
which will facilitate more efficient regulatory activities using
Consolidated Audit Trail Data. See infra Section V.C.4(c)(ii).
    \1601\ See infra Section V.C.4 for additional discussion of the
related costs.
---------------------------------------------------------------------------

    On balance, the amendments are necessary and appropriate in the
public interest and do not impose a burden on competition not necessary
or appropriate in furtherance of the purposes of the Exchange Act.
    Wherever possible, the Commission has quantified the likely
economic effects of the adopted rules. The Commission is providing both
a qualitative assessment and quantified estimates of the economic
effects of the adopted rule where feasible. The Commission has
incorporated data and other information provided by commenters to
assist it in the analysis of the economic effects of the adopted
rules.\1602\
---------------------------------------------------------------------------

    \1602\ As explained in more detail below, because in certain
circumstances the Commission may not have, and in certain cases
cannot reasonably obtain, data that may inform the Commission on
certain economic effects, the Commission is unable to quantify
certain economic effects. Further, in certain circumstances, it may
not be practicable to quantify the economic effects due to the
number and type of assumptions necessary, which render any such
quantification unreliable.
---------------------------------------------------------------------------

2. Market Failures
    The Commission is amending Rules 600 and 603 and adopting new Rule
614 of Regulation NMS under the Exchange Act to increase the
availability and improve the dissemination of information regarding
quotations for and transactions in NMS stocks to market participants.
First, the Commission is defining the terms ``consolidated market
data,'' ``consolidated market data product,'' ``core data,''
``regulatory data,'' ``administrative data,'' and ``self-regulatory
organization-specific program data,'' and enhancing the content of core
data to include certain odd-lot quote information, certain depth of
book data, and information on orders participating in auctions.\1603\
Second, the Commission is introducing a decentralized consolidation
model whereby competing consolidators will assume responsibility for
the collection, consolidation, and dissemination functions currently
performed by the exclusive SIPs,\1604\ and self-aggregators will be
able to generate consolidated market data for their own use, and the
use of their broker-dealer and registered investment advisor
affiliates.
---------------------------------------------------------------------------

    \1603\ See supra Section II.
    \1604\ See supra Section III.
---------------------------------------------------------------------------

    The Commission understands that there is an inherent conflict of
interest in that the exchanges, as voting members of the Equity Data
Plan Operating Committees, may not be incentivized to improve the
content or latency of SIP data.\1605\ For example, certain exchanges
have developed proprietary data products with reduced latency and
expanded content (i.e., proprietary DOB products), while not taking
similar action on these committees to enhance the data products offered
by the Equity Data Plans.\1606\ These proprietary DOB products have
evolved to be considered competitive necessities by many market
participants and are offered at premiums to exclusive SIP
products.\1607\ Similarly, some exchanges have developed limited TOB
data products, offering them at a discount compared to the SIP data,
while the exclusive SIPs have not developed less expensive SIP
products.\1608\ The exchanges have continued to develop and enhance
their proprietary market data businesses--which generate revenue that,
unlike SIP data revenues, do not have to be shared with the other
SROs--while remaining responsible for the governance and operation of
the Equity Data Plans, including content, infrastructure, and pricing,
as well as data consolidation and dissemination.\1609\
---------------------------------------------------------------------------

    \1605\ A number of commenters agreed that the SROs have a
conflict of interest. See, e.g., Wellington Letter at 1; IEX Letter
at 2; Fidelity Letter at 3. See also Proposing Release, 85 FR at
Section III.A. and n. 267 (describing an exchange-led initiative to
enhance the SIPs). While the new Equity Data Plan, required to be
filed pursuant to the Governance Order, is required to be designed
to address these conflicts of interest, it would not eliminate them.
    \1606\ See Governance Order, supra note 1128 at Section II.B.1.
Commenters agreed that the improvements to the SIPs have not kept
pace with the improvements in proprietary feeds. See, e.g., State
Street Letter at 2 (``Over time, improvements have been made to the
SIPs, but those improvements have not kept pace with the alternative
data feeds that the industry can and is often required to access'');
Wellington Letter at 1.
    \1607\ See id.
    \1608\ See id.; see also Proposing Release, 85 FR at n. 25. The
Commission did not receive comments disagreeing with this
characterization of the relationship between the exclusive SIPs and
TOB feeds.
    \1609\ See Governance Order, supra note 1128, at Section II.B.1.
---------------------------------------------------------------------------

    The Commission believes that there are two additional factors
related to the Equity Data Plan processors that may impede improvements
to the

dissemination of SIP data. First, pursuant to Regulation NMS, each
exclusive SIP has exclusive rights to collect trade and quotation data
related to NMS stocks from multiple SROs and then aggregate and
disseminate market data to market participants.\1610\ This structure
may further impede improvements in the dissemination of SIP data \1611\
because Equity Data Plan participants that govern exclusive SIPs do not
have incentives to innovate due to the lack of competition in
dissemination of SIP data.
---------------------------------------------------------------------------

    \1610\ See Proposing Release, 85 FR at n. 21 and accompanying
text.
    \1611\ See infra Section V.B.2(b).
---------------------------------------------------------------------------

    Second, the exclusive SIPs are either SROs themselves or affiliates
of SROs.\1612\ This gives the SROs a dual role in that they serve as
both existing plan processors and as entities selling directly their
own proprietary market data products that can reach market participants
faster than SIP data, or as affiliates of entities that do so. As
discussed in the Proposing Release, this may create an additional
conflict of interest that could provide incentives making the Equity
Data Plan participants that oversee the Equity Data Plans reluctant to
improve the content and latency of the SIP data, because a divergence
in the usefulness of SIP data provided by the exclusive SIPs as
compared to the proprietary data feeds increases the value of the
proprietary market data products.\1613\
---------------------------------------------------------------------------

    \1612\ See Proposing Release, 85 FR at n. 42.
    \1613\ Commenters agreed with this assessment. See, e.g., BestEx
Research Letter at 1 (``SIP operators have little incentive to
provide better content at more competitive prices with lower latency
because it may cannibalize their own direct feed business'') and 4
(``The bigger the differences in content between direct data feeds
and SIP, the more power exchanges have in setting their own prices
for market data.'').
---------------------------------------------------------------------------

    The Commission is concerned that Regulation NMS and the Equity Data
Plans have not kept pace with the needs of market participants as
markets, trading systems, and technologies have changed dramatically.
While the exchanges have developed individual proprietary data products
to meet the needs of some market participants, the Commission believes
that there should be improvement to, and modernization of, the national
market system to fulfill the goals of Section 11A of the Exchange Act
and to meet the current core data needs of all market participants. The
Commission is concerned that the lack of modernization to the content
and dissemination of SIP data compared to proprietary data feeds has
contributed to the development of a two-tiered system in which certain
market participants who are able to afford, and choose to pay for, the
exchanges' relatively more expensive proprietary DOB data feeds and
associated connectivity and transmission offerings receive more
content-rich data faster than those who do not receive these data
feeds.\1614\
---------------------------------------------------------------------------

    \1614\ See supra Sections I.A and I.B.
---------------------------------------------------------------------------

    Some market participants are unable to rely solely on SIP data to
trade competitively and execute investor orders in today's
markets.\1615\ SIP data currently does not include some important data
elements such as odd-lot quotations (except to the extent that odd-lot
quotations are aggregated into round lots pursuant to exchange
rules),\1616\ depth of book data, and information about orders
participating in auctions.\1617\ Moreover, there is a substantial
latency differential between market data provided via the exclusive
SIPs and proprietary data products delivered by the exchanges directly
to market participants or to market data aggregators as part of
exchange proprietary data feeds.\1618\ The latency and content
disparity between SIP data feeds and proprietary DOB data products has
the effect of increasing the market participants' demand for
proprietary products to the extent that some brokers-dealers stated
they view acquiring such products as a competitive necessity.\1619\
Additionally, market participants have stated that the higher prices
charged for some exchange proprietary DOB feeds and associated
connectivity and transmission limits the number of broker-dealers
accessing these feeds and places those that do not subscribe at a
competitive disadvantage relative to other market participants willing
and able to spend the money to access these feeds.\1620\
---------------------------------------------------------------------------

    \1615\ See supra Section II.C.2(c); see also id.; Proposing
Release, 85 FR at Section III.C.1(a); infra Section V.B.2(c). A
number of commenters agreed that market participants may not be able
to rely on the SIP to trade competitively. See, e.g., DOJ Letter at
2 (``[P]articipants that rely solely on SIP Data could be at a
competitive disadvantage to those that rely on multiple sources of
market information, including Prop Data''); MFA Letter at 2;
BlackRock Letter at 2; Wellington Letter at 1; IntelligentCross
Letter at 4.
    \1616\ See supra Section II.C.2(b); see also Proposing Release,
85 FR at Section III.C.1(a).
    \1617\ Only limited auction-related information is currently
included in SIP data. See supra Section II.G; see also Proposing
Release, 85 FR at Section III.C.3(a).
    \1618\ See infra Section V.B.2(b).
    \1619\ A number of commenters agreed that broker-dealers need to
purchase proprietary DOB feeds in order to trade competitively. See,
e.g., Clearpool Letter at 2 (``[B]roker-dealers are compelled to
purchase the exchanges' proprietary data feeds both to provide
competitive execution services to clients and to meet best execution
obligations due to the content of the information contained in
proprietary data feeds, as well as the lack of latency in those
feeds, both important considerations for brokers''); State Street
Letter at 2; Better Markets Letter at 1; T. Rowe Price Letter at 1.
Commenters also agreed that there is a disparity between the content
and latency of the SIP data feeds and proprietary market data. See,
e.g., Committee on Capital Markets Regulation Letter at 2.
    \1620\ See supra notes 26-28 and accompanying text; infra
Sections V.B.3(e), V.B.2(f). For example, one commenter stated
``[w]e observe increasing concentration in the financial industry--
in the asset manager space, the broker/dealer community, and in the
liquidity provider/market maker space. There are barriers to entry
based on necessary scale to be able to absorb the fixed costs of
infrastructure, market data and connectivity,'' and that
``algorithmic executions by broker/dealers cannot in general be
competitive if they do not use direct feeds.'' See NBIM Letter at 3.
Additionally, there are indicia that exchanges may not be subject to
robust competition with respect to market data. See infra Section
V.B.3(b).
---------------------------------------------------------------------------

    One commenter stated that all of the additional information
provided by the proprietary feeds is already available to everyone who
needs it.\1621\ While the Commission acknowledges that the option to
subscribe to proprietary market data is available to all market
participants, the Commission is concerned that the national market
system needs improvement to fulfill the goals of Section 11A of the
Exchange Act and to meet the current core data needs, including data
content and latency, of all market participants. The Commission is
concerned a two-tiered system has developed in which market
participants that do not receive proprietary DOB feeds may be affected
in their efforts to seek best execution and otherwise effectively
compete with market participants that receive proprietary DOB data
feeds. The Commission believes that consolidated market data must
reflect all information that is important for a broad cross section of
investors and market participants and must do so in a manner that is
latency-sensitive.
---------------------------------------------------------------------------

    \1621\ See Nasdaq Letter IV at 34.
---------------------------------------------------------------------------

B. Baseline

    The Commission has assessed the likely economic effects of the
final amendments, including benefits, costs, and effects on efficiency,
competition, and capital formation, against a baseline that consists of
the existing regulatory process for collecting, consolidating, and
disseminating market data, and the structure of the markets for SIP
data products and for connectivity and trading services.
1. Current Regulatory Process for Equity Data Plans and SIP Data
    The current regulatory framework for SIP data relies upon a
centralized consolidation model, whereby the SROs provide certain
quotation and transaction information for each NMS stock to a single
exclusive SIP, which then consolidates this data and makes it

available to market participants.\1622\ This SIP data includes what
historically has commonly been referred to as core data, as well as
certain regulatory data related to Commission and SRO rules and NMS
plan requirements.\1623\
---------------------------------------------------------------------------

