to integrate in the market. And not all of them use direct feeds.
And it was mentioned before that some people just don't buy the
direct feeds. Some people can do without it. And we deal with them
in that decision process. It's not a mystery why they don't use the
direct feeds; it's solely cost.'').
    \1937\ See infra Section V.C.2(b)(i) (discussing fees for
consolidated market data).
    \1938\ See infra Sections V.C.1(c)(i), V.C.1(c)(ii), and
V.C.1(c)(iii). Commenters agreed that core data that included odd-
lot information, auction information, and five levels of depth would
be useful to market participants. See, e.g., Better Markets Letter
at 3 (``These information taken together amount would fill a
significant gap that currently exists in the SIP data.''); ICI
Letter at 4; State Street Letter at 2-3.
    \1939\ See infra Section V.C.4(a). Commenters agreed that the
additional information contained in expanded core data would make
consolidated market data a viable alternative to proprietary DOB
feeds. See, e.g., SIFMA Letter at 7; T Rowe Price Letter at 2;
Clearpool Letter at 11.
    \1940\ See infra Section V.C.2(b)(ii).
    \1941\ See supra Sections II.A and II.C.2(a). See also infra
Sections V.C.1(c)(i), V.C.1(c)(ii), and V.C.1(c)(iii).
    \1942\ See infra Sections V.C.2(b), V.C.4(a).
---------------------------------------------------------------------------

    Because competing consolidators will not be required to offer a
consolidated market data product that contains all of the data elements
of consolidated market data,\1943\ there is a risk that a consolidated
market data product containing all of the data elements of expanded
core data will not be offered by any competing consolidator. The
Commission believes this risk is low because there is likely to be
sufficient demand for such a product from market participants. As
discussed above in this section, because the fees for a consolidated
market data product containing all of the data elements of core data
are likely to be lower than fees for equivalent data from proprietary
feeds today,\1944\ the Commission believes that there will be demand
from market participants for a consolidated market data product
containing all of the elements of expanded core data.\1945\ Because
there will be demand for the data and because the competing
consolidator market is subject to competitive forces, the Commission
believes that one or more competing consolidators will be incentivized
to offer a consolidated market product containing all of the data
elements.
---------------------------------------------------------------------------

    \1943\ See supra III.C.8(a).
    \1944\ See infra Section V.C.2(b)(i) (discussing fees for
consolidated market data).
    \1945\ See supra note 1936 and accompanying text.
---------------------------------------------------------------------------

    Commenters stated that expanding the content of core data would
provide no benefit to retail investors.\1946\ Commenters stated that
depth of book and auction data is not useful for most retail investors
and is likely to cause confusion.\1947\ The Commission disagrees with
these commenters. The Commission acknowledges that many retail
investors may not directly view

the entire content of expanded core data, but believes that retail
investors will benefit from the expansion of the content of core data.
Competing consolidators could offer customized products derived from
the expanded content of core data that retail brokers may be able offer
to their clients, who may be able to utilize the data to achieve some
of the benefits discussed below without the retail broker taking in the
additional message traffic from the full content of expanded core data.
For example, competing consolidators could offer measures summarizing
DOB or auction imbalances, or a feed that gives information on the best
priced odd-lot quotes. Additionally, the Commission believes, as
suggested by commenters, that retail brokers may allow some
sophisticated retail investors to directly utilize the expanded content
of core data and realize the benefits discussed below.\1948\
Furthermore, retail investors may indirectly benefit if their executing
broker-dealer uses expanded core data and did not previously receive
this information from proprietary feeds. Additionally, retail investors
may also indirectly benefit from other market participants utilizing
expanded core data because they would be better able to observe and
interact with retail investor orders, possibly leading to additional
gains from trade.\1949\
---------------------------------------------------------------------------

    \1946\ See, e.g., Nasdaq Letter IV at 33, 38; TD Ameritrade
Letter at 2, 15.
    \1947\ See, e.g., Nasdaq Letter IV at 33; TD Ameritrade Letter
at 5.
    \1948\ See, e.g., Schwab Letter at 1, 3.
    \1949\ See infra Sections V.C.1(c)(i), V.C.1(c)(ii),
V.C.1(c)(iii).
---------------------------------------------------------------------------

(i) Effects of Addition of Information on Odd-Lot Quotes at and Inside
the NBBO
    This section discusses the economic effects of expanding the
content of core data to include information on odd-lot quotes that are
priced at or more aggressively than the NBBO to the definition of core
data.\1950\ For market participants who currently do not receive
information on odd-lot quotes and choose to receive this aspect of
expanded core data,\1951\ the Commission generally believes that the
economic effects will be similar to many of the effects discussed above
regarding including smaller sized odd-lot quotes in the definition of a
round lot.\1952\ However, these benefits may be greater because these
market participants will receive significantly more information on odd-
lot quotes, since they will receive aggregated information on all odd-
lot quotes priced better at or better than the NBBO for all NMS stocks,
rather than just information on the smaller subset of quotes that will
be included in the new round lot definition for stocks priced greater
than $250.\1953\ More specifically, the inclusion of odd-lot quote
information in core data will improve transparency and reduce
information asymmetry between market participants who already receive
this information through proprietary DOB feeds and market participants
who choose to subscribe to this aspect of core data and previously did
not receive this information.\1954\ This could potentially lead to
these market participants being able to reduce their execution costs,
make more informed trading decisions, facilitate best execution, as
well as realize gains from trade. Including odd-lot quotes in core data
may also cause changes in order flow to exchanges and off-exchange
trading venues, as well as improvements in price efficiency. It may
also benefit some market participants that currently subscribe to
proprietary DOB feeds to receive data on odd-lot quotes because it may
allow these market participants to receive this information through
expanded core data, potentially at lower cost.\1955\ However there may
also be costs to market participants who choose to receive this data
because they may need to upgrade their infrastructure in order to
handle the additional message traffic contained in the odd-lot
information.\1956\ There could also be costs to market participants who
currently receive information about odd-lot quotes from proprietary
feeds and benefit from existing information asymmetries.
---------------------------------------------------------------------------

    \1950\ See supra Section II.C.2(b).
    \1951\ Market participants may choose not to subscribe to this
element, as well as other aspects of expanded core data. See infra
Section V.C.1(c)(iv).
    \1952\ See supra Section V.C.1(b)(ii).
    \1953\ See supra Section V.C.1(b).
    \1954\ One commenter stated that including all odd-lot quotes at
prices better than the protected BBO in core data would provide
investors with valuable information. See CBOE Letter at 15.
    \1955\ See infra Sections V.C.2(b) and V.C.4(a).
    \1956\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    The Commission recognizes that many market participants, including
many retail brokers-dealers (and their clients), may choose not to
receive all of the information on odd-lot quotes priced at or better
than the NBBO that is contained in expanded core data.\1957\ However,
the Commission believes that there are some market participants that
currently do not receive information on odd-lot quotes but may choose
to receive this information from expanded core data if it is available
at a cheaper price than equivalent proprietary data.\1958\ If these
market participants subscribe to this element of core data, then the
Commission believes they will receive many of the benefits (and incur
many of the costs) discussed below. Even if market participants do not
directly receive all of the odd-lot information in expanded core data,
they could realize some of the benefits if competing consolidators
offer products that are derived from or contain some of the odd-lot
information in expanded core data. For example, competing consolidators
could offer a product that only contains information on the best priced
odd-lot on each exchange. Because such a product would not
significantly increase message traffic compared to receiving all the
odd-lot information in expanded core data, many market participants,
including many retail broker-dealers (who may offer it to their
clients), may be able to utilize such a product and gain additional
information about odd-lot quotes that would allow them to lower their
execution costs and potentially realize additional gains from trade.
Even if market participants do not receive any additional information
on odd-lot quotes contained in expanded core data, they could still
benefit if the broker-dealers handling their orders use the
information. If a broker-dealer previously did not have access to odd-
lot information, then a broker-dealer receiving the additional
information may help facilitate best execution of its clients' orders.
Even if a broker-dealer previously received the data from proprietary
feeds and now receives it from core data, customers of the broker-
dealer may benefit if the broker-dealer indirectly passes on any cost
savings from switching data sources to its clients.
---------------------------------------------------------------------------

    \1957\ See supra Section V.C.1(c).
    \1958\ See infra Section V.C.2(b).
---------------------------------------------------------------------------

    Adding information on odd-lot quotes that are priced at or more
aggressively than the NBBO to the definition of core data will
significantly increase transparency for market participants that do not
currently receive information on odd-lot quotes, such as market
participants that rely exclusively on SIP data, and choose to receive
this element of expanded core data. Even though the new round lot
definition would expand information on odd-lots that may be priced
better than the current NBBO in some stocks,\1959\ most stocks would
not be affected by the new round lot definition.\1960\ Additionally,
the analysis in Table 1 shows that a substantial amount of odd-lot
transaction volume in stocks above $250 would not be included in the
new round lot definition. The addition of odd-lot information to
expanded core data will

make information on these additional odd-lot quotes that are priced at
or better than the NBBO available to market participants who previously
did not observe this information and who will choose to subscribe to
this element of expanded core data. This would reduce information
asymmetry between these market participants and market participants who
currently receive this information through proprietary DOB feeds.
---------------------------------------------------------------------------

    \1959\ See supra Section V.C.1(b)(ii).
    \1960\ The Commission estimates that approximately 98.5% of NMS
stocks will have a round lot size of 100 shares. See supra Table 4.
---------------------------------------------------------------------------

    Market participants who choose to receive the odd-lot quotes from
expanded core data and currently do not receive this information could
realize a benefit from additional gains from trade. Some of these
market participants may have traded with a price-improving odd-lot
quote but did not because they cannot see information on odd-lot
quotes. Under the final amendments, these market participants would be
able to see these quotes if they receive odd-lot information from
expanded core data, and make a decision about whether to trade based on
this newly visible trading interest.\1961\ This may benefit these
market participants or their clients because they will be able to
realize the gains from trade that are available in this situation and
are not currently occurring because of the lack of information. Market
participants that post the odd-lot quotes that these market
participants trade against would also benefit from realizing additional
gains from trade.
---------------------------------------------------------------------------

    \1961\ One commenter agreed that displaying odd-lot information
would reveal greater liquidity in a stock. See RBC Letter at 5.
---------------------------------------------------------------------------

    The magnitude of this benefit depends on the amount of additional
or improved trading generated by the inclusion of odd-lot information.
In particular, the Commission believes that to the extent market
participants who rely solely on SIP data and lack information on odd-
lot quotes choose to receive the odd-lot information in expanded core
data and would have traded frequently against odd-lot quotes had they
known about them, the benefit will be large. However, if these market
participants would not have frequently traded against odd-lot quotes
but for a lack information, then the Commission believes that the
associated economic benefit from including odd-lot quotes in core data
will be small. The Commission believes it is not possible to observe
this willingness to trade with existing market data.
    Market participants who choose to receive the odd-lot quotes, or
their clients, may benefit from making more informed trading decisions
by utilizing the data to improve their strategies related to order
routing and order placement, provided that they do not already obtain
information on odd-lots from proprietary feeds. For instance, market
participants who wish to fill an order at the best possible price,
including at sizes of less than 100 shares, will be better able to do
so because odd-lot quotes at prices better than the NBBO will be
visible to them. Additionally, these market participants may be able to
improve the placement of their limit orders by being able to see odd-
lot quotes at or inside the NBBO at multiple exchanges in order to
evaluate which exchange's queue would provide their limit order with
the highest execution priority. The use of this information may improve
order execution quality and facilitate best execution for these market
participants or their clients.\1962\ The Commission believes that many
of the market participants who utilize such strategies already have
access to full odd-lot information via proprietary feeds; for these
market participants, this portion of the final amendments may not
improve their strategies related to order routing.\1963\
---------------------------------------------------------------------------

    \1962\ For a discussion of order execution quality and the
provision of execution services by broker-dealers, see supra Section
V.B.3(e).
    \1963\ Adding information on odd-lot quotes priced at or better
than the NBBO to expanded core data may benefit those market
participants who already obtain odd-lot information by providing
them with alternatives to proprietary feeds. For a discussion of
this effect, see infra Section V.C.4(a). Also, the Commission
understands that some market participants who use proprietary feeds
as their main source of market data also use the SIP feeds as a
backup. For such market participants, adding information on odd-lot
quotes priced at or better than the NBBO to expanded core data may
improve the value of a core data feed as a backup if they choose to
subscribe to the additional information contained in expanded core
data.
---------------------------------------------------------------------------

    Also, the Commission believes that some market participants might
start running these order routing strategies if the data were available
to them at prices that are lower than the cost of obtaining this data
through proprietary feeds.\1964\ These market participants might
currently find that the value of attempting such strategies without
information on odd-lots is too low to justify running the strategies,
but they might find that access to data on such orders through the
updates to expanded core data will enable them to run such strategies
effectively. To the extent that such market participants exist, the
inclusion of odd-lot quotes in core data will be a benefit to them as
well.\1965\
---------------------------------------------------------------------------

    \1964\ See infra Section V.C.2(b).
    \1965\ For further discussion of new entrants to the competitive
order routing business, see infra Section V.C.4(b).
---------------------------------------------------------------------------

    The Commission believes that adding information on odd-lot quotes
priced at or better than the NBBO to expanded core data may improve
price efficiency. The wider availability of information about odd-lot
quotes may mean that market participants who currently do not receive
this information and subscribe to this element of expanded core data
will incorporate the information contained in those quotes into their
trading decisions. This may have the effect of improving the efficiency
with which this information becomes reflected in prices.\1966\
---------------------------------------------------------------------------

    \1966\ For additional discussion of the price efficiency point,
see infra Section V.D.1.
---------------------------------------------------------------------------

    One commenter stated that adding information on unprotected odd-lot
quotations to core data would create confusion for retail
investors.\1967\ The Commission disagrees with this commenter. As
discussed above in this section, the Commission believes that many
retail brokers will not directly offer their clients all of the odd-lot
information contained in expanded core data and, therefore, their
clients will not be confused by it. If a retail broker does directly
offer all of the information to any of its clients, the Commission
believes that any client receiving the information will likely be a
sophisticated retail investor and not confused. Additionally, if
competing consolidators develop products for retail brokers to offer to
their clients (i.e., retail investors) that contain subsets of the odd-
lot information in expanded core data, the Commission believes that
competing consolidators and the data vendors or broker-dealers that
supply the information to retail investors will do so in way that does
not create confusion.
---------------------------------------------------------------------------

    \1967\ See TD Ameritrade Letter at 4-5.
---------------------------------------------------------------------------

    The Commission believes that adding information on odd-lot quotes
priced at or better than the NBBO to expanded core data may cause
changes to order flow as market participants that do not currently
receive this information and choose to subscribe to it change their
trading strategies to take advantage of newly visible quotes. This may
mean that there will be changes to the share of order flow each
exchange and off-exchange trading center receives as a result of this
rule. The Commission is uncertain about the magnitude of this effect.
    The addition of odd-lot quote information to expanded core data
will increase the total message traffic in expanded core data, and this
increase in message traffic will be accompanied by costs to market
participants to set up the infrastructure required to handle this new
level of traffic. Additionally, competing consolidators and SROs may

incur implementation costs related to receiving and generating the
information necessary to process and disseminate consolidated market
data. However, market participants are not required to receive (or
display) the odd-lot quotes contained in expanded core data, and
competing consolidators will not be required to disseminate all of the
information in consolidated market data, including odd-lot quotes
contained in expanded core data, so they will not incur these costs
unless they choose to receive or disseminate this information,
respectively.\1968\ These costs are discussed below in Section
V.C.1(c)(iv).
---------------------------------------------------------------------------

    \1968\ See supra Sections II.C.2(a) and III.C.8(a)(ii).
---------------------------------------------------------------------------

    The addition of information on all odd-lot quotes priced at or
better than the NBBO to core data may negatively affect certain trading
strategies, but the associated costs are likely to be small. First, the
Commission believes that there may be traders who currently attempt not
to display their orders to wide public view by posting them in odd-lot
sizes, in pursuit of trading strategies that take advantage of a
market's limited knowledge of odd-lot size quotes. The Commission
understands that certain traders (ones who are the most likely to
recognize any advantage being sought in this manner) obtain proprietary
feeds and so currently can see these odd-lot quotes. This means that
this strategy cannot be used to hide quotes from users of proprietary
DOB feeds. To the extent that it is necessary to hide the quotes from
such users in order for the strategy to work, the benefits of such a
trading strategy are likely to be minimal. If this is the case, then to
the extent that the addition of odd-lot quotes to core data makes this
strategy more difficult, the Commission believes that the cost to these
traders of losing such an opportunity will also be minimal. On the
other hand, if there is some benefit to posting quotes in odd-lot sizes
to hide them from view (or at least from the view of market
participants that do not observe these odd-lot quotes) despite the fact
that users of proprietary DOB feeds can still see the quotes, the
Commission believes that to the extent that the addition of odd-lot
quotes to core data makes this strategy more difficult, there may be a
cost to the traders who use such a strategy. The Commission cannot
observe whether an odd-lot quote is being used to hide the order or
not.
    Second, there may be costs to those traders who currently enjoy the
position of being among the traders who can see odd-lot quotes via
proprietary data feeds. The Commission believes that odd-lot quotes are
more easily taken advantage of by those traders who can see the quotes.
Currently, this advantage is available only to those traders who
purchase proprietary data feeds. The Commission believes that this
gives these traders an advantage over other traders by improving their
order execution costs. Under the changes to core data, this advantage
is likely to be reduced. If this were to happen, it will be because
other traders will obtain the advantage as well and may take advantage
of these quotes before the current direct feed subscribers do. To the
extent that this happens, this cost to current direct feed subscribers
from losing this advantage represents a transfer to the traders who can
see the liquidity currently in odd-lots. The Commission is uncertain
about the size of the loss in advantageous trading opportunities to
traders who subscribe to the proprietary data. To quantify this
requires knowing (among other things) when an odd-lot quote is traded
with by a participant who had access to full odd-lot information and
when it was traded with by a participant who did not know the quote was
there, and this is not observable from available market data.
    It can sometimes happen that a market becomes locked or crossed in
odd-lot orders. As a result of the final amendments, information on all
odd-lot quotes priced at or better than the NBBO will now be included
in expanded core data, and these locked and crossed odd-lot orders will
now be visible to subscribers of expanded core data that chose to
receive odd-lot information. The economic effects of having these
locked or crossed quotes visible to market participants who receive
this data will be minor. In particular, to the extent that these
crosses and locks in odd-lot sizes represent a profitable trading
opportunity to those market participants who do not receive odd-lot
information, being able to observe the occurrence of these events as a
result of the receiving odd-lot quotes in expanded core data will be a
benefit to these market participants. Also, to the extent that market
participants who currently subscribe to proprietary feeds are able to
profit from being the only market participants to observe crossed or
locked odd-lots, the change will represent a cost to them. To the
extent these market participants can profit from exploiting those
market participants who cannot see the crosses or locks, this change
will represent a transfer from those who currently trade on this
information to those who acquire the information through new core data
and are able to use it effectively. It is also possible that traders
avoid sending orders because of the risk of being exploited if they
cross or lock the market. To the extent that this happens and that the
expansion of core data addresses this concern, the increase in trading
that will result will represent a benefit to both sides of the trade.
The Commission believes that some crossed or locked odd-lot quotes
represent traders who are not aware at the time they post their quote
that the quote could be filled by a marketable order elsewhere. To the
extent this happens it represents a cost to this trader since the
posted order is exposed to the risk that it will be executed with a
marketable order at a price inferior to what is available on the market
to the trader who posted the order. The final amendments will reduce
this cost for market participants who receive odd-lot information
because they will now be able to observe and trade with odd-lot orders
available at better prices.
(ii) Effects of Addition of Depth of Book Information
    The Commission is adding certain depth of book information to the
definition of core data, which will result in this information becoming
available to anyone who subscribes to this element of core data. The
Commission believes that this information could be useful in trading,
and therefore disseminating this information as an element of core data
could have the effect of causing changes to the trading strategies of
those market participants who currently rely solely on SIP data and
will choose to buy depth of book information. This could potentially
lead to improvements in order routing for these market participants or
their clients and reductions in their execution costs and facilitate
best execution. Adding certain depth of book information to the
definition of core data may also lead to changes in order flow to
trading venues, improvements in price efficiency of markets, and gains
from trade that are not currently being realized. Market participants
that choose to receive the depth of book data may experience
implementation costs from having to upgrade infrastructure to account
for the increase in message traffic from the data.
    Some commenters stated that most market participants do not need
depth of book information.\1969\ However, other commenters believed
that including depth of book data in core data would

be useful for market participants.\1970\ The Commission recognizes that
many market participants, including many retail investors, may choose
not to receive all of the DOB information contained in expanded core
data.\1971\ However, the Commission believes that there are some market
participants that currently do not receive DOB information but may
choose to receive this information from expanded core data if it is
available at a lower price than equivalent proprietary DOB feeds.\1972\
If these market participants subscribe to this element of core data,
then the Commission believes they will receive many of the benefits
(and incur many of the costs) discussed below. Even if market
participants do not directly receive all of the DOB information in
expanded core data, they could realize some of the benefits if
competing consolidators offer products that are derived from or contain
some of the DOB information in expanded core data. For example,
competing consolidators could offer a product that contains only
information on the price and size available at the next best round lot
price outside the NBBO. Because such a product would not significantly
increase message traffic compared to receiving all DOB information in
expanded core data, many market participants, including many retail
brokers (who may offer it to their clients), may be able to utilize
such a product and gain additional information that would allow them to
lower their execution costs. Even if market participants do not receive
any additional DOB information contained in expanded core data, they
may still benefit indirectly from including depth of book information
in core data if the broker-dealers handling their orders use the
information. If a broker-dealer previously did not have access to DOB
information, then its clients may benefit if a broker-dealer uses the
DOB information in expanded core data when handling customer orders,
which may improve their execution quality.\1973\ Additionally, the
Commission believes that the depth of book information in expanded core
data may benefit market participants who substitute it for proprietary
DOB feeds if it is available at lower cost \1974\ The Commission is not
able to quantify the number of market participants who will directly
utilize the depth of book information in core data because it would
depend on the future fees the Equity Market Data Plan establishes for
the additional content of core data.
---------------------------------------------------------------------------