    \1622\ See Proposing Release, 85 FR at Section II.A.
    \1623\ Id.
---------------------------------------------------------------------------

    As discussed in more detail below,\1624\ SIP data currently
includes transaction information for both round lot and odd-lot-sized
transactions as well as quotation information for round lot top of book
quotes for each SRO. Additionally, several exchanges, pursuant to their
own rules, aggregate odd-lot orders into round lots and report such
aggregated odd-lot orders as quotation information to the exclusive
SIPs.\1625\ Thus, SIP data lacks information on odd-lot quotations at
prices better than the best bid and offer and on depth of book
quotations (i.e., limit orders resting at exchanges at prices outside
of the bid and offer). Additionally, only limited auction-related
information is included in SIP data.\1626\
---------------------------------------------------------------------------

    \1624\ See infra Section V.B.2(a). See also Proposing Release,
85 FR at Section II.C.1.
    \1625\ See Proposing Release, 85 FR at Section II.A.
    \1626\ See Proposing Release, 85 FR at Section III.C.2.
---------------------------------------------------------------------------

    Currently, the Operating Committees of the Equity Data Plans, which
are governed exclusively by the SROs,\1627\ select the exclusive SIPs
to consolidate and disseminate market data to market participants. The
selection process for the exclusive SIPs is organized through a bidding
process, and once selected, an exclusive SIP has exclusive rights to
consolidate and disseminate market data for a given Equity Data
Plan.\1628\ Currently, SIAC (a NYSE affiliate) is the exclusive SIP for
the CTA and CQ Plans, and Nasdaq Stock Market LLC is the exclusive SIP
for the UTP Plan.
---------------------------------------------------------------------------

    \1627\ Under the Governance Order, the Operating Committee of
the New Consolidated Data Plan would include non-SRO members. See
Governance Order, supra note 1128.
    \1628\ The Nasdaq UTP Plan contains the description of its
approach to the selection and evaluation of the processor. See
Nasdaq UTP Plan, supra note 10, at 10. The CTA/CQ Plan does not
contain a similar provision. See CTA Plan, supra note 10; CQ Plan,
supra note 10. Historically, exchanges or exchange affiliates had
always been selected to be plan processors.
---------------------------------------------------------------------------

    Each exclusive SIP is physically located in a different data
center.\1629\ The exchanges' and FINRA's primary data centers are also
located in different locations. Each exchange and FINRA must transmit
its quotation and transaction information from its own data center to
the appropriate exclusive SIP's data center for consolidation, at which
point SIP data is then further transmitted to market data end-users,
which are often located in other data centers. The exclusive SIPs do
not compete with each other in the collection, consolidation, or
dissemination of SIP data.
---------------------------------------------------------------------------

    \1629\ See Proposing Release, 85 FR at Section II.A. and n. 43.
---------------------------------------------------------------------------

2. Current Process for Collecting, Consolidating, and Disseminating
Market Data
    In addition to the provision of SIP data pursuant to the Equity
Data Plans, the national securities exchanges separately sell their
individual proprietary market data products directly to market
participants via proprietary data feeds.\1630\ Proprietary data feeds
may include SIP data elements and a variety of additional data elements
and can vary in content from proprietary TOB products to proprietary
DOB products.\1631\ In addition, in connection with proprietary data
feed products, the exchanges offer various connectivity services (e.g.,
co-location at primary data centers, fiber optic connectivity, wireless
connectivity, and point-of-presence connectivity at third-party data
centers), which may result in higher speed transmissions.\1632\
Typically, proprietary data is transmitted directly from each exchange
to the data center of the subscriber, where the subscriber's broker-
dealer or vendor (or the subscriber itself) privately consolidates such
data with the proprietary data of the other exchanges. This section
describes the current content of SIP data and proprietary data feeds,
current process of data dissemination, and current process for costs of
generating SIP data and proprietary data feeds.
---------------------------------------------------------------------------

    \1630\ See Proposing Release, 85 FR at Section II.A.
    \1631\ See Proposing Release, 85 FR at Section III.C.2.
    \1632\ See Proposing Release, 85 FR at n. 51 and accompanying
text; Proposing Release, 85 FR at Section IV.A.
---------------------------------------------------------------------------

(a) Current Content of SIP Data and Proprietary Data Feeds
    As discussed in the Proposing Release,\1633\ today SIP data does
not include some of the content that certain market participants rely
on when handling customer orders and trading.\1634\ This difference in
content creates significant information asymmetries between market
participants who rely solely on SIP data and market participants who
also rely on proprietary data feeds.\1635\
---------------------------------------------------------------------------

    \1633\ See Proposing Release, 85 FR at Section III.C.
    \1634\ A number of commenters agreed with this statement. See,
e.g., Clearpool Letter at 11; IEX Letter at 5-6; Virtu Letter at 2;
DOJ Letter at 2. See also supra notes 1615, 1619 and accompanying
text.
    \1635\ Commenters agreed with this assessment. See, e.g., MEMX
Letter at 2 (acknowledging that ``information asymmetries exist
between market participants consuming consolidated data disseminated
through the'' exclusive SIP feeds and ``market participants
consuming proprietary data feeds directly from national securities
exchanges''); Clearpool Letter at 15; Schwab Letter at 3.
---------------------------------------------------------------------------

    A certain portion of market participants do not rely solely on SIP
data to trade competitively in today's markets and instead purchase
proprietary data from SROs to supplement or even replace SIP
data.\1636\ In particular, the Commission understands that
approximately 50 to 100 firms purchase all of the proprietary DOB feeds
from the exchanges and do not rely on the SIP data for their
trading.\1637\ Conversely, the number of users of the SIP data is much
larger (in the millions),\1638\ suggesting that many users rely on the
exclusive SIPs alone. The Commission believes that a large portion of
retail investors rely solely on SIP data for trading decisions.\1639\
However, some retail investors may use data derived from proprietary
feeds from one or more exchanges in order to obtain additional data
beyond the NBBO.\1640\
---------------------------------------------------------------------------

    \1636\ See Proposing Release, 85 FR at Section VI.B.2(a). The
Commission believes that when market participants purchase
proprietary data feeds to replace SIP data, they also almost always
purchase SIP data as a back-up system to proprietary data. See also
Proposing Release, 85 FR at n. 101.
    \1637\ See Proposing Release, 85 FR at n. 140. In addition to
using proprietary DOB feeds for non-display purposes, these firms
may also use proprietary DOB feeds for display purposes for their
employees and clients.
    \1638\ As of the fourth quarter of 2019, there were
approximately 2-3 million non-professional subscribers and
approximately 0.3 million professional subscribers across the UTP
and CTA/CQ SIPs. Additionally, there were approximately 300 non-
display vendor use cases at each of the exclusive SIPs. See, e.g.,
CTA Plan, Q2 2020 CTA Tape A & B Quarterly Population Metrics,
available at https://www.ctaplan.com/publicdocs/ctaplan/CTAPLAN_Population_Metrics_2Q2020.pdf; Nasdaq UTP Plan, Q2 2020 UTP
Quarterly Population Metrics, available at https://www.utpplan.com/DOC/UTP_2020_Q2_Stats_with_Processor_Stats.pdf. The Commission
understands that there is an overlap in subscribers across the
exclusive SIPs.
    \1639\ See Proposing Release, 85 FR at Section VI.B.2(a).
Commenters agreed that many retail investors only view core data.
See, e.g., Schwab Letter at 2; MEMX Letter at 3. Retail investors
may also view proprietary TOB feeds that contain less content than
the SIP. See infra note 1651.
    \1640\ One retail broker stated that it ``currently offers depth
of book products at a reasonable cost for those investors who find
the data useful. Providing this data from separate feeds in specific
circumstances for investors allows clients to choose what data
beyond a national best bid and national best offer (``NBBO'') is
important and useful to them and avoids overwhelming amounts of
information.'' See TD Ameritrade Letter at 6.

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

    As described in the Proposing Release,\1641\ SIP data consists of
certain quotation \1642\ and transaction data \1643\ that the SROs are
required to provide to the exclusive SIPs for consolidation and
dissemination to the public on the consolidated tapes. Specifically,
the SIP data includes: (1) An NBBO; \1644\ (2) the best bids and best
offers from each SRO; \1645\ and (3) information on trades such as
prices and sizes. The SIP data also includes certain regulatory data,
such as information required by the LULD Plan,\1646\ information
relating to regulatory halts and MWCBs,\1647\ information regarding
short sale circuit breakers,\1648\ and other data, such as data
relating to retail liquidity programs, market and settlement
conditions, the financial condition of the issuer, OTC equities, last
sale prices for corporate bonds, and information about indices.\1649\
---------------------------------------------------------------------------

    \1641\ See Proposing Release, 85 FR at Section II.A.
    \1642\ See Rule 602 of Regulation NMS.
    \1643\ See 17 CFR 242.601 (Rule 601) of Regulation NMS.
    \1644\ The national best bid and offer are constructed from the
best bid and offer prices across all exchanges in which the quoted
size is at least one round lot. See Proposing Release, 85 FR at
Section III.C.1.
    \1645\ The best bids and offers on an exchange are determined by
the best prices in which the quoted size is at least one round lot.
Some exchanges aggregate odd-lot orders at better prices into round
lots and report such aggregated orders as their best bid or offer at
the least aggressive price of the aggregated orders. Typically, the
best bids and offers on each exchange are protected quotes under NMS
Rule 611 and cannot be traded-through. See Proposing Release, 85 FR
at Section III.C.1(a).
    \1646\ See Proposing Release, 85 FR at n. 38.
    \1647\ See id. at n. 39.
    \1648\ See id. at n. 40.
    \1649\ See id. at n. 41.
---------------------------------------------------------------------------

    The exchanges separately sell their individual market data directly
to market participants via proprietary data feeds. For example, the
exchanges have developed proprietary DOB products that provide greater
content (e.g., odd-lot quotations, orders at prices above and below the
best prices, and information about orders participating in auctions,
including auction order imbalances) at lower latencies,\1650\ relative
to the exclusive SIPs, for certain segments of the data market, such as
automated trading systems. They have also developed proprietary TOB
products that provide data that is generally limited to the highest bid
and lowest offer and last sale price information and are typically
priced lower than the SIP data for another segment of the data market
that is less sensitive to latency (e.g., retail or non-professional
investors and wealth managers that access market data visually).\1651\
Proprietary data feeds are available as part of exchanges' standard
offerings. Most exchanges offer for sale as part of their proprietary
DOB products the complete set of orders at prices above and below the
best prices (e.g., depth of book data), complete odd-lot quotation
information, and information about orders participating in auctions,
including auction order imbalances (for listing exchanges).\1652\
---------------------------------------------------------------------------

    \1650\ See, e.g., Proposing Release, 85 FR at n. 19 (for Nasdaq
Global Data Products, Real-Time--NYSE Proprietary Market Data, and
Cboe Equities Offerings, all describing low-latency DOB data
products). Commenters agreed with this description of the market.
See, e.g., DOJ Letter at 2; Committee on Capital Markets Regulation
Letter at 2.
    \1651\ Examples of such proprietary TOB products include NYSE
BBO, Nasdaq Basic, and Cboe One Feed. See Proposing Release, 85 FR
at n. 19. NYSE BBO provides TOB data. Nasdaq Basic and Cboe One's
Summary Feed provide TOB and last sale information. Nasdaq Basic
also provides Nasdaq Opening and Closing Prices and other
information, including Emergency Market Condition event messages,
System Status, and trading halt information. Cboe One also offers a
Premium Feed that includes DOB data. Each of these products is sold
separately by the relevant exchange group. See Letter from Matthew
J. Billings, Managing Director, Market Data Strategy, TD Ameritrade,
(Oct. 24, 2018) (``TD Ameritrade Letter 2018''), available at
https://www.sec.gov/comments/4-729/4729-4560068176205.pdf at 5-8
(stating that the lower cost of exchange TOB products, coupled with
costs associated with the process to differentiate between retail
professionals and non-professionals imposed by the Equity Data
Plans, and associated audit risk, favors retail broker-dealer use of
exchange TOB products).
    \1652\ See Proposing Release, 85 FR at n. 335. IEX and MEMX make
proprietary data available but do not charge for it. See, e.g., IEX,
Market Data, available at https://iextrading.com/trading/market-data/ (last accessed Jan. 8, 2020); MEMX Fee Schedule, available at
https://info.memxtrading.com/fee-schedule/ (last accessed Nov. 18,
2020). See also Ramsay Letter II. Long Term Stock Exchange does not
offer a proprietary data feed, but makes information on the order
book available on its website. See, e.g., LTSE Connectivity Guide,
available at https://assets.ctfassets.net/cchj2z2dcfyd/1Jp5V4TWZXzhl8QmBWD3Ed/2f926fa4c55f6f489cceb8b77fe8e685/LTSE_Connectivity_Guide.pdf (last accessed Nov. 18, 2020).
---------------------------------------------------------------------------

    One notable gap between SIP data and proprietary DOB data is that
SIP data does not include complete odd-lot quotation information even
though odd-lots represent a large share of all trades in the U.S. stock
market and can represent economically significant trading opportunities
at prices that are better than the prices of displayed and disseminated
round lots.\1653\ While several exchanges aggregate odd-lot orders into
round lots and report such aggregated orders as quotation information
to the exclusive SIPs,\1654\ market participants must purchase
proprietary data feeds, available from the exchanges, to see the odd-
lot quotations that are priced at or better than the best bid or
offer.\1655\
---------------------------------------------------------------------------

    \1653\ See Alexander Osipovich, NYSE Aims to Speed Up Trading
with Core Tech Upgrade, Wall Street Journal (Aug. 5, 2019),
available at https://www.wsj.com/articles/nyse-aims-to-speed-up-trading-with-core-tech-upgrade-11565002800 (Retrieved from Factiva
database). Commenters agreed that odd-lot quotes make up a
significant portion of trading interest, especially in higher priced
stocks. See, e.g., Cboe Letter at 6; Healthy Markets Letter I at 3;
Clearpool Letter at 11-12; IntelligentCross Letter at 3; IEX Letter
at 3-4; ICI Letter at 7.
    \1654\ See Proposing Release, 85 FR at Section III.C.1(a).
Exchange rules specify how the aggregation process works in
different terms and with different levels of specificity, but many
exchanges aggregate odd-lots across multiple prices and provide them
to the exclusive SIPs at the least aggressive price if the combined
odd-lot interest is equal to or greater than a round lot. See
Proposing Release, 85 FR at nn. 157, 158, 789.
    \1655\ See Proposing Release, 85 FR at n. 163. Commenters agreed
that the absence of odd-lot quote information reduces the usefulness
of the SIP. See, e.g., BlackRock Letter at 3.
---------------------------------------------------------------------------

    Odd-lot transactions make up a significant proportion of
transaction volume in NMS stocks, including ETPs, and a significant
proportion of odd-lot trades occur at prices better than the prevailing
NBBO, especially in higher priced stocks. In May 2020, approximately
45% of all trades executed on exchanges and approximately 10% of all
volume executed on exchange in corporate stocks and ETFs were odd-lot
sized and that 40% of those transactions (representing approximately
35% of all odd-lot volume) occurred at a price better than the
NBBO.\1656\ Additionally, a significant portion of quotation and
trading activity occurs in odd-lots, particularly for frequently
traded, high-priced tickers, and as stock prices rise, the difference
in spreads calculated using the different feeds also rises, indicating
that odd-lots are more likely to set the best quote as stock prices
rise.\1657\
---------------------------------------------------------------------------

    \1656\ See supra note 241. Similar staff analysis in the
Proposing Release examining a different time period also showed that
odd-lot trades account for a significant proportion of transactions.
See Proposing Release, 85 FR at 16813.
    \1657\ See supra note 240. The staff analysis found that for the
500 top tickers by dollar volume, odd-lot quotes represented a
significant price improvement over the exclusive SIP quotes. This
analysis further found that as the price of the stock increased, the
duration-weighted amount by which the odd-lot quote improved on the
SIP quote increased as well. Similar staff analysis in the Proposing
Release examining a different time period found similar results. See
Proposing Release, 85 FR at Section III.C.1(b). Analysis by one
commenter also observed that there are frequently odd-lot limit
orders priced better than the NBBO and that this is more common in
higher priced stocks. See JP Morgan Memo to File at 2.
---------------------------------------------------------------------------

    A number of commenters also submitted analyses examining the
occurrence of odd-lot trades. Commenter analyses generally observed
that odd-lot trades occur frequently in higher priced stocks and that
their frequency has increased over time, along with an increase in the
average

stock price.\1658\ Commenter analysis also observed that odd-lot limit
orders occur frequently in higher priced stocks.\1659\
---------------------------------------------------------------------------

    \1658\ Analysis from a number of commenters observed that odd-
lot trades are more prevalent in high priced stocks. See, e.g.,
BestEx Research Letter at 6; Capital Group Letter at 3; Nasdaq
Letter III at 11; RBC Letter at 5. Additional commenter analysis
observed that the percentage of odd-lot trades has increased over
time, especially in high priced stocks. See, e.g., BestEx Research
Letter at 6; Healthy Markets Letter I at 11-12. Analysis from one
commenter also observed that the frequency of odd-lot trades also
increased off-exchange. See Healthy Markets Letter I at 11-12.
Commenters also observed that the average stock price has increased
over time. See, e.g., Cboe Letter at 6 (``The average price of a
stock included in the S&P 500 Index was $44.86 at the end of 2005,
compared to $140.47 at the end of 2019''); Virtu Letter at 3;
Citadel Letter at 3. Other commenters also agreed that odd-lot
trading has increased over time, especially in high priced stocks.
See, e.g., Fidelity Letter at 4; ACS Execution Services Letter at 2;
Angel Letter at 13.
    \1659\ See, e.g., Nasdaq Letter IV at 16; Schwab Letter at 4;
Citadel Letter at 3.
---------------------------------------------------------------------------

    One commenter stated that odd-lot trade frequency is not a valid
proxy for passive order interest because trade size is often determined
by the liquidity-taking order and is often a result of algorithmic
``pinging.'' \1660\ This commenter conducted an analysis and concluded
that it is small liquidity-taking orders that are driving the increase
in odd-lot trades.\1661\ This commenter did not observe an increase in
the size of passive retail investor orders but did find a decrease in
their execution size. The Commission acknowledges that algorithmic
``pinging'' could account for a portion of the odd-lot trading volume
that occurs but also believes that odd-lot-sized limit orders can
represent a significant source of liquidity, especially in higher
priced stocks. This commenter's analysis was limited to the orders of
retail investors, while the staff analysis discussed above and the
analyses submitted by other commenters, which observed that odd-lot
limit orders are a significant source of liquidity (especially in high-
priced stocks), contained the orders of other types of traders.\1662\
Additionally, analyses from other commenters also observed that a
significant portion of retail limit orders are smaller than 100 shares,
and that this is more common in higher priced stocks.\1663\
---------------------------------------------------------------------------

    \1660\ See TD Ameritrade Letter at 6-7.
    \1661\ See id.
    \1662\ See supra note 1657. See also, e.g., Nasdaq Letter IV at
16; JP Morgan Memo to File at 2.
    \1663\ See, e.g., Nasdaq Letter IV at 16; Schwab Letter at 4
(``In the first quarter of 2020, a total of 1.87 million, or 23
percent, of Schwab customers' limit orders for stocks priced higher
than $100 are for fewer than 100 shares''); Citadel Letter at 3. One
commenter also stated that retail investors tend to trade in lots
smaller than 100 shares. See Schwab Letter at 4.
---------------------------------------------------------------------------

    Information on odd-lot quotes can help with the optimal placement
and routing of orders across markets.\1664\ Odd-lot quotation data can
help market participants improve trading strategies and lower execution
costs by allowing them to take advantage of odd-lot quotes that are
available at prices better than the NBBO, possibly on a different
exchange than where the NBBO is located. Odd-lot quotation data can
also help market participants place limit orders at prices at or inside
the NBBO. SIP data is unable to differentiate between individual round
lot quotes and odd-lot quotes that were aggregated by the exchanges to
be a round lot quote.
---------------------------------------------------------------------------

    \1664\ Commenters agreed that odd-lot information has become
important for trading decisions. See, e.g., ACS Execution Services
Letter at 2; Clearpool Letter at 11-12; IntelligentCross Letter at
4. A panelist at the Roundtable also stated that odd-lot quotation
data is needed to make effective decisions in trading applications
and to fill client orders effectively. See Proposing Release, 85 FR
at n. 173 and accompanying text.
---------------------------------------------------------------------------

    Another gap between SIP data and proprietary DOB data is that SIP
data currently lacks quotation information in NMS stocks beyond the top
of book \1665\ even though the decimalization of securities pricing in
2001 led to a dispersion of quoted volume away from the top of
book.\1666\ Consequently, the NBBO shown in SIP data became less
informative and some market participants have come to view depth of
book data as necessary to their efforts to trade competitively and to
provide best execution to customer orders.\1667\ Market participants
interested in such depth of book data must rely upon the proprietary
DOB products offered by the exchanges that include varying degrees of
depth data.\1668\
---------------------------------------------------------------------------

    \1665\ See Proposing Release, 85 FR at Section III.C.2.
    \1666\ Commenters agreed that decimalization led to a decline in
top of book liquidity. See, e.g., Schwab Letter at 3; ACS Execution
Services Letter at 2.
    \1667\ See Proposing Release, 85 FR at Section III.C.2(d).
    \1668\ See Proposing Release, 85 FR at n. 270. Commenters stated
that top of book information is insufficient and market participants
pay for proprietary feeds to access depth of book information. See,
e.g., ICI Letter at 9.
---------------------------------------------------------------------------

    Staff analyzed depth of book quotations for corporate stocks using
data from the week of May 4, 2020 and found that there is a substantial
amount of quotation volume at several levels below the best bid.\1669\
The analysis also found that during active parts of the trading day,
there is quotation interest at every $0.01 increment at least ten
levels out for the most liquid stocks; for the least liquid stocks,
there is a large gap between the best bid and the next highest bid and
large gaps are generally also present between the next several bid
levels. Additionally, the analysis found a significant percentage of
the total notional value of all depth of book quotations for both
liquid and illiquid stocks falls within the first five price levels.
---------------------------------------------------------------------------