    \1969\ See, e.g., Nasdaq Letter IV at 33; TD Ameritrade Letter
at 5.
    \1970\ See, e.g., Clearpool Letter at 14; Healthy Markets Letter
I at 3; DOJ Letter at 2-4.
    \1971\ See supra Section V.C.1(c).
    \1972\ See infra Section V.C.2(b).
    \1973\ See supra Section V.B.2(a). Even if a broker-dealer
previously received the data from proprietary feeds and now receives
it from core data, clients of the broker-dealer may benefit if the
broker-dealer indirectly passes on any cost savings from switching
data to its clients.
    \1974\ See infra Sections V.C.2(b)(i) and V.C.4(a).
---------------------------------------------------------------------------

    One commenter stated that it was unclear if five levels of depth
would be useful to any investors at all.\1975\ However, the Commission
believes, and commenters agree, that including five levels of depth in
expanded core data will benefit market participants.\1976\ The
Commission acknowledges that market participants that substitute
expanded core data for proprietary DOB feeds will not receive as much
depth of book information and may experience a reduction from the
benefits they receive from such information. However the Commission
believes that these market participants will only substitute expanded
core data for proprietary DOB data if the money they save exceeds the
value of the reduction in benefits from not receiving the additional
information contained in proprietary DOB feeds.
---------------------------------------------------------------------------

    \1975\ See Nasdaq Letter IV at 33.
    \1976\ Commenters agreed that five levels of depth is sufficient
for many market participants. See, e.g., State Street Letter at 2-3;
Capital Group Letter at 3; Fidelity at 4. In addition, the staff
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. See supra note 387. See
also supra Section II.F.2(b).
---------------------------------------------------------------------------

    The Commission believes that adding the depth of book information
as an element of core data will benefit market participants who
previously relied exclusively on SIP data and who choose to receive
this element of expanded core data. Academic research has found
evidence that valuable trading information can be obtained from the
full depth of a limit order book.\1977\ As noted in the Proposing
Release, some market participants also believe that depth of book
information is valuable.\1978\ Currently, only traders who subscribe to
exchanges' proprietary data feeds can receive this information. As a
result of the final amendments, additional depth of book information
will become available to anyone who subscribes to these elements of
core data. The Commission believes that market participants, including,
as suggested by commenters, some retail investors,\1979\ that currently
rely solely on SIP data could use the additional depth of book
information to improve trading strategies and to lower execution
costs.\1980\ To the extent that the advantage of having this
information depends on other traders not having it, this economic
effect will represent a transfer from the current users of depth of
book information to those market participants who will now get access
to, and will be able to utilize, this information.\1981\ In particular,
a more widespread dissemination of depth of book information may cause
market prices to adjust to this information more rapidly as more people
react to this information. Once market prices settle to a level that
reflects this information, the opportunity to profit from having
additional depth of book information may be lost.
---------------------------------------------------------------------------

    \1977\ See Lawrence E. Harris and Venkatesh Panchapagesan, The
Information Content of the Limit Order Book: Evidence from NYSE
Specialist Trading Decisions, 8 J. Fin. Mkts. 25 (2005); Jonathan
Brogaard et al., Price Discovery without Trading: Evidence from
Limit Orders, 74 J. Fin. 1621-58 (2019); Shmuel Baruch, Who Benefits
from an Open Limit-Order Book?, 78 J. Bus 1267 (2005) (presenting
some theoretical results showing that liquidity takers benefit more
from an open limit order book).
    \1978\ See Proposing Release, 85 FR at Section III.C.2(c)
(describing how market participants have stated that they believe
they need depth of book information in order to run their
businesses). See also supra Section V.B.2(a) (discussing the value
of depth of book information).
    \1979\ See, e.g., Schwab Letter at 1, 3 (``providing depth-of-
book data on the consolidated feed will give Main Street investors a
critical look at market sentiment with regard to an individual
security and pricing information for the size of the order they want
to place''); Angel Letter at 8.
    \1980\ Commenters agreed including depth of book information in
core data would help lower execution costs. See, e.g., RBC Letter at
4; ICI Letter at 8-9.
    \1981\ See infra Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    The Commission believes that market participants who use strategies
related to order routing, order placement, and order execution, may
benefit from the new depth of book information, provided that currently
they do not already obtain this information via proprietary data feeds.
For instance, market participants may seek to get priority in the queue
at a particular price level behind the top of book by posting a limit
order. Such a strategy may benefit from being able to see the depth at
these price levels at multiple exchanges in order to evaluate which
exchange's queue would provide the order with the highest execution
priority. To the extent this is the case, the Commission believes that
market participants who previously did not have access to additional
depth of book information will benefit by being able to better run such
strategies. This could improve order execution quality for these market
participants (or their clients).\1982\ The Commission believes that
many of the market participants who utilize such strategies already
have

access to full depth of book information via subscriptions to
proprietary feeds; for these traders the additional core data will not
produce a direct benefit.\1983\ The Commission is unable to quantify
the number of market participants who currently run these types of
strategies without using depth of book information because the
Commission does not have access to information on specific strategies
utilized by individual traders in the market.\1984\
---------------------------------------------------------------------------

    \1982\ For a discussion of order execution quality and the
provision of execution services by broker-dealers, see supra Section
V.B.3(e).
    \1983\ The inclusion of depth of book information may benefit
those market participants who already use depth of book information
by providing alternatives to proprietary feeds. For a discussion of
this effect, see infra Section V.C.1(c)(iv). Also, the Commission
understands that some market participants who use proprietary feeds
as their main source of market data also use the exclusive SIP feeds
as a backup. For such market participants, the expansion of DOB
information may improve the value of a core data feed as a backup.
    \1984\ The Commission requested comment on market participants
who run order routing strategies without access to DOB information
but did not receive information from commenters that would help
quantify the number of market participants that use such strategies.
The Commission believes that it is possible that the inclusion of
this information in the definition of core data, along with
reductions in the latency differential that will result from the
decentralized consolidation model, may benefit market participants
who do not currently run these strategies but who will choose to
start running them as a result of the changes. For more discussion
on this possibility, see infra Section V.C.4(b).
---------------------------------------------------------------------------

    Also, the Commission believes that there may be market participants
that would start running these order routing strategies if the data
were available to them at prices lower than the current prices for
equivalent data in proprietary feeds.\1985\ These market participants
might currently find that the value of attempting such strategies
without DOB data is too low to justify them, but that access to
additional DOB data through these elements of the new definition of
core data will enable them to run such strategies effectively. To the
extent that such market participants exist, the additional DOB data
will be a benefit to them as well.
---------------------------------------------------------------------------

    \1985\ See infra Section V.C.2(b)(i) for a discussion of
consolidated market data fees and Section V.C.4(b) for a discussion
of market participants who may start running such strategies.
---------------------------------------------------------------------------

    The revision in trading strategies discussed above may result in
changes to the decisions traders make about where to route their orders
among the various trading venues. Market participants may find that
depth of book information suggests trading opportunities on exchanges
to which they would not have otherwise routed their orders. The
Commission is uncertain about the magnitude of this effect or which
trading venues may gain or lose order flow as a result. The Commission
cannot determine how many market participants may choose to change
routing strategies as a result of the new depth of book information,
nor to what extent the new depth of book information will cause market
participants to change where they route their orders.\1986\
---------------------------------------------------------------------------

    \1986\ One commenter stated that this information ``should be
essential'' to the Commission's analysis, yet did not provide such
information. See Nasdaq Letter IV at 47. The Commission requested
comment on this issue but did not receive information to help
determine these effects, which is unobservable in the current
market.
---------------------------------------------------------------------------

    Also, the Commission believes that the more widespread
dissemination of depth of book information may result in more efficient
pricing.\1987\ As more traders take advantage of information contained
in the depth of book data, prices will reflect this information more
quickly.\1988\ Therefore, more widespread dissemination of depth of
book information may lead to pricing that better reflects available
information. The size of this effect depends on the willingness and
ability of market participants who currently rely solely on SIP data to
make use of the information in the new depth of book data, which is
unobservable.
---------------------------------------------------------------------------

    \1987\ For further discussion of this point, see infra Section
V.D.1.
    \1988\ A commenter agreed that including depth of book
information in core data would improve price discovery. See RBC
Letter at 4.
---------------------------------------------------------------------------

    The Commission believes that there may be gains from trade that
will be realized as a result of adding this depth of book information
as an element of core data. The possibility for this benefit to
materialize relies on the extent to which there exist market
participants who will be willing to send orders that ``walk the book''
\1989\ but currently do not do so because they do not see what is
beyond the top of the book. This situation represents a current
economic inefficiency because there are potential gains from trade that
are not realized because of a lack of information. This would benefit
both the market participant walking the book and the market
participants who posted orders behind the BBO that will be filled as a
result of the trade.
---------------------------------------------------------------------------

    \1989\ See supra note 1673.
---------------------------------------------------------------------------

    Relatively few orders actually execute at prices outside the
NBBO,\1990\ which implies that trading against quotes away from the
NBBO on a single exchange, using a single marketable order, does not
occur frequently. In addition, an analysis of a sample of trading in
ten stocks on the Nasdaq exchange found that an average of 0.65% of
market orders walked through the best displayed price level for these
ten stocks.\1991\ Therefore, the Commission believes that there may be
limited benefits from additional DOB information in the particular
hypothetical case of market participants who currently rely solely on
SIP data for market information and who will submit market orders to
trade against limit orders beyond the top of the book on a single
exchange when the depth of book information is available in core data.
However, the size of the benefit depends on the willingness of market
participants to walk the book after receiving the new DOB information,
as well as their trading interest, and this is unobservable in the
current market.\1992\
---------------------------------------------------------------------------

    \1990\ See id.
    \1991\ See Nikolaus Hautsch and Ruihong Huang, Limit Order Flow,
Market Impact and Optimal Order Sizes: Evidence from NASDAQ
TotalView-ITCH Data, at 10, Table 3 (Aug. 22, 2011), available at
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914293
(Retrieved from SSRN Elsevier database).
    \1992\ The Commission requested comment on to what extent any
benefits of including depth of book information in core data depend
on the degree to which orders walk the book. No commenters provided
information on the willingness of market participants to walk the
book if they received the new DOB information from expanded core
data.
---------------------------------------------------------------------------

    The addition of depth of book information to expanded core data
will increase the total message traffic in expanded core data, and this
increase in message traffic will be accompanied by costs to market
participants to set up the infrastructure required to handle this new
level of traffic. Additionally, competing consolidators and SROs may
incur implementation costs related to receiving and generating the
information necessary to process and disseminate consolidated market
data. However, market participants are not required to receive (or
display) the DOB information contained in expanded core data, and
competing consolidators will not be required to disseminate all of the
information in consolidated market data, including DOB information
contained in expanded core data, so they will not incur these costs
unless they choose to receive or disseminate this information.\1993\
These costs are discussed below in Section V.C.1(c)(iv).
---------------------------------------------------------------------------

    \1993\ See supra Sections II.C.2(a) and III.C.8(a)(ii).
---------------------------------------------------------------------------

(iii) Effects of Addition of Auction Information
    The Commission is adding ``auction information'' as an element of
core data. This will result in all auction information currently
disseminated by exchanges via proprietary data feeds being made
available to subscribers of these elements of core data feeds. This
will have effects that include changes to market participants' trading
strategies, gains from trade as a result of new

participation in auctions, potential improvements to price discovery in
auctions, changes to order routing decisions, and a significant
reduction in the value of dedicated proprietary auction feeds.
    Several commenters stated that auction information may only be
useful to sophisticated investors who already receive it and that
including it in core data may not benefit most market
participants.\1994\ However, other commenters stated that investors,
including retail investors, would benefit from including auction
information in expanded core data.\1995\ The Commission disagrees with
the first set of commenters. The Commission believes including auction
information in core data would expand its availability and allow more
market participants to receive the benefits described below. Even if
market participants do not directly access auction information,
including it in core data may indirectly benefit market participants.
If broker-dealers that do not currently receive auction information
utilize the auction information included in core data to improve their
handling of customer orders that participate in opening and closing
auctions, it may improve their execution quality. More participation in
closing auctions could also improve the price efficiency of closing
prices, which could lead to better trading outcomes for market
participants that rely on closing prices resulting from closing
auctions, but do not participate directly in closing auctions.
---------------------------------------------------------------------------

    \1994\ See, e.g., TD Ameritrade at 5; Nasdaq Letter IV at 33;
Data Boiler Letter at 31.
    \1995\ See, e.g., CBOE Letter at 21; Angel Letter at 8; SIFMA
Letter at 7; Virtu Letter at 5.
---------------------------------------------------------------------------

    As discussed above, some auction information is currently available
to market participants through specialized feeds,\1996\ and also a
limited set of auction information is available through the current SIP
feeds.\1997\ The availability of these feeds enables access to a
limited set of auction information for some market participants without
having to subscribe to full DOB feeds. To the extent that any market
participants find these specialized auction feeds sufficient for their
trading needs, the Commission believes that the addition of all auction
information as an element of core data will have a limited effect on
these market participants.\1998\ To the extent that those market
participants make up a large share of the market participants who would
be interested in using additional auction information, the Commission
believes that the effect of adding auction information may be
limited.\1999\ The Commission believes that the extent of this
limitation is reduced by the fact that not all auction information is
available to market participants through such feeds. The Commission
does not have data on the number of market participants with these
proprietary feed subscriptions.
---------------------------------------------------------------------------

    \1996\ See supra Section V.B.2(a).
    \1997\ See id.
    \1998\ Market participants who currently receive auction
information through proprietary feeds may switch to using the
auction information contained in expanded core if it is available at
lower cost than equivalent data from proprietary feeds. See infra
Section V.C.2(b).
    \1999\ Since the cost to integrate multiple auction feeds into a
single feed is a fixed cost in producing a market data feed, the
Commission believes that there would still be a benefit from the
rule in the form of competing consolidator integrated auction feeds,
which could be cheaper for market participants than integrating the
feeds themselves.
---------------------------------------------------------------------------

    The Commission believes that auction information contains insights
useful to market participants in devising and executing trading
strategies.\2000\ Therefore, the Commission believes that adding this
information as an element of core data will benefit those market
participants (including retail investors) who currently do not access
such information, as well as their clients. To the extent that these
market participants can use this auction information, the addition of
this information as an element of core data will enable them to produce
better trading strategies and lower execution costs for their own
orders and for their clients' orders, as well as facilitate best
execution.\2001\ To the extent that the advantages of possessing
auction information come from exploiting the trading decisions of
market participants who lack this information, this effect will
represent a transfer from those market participants who currently have
auction information to those market participants who would obtain
access to it through this rule and are able to exploit it to improve
their trading strategies.\2002\ The Commission believes that this
auction information could potentially be used across all trading
venues, including exchange auctions, continuous exchange trading, and
off-exchange venues.
---------------------------------------------------------------------------

    \2000\ See Proposing Release, 85 FR at nn. 344-46. Commenters
agreed auction information is useful for predicting price movements
and placing orders in closing auctions. See supra note 1678.
    \2001\ Commenters agreed that including auction information in
core data may promote more informed and effective trading in
auctions. See, e.g., Clearpool Letter at 15.
    \2002\ One commenter agreed that including auction information
in core data would level the playing field for investors. See Virtu
Letter at 5. Commenters also agreed that including auction
information in core data would reduce information asymmetry between
subscribers of SIP data and proprietary DOB feeds. See, e.g.,
IntelligentCross Letter at 4; Clearpool Letter at 15. One commenter
stated including auction information in core data would benefit
retail investors by reducing information asymmetry between retail
investors and more informed market participants. See Angel Letter at
8 (``Retail investors should be properly informed with appropriate
information about the indicative auction price and the trading
imbalance. Otherwise, we will be at a serious disadvantage to other
better informed players.'').
---------------------------------------------------------------------------

    The Commission believes that the addition of auction information as
an element of core data will result in increased participation in
auctions, which may allow market participants to realize potential
gains from trade. Commenters suggested that there are market
participants who do not currently trade in auctions because they do not
access auction data due to the cost of proprietary feeds.\2003\ To the
extent that such market participants exist, including auction
information in core data will allow these market participants to access
this information, which may allow them to gain insights about trading
opportunities that induce them to trade in auctions.\2004\ Commenters
stated that an increase in auction participation will also increase
auction liquidity.\2005\ The Commission agrees and believes that
increased auction liquidity will also result in increased trading
during auctions, which could benefit both sides of the trade, thus
resulting in an economic benefit. To the extent that market
participants who start trading in auctions as a result of gaining
access to auction information possess insights beyond what can be
inferred from auction information, increasing the number of
participants in auctions as described above should improve price
discovery in the auction process.\2006\ The Commission believes that
those who do not participate in auctions because they do not access
auction information are unlikely to possess insights beyond what can be
inferred from auction information. This is because any market
participant who has such insights would find it worthwhile to purchase
auction information and participate in the auction so as to exploit the
value of the insights. Therefore, the size of this effect depends on
the number of market participants who currently possess such insights

relative to those who do not who start participating in auctions as a
result of this rule and the size of their resultant auction trades.
Both of these effects are unobservable in the current market.
---------------------------------------------------------------------------

    \2003\ Commenters stated that the costs of proprietary data
feeds prevent some market participants from competing in auctions.
See, e.g., ICI Letter at 9-10; SIFMA Letter at 7.
    \2004\ Commenters agreed that including auction information in
core data would result in more market participants participating in
auctions. See, e.g., BlackRock Letter at 2; ICI Letter at 9-10.
    \2005\ See, e.g., BlackRock Letter at 2; IntelligentCross Letter
at 4.
    \2006\ Commenters agreed that adding auction information to core
data would improve price discovery. See, e.g., BlackRock Letter at
2; ICI Letter at 9-10; Data Boiler Letter at 31.
---------------------------------------------------------------------------

    Further, the Commission believes that the addition of auction
information as an element of core data may affect the order routing
decisions of market participants who currently do not have access to
auction information. For example, some off-exchange trading venues
cross market-on-close orders before the closing auction takes place and
later settle the trades at the closing auction price. To the extent
auction information is made available prior to the applicable cut-off
time, if any, for the submission of closing orders to off-exchange
venues, having access to auction imbalance information may affect
market participants' decision to route a closing order to either an
off-exchange venue or to the closing auction on the primary listing
exchange. For example, a market participant who gets access to auction
information through a subscription to these elements of new core data
might decide not to route the order to an off-exchange venue so as to
be able to participate in the auction using the new information
available. Additionally, this auction information could also affect
decisions made during the time when auction information is disseminated
about whether an order should participate in continuous market trading
or an auction. For example, if auction imbalance information indicates
that an order would have a low probability of executing in an auction
(or would be likely to execute at a worse price than if the order
executed during continuous trading), then a market participant may
decide the order should participate in continuous market trading,
instead of the auction, to increase the chance the order is filled (or
executed at a better price).\2007\ However, the overall effect of
auction information on order routing decisions is uncertain and likely
will vary based on market conditions.
---------------------------------------------------------------------------

    \2007\ Similarly, if auction imbalance information indicated a
market participant's order would be more likely to execute in an
auction at a better price, then the market participant may choose to
have the order participate in the auction instead of continuous
trading.
---------------------------------------------------------------------------

    The Commission believes that the value of dedicated proprietary
auction feeds will be substantially reduced as a result of the addition
of auction information to core data, and that this will result in a
loss of revenue for those exchanges who offer such feeds.\2008\ The
Commission believes that the value of any existing data product that
provides only auction data \2009\ that is not currently in the
exclusive SIP feeds will be substantially reduced because of the loss
of revenue from these dedicated auction feeds. The Commission expects
that many market participants who are executing a trade, either for
themselves or for a client, have, and will continue to have, a
subscription to core data.
---------------------------------------------------------------------------

    \2008\ See infra Section V.C.4(a) (discussing effects on
exchange proprietary revenue).
    \2009\ See Proposing Release, 85 FR at n. 335.
---------------------------------------------------------------------------

(iv) General Costs to Expanding Consolidated Data
    The Commission believes that there are four potential costs to
adding the new core data elements, which are common across all these
elements. The first potential cost is the cost to the new competing
consolidators that will be necessary to implement or upgrade existing
infrastructure and software in order to handle the dissemination of the
additional core data message traffic. The second potential cost is the
cost to SROs to implement system changes required in order to make
regulatory data and other data needed to generate consolidated market
data available to competing consolidators. The third cost is the
technological investments market participants might have to make in
order to receive the new core data message traffic. The fourth cost is
the cost to users of certain kinds of trading strategies that may
currently be relying on the fact that this data is not widely
distributed today.
    The Commission believes that the cost for firms that wish to become
competing consolidators to implement or upgrade infrastructure to
handle the dissemination of odd-lot quotes, depth of book information,
and auction information will be limited. Competing consolidators will
not be required to disseminate all of the information in consolidated
market data, including the additional data elements contained in
expanded core data, so they will not incur these costs unless they
choose to disseminate this information.\2010\ As discussed in more
detail below,\2011\ the Commission believes that the new competing
consolidators will likely be firms that already have the technological
infrastructure necessary to process full depth of book data and to
generate the NBBO using this data. Therefore, for these firms,
processing the new message traffic resulting from the additional
content of expanded core data may add only a minimal cost to becoming a
competing consolidator. However, for a firm that does not currently
subscribe to, or process data from, exchange proprietary feeds, the
additional message volume will increase the cost of becoming a
competing consolidator if they choose to offer a consolidated market
data product that includes the additional data elements contained in
expanded core data. In particular, if the existing exclusive SIPs
should decide to enter the competing consolidator business and choose
to offer a consolidated market data product containing this data, they
may incur such costs as they do not currently disseminate full depth of
book data. These costs are included in the estimated costs for
competing consolidators discussed below in Section V.C.2(d)(i).
---------------------------------------------------------------------------