    \1669\ See supra note 387. Similar staff analysis in the
Proposing Release examining a different time period found similar
results. See Proposing Release, 85 FR at Section III.C.2(d).
Commenters also referenced analysis that observed there was
significant liquidity beyond the top of book. See, e.g., RBC Comment
Letter at 4-5 (referencing an analysis RBC had previously submitted
to the Commission); IEX Letter at 5 (referencing an academic study
by Tolga Cenesizoglu and Gunnar Grass, Bid- and ask-side liquidity
in the NYSE limit order book, 38 J. Fin. Mkts. 14 (2018)).
---------------------------------------------------------------------------

    The Commission recognizes that market participants have diverse
market data needs. Depth of book data can assist SORs and electronic
trading systems with the optimal placement of orders across
markets.\1670\ Specifically, depth of book data can help market
participants improve trading strategies and lower execution costs by
placing liquidity taking orders that are larger than the displayed best
bid or best offer and achieve queue priority for liquidity providing
orders that post at prices away from the best bid or offer.\1671\ At
the same time, the depth of book data may be less valuable to a certain
segment of market participants (e.g., some retail or non-professional
customers).\1672\ For example, a relatively small portion of marketable
orders execute at prices outside the NBBO indicating that some market
participants submitting marketable orders do not find ``walking the
book'' useful.\1673\
---------------------------------------------------------------------------

    \1670\ Several commenters agreed that depth of book information
is useful in routing and placing orders effectively. See, e.g.,
Clearpool Letter at 14; IntelligentCross Letter at 4; IEX Letter at
5; Schwab Letter at 3; Angel Letter at 9.
    \1671\ See infra Section V.C.1(c)(ii). Commenters agreed that
depth of book information helps with placing market orders and
accessing liquidity beyond the top of book. See, e.g., ICI Letter at
8-9; Schwab Letter at 3; ACS Execution Services Letter at 4-5; IEX
Letter at 5.
    \1672\ One commenter believes that depth of book information
would be valuable for retail investors in less liquid stocks and for
placing limit orders. See Angel Letter at 1-9.
    \1673\ That is, a marketable order so large that it executes
against all the volume at the top of the book and then executes
against orders behind the top of the book. See Craig W. Holden and
Stacey Jacobsen, Liquidity Measurement Problems in Fast Competitive
Markets, 69 J. Fin. 1760, at Table I (2014) (showing that 3.3% of
orders clear outside the NBBO). This does not necessarily mean that
limit orders outside the NBBO are irrelevant. There are limitations
to using the observation of trades at prices outside the NBBO at the
time of trade execution as an indicator for orders that executed at
prices outside of the NBBO at the time of trade order (specifically,
these events are not necessarily the same thing). Additionally,
instead of submitting a large marketable order that ``walks the
book'', market participants may split a larger marketable order into
smaller child orders, with some smaller orders executing against
liquidity providing orders at the top of the book and others later
executing against liquidity providing orders that were behind the
top of book when the first child orders executed. See infra Section
V.B.3(e).

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

    Another gap between SIP data and proprietary DOB data is that SIP
data includes only limited auction-related information. Auctions are
important liquidity events, accounting for approximately 7% of daily
equity trading volume.\1674\ Closing auctions generate prices that are
used for a variety of market purposes, including setting benchmark
prices for index rebalances and for determining NAV prices for mutual
funds and ETFs.\1675\ Auctions are important for the implementation of
passive investment strategies. For example, one commenter stated that
mutual funds and ETFs that utilize passive index-tracking strategies
actively participate in closing auctions.\1676\ One commenter stated
that reopening auctions play an important role in connection with
security-specific or market-wide events, such as a limit up-limit down
or other regulatory halt.\1677\ Auction imbalance information and
indicative prices can help facilitate order placement in auctions and
predict price movements.\1678\
---------------------------------------------------------------------------

    \1674\ See supra note 466 for staff analysis; see also Proposing
Release, 85 FR at Section III.C.3(c) and n. 348. Commenters agreed
that an increase in the portion of total trading volume executed in
opening and closing auctions makes them important liquidity events.
See, e.g., Cboe Letter at 21; Clearpool Letter at 15; MEMX Letter at
5-6; IEX Letter at 6; Fidelity Letter at 5; Schwab Letter at 5; ACS
Execution Services Letter at 2; Angel Letter at 8; Data Boiler
Letter I at 31. A number of commenters attributed the growth in
auction volume to the increase in passive investing. See, e.g.,
Schwab Letter at 5 (``The growth of passive investing and exchange-
traded funds (ETF) has contributed to the growth in auctions
relative to other trading.''); SIFMA Letter at 5. See also Proposing
Release, 85 FR at 16735.
    \1675\ Commenters agreed with this assessment. See, e.g.,
Clearpool Letter at 15; MEMX Letter at 5-6.
    \1676\ See ICI Letter at 9.
    \1677\ See Clearpool Letter at 15.
    \1678\ See, e.g., ICI Letter at 9 (``Auction information, which
includes imbalance levels between buy and sell orders, allows funds
to decide whether to participate, and if so, to determine direction,
order size and timing.''); BlackRock Letter at 2 (``Auction
information telegraphs the direction and magnitude of price moves at
the end of the day.''); MEMX Letter at 6.
---------------------------------------------------------------------------

    Today, some NYSE auction data, such as pre-opening
indicators,\1679\ are disseminated through the CTA/CQ SIP, and no
auction information generated by the other primary listing exchanges is
distributed through the exclusive SIPs, except very limited LULD
information related to auction collar messages.\1680\ Thus while the
exchanges' proprietary data includes detailed information on several
aspects of their auctions, only a small subset of the auction-related
information is included in SIP data.\1681\
---------------------------------------------------------------------------

    \1679\ See NYSE Rule 15.
    \1680\ See Proposing Release, 85 FR at n. 333; see also UTP
Plan, UTP Participant Input Specification (Dec. 3, 2019), available
at http://www.utpplan.com/DOC/UtpBinaryInputSpec.pdf.
    \1681\ See, e.g., NYSE, TAQ NYSE Order Imbalance--Quick
Reference Card, available at https://www.nyse.com/publicdocs/nyse/data/TAQ_NYSE_Order_Imbalance_QRC.pdf (last accessed Jan. 8, 2020).
---------------------------------------------------------------------------

    While all listing exchanges make auction information available to
market participants through proprietary data feeds, only some exchanges
offer this information through specialized feeds for a lower price than
full DOB products. For instance, NYSE Order Imbalances is an example of
such a proprietary auction data product offered by NYSE,\1682\ while
Nasdaq does not offer such a specialized product.\1683\
---------------------------------------------------------------------------

    \1682\ See NYSE, Real-Time Data Imbalances, available at https://www.nyse.com/market-data/real-time/imbalances (last accessed Jan.
8, 2020) (describing the NYSE Order Imbalances product).
    \1683\ The Nasdaq Net Order Imbalance Indicator is a feature of
Nasdaq's BookViewer proprietary data feed product rather than a
stand-alone product. See Nasdaq, Net Order Imbalance Indicator,
available at https://data.nasdaq.com/NOII.aspx (last accessed Jan.
8, 2020).
---------------------------------------------------------------------------

    One commenter observed another gap in information between the
exclusive SIPs and proprietary market data. This commenter observed
that when market-wide circuit breakers tripped, proprietary feeds
continued to disseminate information, such as information on quotes,
during the halt while the exclusive SIPs provided updates that were not
in real-time.\1684\
---------------------------------------------------------------------------

    \1684\ See T. Rowe Price Letter at 2.
---------------------------------------------------------------------------

    Currently, the gap in information between data in the exclusive SIP
and proprietary DOB products may limit the current level of price
efficiency if market participants with access to proprietary DOB
products do not incorporate this information into prices observed by
exclusive SIP subscribers quickly enough through their trading or
quoting activity.\1685\ However, the Commission does not know the
extent of this possible effect because it does not know how quickly
market participants that subscribe to proprietary DOB products
incorporate the information contained in these feeds into the
information contained in the exclusive SIP.
---------------------------------------------------------------------------

    \1685\ For example, price efficiency may be limited if there is
a delay in incorporating imbalance information observed in
proprietary DOB feeds into the quote and trade prices shown by the
exclusive SIP. See infra Section V.D.1. Price efficiency is greater
when prices reflect current information faster.
---------------------------------------------------------------------------

(b) Current Process for Dissemination of SIP Data and Proprietary Data
Feeds
    Today, SIP data is disseminated to investors and market
participants through a centralized consolidation model with an
exclusive SIP for each NMS stock, centrally collecting market data
transmitted from the dispersed SRO data centers and then redistributing
the consolidated market data to market participants who are often in
different locations.\1686\ The SROs typically transmit their market
data through fiber optic cables to the SIPs.\1687\
---------------------------------------------------------------------------

    \1686\ See Proposing Release, 85 FR at Sections I, II.A; see
also DOJ Letter at 2.
    \1687\ See Proposing Release, 85 FR at Section II.A.
---------------------------------------------------------------------------

    Typically, proprietary data is transmitted directly from each
exchange to the data center of the subscriber and does not first travel
to a centralized consolidation location. Furthermore, unlike the
standardized transmission of SIP data over fiber optic cable,
proprietary data is frequently transmitted using low-latency wireless
connectivity (e.g., microwave signals) or other forms of connectivity
(often provided by the exchanges) that are faster than fiber.\1688\ As
stated by one commenter, data transmission via microwave signals is
much faster than via fiber optic cables, because ``microwave signals
travel at the speed of light through air, rather than over fiber, which
can attenuate signals.'' \1689\
---------------------------------------------------------------------------

    \1688\ Id.
    \1689\ See Data Boiler Letter I at 39.
---------------------------------------------------------------------------

    There is a significant latency differential between SIP data and
the proprietary market data products that are delivered directly to
market participants or to market data aggregators who generally have
better connectivity, communications, and aggregation technology than
the SIPs.\1690\ Specifically, the centralized consolidation model has
three sources of latency: (a) Geographic latency; (b) aggregation or
consolidation latency; and (c) transmission or communication latency.
The latency differentials between SIP data and proprietary data, are
meaningful, and market participants believe these differentials impact
their

ability to trade and their order execution quality.\1691\
---------------------------------------------------------------------------

    \1690\ See supra note 397; see also Robert P. Bartlett, III and
Justin McCrary, How Rigged Are Stock Markets? Evidence from
Microsecond Timestamps at 45 (2017), available at https://www.law.berkeley.edu/wp-content/uploads/2019/10/bartlett_mccrary_latency2017.pdf (``[O]ur analysis suggests SIP
reporting latencies generate remarkably little scope for exploiting
the informational asymmetries available to subscribers to exchanges'
direct data fees.'').
    \1691\ See Proposing Release, 85 FR at n. 412 and accompanying
text; Martin Scholtus et al., Speed, Algorithmic Trading, and Market
Quality around Macroeconomic News Announcements, 38 J. Banking &
Fin. 89 (2014) (``This paper documents that speed is crucially
important for high-frequency trading strategies based on U.S.
macroeconomic news releases. Using order-level data on the highly
liquid S&P 500 ETF traded on Nasdaq from January 6, 2009, to
December 12, 2011, we find that a delay of 300 ms or more
significantly reduces returns of news-based trading strategies.'');
Grace Hu et al., Early peek advantage? Efficient price discovery
with tiered information disclosure, 126 J. Fin. Econ. 399 (2017)
(``Calibrating the speed of price discovery at a finer scale, we
find that the first 200 milliseconds at 9:54:58 accounts for 89% of
the one-second return at 9:54:58 on negative news days, and 85% of
the one-second return at 9:54:58 on positives news days. In other
words, most of the price discovery happens during the first 200
milliseconds, faster than the blink of an eye.''); Tarun Chordia et
al., Low Latency Trading on Macroeconomic Announcements, 31 Rev.
Fin. Stud. 4650 (2018) (``Specifically, trading in the direction of
the announcement surprise results in average dollar profits (across
market participants) of $19,000 per event for SPY and roughly
$50,000 per event for ES. This translates to roughly $15 million in
cumulative profits on average each year, which is trivial relative
to about $4.7 trillion traded in SPY and $35.8 trillion notional
value traded in ES in 2012. The $15 million is also trivial compared
with the cost of price discovery in U.S. markets, which at 0.67% of
the market capitalization (French 2008) amounted to roughly $100
billion in 2006.'').
---------------------------------------------------------------------------

    Geographic latency refers to the time it takes for data to travel
from one physical location to another. Greater distances usually equate
to greater geographic latency, though geographic latency is also
affected by the mode of data transmission. The Commission understands
that geographic latency is typically the most significant component of
the additional latency that SIP data feeds experience compared to
proprietary data feeds.\1692\ The record in this rulemaking suggests
that the geographic latency of SIP data may be up to a
millisecond.\1693\
---------------------------------------------------------------------------

    \1692\ See Proposing Release, 85 FR at Section IV.A. The hub-
and-spoke model of the exclusive SIPs exacerbates this geographic
latency. See supra note 676. See also MEMX Letter at 6.
    \1693\ See Proposing Release, 85 FR at n. 396.
---------------------------------------------------------------------------

    Aggregation or consolidation latency refers to the amount of time
an exclusive SIP takes to aggregate the multiple sources of SRO market
data into SIP data and includes the time it takes to calculate the
NBBO. This latency reflects the time interval between when an exclusive
SIP receives data from an SRO and when it disseminates consolidated
data to the end-user. Even though in recent years the exclusive SIPs
made improvements to address aggregation latency, the proposal stated
that the related latency differential remains; as mentioned above, in
the second quarter of 2019, for Tapes A and B average quote feed and
average trade feed aggregation latencies were 69 and 139 microseconds,
respectively.\1694\ In the same time period, the Tape C aggregation
latency was an average of 16.9 microseconds for quotes and 17.5
microseconds for trades.\1695\ Notably, these latency differentials
remain even though the Equity Data Plans' Operating Committees have
made some improvements to certain aspects of the exclusive SIPs and
related infrastructure, including improvements to address aggregation
latency.\1696\
---------------------------------------------------------------------------

    \1694\ See Proposing Release, 85 FR at Section IV.A.
    \1695\ Id.
    \1696\ See Proposing Release, 85 FR at Section IV.A.
---------------------------------------------------------------------------

    One commenter pointed out that the CTA SIP has implemented
improvements to its processing, which at the time that the commenter
expected to bring the aggregation time down to ``under 20
microseconds.'' \1697\ While these improvements will likely reduce the
aggregation latency of the CTA SIP, 20 microseconds of aggregation
latency will continue to be meaningfully slower than current market
practice in the aggregation of proprietary data feeds, and only about
as fast as the UTP SIP is currently.
---------------------------------------------------------------------------

    \1697\ See NYSE Letter II at 10, 11.
---------------------------------------------------------------------------

    Transmission latency refers to the time interval between when data
is sent (e.g., from an exchange) and when it is received (e.g., at an
exclusive SIP and/or at the data center of the subscriber), and the
transmission latency between two fixed points is determined by the
transmission communications technology through which the data is
conveyed. Transmission latency also varies depending on the geographic
distance between where the data is sent and where it is received. There
are several options currently used for transmitting market data, such
as fiber optics, which typically are used by the exclusive SIPs for
receipt and dissemination of SIP data, and wireless microwave
connections, which the exchanges offer as an alternative for their
proprietary data feeds but not for SIP data.\1698\ Fiber optics are
generally more reliable than wireless networks since the data signal is
less affected by weather. The modes of transmission for SIP data are
typically slower than the modes of transmission used for proprietary
data. In the Proposing Release, the Commission stated that each of the
CTA/CQ Plan participants must transmit its data through connectivity
options that have a round-trip latency of at least 280
microseconds.\1699\ One of the commenters said that ``[i]n 2019, the
SIP Operating Committee authorized two improvements to the CTA SIP''
and that this change ``will reduce what the Commission refers to as CTA
SIP data `transmission' latency, i.e., the time interval between when
the data is sent and when it is received, by over 140 microseconds.''
\1700\
---------------------------------------------------------------------------

    \1698\ Id.
    \1699\ See Proposing Release, 85 FR at n. 410.
    \1700\ NYSE Letter II at 10-11.
---------------------------------------------------------------------------

    The Commission believes that the benefits of greater speed on the
timescales at which the market currently measures latency have mostly
to do with being faster than one's competitors. In some situations
small latency differentials that leave enough time for certain market
participants to observe and react to information before other, slower
market participants can be as costly to slower market participants as
larger latency differentials.\1701\ For example, a market participant
may use market data to anticipate price movements and then place limit
orders ahead of the price movement. In doing so, the market participant
will end up in a queue of limit orders placed in the book, in order of
time priority. If other market participants react the same way, then
this market participant's quote will be behind the quotes in the queue
of those who reacted faster. If the market participant increases its
reaction time but still does not end up faster than the trader who
placed the order directly in front of it in the queue, then the market
participant's quote will have the exact same priority that it had at
the slower reaction time.
---------------------------------------------------------------------------

    \1701\ Academic literature examines the effects of trading speed
on revenues, adverse selection, and liquidity. See, e.g., Matthew
Baron et al., Risk and Return in High-Frequency Trading, 54 J. Fin.
& Quantitative Analysis 993 (2019) (testing the connection between
high frequency trading (``HFT'') latency and trading performance;
the authors find that relative latency matters and that ``HFT firms
exhibit large, persistent cross-sectional differences in
performance, with trading revenues disproportionally accumulating to
a few firms.'' Furthermore, when HFT firms use their relative
latency advantages to trade on news to create short-term arbitrage
opportunities, they generate adverse selection on slower traders.);
Bruno Biais et al., Equilibrium fast trading, 116 J. Fin. Econ. 292
(2015) (arguing that fast trading technology ``provides advance
access to value-relevant information, which creates adverse
selection, lowering welfare,'' and ``generates a negative
externality''); Thierry Foucault et al., Toxic Arbitrage, 30 Rev.
Fin. Stud. 1053 (2017) (providing evidence that ``[a]rbitrage
opportunities due to asynchronicities in the adjustment of prices to
news are toxic because they expose dealers to the risk of trading
with arbitrageurs at stale quotes.'' The authors then claim that
these toxic arbitrage opportunities that come with higher trading
speed impair market liquidity.).
---------------------------------------------------------------------------

    Currently, some market participants obtain proprietary data feeds
from many SROs.\1702\ Of these market participants, some prefer to have
consolidated

proprietary data. There are two ways these market participants can
obtain consolidated data. First, market participants may independently
create consolidated data by purchasing individual exchange proprietary
market data products and consolidating that information for their own
use.
---------------------------------------------------------------------------

    \1702\ The exchanges, as a subset of SROs, sell proprietary data
feeds to market participants.
---------------------------------------------------------------------------

    Second, market participants may obtain consolidated data from
market data aggregators, which are mostly firms that purchase direct
access to exchange data,\1703\ consolidate the data, and disseminate
the data (after various levels of processing) to market
participants.\1704\ Additionally, some market data aggregators do not
purchase direct access to exchanges. Instead, they provide hardware and
software for market data aggregation to the parties that have
contractual relationships to purchase or license the market data
enabling market participants to outsource the significant hardware,
software, and personnel expertise that is required to consolidate the
proprietary feeds directly. Many of the most sophisticated market
participants in the market use these products, and despite the fact
that they create an additional chain link between market participants
and proprietary feeds, the Commission believes that these firms
generally deliver data to market participants faster than the exclusive
SIPs.\1705\
---------------------------------------------------------------------------

    \1703\ As mentioned below, even when obtaining consolidated
market data from market data aggregators, market participants also
have to pay data fees directly to the exchanges. See infra Section
V.B.2(c).
    \1704\ Market participants who consolidate market data
independently may use other market data aggregators' products and
services such as software.
    \1705\ See, e.g., Roundtable Day One Transcript at 128-29 (Mark
Skalabrin, Redline Trading Solutions).
---------------------------------------------------------------------------

    Market participants who subscribe to SIP data also have two
different ways of obtaining their data. They can either directly get
SIP data feeds from the exclusive SIPs or, as stated by a
commenter,\1706\ they can get SIP data from a third party aggregator in
a normalized form.\1707\ The least latency sensitive market
participants are the most likely to receive SIP data in this normalized
form.
---------------------------------------------------------------------------

    \1706\ BestEx Research Letter at 8.
    \1707\ Companies that normalize market data take in raw data
delivered in a variety of protocols and, using feed handlers,
normalize it into a single protocol different from the one used by
the original venue. This way a data user can receive one feed using
one streaming protocol. See Vela's Definitive Guide to Market Data,
available at https://info.tradevela.com/definitive-guide-to-market-data#normalisation.
---------------------------------------------------------------------------

    Some commenters stated that the need for backup data feeds is an
important cost in obtaining access to market data.\1708\ The Commission
believes that today, many market participants use the exclusive SIPs as
a backup, and maintain a subscription to the exclusive SIP feeds
despite using proprietary data for trading decisions partly for this
reason. The exclusive SIPs themselves maintain a geographically diverse
backup system consistent with Regulation SCI. One participant in the
Market Data Roundtable stated that the exclusive SIPs are ``expensive
for a backup feed.'' \1709\
---------------------------------------------------------------------------

    \1708\ See, e.g., Angel Letter at 20; NYSE Letter II at 24;
FINRA Letter at 4.
    \1709\ Roundtable Day One Transcript at 140 (Mark Skalabrin,
Redline Trading Solutions).
---------------------------------------------------------------------------

(c) Current State of Utilization of Market Data
    One commenter stated that the introduction of different levels of
quality in core data consolidation and dissemination would introduce
new ``tiers'' into the market beyond the two tiers of those who use
proprietary DOB feeds and those who do not.\1710\ The Commission does
not believe that differing tiers of market data access sophistication
and technology represent changes to the market, given current market
practice. Market participants have different levels of sophistication
in receiving and processing real time market data, because of
differences in the cost of maintaining data processing systems and in
the data needs of various trading and investment strategies. More
sophisticated firms use advanced data access methods and technologies,
and generally seek to reduce latency and improve the way in which the
data can be used. Other market participants trade latency for lower
costs, and this has resulted in a continuum of different levels of
latency and processing quality in the market.
---------------------------------------------------------------------------

    \1710\ See, e.g., Nasdaq Letter IV at 8.
---------------------------------------------------------------------------

    The most competitive executing broker-dealers, market makers, and
traders using highly latency sensitive strategies define market
practice at the highest-cost, lowest-latency end of the continuum.
These market participants typically invest significantly more resources
in reducing latency and increasing processing speed than any other kind
of market participant. This group typically purchases co-location
services at all major data centers, along with the highest capacity
connectivity services and the most raw and unprocessed exchange
proprietary data feeds.\1711\ Many market participants in this group
maintain their competitive advantage by performing all major steps
related to data connection and processing within their own business.
That is, they arrange connectivity, software, hardware, and
transmission necessary to receive and process market data on their own
without employing the services of outside vendors. As a result, there
are highly significant technological, infrastructure, and personnel
costs to building and maintaining such a system for data
processing.\1712\ Therefore, the Commission believes that there are
relatively few market data users at this level.\1713\
---------------------------------------------------------------------------