    \2010\ See supra Section III.C.8(a)(ii).
    \2011\ See infra Section V.C.2(a) for a discussion of the
technological capabilities of firms the Commission believes are most
likely to become competing consolidators. It is possible that the
new definition of core data will make consolidation more difficult
for core data than it is currently, and that this added difficulty
will result in additional latency. However, the Commission believes
that the risk of this is minimal, again because of the technological
capabilities of competing consolidators and the market forces that
will be in effect in the decentralized consolidation model.
---------------------------------------------------------------------------

    The Commission believes that there will be some infrastructure
investment required on the part of SROs to provide the information
necessary to process and disseminate consolidated market data. The
Commission believes that the infrastructure investment required by most
SROs to provide the elements necessary to generate core data will be
limited, because most SROs currently provide all elements of the new
definition of core data over their proprietary feed
infrastructure.\2012\ In addition, the Commission believes that many
competing consolidators and self-aggregators will be firms that already
subscribe to these feeds,\2013\ and thus, the SROs will likely not have
a large amount of new data connections to service and therefore will
not need to invest in infrastructure to handle them. However, as
discussed by a commenter, FINRA may incur higher infrastructure
investment costs in order to make data from the ADF available to
competing consolidators and self-aggregators because it currently only
provides this data to the SIPs.\2014\ Additionally, exchanges,
particularly primary markets, may incur some infrastructure costs
related to the dissemination of new regulatory data.\2015\ Currently,
the

new regulatory data component to consolidated market data is
distributed through the SIPs. In order for this information to be
distributed through the new decentralized consolidation model, the rule
requires the exchanges to provide a feed to competing consolidators and
self-aggregators that contains the regulatory data. The Commission
believes that the infrastructure and operational processes to provide
such a feed are currently not completely in place and will require
investment on the part of exchanges. These costs are included in the
estimated costs for SROs discussed below in Section V.C.2(d)(ii).
---------------------------------------------------------------------------

    \2012\ See supra Section V.B.2(a).
    \2013\ See infra Sections V.C.2(a) and V.C.2(f).
    \2014\ See FINRA Letter at 3-4. See supra Section III.B.9(e).
    \2015\ As discussed above, this new regulatory data will consist
of all the same messages as current regulatory data distributed
through the exclusive SIPs. See supra Sections II.H and II.I. See
also Proposing Release, 85 FR at Section III.D.
---------------------------------------------------------------------------

    One commenter stated that requiring each SRO to connect and
transmit data to a large number of competing consolidators and self-
aggregators could significantly increase costs for SROs.\2016\ The
Commission disagrees with this commenter. As discussed above, the
Commission does not believe that SROs will need to add significant
connectivity to account for competing consolidators and self-
aggregators, because the Commission believes that most market
participants who will become competing consolidators and self-
aggregators already subscribe to exchange proprietary data feeds.\2017\
---------------------------------------------------------------------------

    \2016\ See FINRA Letter at 3.
    \2017\ As discussed below, an SRO would incur costs, which could
include costs related to expanding connectivity and making sure the
data is delivered at similar speeds to its other proprietary feeds,
if it developed a separate feed to distribute the data necessary to
generate consolidate market data. However the Commission does not
believe that an SRO is likely to develop a separate feed and incur
the costs. See infra Section V.C.2(d)(v).
---------------------------------------------------------------------------

    The Commission believes that there will be costs for infrastructure
investment in order for market participants to receive the new odd-lot,
DOB, and auction information components of core data. However, because
market participants will not be required to receive the additional
information in core data, the infrastructure investment costs will be
limited to those market participants that choose to receive it.\2018\
Adding these components to core data will substantially increase the
total message traffic in core data,\2019\ and this increase in message
traffic will be accompanied by costs to market participants to set up
the infrastructure required to handle this new level of traffic.
Commenters stated that this will require significant infrastructure
upgrades to receive the data.\2020\ The Commission acknowledges that
some market participants will require significant infrastructure
upgrades to receive the additional elements of core data. However, the
Commission notes that the final amendments will not require market
participants to receive (or display) the complete set of consolidated
market data, and competing consolidators will not be required to
deliver all proposed consolidated market data for each data product
they offer.\2021\ Therefore, most market participants who do not want
to incur the costs associated with the expanded core data message
traffic due to additional odd-lot information, depth of book
information, or auction information will be able to choose not to
receive any such additional information. Thus, market participants who
do not wish to incur the cost of the infrastructure investments
necessary to receive the new core data will not. For those market
participants who do wish to incur the cost, the Commission is unable to
estimate the associated costs because the costs would vary across
market participants and depend on each market participant's existing
infrastructure.\2022\
---------------------------------------------------------------------------

    \2018\ See supra Section III.B.6.
    \2019\ The Commission believes that the addition of information
on odd-lots quotes that are priced at or more aggressively than the
NBBO and the addition of DOB information, in particular, may
substantially increase message traffic. See Proposing Release, 85 FR
at n. 294. Commenters agreed that the expansion of new core data,
especially the inclusion of DOB would significantly increase message
traffic. See, e.g., Virtu Letter at 5; STANY Letter II at 3.
    \2020\ See, e.g., Virtu Letter at 5; TD Ameritrade Letter at 5.
    \2021\ A market participant that has obligations under Rule
603(c) will have to receive all data necessary to generate
consolidated market data to comply with the rule. The specific cost
associated with some of this data is discussed below. See infra
Section V.C.2(d).
    \2022\ See infra note 2290 and accompanying text.
---------------------------------------------------------------------------

    Some commenters stated that the increase in message traffic from
expanding core data will increase the latency of core data.\2023\ The
Commission does not believe that expanding the content of core data
will increase the latency of core data when it is combined with the
decentralized consolidation model. The Commission believes that
competing consolidators will develop technology to handle the expanded
content of core data and to reduce the latency of aggregating and
transmitting core data.\2024\ The Commission understands that third
party market data aggregators aggregate and disseminate proprietary DOB
feeds (which contain additional message traffic) at lower latencies
than the exclusive SIPs and expects that competing consolidators would
use similar technology to aggregate and disseminate the expanded
content of core data at lower latencies than the exclusive SIPs.\2025\
Furthermore, the decentralized consolidation model will also reduce
geographical latency by eliminating the extra hop that the exclusive
SIPs currently experience.\2026\ As discussed above, market
participants may also need to expand their bandwidth and invest in
additional technology and infrastructure to handle receiving the
additional content in core data. The increase in message traffic could
increase the latency of market participants receiving expanded core
data if they do not make these investments. However, the Commission
believes that for those market participants who choose to receive the
entire content of consolidated market data, these market participants
will make the investments in technology to receive the data and not add
latency.
---------------------------------------------------------------------------

    \2023\ See, e.g., STANY Letter II at 3.
    \2024\ See infra Sections V.C.2(c)(ii) and V.C.2(c)(iii).
    \2025\ See supra Section V.B.2(b).
    \2026\ See infra Section V.C.2(c)(iii).
---------------------------------------------------------------------------

    The Commission believes that adding the odd-lot quote, depth of
book, and auction information to core data may impose a cost on traders
who rely on strategies that take advantage of the fact that the
information in odd-lot quote, depth of book, and auction data is not
widely distributed (i.e., those traders who are beneficiaries of
existing informational asymmetries). To the extent that some of the
value of odd-lot quote, depth of book, and auction information lies in
the fact that they currently are not observed by a number of market
participants, the Commission believes that the dissemination of this
data will adversely impact the profitability of such trading
strategies. For traders using trading strategies based on depth of book
information, the magnitude of the cost caused by the proposed
amendments will depend on the extent to which the five aggregated
levels of depth approximate the information contained in the full depth
of book information. To the extent that these strategies exploit the
lack of information on the part of exclusive SIP-reliant traders, this
cost will represent a partial transfer to traders who currently rely
solely on SIP data. The Commission is unable to estimate the size of
this effect, since it does not have a method for detecting the use of
such trading strategies from market data or determining what the profit
on such strategies would be if they could be detected.
    One commenter stated that the Commission did not evaluate the
effects of the potential changes in these trading strategies, including
its effects on liquidity on ``lit'' markets.\2027\ The

Commission does not believe that changes in these trading strategies
will have a significant effect on the liquidity on exchanges because
increased competition from new market makers and broker-dealers that
receive the expanded content of core data (which contribute to the
reduction in the profits of those traders who are beneficiaries of
existing informational asymmetries) will offset any liquidity reduction
that may have occurred from changes in the trading strategies of those
traders who are beneficiaries of existing informational
asymmetries.\2028\ However, the Commission is unable to estimate the
size of this effect because it cannot estimate the extent to which the
profitability of such trading strategies will be affected.
---------------------------------------------------------------------------

    \2027\ See Nasdaq Letter IV at 31.
    \2028\ See infra Section V.C.4(a).
---------------------------------------------------------------------------

    One commenter stated that one cost the Commission did not consider
in the expansion of core data was that, to the extent that the
definition of core data continues to be updated in the future
Commission rulemaking to include more proprietary data in it, exchanges
will have less incentive to innovate and provide new or improved
proprietary data products.\2029\ The Commission agrees that to the
extent this happens, the incentive to innovate will be reduced.
However, the Commission does not believe that the incentive to innovate
will be entirely removed. The final rules do not include all
proprietary data elements in consolidated market data and do not
contemplate any updates to core data (except for additions to auction
data information). Therefore, exchanges may be able to expect that some
amount of revenue could be collected on new proprietary data products
developed. To the extent that the Commission does not change the
definition of core data in the future to include any new data products
after such products are made available, the exchanges may be able to
collect a significant amount of revenue on such products and therefore
will continue to have strong incentives to innovate. To the extent that
the Commission frequently changes the definition of core data to
include new products developed by exchanges soon after they are made
available, exchanges may not be able to collect significant revenue
from them and their incentives to innovate will weaken. In the event
that exchange incentives to innovate are weak, the lost innovation may
represent a significant cost to the market.
---------------------------------------------------------------------------

    \2029\ See Nasdaq Letter IV at 7 (``Expropriating the
proprietary market data products that Nasdaq and others have spent
years developing would rob them of the fruits of their labors and
dash their incentives to develop new and innovative data products
going forward.'').
---------------------------------------------------------------------------

    Commenters stated that retail investors currently receive core data
at little or no cost and that the expansion of core data content would
increase costs for retail investors.\2030\ One of these commenters
stated that currently retail investors who do not use depth-of-book
data and auction data do not pay for it, but that the proposed rule
will replace this with a single feed that is too much data for the
retail investor.\2031\ The Commission believes that there is
uncertainty regarding the cost of market data that retail investors
will pay.\2032\ One factor would be the data content that retail
investors receive. If retail brokers supply retail investors with some
of the additional content from expanded core data, then their costs
could increase but still be lower than the current cost of receiving
equivalent data from SIP and proprietary feeds. However, even if retail
brokers do not supply retail investors with any additional content from
expanded core data, there are reasons that the overall cost of market
data for retail investors could stay at similar rates or decrease
relative to the fees charged by the current exclusive SIPs, including,
among other things, the fees set by the Equity Data Plan(s) and whether
they establish fees for data content underlying consolidated market
data offerings that use subsets of consolidated market data (i.e., for
only TOB data, DOB data, etc.), as well as the different products
offered by competing consolidators and how they allocate fixed
costs.\2033\
---------------------------------------------------------------------------