    \1711\ For example, NYSE describes their order-by-order message
feed, NYSE Integrate Feed, as a ``high-performance product.'' See
https://www.nyse.com/market-data/real-time/integrated-feed (last
accessed Sept. 21, 2020).
    \1712\ As an example of such costs, see What Types of Financial
Market Data Providers Are There?, Exegy Blog, available at https://www.exegy.com/2019/07/types-financial-market-data-providers/ (last
accessed Sept. 21, 2020), stating that ``[e]xchanges are the most
expensive provider option,'' because data directly from the exchange
comes raw and in whatever format the exchange uses, and this leaves
the end user of the data with the task of ``maintaining,
transporting and processing the data.'' Because firms that are the
most sophisticated users of market data consume data directly from
the exchange, these are costs they incur.
    \1713\ The market participants at this level are a subset of all
market participants using proprietary data (see supra Section
V.B.2(a)). Much of the text discusses market participants who use
proprietary data feeds; the different levels on the continuum
consist of differences in how those feeds are used even within the
set of market participants who use proprietary data.
---------------------------------------------------------------------------

    Market participants that seek to reduce the costs of maintaining
this high level of capability in market data access make a variety of
cost saving adjustments. For example, market participants may decide to
employ vendors to assist in the most difficult or sophisticated aspects
of the process, such as microwave transmission and hardware. These
market participants may also use software vendors to aggregate
proprietary data, and may also employ vendors to assist in connecting
to the data feeds. While using such vendors can reduce cost, this can
sometimes come at the expense of adding latency.\1714\ This can happen
because market participants may base their competitive advantage on the
development of technology, which might be superior to what is available
from vendors, or because the level of customizability and
specialization to the specific use case available from third-party
vendors is reduced, compared to developing these technologies ``in-
house.''
---------------------------------------------------------------------------

    \1714\ See Vela, supra note 1707, stating that the use of ``. .
. normalized feed of data from a vendor, however, can add latency,
which may make it less suitable for latency-sensitive applications .
. .''

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

    Further cost-savings are possible by not purchasing co-location
services at all major exchanges, and increasing the number of data
access functions outsourced. Some market participants may obtain their
entire market data feed from a third-party aggregator in the form of a
pre-aggregate feed, saving money but surrendering significant ability
customize the data feed.\1715\ Additionally, some market participants
may use the exclusive SIPs instead of proprietary feeds for some use
cases. For example, proprietary feeds might only be used for actual
order routing decisions, while the exclusive SIPs are used to fill
other data needs. Because of the substantial difference in price
between exclusive SIP and proprietary feeds, this method may represent
a substantial cost savings.\1716\ While the benefits of speed and
quality of processing may be diminished for those market participants
utilizing these more low-cost options, there continue to be trading and
order routing strategies for which these approaches are sufficient.
However, as acknowledged elsewhere,\1717\ execution using these data
aggregation methods may experience higher execution costs on average.
---------------------------------------------------------------------------

    \1715\ See Exegy blog, supra note 1712, describing the
affordability of API data feed options and the possibility that
customization is reduced relative to less processed options. See
also NBIM Letter at 4, stating that broker-dealers who do not
perform the aggregation ``in-house'' will not be ``consistently
competitive.'' This commenter also states that ``[t]his does not
preclude using third-party technology to do the data aggregation, as
long as it is done in-house to avoid incremental latency.''
    \1716\ For a discussion of the differences in price between
exclusive SIPs and proprietary feeds, see supra Section V.B.2(c).
    \1717\ See infra Section V.B.3(e).
---------------------------------------------------------------------------

    One commenter argued that the exclusive SIP feeds could not be used
to route orders electronically, stating that ``[d]ue to its limited
content and higher latency, the usage of SIP data is adequate only for
investors that visually consume NMS information (e.g., humans looking
at quotes on a screen).'' \1718\ While the Commission agrees that many
users of display feeds use the exclusive SIPs (as discussed in the text
below), the Commission believes that there are likely a few non-display
users of the exclusive SIP data who route orders based on exclusive SIP
feeds as well.\1719\
---------------------------------------------------------------------------

    \1718\ See T. Rowe Price Letter at 1.
    \1719\ For example, one commenter suggested that exclusive SIP
feeds play an important role in the activities of some broker-
dealers. See Bestex Research Letter at 3.
---------------------------------------------------------------------------

    At the bottom of the continuum are those market participants for
which latency sensitivity is not an issue. These include market
participants that use human traders who obtain market data through
display feeds, and retail investors.\1720\ Such market participants
frequently outsource the entire data aggregation and dissemination
process, including the production of the visual display, to third-party
vendors. These market participants also often rely on the exclusive SIP
feeds or TOB feeds instead of the DOB feeds. Since latency sensitivity
is not an issue, the primary benefit for this type of user of DOB feeds
as compared to SIP or TOB feeds is the additional available data.
Because of the challenges in obtaining high execution quality using
only display feeds and per quote feeds,\1721\ many market participants
in this last level route their orders to a broker-dealer at a higher
level of capability in market data access for execution. Market
participants who engage in this type of behavior include investment
funds and retail investors. Sometimes broker-dealers working on behalf
of clients route orders to a different broker for execution.
---------------------------------------------------------------------------

    \1720\ One commenter stated that the exclusive SIPs are ``. . .
the primary feed for retail investors.'' See Schwab Letter at 2.
    \1721\ See infra Section V.B.3(e) for a discussion of the need
for sophisticated use of market data to achieve high quality
execution.
---------------------------------------------------------------------------

    One commenter stated ``. . . the Commission fails to consider that
proprietary market data is neither necessary nor relevant to the
business models and trading or investment strategies of many, if not
most, ordinary investors and market participants.'' \1722\ While the
Commission acknowledges that this final tier of consumers of market
data, which includes most retail investors, might currently rely solely
on the SIPs for their own use (and this use might include visual
display), the Commission disagrees that proprietary data does not
matter to most market participants. The Commission continues to believe
that the market participants described as using proprietary data feeds
in this section do indeed need those feeds to be competitive with their
peers \1723\ and that these participants represent a significant
segment of the market.\1724\ Many market participants, in routing
orders to the exchanges, rely on the more sophisticated users of market
data to execute orders on their behalf. In other words, while not every
individual market participant uses proprietary data feeds, nearly all
orders entered into the National Market System, including retail
orders, touch a component (typically the order router of the executing
broker) that uses proprietary data in order to reduce execution costs
and improve execution quality. The Commission therefore disagrees with
this comment that proprietary data is not relevant to the business
models of most market participants because the systems by which a broad
range of market participants access exchange trading (namely, the
network of brokers through which orders are routed) find proprietary
data feeds, including their content and speed, relevant to their
business models.
---------------------------------------------------------------------------

    \1722\ Nasdaq Letter IV at 8.
    \1723\ For additional details on the uses of proprietary data to
be competitive, see infra Section V.B.3(e).
    \1724\ While these market participants are less numerous than,
for example, retail investors, this does not mean that their role in
the market is less significant. For additional insight on this
point, see note 1794, which discusses Commission analysis that
showed that 91.6% of the message volume on exchanges in a sample
week came from just 50 firms. Each of these firms maintained a
connection to at least all but one exchange of the 11 exchanges in
the sample, which correlates with a relatively high level of
sophistication in trading. The fact that the percentage of orders
that comes from these firms is so high indicates their significance.
---------------------------------------------------------------------------

(d) Current Costs of Generating SIP Data and Proprietary Data Feeds
    As mentioned above,\1725\ currently the exclusive SIPs consolidate
and disseminate SIP data to market participants. The data fees that
exclusive SIPs charge to market participants for obtaining SIP data are
set by the Operating Committees of the Equity Data Plans, subject to
notice and comment, and Commission approval. A portion of the SIP data
revenues is used to pay for the cost of maintaining and administering
the exclusive SIP,\1726\ and the remaining funds are distributed to the
SRO members proportionately to their trading and quoting
activity.\1727\ In the case of the UTP SIP, there is an additional
FINRA cost for the oversight of the OTC markets that is also taken out
of the exclusive SIP's revenues before distributing funds to the plan
participants.
---------------------------------------------------------------------------

    \1725\ See supra Section V.B.1.
    \1726\ Once an exclusive SIP is selected, upgrades to that
processor's SIP infrastructure are mandated and funded by the
Operating Committee of the relevant Equity Data Plan. This comes out
of SIP revenues distributed to the SROs.
    \1727\ The market data revenue allocation formula is summarized
at, e.g., UTP Plan, Summary of Market Data Revenue Allocation
Formula, available at http://www.utpplan.com/DOC/Revenue_Allocation_Formula.pdf (last accessed Jan. 8, 2020). FINRA
rebates a portion of the SIP revenue it receives back to broker-
dealer internalizers and ATSs based on the trade volume they report.
See FINRA Rule 7610B. One Roundtable commenter estimated that from
2013 to 2017, through the Nasdaq/UTP plan, the FINRA/Nasdaq TRF gave
83 percent of SIP revenue it received to broker-dealers. See Letter
from Thomas Wittman, Executive Vice President, Head of Global
Trading and Market Services and CEO, Nasdaq Stock Exchange, to Brent
J. Fields, Secretary, Commission, at 19 (Oct. 25, 2018).

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

    Exclusive SIP revenues from data fees totaled more than $430
million in 2017.\1728\ There are three broad categories of SIP data
fees: Access fees, content fees, and distribution/redistribution
fees.\1729\ An access fee is a flat monthly fee for physical
connectivity to SIP data and does not depend on the type of market
participant (e.g., market data vendor vs. institutional broker).
---------------------------------------------------------------------------

    \1728\ See Governance Order, supra note 1128.
    \1729\ See, e.g., CTA Plan, Q2 2020 CTA Quarterly Revenue
Disclosure, available at https://www.ctaplan.com/publicdocs/ctaplan/CTA_Quarterly_Revenue_Disclosure_2Q2020.pdf; Nasdaq UTP Plan, Q2
2020 UTP Quarterly Revenue Disclosure, available at https://www.utpplan.com/DOC/UTP_Revenue_Disclosure_Q22020.pdf; see also
Letter from Charles M. Jones, Robert W. Lear Professor of Finance
and Economics, Columbia Business School, to Brent J. Fields,
Secretary, Commission, 15-16 (Oct. 21, 2018) (``Jones Letter'').
---------------------------------------------------------------------------

    There are three categories of content fees that depend on how
market participants access SIP data. First, if SIP data is displayed
for market participants on computer screens or other devices, the
market participant is charged a display fee (a professional or a non-
professional subscriber fee depending on the type of market
participant). These fees can be per screen displaying the data, per
user as part of the multi instance single user (MISU) program, and per
application where multiple applications can run on one screen. Second,
if SIP data is not displayed on computer screens and instead is
directly sent to an automated system such as a trading algorithm or a
SOR, then the market participant is charged a non-display fee. Display
and non-display fees are monthly fees and entitle the subscriber to an
unlimited amount of real-time market information during the month. In
2018, around 65% to 75% of total SIP revenue was accounted for by
professional and non-professional display fees, and around 8% to 13% of
revenue was accounted for by non-display fees.\1730\ A third type of
content fee is the query quote fee, which are fees collected from
market participants accessing SIP data on a per quote basis. Under the
per-query fee structure, subscribers are required to pay an amount for
each request for a packet of real-time market information. Around 4% to
10% of total SIP revenue is accounted for by quote query fees in
2018.\1731\ Finally, exclusive SIPs charge distribution/redistribution
fees when the market data is delivered to a user other than the initial
purchaser.
---------------------------------------------------------------------------