    \2030\ For commenters' views regarding current retail core data
costs see, e.g., Angel Letter at 11 (stating retail
``nonprofessional'' investors pay almost nothing in direct fees for
market data and that most of the data costs are picked up by
``professional'' users as a result of the good price discrimination
in the current system that favors retail investors); Nasdaq Letter
IV at 38. For commenters' views regarding cost increases to retail
investors from the expansion of core data content, see, e.g., Nasdaq
Letter IV at 38; TD Ameritrade Letter at 2, 14-15; Angel Letter at
24.
    \2031\ See Nasdaq Letter IV at 38.
    \2032\ Retail investors may not directly pay for market data,
but the costs of retail investors accessing market data may be
indirectly passed on through the fees charged by retail broker-
dealers.
    \2033\ See infra Section V.C.2(b) for a detailed discussion of
these fees.
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2. Decentralized Consolidation Model
    This section focuses on the economic effects pertaining to the
decentralized consolidation model. We first discuss the relevant broad
economic considerations and economic benefits and costs of the
decentralized consolidation model with regards to competing
consolidators, then we address economic benefits and costs for self-
aggregators, and finally we conclude with the discussion of conforming
changes.
(a) Broad Economic Considerations About the Decentralized Consolidation
Model
    The economic analysis of the effects of the decentralized
consolidation model assumes that upon the introduction of the model, a
sufficient number of competing consolidators will enter the market so
that competitive market forces will have a significant effect on their
behavior. Several factors affect the reasonableness of this assumption:
Barriers to entry into the competing consolidator space, fees for data
content, uncertainty regarding connectivity charges for data underlying
consolidated market data, potential size of the market for consolidated
market data products, and competing consolidators' ability to offer
differentiated products. While the Commission recognizes uncertainty in
these factors \2034\ and that certain economic impacts depend on this
assumption, the Commission believes that the risk of too few competing
consolidators entering the market, and thus, precluding any potential
benefits from materializing is low. Further, the Commission will
consider the state of the market and the general readiness of the
competing consolidator infrastructure in determining whether to approve
a national market system plan amendment that will effectuate a
cessation of the operation of the existing exclusive SIPs.
---------------------------------------------------------------------------

    \2034\ Commenters agreed that there is uncertainty about the
potential market for competing consolidators. See, e.g., Nasdaq
Letter IV at 8.
---------------------------------------------------------------------------

(i) Factors
(a) Barriers to Entry
    The first factor that will affect the number of competing
consolidators is the barriers to entry. Potential entrants into the
competing consolidator business could incur two types of barriers to
entry: Business implementation costs that emerge from the technical
necessities of becoming a competing consolidator and regulatory
compliance costs. The business implementation costs will include
creation or modification of technical systems to receive, consolidate,
and disseminate consolidated market data.\2035\ Potential entrants will
also

need to satisfy the regulatory compliance requirements of Rule 614 to
become competing consolidators, and many competing consolidators may
need to eventually satisfy the regulatory requirements of Regulation
SCI.\2036\ Both the business implementation and regulatory compliance
costs will differ based on the entrant type.\2037\ The Commission
believes that the barriers to entry will vary based on whether the
potential competing consolidator is: A market data aggregation firm or
a broker-dealer that currently aggregates market data for internal
uses, one of the existing exclusive SIPs (which are operated by SROs),
an SRO that does not operate an exclusive SIP, or a new entrant without
experience aggregating market data. The business implementation costs
will also vary based on the elements of consolidated market data the
competing consolidator chooses to offer in their products.
---------------------------------------------------------------------------

    \2035\ Competing consolidators will need to have systems and
connections in place to receive data content from all SROs and then
to disseminate the consolidated market data to a variety of market
participants who will purchase their products. See supra Section
V.C.1(b)(vi) and infra Section V.C.2(d). One commenter agreed that
infrastructure costs would serve as a barrier to entry for potential
competing consolidators. See NYSE Letter II at 15 (``[t]he
significant costs required to develop, test, and support these
technologies--costs that even existing data processors would incur--
would serve as a barrier to entry for the competing consolidator
market.''). As discussed in detail in this section and below in
Section V.C.2(d), the Commission believes that the costs for
potential competing consolidators to develop and implement their
systems will vary based on the type of entity that becomes a
competing consolidator, but for some types of entities, these costs
could be significantly higher and pose a larger barrier to entry.
    \2036\ See supra Sections III.C.7 and III.C.8 (discussing the
requirements of Rule 614). See also supra Section III.F (discussing
the requirements of Rule 614(d)(9) and Regulations SCI). New
entrants will face both initial implementation and ongoing costs to
comply with these regulatory requirements. See infra Sections
V.C.2(d) and V.C.2(e)(ii) (discussing these costs).
    \2037\ See supra Sections IV.D.3 and IV.G. See also infra
Sections V.C.2(d) and V.C.2(e)(ii).
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    The Commission believes that the existing market data aggregation
firms and some broker-dealers that currently aggregate market data for
internal uses could face low barriers to entry to become competing
consolidators. Because they currently collect, consolidate, and, in
some cases, disseminate market data to their customers, much like
competing consolidators would, the Commission believes that firms and
broker-dealers that currently aggregate proprietary market data would
not have to extensively modify their systems. However, the Commission
believes that each of these firms and broker-dealers would incur costs
to expand their bandwidth and purchase hardware to receive information
that is not currently disseminated in the exchange proprietary market
data feeds, such as the regulatory data and administrative data.\2038\
Further, current market data aggregators and broker-dealers that
currently aggregate market data for internal uses would incur new
compliance costs to satisfy the regulatory compliance requirements to
become competing consolidators, including costs associated with Form
CC, as well as costs to comply with Rule 614(d)(9) and likely
eventually Regulation SCI.\2039\ These regulatory costs would initially
be lower, but they could become large and therefore may affect entry
and the benefits of the decentralized consolidation model.\2040\
---------------------------------------------------------------------------

    \2038\ See infra Section V.C.2(d).
    \2039\ See id. See also infra Sections V.C.3 (for costs
associated with Form CC); V.C.2(e)(ii) (for costs associated with
Rule 614(d)(9) and Regulation SCI).
    \2040\ Although potential competing consolidators will initially
be subject to the lower costs of Rule 614(d)(9) rather than
Regulation SCI, which will lower the initial barriers to entry, the
Commission expects that many competing consolidators will eventually
be SCI competing consolidators and that potential competing
consolidators will take the higher costs of eventually becoming an
SCI competing consolidator into account when deciding to enter the
market. Rule 614(d)(9), which includes requirements similar to some
of the key provisions of Regulation SCI, will apply to all competing
consolidators (except competing consolidators affiliated with
exchanges that do not operate under the limited exemptive relief)
during the initial transition period and smaller competing
consolidators that do not meet the market data revenue threshold for
SCI competing consolidators thereafter. All competing consolidators
that meet the consolidated market data revenue threshold for SCI
competing consolidators, after the initial transition period, will
be subject to Regulation SCI. See infra Section V.C.2(e)(ii)
(discussing these costs). See also supra Section IV.G.3 (discussing
number of competing consolidators subject to Regulation SCI).
---------------------------------------------------------------------------

    The Commission believes that barriers to entry for a potential
competing consolidator that is affiliated with an exchange--which could
be one of the exclusive SIPs--would depend on several factors. In
addition, both business implementation and regulatory compliance costs
would be relatively lower for the existing exclusive SIPs than for the
other competing consolidators that are affiliated with exchanges.
    The barriers to entry from business implementation costs to operate
a competing consolidator would be relatively low for an exclusive SIP.
Because the systems used by the exclusive SIPs already collect
information in quotations and transactions from the SROs as well as
aggregate and disseminate it, the exclusive SIPs would not have to make
as extensive modifications to their systems as the other competing
consolidators that are affiliated with exchanges.\2041\ However, they
would still incur costs to expand their bandwidth and connections to
consume and disseminate consolidated market data as well as to transmit
it with lower latency, and to program feed handlers to receive and
normalize the different formats of the data feeds developed by the
exchanges.\2042\ On the other hand, the Commission believes that other
competing consolidators that are affiliated with exchanges would likely
have to build at least some new systems to process expanded core data,
and thus, could incur relatively high initial implementation costs,
though they may be able to keep their costs lower by leveraging some of
their existing systems.\2043\
---------------------------------------------------------------------------

    \2041\ Based on Commission staff experience, the Commission
understands that existing exclusive SIPs' protocols for receiving
direct data from exchanges are not standardized and introduce
additional operational complexities. However, as the operators of
exclusive SIPs, the exchanges, have figured out how to aggregate
direct feeds for the purposes of their exchange matching engines, so
they have the technology that would be deployable in the new
decentralized consolidation model. If the exclusive SIPs determine
to register as competing consolidators and to operate their
competing consolidators using the existing infrastructure of the
exclusive SIPs, then they may incur costs in order to reimburse each
Plan's Participants for the costs they paid to build the exclusive
SIP's systems. However, any determinations regarding payments to
Participants or the disposition of the assets of the exclusive SIPs
would be made by the Participants of the Equity Data Plans, subject
to Rule 608. See supra note 979 and accompanying text.
    \2042\ See supra Section V.C.1(b)(vi) and infra Section
V.C.2(d).
    \2043\ See supra Section IV.D.3 and infra Section V.C.2(d).
---------------------------------------------------------------------------

    The barriers to entry from regulatory compliance costs would also
be relatively lower for an exclusive SIP. Because the exclusive SIPs
currently operate critical SCI systems,\2044\ they will not bear any
initial compliance costs associated with Rule 614(d)(9) and their
ongoing compliance costs associated with Regulation SCI will not
increase.\2045\ SROs that do not operate exclusive SIPs are also
already SCI entities. However, because these SROs do not have direct
experience operating in the consolidated market data business, they may
need to incur initial costs in order for their competing

consolidator systems to be compliant with Rule 614(d)(9).\2046\
---------------------------------------------------------------------------

    \2044\ See supra Section III.H.
    \2045\ The Commission believes that the exclusive SIPs that
become competing consolidators will likely surpass the 5% revenue
threshold and will be required to comply with Regulation SCI at the
end of the transition period, as described in the amendments. Their
compliance costs associated with Regulation SCI may decrease,
because the systems of an exclusive SIP that became a competing
consolidator would no longer be considered critical SCI systems,
which have stricter requirements and higher costs than other SCI
systems. For example a critical SCI system needs to maintain backup
systems that are designed to allow them to resume operations within
two hours of a system outage (SCI entities only have the requirement
to resume operations the day following a system outage). See infra
V.C.2(e)(ii).
    \2046\ See id.
---------------------------------------------------------------------------