    \1730\ Id.
    \1731\ Id.
---------------------------------------------------------------------------

    Based on the exclusive SIPs' public disclosures, as of fourth
quarter of 2018 there were approximately 2-3 million non-professional
subscription use cases and approximately 0.3 million professional
subscription use cases across the UTP and CTA/CQ SIPs. Additionally,
there were approximately 300 non-display vendor use cases at each of
the exclusive SIPs.\1732\ The Nasdaq UTP SIP operating expenses totaled
around $7 million in 2017.\1733\ The CTA/CQ SIP operating expenses
totaled around $8.8 million in 2018.
---------------------------------------------------------------------------

    \1732\ See supra note 1638.
    \1733\ Operating expenses for the Nasdaq UTP Plan represent
support costs, paid to the SIP, and are a pre-determined amount
agreed upon by the Nasdaq UTP Plan's SRO participants. The Nasdaq
UTP SIP costs do not include the costs of the exchanges generating
the data they send to the Nasdaq UTP SIP. The UTP Plan also incurs
administrative costs and other miscellaneous expenses, which
together totaled around $3.6 million.
---------------------------------------------------------------------------

    There is a substantial difference between the fees market
participants pay for SIP data and the fees they pay for proprietary DOB
data products. For instance, monthly non-display fees for data (not
including connectivity fees) charged by the CTA/CQ SIP is $2,000 for
Network A and $1,000 for Network B,\1734\ while monthly non-display
fees charged by NYSE for its NYSE Integrated Feed (not including
connectivity fees) is $20,000,\1735\ which is an order of magnitude
larger than the SIP data fee.\1736\ Additionally, proprietary data feed
fees have increased over the past decade. For instance, SIFMA estimates
that between 2010 and 2018 data fees charged by some exchanges went up
by three orders of magnitude or more.\1737\ In comparison, SIP data
fees went up by 5% during the same time period.\1738\ Based on
Commission staff experience, the Commission understands that the number
of subscribers to proprietary market data is relatively small.\1739\
The Commission understands that the number of subscribers of
proprietary market data and proprietary market data revenues vary
across exchanges and that some exchanges obtain a larger percentage
than other exchanges of their total market data revenue from
proprietary data products (as opposed to revenue from SIP data
products). For example, the Commission estimates that in 2018, NYSE
collected approximately 5% of its net revenues from selling proprietary
market data products. On the other hand, according to the Commission's
estimates, Cboe BYX collected approximately 9% of its revenues from
selling proprietary market data products.\1740\
---------------------------------------------------------------------------

    \1734\ See CTA Plan, Schedule of Market Data Charges (Jan. 1,
2015), available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Schedule%20Of%20Market%20Data%20Charges%20-%20January%201,%202015.pdf.
    \1735\ See NYSE Proprietary Data Products, Market Data Pricing
(Oct. 16, 2020), at 3, available at https://www.nyse.com/publicdocs/nyse/data/NYSE_Market_Data_Pricing.pdf.
    \1736\ While all of the fees are for non-display purposes, the
data content in the CTA/CQ SIP data is different from the NYSE
Integrated Feed. The NYSE Integrated Feed is a full DOB feed and
provides an order-by-order view of events in the NYSE equities
market, whereas the CTA/CQ non-display feed provides consolidated
SIP data for Tape A and Tape B securities. See supra Section
V.B.2(a) (discussing the difference in content between SIP data and
proprietary DOB feeds). See also NYSE, Real-Time Integrated Feed,
available at https://www.nyse.com/market-data/real-time/integrated-feed (last accessed Nov. 23, 2020); CTA, Consolidated Tape
Association, available at https://www.ctaplan.com/index (last
accessed Nov. 23, 2020).
    \1737\ See SIFMA Letter 2018.
    \1738\ SIFMA's study submitted in connection with the Roundtable
contained analysis examining the change in fees that some broker-
dealers paid for CTA SIP data between 2010 and 2018. The analysis
showed that CTA SIP fees for most categories of data increased by an
average of 5% between 2010 and 2018. However, the change in the
total amount each broker-dealer spent on CTA SIP data varied based
on the type of broker-dealer. The analysis found that the average
amount of money spent on CTA SIP data by retail broker-dealers
declined by 4% between 2010 and 2017, but the average amount spent
by institutional broker-dealers increased by 7%. See id. at 21-28.
    \1739\ See Proposing Release, 85 FR at n. 140.
    \1740\ See infra Section V.B.2(e). The Commission estimates are
based on NYSE and Cboe BYX's Form 1 filings and UTP and CTA/CQ
revenue metrics. NYSE's Form 1 filings disclose $968 million as its
net revenues in 2018. NYSE's revenues from the SIP redistribution is
approximately $47 million. Note 2 to the exchange's financial
statements states that NYSE collects market data revenues from the
exclusive SIPs and ``to a lesser extent for (sic) New York Stock
Exchange proprietary data products,'' indicating that the
approximately $47 million in revenues from SIP data could be a
benchmark for their proprietary market data revenues. NYSE Form 1,
available at https://www.sec.gov/Archives/edgar/vprr/1900/19003689.pdf (last accessed Jan. 29, 2020). Similarly, Cboe BYX Form
1 filings report $58 million in net revenues. Of this $58 million,
$26 million were market data revenue--approximately $21 million from
SIP data revenues and $5 million from proprietary market data
revenues. Cboe BYX Form 1, available at https://www.sec.gov/Archives/edgar/vprr/1900/19003669.pdf (last accessed Jan. 29, 2020).
---------------------------------------------------------------------------

    As mentioned above,\1741\ market participants who purchase
proprietary data feeds from multiple SROs may choose to self-aggregate
multiple data feeds, or, alternatively, they can purchase already
consolidated data from market data aggregators. The exchanges charge a
data fee to any market participant that purchases exchanges' data from
market data aggregators.\1742\

Therefore, these fees are effectively a part of the total price that a
market participant must pay when purchasing data from a market data
aggregator. In some cases, these fees may be so high that some market
participants cannot afford to self-aggregate proprietary feeds from all
exchanges or purchase market data aggregator products.\1743\ The
Commission believes that more active market makers and some
sophisticated broker-dealers including a number of HFT firms and some
of the larger banks with proprietary data feed trading desks either
self-aggregate or purchase aggregation services or products from third-
party vendors.
---------------------------------------------------------------------------

    \1741\ See supra Section V.B.2(b).
    \1742\ Some exchanges charge redistribution fees or their
equivalents to market data aggregators and separately, one or more
data fees (based on different use cases such as professional or non-
professional, display or non-display) to market participants who
purchase the exchanges' data from market data aggregators. See Virtu
Letter I at 16-79 (Exhibit ``A,'' lists of data and connectivity
fees by several exchanges).
    \1743\ See, e.g., Roundtable Day One Transcript at 128-29 (Mark
Skalabrin, Redline Trading Solutions).
---------------------------------------------------------------------------

    The Commission understands that the data fees the exchanges charge
to market participants that purchase the exchanges' data from market
data aggregators may account for a significant portion of the total
price market participants pay for the market data aggregators' data
products. However, the Commission does not have information on the
pricing of market data aggregators' data and cannot break down market
data product prices between the direct data fees charged by the
exchanges and the fees charged by market data aggregators for their
services. The Commission stated this lack of information in the
Proposing Release and did not receive the information in the comment
letters.
    The exchanges also charge fees for various connectivity services
they offer (e.g., co-location, fiber connectivity, and wireless
connectivity). Connectivity services permit a customer to access an
exchange's proprietary market data and/or its trading and execution
systems as well as SIP data. The purchase and use of certain
connectivity services is necessary to directly access an exchange's
market data and to directly participate in that market, at least for
those market participants that represent the vast majority of trading
activity on exchanges. Additionally, these connectivity services may be
needed in order to take advantage of the reduced latencies offered by
the proprietary data feeds, including when market participants prefer
the contents of SIP data consolidated from the proprietary data feeds--
rather than delivered by an exclusive SIP--to avoid additional
latencies.
    Connectivity fees can be substantial. For instance, the annual
fiber connectivity fees per port at the exchanges' primary data centers
are $90,000 at Cboe, $120,000 at Nasdaq, and $168,000 at NYSE.\1744\
Co-location services may have two components: An initial fee and an
ongoing monthly fee based on the kilowatt (kW) usage. For example, at
NYSE, an initial fee for a dedicated high-density cabinet that consumes
9kW per month is $5,000, and an ongoing monthly fee per kW is
$1,050.\1745\ At Nasdaq, an initial fee is $3,500, and an ongoing
monthly fee is $4,500.\1746\ Thus, for a year of co-location in a
dedicated cabinet with 9kW power, these fees add up to over $118,000
for NYSE and over $57,000 for Nasdaq.
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    \1744\ See Letter from Brad Katsuyama, CEO, Investors Exchange
LLC, to Brent J. Fields, Secretary, Commission, at Table 7 (Jan. 29,
2019) (``Katsuyama Letter II'') (10Gb fiber connectivity).
    \1745\ See NYSE price list 2020, supra note 1434.
    \1746\ See Nasdaq, Price List--Trading Connectivity, available
at https://www.nasdaqtrader.com/Trader.aspx?id=PriceListTrading2
(last accessed Dec. 19, 2019).
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(e) Current Aggregate Exchange Revenues From Selling Market Data and
Connectivity
    The Commission estimates that in 2018 the exchanges earned a total
revenue of approximately $941 million from selling both proprietary and
SIP market data products and connectivity services in the equities
market. In addition, the Commission estimates that the exchanges earned
approximately $596 million of this $941 million revenue from selling
market data products and approximately $345 million of this revenue
from selling connectivity services. With respect to the revenue from
market data products, the Commission estimates that in 2018 the
exchanges earned approximately $327 million of the $596 million revenue
from equity SIP data and approximately $269 million from selling
proprietary data products. Further, approximately $63 million of the
$327 million equity SIP revenue in 2018 was distributed to FINRA.\1747\
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    \1747\ When taking this $63 million into account, total SIP
revenues shared by SROs were approximately $390 million in 2018,
which is consistent with the $430 million estimate for 2017 provided
in the Proposed Governance Order (which also included the amount
paid to the plan processor). See supra note 1728 and accompanying
text. This estimate is also consistent with the $387 million
estimate for 2017. See Jones Letter, supra note 1729 at 25.
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    The Commission's estimates above are mainly based on revenue
information that the exchanges filed as part of their Form 1
filings.\1748\ In addition, the Commission used SIP revenue information
disclosed by the CTA/CQ Plans and the Nasdaq UTP Plan in their
quarterly revenue disclosures.\1749\ Furthermore, because revenue
information provided by some exchanges in their Form 1 filings is not
sufficiently detailed for this calculation, the Commission had to make
certain assumptions in order to derive these estimates. First, the Form
1 filings for NYSE and NYSE MKT combine revenue from connectivity fees
with revenue from market data fees. For these exchanges, the Commission
derived the revenue earned from connectivity fees by assuming that the
revenue that these exchanges earn from proprietary data is slightly
smaller than the revenue that they earn from SIP data (based on notes
in their Form 1 filings that indicate that SIP revenue exceeds
proprietary data revenue). Second, the Form 1 filing for Nasdaq
combines revenue from connectivity fees with revenue from transaction
fees. The Commission derived the revenue that Nasdaq earned from
connectivity fees by assuming that Nasdaq's revenues from connectivity
fees and transaction fees were in the same proportion to one another as
NYSE's revenues from these two business lines. Third, Form 1 filings
for exchanges that offer trading in both equities and options provide
revenue information for these two asset classes combined. For these
exchanges, the Commission assumed that their combined revenues from
market data fees and connectivity fees in the equities market and in
the options market were in the same proportion to one another as the
market data and connectivity revenues that these exchanges would have
earned in each of these markets based on their dollar volume market
share (as compared to the dollar volume market share of the exchanges
that trade only equities or only options).
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    \1748\ See Commission, National Securities Exchange Periodic
Amendments to Form 1 (Modified June 20, 2019), available at https://www.sec.gov/rules/national-securities-exchanges-amendments.htm
(providing links to exchanges' Form 1 filings).
    \1749\ See supra note 1729.
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(f) Current State of National Best Bid or Offer Dissemination
    Some commenters characterized the current process for dissemination
of the NBBO as being based on a universally trusted source in the form
of the exclusive SIPs, upon which all market participants heavy
rely.\1750\ Commenters also suggested that the introduction of
``multiple NBBOs'' into the market would be a significant departure
from current market practice.\1751\ The Commission disagrees with this
characterization of the relevant baseline for the final amendments. As
mentioned