    The other regulatory costs that the competing consolidators that
are affiliated with exchanges would incur would vary based on whether
they chose to operate under the provisions of the limited exemptive
relief from the rule filing requirements of Section 19(b) of the
Exchange Act and Rule 19b-4 thereunder, the denial of access provisions
in Section 19(d) of the Exchange Act, the requirements in Section 6(b)
of the Exchange Act, and from Regulation SCI in regard to their
competing consolidators.\2047\ However, the Commission believes that a
competing consolidator that is affiliated with an exchange would choose
to operate under the provisions of the limited exemptive relief because
then they would not need to file rule changes (including new products
and fee changes) related to their competing consolidator functions with
the Commission under Section 19(b) of the Exchange Act.\2048\ If these
competing consolidators operate under the exemption, then they would
still incur the other regulatory compliance costs associated with Rule
614.\2049\ If these competing consolidators did not operate under the
exemption, then they would need to comply with certain rules applicable
to SROs, including the provisions of Regulation SCI and the
requirements of Section 6(b), and to file all rule changes with the
Commission under the Section 19(b) process, which would impose
significant regulatory barriers in terms of making adjustments to their
products and fees compared to other competing consolidators,
potentially placing them at a competitive disadvantage.\2050\ It would
also create higher initial barriers to entry because the competing
consolidator operations would need to be filed and approved by the
Commission under Section 19(b) of the Exchange Act before they could
begin operating.
---------------------------------------------------------------------------

    \2047\ A competing consolidator affiliated with an exchange may
be a facility of the exchange and subject to Section 19(b) of the
Exchange Act and Rule 19b-4 thereunder. If a competing consolidator
that is affiliated with an exchange chooses to act under the limited
exemptive relief, then the competing consolidator could do so
pursuant to the conditions of the exemption and without having to
operate under the denial of access provisions in Section 19(d) of
the Exchange Act, the provisions of Regulation SCI related to an SRO
(it would still be subject to the provisions of Regulation SCI
related to competing consolidators), or without filing proposed rule
changes with the Commission under Section 19(b) of the Exchange Act
and Rule 19b-4 thereunder. Additionally, a competing consolidator
that is affiliated with an exchange that chooses to operate under
the limited exemptive relief would be exempt from the requirements
of Section 6(b) of the Exchange Act (it would still be subject to
the requirement in Rule 614(d)(3) to make consolidated market data
products available to subscribers on terms that are not unreasonably
discriminatory). See supra Section III.C.7(a)(iv).
    \2048\ See id.
    \2049\ A competing consolidator operating under the exemption
would bear the regulatory compliance costs associated with Rule 614,
including the costs associated with Form CC because the exemption
requires the competing consolidator be registered as a competing
consolidator under Rule 614 and be in compliance with the disclosure
and other substantive regulatory requirements applicable to
competing consolidators in Rule 603, Rule 614 and Form CC. Under the
exemption, the exchange would also not be permitted to link the
pricing for services of the affiliated competing consolidator to
activities on, or other services performed by, the exchange. See id.
See also infra Sections V.C.2(d) and V.C.3 for discussions of the
regulatory compliance costs.
    \2050\ Rule filings under Section 19(b) would be subject to a
notice and comment process and Commission consideration. Fee changes
could be immediately effective upon filing under Section 19(b)(3),
but the Commission would have the authority to abrogate such fee
changes.
---------------------------------------------------------------------------

    The Commission anticipates that new entrants without prior
experience in the market data aggregation business may become competing
consolidators but that they would have the highest barriers to entry
because they would incur both infrastructure and compliance costs. The
new entrants would incur high infrastructure costs to build new systems
to receive, consolidate, and disseminate consolidated market data;
including costs to program feed handlers to be able to receive and
normalize exchange data in different formats, and purchase bandwidth
and connections to exchanges and co-location. These costs increase the
fixed costs of participating as a competing consolidator in the market,
further contributing to the barriers to entry. New entrants may also
have the highest compliance costs among all potential entrants, because
they would have to build compliance systems from scratch to satisfy
both Rule 614(d)(9), and later potentially Regulation SCI, as well as
the other requirements of Rule 614, including Form CC. Therefore, the
Commission believes that there may be a limited number of firms that
could enter the market data aggregation business for the first time.
    The business implementation compliance costs will vary based on the
elements of consolidated market data the competing consolidator chooses
to offer in their products. Specifically, potential entrants that seek
to specialize in offering data products to clients who do not wish to
receive the full consolidated market data could save on ongoing costs
and potentially also on initial infrastructure costs.\2051\ The initial
cost savings would vary across the entrant types listed above depending
on the extent to which the entrant has already built the infrastructure
necessary to aggregate and distribute data similar to consolidated
market data. For example, current data aggregators choosing to
specialize are likely to see a small reduction in barriers to entry
from this change while firms without prior experience are likely to see
a significant reduction in barriers to entry.
---------------------------------------------------------------------------

    \2051\ See supra Section III.C.1(b) and infra Section
V.C.2(d)(i).
---------------------------------------------------------------------------

    One commenter stated that the Commission did not consider the risks
of the potential liability that a competing consolidator may incur for
any performance failures, which are a significant barrier to
entry.\2052\ The Commission believes that these potential liability
concerns are not a significant barrier to entry for competing
consolidators. Competing consolidators could attempt to limit their
potential liability from systems issues through contractual agreements
with their subscribers, similar to provisions that data providers
currently include in their subscriber agreements.\2053\
---------------------------------------------------------------------------

    \2052\ See NYSE Letter II at 15.
    \2053\ See, e.g., CTA Plan Professional Subscriber Agreement,
available at https://www.ctaplan.com/publicdocs/ctaplan/notifications/trader-update/Professional%20Subscriber%20Agreement.pdf; UTP Plan Subscriber
Agreement, available at http://www.utpplan.com/DOC/subagreement.pdf;
Nasdaq Global Subscriber Agreement, available at: http://www.nasdaqtrader.com/content/AdministrationSupport/AgreementsData/subagreemstandalone.pdf; ICE Data Services and Software Services
Agreement, available at: https://www.theice.com/publicdocs/agreements/ICE_Data_Services_Agreement.pdf.
---------------------------------------------------------------------------

b. Effective National Market System Plan(s) Fees for Data Content
Underlying Consolidated Market Data
    Another factor that would affect the number of competing
consolidators relates to the fees that the effective national market
system plan(s) would set for the consolidated market data
content.\2054\ If these fees are set too high or have the effect of
limiting product differentiation,\2055\ they could limit the
opportunities for competing consolidators to build profitable
businesses.
---------------------------------------------------------------------------

    \2054\ See infra Section V.C.2(b) for a discussion on the
economic analysis of data content, consolidation and dissemination,
and connectivity fees.
    \2055\ See infra Section V.C.2(a)(i)e for a discussion on the
potential dimensions of product differentiation by competing
consolidators.
---------------------------------------------------------------------------

    The Commission recognizes uncertainty in these fees. The fees
developed by the effective national market system plan(s) for the data

content underlying consolidated market data offerings would be proposed
by the Operating Committee(s) of the national market system plan(s) and
filed with the Commission.\2056\ Because such fees depend on future
action by the effective national market system plan(s), the Commission
cannot be certain of the level of those fees or whether such fees would
provide discounts for those end users who wish to receive subsets of
consolidated market data (e.g., different prices for different levels
of data content or different core data component) or based on usage
categories (e.g., professional, non-professional, non-display).\2057\
As discussed further below, the fees developed by the Operating
Committee of the effective national market system plan(s) must be fair
and reasonable and not unreasonably discriminatory.
---------------------------------------------------------------------------

    \2056\ See Proposing Release, 85 FR at 16837.
    \2057\ See infra Section V.C.2(b)(ii) for further discussion of
the impact of providing discounts based on scope of data content.
---------------------------------------------------------------------------

    Some commenters said that the uncertainty over fees for data
content underlying consolidated market data offerings will make it
difficult for potential competing consolidators to estimate the
economic value of this new business opportunity, and therefore, enter
the market.\2058\ While there is uncertainty surrounding the currently
unknown levels of data content fees, potential competing consolidators
can judge the value of the business opportunity. Potential competing
consolidators will see, and be able to comment on, the newly proposed
data content fees before they will have to decide whether to register
as competing consolidators.\2059\ During the transition period, the new
data content fees proposed by the effective national market system
plan(s) will be available for potential competing consolidators to
review and comment on before the registration date for the initial
competing consolidator wave expires. This will give competing
consolidators adequate time to evaluate this information and the
potential business opportunity.
---------------------------------------------------------------------------

    \2058\ See, e.g., NYSE Letter II at 14.
    \2059\ See supra Section III.H for a discussion of the steps
during the transition period.
---------------------------------------------------------------------------

    Additionally, the Commission believes that there will likely be
different levels of fees for data content underlying consolidated
market data offerings either based on usage category (e.g.,
professional, non-professional, non-display) or based on the scope of
data content market participants use or a combination of both.\2060\ In
either case, the Commission believes that the differential pricing of
consolidated market data will expand differentiation opportunities for
the potential competing consolidator, as discussed below.\2061\
---------------------------------------------------------------------------

    \2060\ See infra Section V.C.2(b) for a discussion in the impact
on data fees.
    \2061\ See infra Section V.C.2(a)(i)e for a discussion on
competing consolidators' differentiation.
---------------------------------------------------------------------------

c. Connectivity
    Another factor affecting the number of competing consolidators is
the uncertainty regarding connectivity charges for data underlying
consolidated market data and their effects on the viability of the
decentralized model. Each exchange's data connectivity fees will
continue to be set forth in the exchange's fee schedules and must
continue to meet statutory standards.\2062\ Connectivity fees for the
provision of data content underlying consolidated market data would be
a fixed input cost for competing consolidators, and, therefore, the
level of connectivity fees for data content underlying consolidated
market data may affect the economies of scale and the resulting number
of competing consolidators.\2063\ To the extent that some competing
consolidators choose to offer data products with narrower data content
than the entirety of consolidated market data, they could lower their
connectivity costs because they could likely use connectivity options
with narrower data transmission bandwidths.
---------------------------------------------------------------------------

    \2062\ See Proposing Release, 85 FR at n. 1019.
    \2063\ One commenter stated that the Commission may need to
consider ways ``to avoid the imposition of fees that are
substantially disproportionate to the cost of providing these
connectivity methods.'' See IEX Letter at 8. As discussed below,
connectivity fees competing consolidators might pay to the exchanges
to receive data content underlying consolidated market data will
have to be filed with the Commission as part their fee schedules and
must continue to meet statutory standards. See infra Section
V.C.2(b)(i)c and note 2171.
---------------------------------------------------------------------------

d. Potential Size of the Market for Consolidated Market Data Products
    Another important factor in assessing whether competing
consolidators might face profitable business opportunities is the size
of the market for consolidation and dissemination services. The size of
the market will limit the aggregate revenue that competing
consolidators will be able to collect from market participants. The
size of the market can only support the number of competing
consolidators that keep aggregate costs at or below the aggregate
revenue.
    Commenters stated that the size of this market is not large enough
to support enough competing consolidators for sufficient competition
and that the Proposing Release did not adequately analyze potential
revenue streams for competing consolidators.\2064\ The Commission
believes that the size of the market is large enough to sustain several
competing consolidators, because the Commission estimates that the
potential annual revenues for competing consolidators will range from
approximately $78 million to $97 million.\2065\ This is large enough to
support several competing consolidators. The Commission is able to
estimate the current revenues from consolidation and dissemination of
SIP data because of some new information provided by one
commenter.\2066\
---------------------------------------------------------------------------