in the Proposing Release,\1752\ today, at any given instant of time,
there can be differences between various market participants in what
they observe to be the prevailing NBBO. These differences arise because
of the geographic dispersion of the exchange data centers and the
differences in latency between consolidated market feeds produced by
the SIPs and those produced through the use of proprietary data feeds.
Furthermore, the amount of time that typically elapses before the
differences are corrected is meaningful to market participants.
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    \1750\ See, e.g., Nasdaq Letter IV at 3.
    \1751\ See, e.g., Nasdaq Letter IV at 11; TD Ameritrade Letter
at 12.
    \1752\ See Proposing Release, 85 FR at 16845.
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    Geographic latency means that even if all market participants
relied on the exclusive SIPs, there would still be differences in what
market participants observed to be the prevailing quote. For example,
suppose the CTA/CQ SIP receives an update about the prevailing NBBO in
a given stock. That information must still be disseminated to the
various broker-dealers at the different data centers. At a minimum,
there will be broker-dealers located in Mahwah, Secaucus and Carteret
who will all be interested in seeing the new quote. The exclusive SIP
distributes the quote to each of the data centers at the same time, but
since these are in different locations, the quotes will arrive at
different times.\1753\ Therefore, as many as three different quotes for
the same stock could be observed to be the NBBO in that stock at these
three locations at a given instant in time, at least for market
participants who are latency-sensitive enough to detect such
differences.
---------------------------------------------------------------------------

    \1753\ While they will likely all arrive within roughly a
millisecond of each other, this is still a meaningful discrepancy in
today's markets.
---------------------------------------------------------------------------

    On top of this basic geographic latency source of differing NBBOs,
the latency differential that exists between NBBOs obtained from the
exclusive SIP and NBBOs produced by consolidating proprietary feeds
\1754\ further contributes to the discrepancies in market views
possessed by market participants.
---------------------------------------------------------------------------

    \1754\ See supra Section V.B.2(b) for a discussion of the types
of latencies.
---------------------------------------------------------------------------

    Market participants have adapted to this state of affairs. For
example, some of the concern in the market about obtaining fast market
data is directly connected to the existence of multiple NBBOs.\1755\
Market participants often use co-location in order to be closer to the
trading center and thereby receive updates with less delay than they
would experience if they were located elsewhere, in order to prevent
themselves from acting on stale NBBO quotes that may be different from
the NBBO prevailing at the trading center.\1756\ In addition, the
inspection and enforcement conducted by SROs with regard to best
execution obligations has evolved to consider this phenomenon.
Specifically, SRO inspections typically request data from a broker-
dealer in evaluating whether a violation has occurred.\1757\ Also, the
Commission has stated that for the Order Protection Rule a trading
center ``. . . will be assessed based on the times that orders and
quotations are received, and trades are executed, at that trading
center.'' \1758\ This statement reflects the fact that the inevitable
latency differential between two trading centers means that there may
be multiple NBBOs in the market depending on which trading center one
is at. Also, the lookback provision of Rule 611 \1759\ recognizes that
an observed NBBO may not be the current prevailing NBBO.\1760\ As
detailed above, the potential for multiple NBBOs has been understood
and dealt with for some time, and therefore should not be problematic
for market participants.
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    \1755\ See supra Section V.B.2(b) for discussion of the value of
speed in trading and data access. In that section, the Commission
discussed the value of being faster than one's competitors. One way
in which this is relevant is that if a competitor's order executes
against the NBBO before some other competitor, then the second
competitor's order will arrive at the trading center based on
information about the NBBO that is no longer true at the time that
the order arrives.
    \1756\ See MEMX Letter at 6 stating that because inherent
geographic differences ``. . . market participants may each have a
different view of market data and events based on where they are
located and the technologies and telecommunication techniques
used.''
    \1757\ See supra Section III.B.10(d). Also, FINRA Rule 4554
requires that ATSs report the NBBO in effect at the time of order
execution and the timestamp of when the ATS captured the effective
NBBO.
    \1758\ See Regulation NMS Adopting Release, 70 FR at 37523, note
215.
    \1759\ 17 CFR 242.611(b)(8) (Rule 611(b)(8)) provides a one-
second ``window'' prior to a transaction, which allows a trading
center to trade at any price equal to or better than the least
aggressive best bid or best offer displayed at another trading
center during the previous second.
    \1760\ See Regulation NMS Adopting Release, 70 FR at 37523.
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3. Competition Baseline
    This section discusses, as it relates to this rulemaking, the
current state of the market for core and SIP data products, the market
for proprietary data products, the market for connectivity services,
and the market for trading services as well as broker-dealers'
competitive strategies for trading services.
(a) Current Structure of Market for Core and SIP Data Products
    Under the Equity Data Plans, SIP data is collected, consolidated,
processed, and disseminated by the exclusive SIPs.\1761\ Equity Data
Plan Operating Committees, which are composed of the SROs, set the fees
the exclusive SIPs charge for SIP data.\1762\ Any revenue earned by the
exclusive SIPs, after deducting their operating costs and FINRA's OTC
oversight costs, is split among the SROs. FINRA rebates a portion of
the exclusive SIP revenue it receives back to broker-dealers based on
the trade volume it reports.\1763\ The nature of the Equity Data Plan
Operating Committee's responsibilities can create a conflict of
interest for the SROs, as discussed above.\1764\
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    \1761\ See Proposing Release, 85 FR at Section II.A, for
discussion of these issues in the Proposing Release.
    \1762\ See supra note 1726 and accompanying text.
    \1763\ See supra note 1727.
    \1764\ See supra Section V.A.2.
---------------------------------------------------------------------------

    Each Equity Data Plan selects a single exclusive SIP through a
bidding process to be the exclusive distributor of the plan's
data.\1765\ This grants the SIP a monopoly franchise in the
distribution of the plan's data, which means that the SIPs are not
subject to competitive forces that would produce more efficient
outcomes. The Commission acknowledges that some economic theory would
point to the opposite conclusion, but does not believe that it applies
here. In particular, a paper by Demsetz would predict that the current
monopolistic structure is most efficient.\1766\ In industries where
there are economies of scale, a monopoly franchise structure may lead
to the most efficient means of production. This profile applies to the
distribution of core data because of the high fixed costs.\1767\
Demsetz (1968) argues that just because an industry has a monopolistic
provider of a service does not mean that it is not subject to
competitive forces. In particular, Demsetz (1968) argues that if the
monopolistic provider of a service is subject to competition in the
bidding process it could provide sufficient competitive incentives to
achieve a competitive outcome. However, many theories provide examples
of situations in which the monopoly franchise structure is less
efficient than other structures.\1768\ The Commission does not believe
that the exclusive SIP bidding process provides sufficient

competitive incentives for two reasons. First, the bidding process
could be subject to conflicts of interest since some of the SROs voting
to select the exclusive SIP are also bidding to be the SIP. Second, the
contracts are not bid out regularly, so there may not be a significant
chance that the current exclusive SIP will be replaced. Therefore, the
Commission does not believe that the bidding process for exclusive SIPs
is likely to produce the most efficient outcome and subject the
exclusive SIPs to competitive forces.
---------------------------------------------------------------------------

    \1765\ See supra Section IV.A.
    \1766\ See Harold Demsetz, Why Regulate Utilities?, 11 J.L. &
Econ. 55 (1968) (``Demsetz (1968)'').
    \1767\ See infra note 1797 and accompanying text.
    \1768\ See, e.g., Oliver E. Williamson, Franchise Bidding for
Natural Monopolies--in General and with Respect to CATV, 7 Bell J.
Econ. 73 (1976) (discussing why bidding for monopolies may not work
well); Robin A. Prager, Firm behavior in franchise monopoly markets,
21 Rand J. Econ. 211 (1990).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission stated that historically
there were not a large number of bidders for SIP tenders, and listed
this as one of three reasons why the Commission does not believe that
the exclusive SIP bidding process provides sufficient competitive
incentives in the above discussion. Since then, the Commission has come
to understand that there were 11 bidders for the UTP tender offer in
2014.\1769\ Based on this new understanding, the Commission no longer
believes that the process bidding for SIP tenders may be hindered by
the number of bidders. However, the first two reasons discussed,
namely, conflicts of interest and lack of regular new bidding on the
contract, are sufficient reasons for the Commission to continue to
believe that the bidding process may not be adequately competitive.
Thus, the Commission continues to believe that the conclusions of
Demsetz (1968) do not apply in this case, as discussed above.
---------------------------------------------------------------------------

    \1769\ See UTP Operating Committee Selects Nasdaq as Processor
Announcement, Jordan & Jordan, available at, https://www.jandj.com/sites/default/files/library/UTP_SIP_Processor_Announced_2014.pdf.
---------------------------------------------------------------------------

    The exclusive SIPs have significant market power in the market for
core and aggregated market data products and are monopolistic providers
of certain information, which means that for all such products they
would have the market power to charge supracompetitive prices. Fees for
core data are paid by a wide range of market participants, including
investors, broker-dealers, data vendors, and others.
    One reason the exclusive SIPs have significant market power is
that, although some market data products are comparable to SIP data and
could be used by some core data subscribers as substitutes for SIP data
in certain situations, these products are not perfect substitutes and
are not viable substitutes across all use cases. For example, as
mentioned above, some market data aggregators buy direct depth of book
feeds from the exchanges and aggregate them to produce products similar
to SIP data.\1770\ However, these products do not provide market
information that is critical to some subscribers and only available
through the exclusive SIPs, such as LULD plan price bands and
administrative messages.\1771\ Additionally, some SROs offer TOB data
feeds, which may be considered by some to be viable substitutes for SIP
data for certain applications.\1772\ However, broker-dealers typically
rely on the SIP data to fulfill their obligations under Rule 603 of
Regulation NMS, i.e., the ``Vendor Display Rule,'' which requires a
broker-dealer to show a consolidated display of market data in a
context in which a trading or order routing decision can be
implemented.\1773\
---------------------------------------------------------------------------

    \1770\ The feeds produced by market data aggregators offer
additional features, such as lower latency, but usually cost more
than SIP data. See Roundtable Day One Transcript at 126-29 (Mark
Skalabrin, Redline Trading Solutions).
    \1771\ See Proposing Release, 85 FR at Sections III.D, III.E.
One commenter agreed, stating that because the exclusive SIPs are
the sole source of such messages, many market participants must
purchase both proprietary and exclusive SIP feeds. See MEMX Letter
at 3.
    \1772\ In the equity markets, the top of book feeds offered by