    \2064\ See, e.g., IDS Letter I at 3.
    \2065\ To calculate these numbers the Commission uses estimates
of the current revenues from consolidation and dissemination of SIP
data as well as estimates of potential revenues from market
participants switching from proprietary data to consolidated market
data products as a proxy for the potential revenue size for the new
competing consolidator business. See infra notes 2072, 2074, 2075,
2076, and 2077 for the calculations of these numbers and the various
assumptions that went into those calculations.
    \2066\ See Nasdaq Letter IV at 29 for a discussion on Nasdaq's
connectivity and market data revenue numbers. See also Proposing
Release, 85 FR at 16816.
---------------------------------------------------------------------------

    The Commission believes these estimates are a lower bound \2067\
and are based on the current SIP market conditions. They do not take
into account any demand expansion from potential new entrants into the
broker-dealer, market maker, and other latency sensitive businesses
\2068\ nor from market participants who currently rely exclusively on
SIP data choosing to spend more on data to receive additional
consolidated data.\2069\ The Commission cannot address these

omissions because it does not have sufficient information to estimate
the size of this potential demand expansion. As a result, these numbers
underestimate the potential market size for competing consolidators. In
addition, the estimates contained in this section are associated with
significant additional uncertainty, especially in terms of connectivity
revenues.\2070\ The potential revenue estimate is based on the current
exclusive SIPs' revenues combined with certain market data aggregators'
and certain exchanges' revenues that the Commission believes could be
available for competing consolidators under the amendments.
Specifically, the four components of these estimated potential revenues
are: Current exclusive SIP operating expenses (approximately $16
million), fees paid to the current SIP data normalizers (approximately
$21 million), SIP data connectivity fees paid to the exchanges
operating the exclusive SIPs (approximately $13 million to $18
million), and data processing and connectivity fees (approximately $28
million to $42 million) from proprietary data users switching to using
consolidated market data products.
---------------------------------------------------------------------------

    \2067\ These are estimates for the end of 2018, because the main
connectivity information used in these calculations is provided by
one of the commenters for 2018. See Nasdaq Latter IV at 29.
    \2068\ See infra Section V.C.4(b) for a discussion on potential
new entrants into the broker-dealer, market maker, and other latency
sensitive businesses.
    \2069\ Potential demand for consolidated market data under the
amendments is unlikely to be smaller than the current demand from
market participants who rely on SIP data because market participants
will continue to need the NBBO and last sale information to comply
with the Vendor Display Rule. The Commission believes that the
potential demand for consolidated market data might be larger than
the current demand from market participants who rely on SIP data,
because a portion of the current proprietary data users might switch
to using consolidated market data and, additionally, there might be
new entry into the broker-dealer, market maker, or other latency
sensitive businesses, as discussed below in Section V.C.4(b). One of
the commenters agreed that some of the current proprietary data
users might switch to using consolidated market data. According to
the commenter, a portion of those market participants newly choosing
to use consolidated market data could become self-aggregators and
others could be served by competing consolidators. See Nasdaq Letter
IV at 25. See also supra Section V.C.1(c) for a discussion on the
benefits of expanded core data content.
    \2070\ See supra note 2065 for additional caveats.
---------------------------------------------------------------------------

    The first component of the estimated potential revenues for
competing consolidators is the operating expenses the current exclusive
SIPs collect for their consolidation and dissemination services. The
SIP data consolidation and dissemination fees currently paid to the
exclusive SIPs could be paid to competing consolidators under the Rule,
and thus, could be a potential source of income for the new competing
consolidator business. As discussed above, UTP operating expenses
totaled around $7 million in 2017 and CTA operating expenses totaled
around $8.8 million in 2018.\2071\ Together, the Commission estimates
the exclusive SIPs' operating expenses to be approximately $16 million
at the end of 2018.\2072\
---------------------------------------------------------------------------

    \2071\ See supra Section V.B.2(d) for a discussion on the
current exclusive SIP's operating expenses.
    \2072\ The Commission estimates the UTP operating expenses to be
approximately $7.4 million as of the end of 2018, based on an
estimated 6% rate of increase. This rate of increase is calculated
as the change of information services revenues Nasdaq reported in
its 2018 and 2019 Form 1 filings and the Commission assumes that a
similar rate of increase applies to Nasdaq's SIP operating expenses.
Nasdaq's Form 1 filings describe that its market data revenues
(excluding connectivity revenues), including from SIP data, are
recorded under the information services item of its consolidated
income statement. According to its 2018 and 2019 Form 1 filings,
Nasdaq's information services revenues increased from approximately
$230 million at the end of 2017 to approximately $243 million at the
end of 2018, an approximately 6% increase. See 2018 Nasdaq Form 1
filing, available at https://www.sec.gov/Archives/edgar/vprr/1800/18002770.pdf (last accessed Sept. 7, 2020); 2019 Nasdaq Form 1
filing, available at https://www.sec.gov/Archives/edgar/vprr/1900/19003684.pdf (last accessed Sept. 7, 2020).
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    The second component of the estimated potential revenues for
competing consolidators is the overall fees market participants pay to
market data aggregators that are SIP data normalizers. Current SIP data
normalizers take in raw data provided by the two exclusive SIPs and
create a combined single data feed to their subscribers. Under the
Rule, with the cessation of the exclusive SIPs, these subscribers will
likely purchase consolidated market data products from competing
consolidators.\2073\ The fees that market participants currently pay to
the SIP data normalizers might be comparable to what market
participants could pay to competing consolidators under the amendments,
and thus could be another potential source of income for the new
competing consolidator business. Based on its knowledge and expertise,
the Commission believes that current SIP data normalizers operate on a
price schedule where they charge 6% over the current SIP data fees.
This pricing schedule and 2018 total SIP data fees indicate an
estimated potential revenue of approximately $21 million to be
available for competing consolidators.\2074\
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    \2073\ One commenter stated that ``[t]he primary ability needed
to act as a self-aggregator is technical skill.'' See AHSAT Letter
at 3. The Commission believes that it is very unlikely for the
market participants that currently receive data from SIP data
normalizers to choose to become a self-aggregator under the
amendments given the substantial investment and costs needed to
become a self-aggregator. Thus, under the amendments, these market
participants will likely purchase their market data from competing
consolidators, and not self-aggregate. See supra Section V.B.2(c)
for a discussion of the different levels of technical expertise and
sophistication market participants have. See supra Section V.B.2(b)
for a discussion of SIP data normalizers and their subscribers.
    \2074\ For this estimation, the Commission is using the publicly
available SIP revenue information. The total SIP data revenues in
2018 were approximately $164 million for Tape A, $94 million for
Tape B, and $132 million for the UTP SIP. Of these revenues, 10% for
Tape A, 9% for Tape B, and 12% for UTP were revenues from non-
display users. The Commission believes that market participants who
purchase data from SIP data normalizers are unlikely to be non-
display users, thus the SIP revenues from non-display users should
be excluded from this calculation. In 2018, the total SIP data
revenues without non-display users is approximately $349 million.
The 6% margin over these data revenues will indicate an
approximately $21 million potential annual revenue that might be
available for competing consolidators. See infra note 2191 for the
CTA and UTP Plans' Q2 2020 Quarterly Revenue Disclosures.
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    The third component of the estimated potential revenues for
competing consolidators is the current SIP data connectivity fees paid
to the exchanges operating the exclusive SIPs. As discussed above, the
exchanges operating the exclusive SIPs charge connectivity fees to SIP
data users who directly connect to the exchanges to receive SIP data.
Under the Rule, market participants who will use consolidated market
data products and who will not self-aggregate will likely pay
connectivity fees to competing consolidators instead of the exchanges.
The SIP data connectivity fees that market participants currently pay
to the exchanges might be paid to competing consolidators under the
amendments, and thus, could be another potential source of revenue for
the new competing consolidator business.\2075\ The Commission estimates
that the 2018 SIP data connectivity revenues range from approximately
$13 \2076\ million to $18 million.\2077\
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    \2075\ Today the exchanges operating the exclusive SIPs offer
connectivity products that bundle SIP connectivity with other
exchange connectivity services. It is not possible to tell how much
of the connectivity fees cover SIP connectivity and how much of them
cover connectivity services for other exchange products such as
proprietary data feeds. For example, one exchange stated that
``users can connect to Regulation NMS equities and options feeds
disseminated by the SIP using either of the co-location local area
networks. Users do not pay an additional charge to connect to the
NMS feeds: It comes with their connection to the local area
network.'' See NYSE's Notice of Filing of Proposed Rule Change to
Amend the Exchange's Price List Related to Co-location Services,
available at https://www.sec.gov/rules/sro/nyse/2019/34-86865.pdf
(last accessed Sept. 8, 2020). For this reason, the Commission's
estimates include several assumptions.
    \2076\ Neither of the exchanges operating the exclusive SIPs
disclose their connectivity revenues as a separate item on their
Form 1 filings. However, one of the commenters disclosed its
connectivity revenues to be $167.6 million in 2018. See Nasdaq
Letter IV at 29. To estimate the portion of this connectivity
revenue that comes from subscribers of SIP data, the Commission uses
the ratio of non-display SIP data revenues with respect to that the
exchange's overall market data revenues (excluding connectivity
fees). The Commission uses a revenue ratio based on non-display SIP
data revenues within the overall market data revenues, because non-
display data subscribers are the most likely connectivity purchasers
for SIP data. Nasdaq's information services revenues (which covers
its market data revenues, excluding its connectivity revenues) at
the end of 2018 were approximately $243 million. See supra note 2072
for Nasdaq's 2019 Form 1 filings. In the same time period, its total
non-display SIP revenues were approximately $9 million. See infra
note 2191 for the CTA and UTP Plans' Q2 2020 Quarterly Revenue
Disclosure. In other words, Nasdaq's total non-display SIP data
revenues were approximately 4% of its overall market data revenues,
excluding the connectivity revenues. For the lower bound estimation,
the Commission assumed that the other exchange operating an
exclusive SIP has the same amount of connectivity revenue from SIP
data as Nasdaq ($6.4 million), bringing the lower bound of the total
SIP data connectivity revenues that might be available to competing
consolidators to approximately $13 million ($6.4 million times 2).
    \2077\ For the upper bound estimates, the Commission calculates
the following numbers. First, the Commission estimates Nasdaq's
connectivity revenues the same way, approximately $6.4 million in
2018. Second, the Commission assumed that, in 2018, NYSE had the
same amount of total connectivity revenue as Nasdaq ($167.6
million). See supra note 2072 for NYSE's 2019 Form 1 filings. To
estimate the portion of this connectivity revenue that comes from
subscribers of SIP data, the Commission similarly used the ratio of
non-display SIP data revenues with respect to that the exchange's
overall market data revenues (excluding connectivity fees). In 2018,
NYSE's non-display data revenue from the SIPs were approximately $5
million and its overall market data revenue for the same period
(excluding the connectivity revenues) were approximately $68 million
($236 million overall data services revenues minus the $167.6
million connectivity revenues). This indicates an approximately 7%
revenue ratio. The Commission, then, estimated that NYSE's SIP data
connectivity revenues in 2018 were approximately $12 million (7% x
$167.6 million). This brings the upper bound of the total SIP data
connectivity revenues that might be available to competing
consolidators to approximately $18 million ($6.4 million plus $12
million).

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    Finally, the Commission also believes that a number of firms may
switch from using proprietary data feeds to using consolidated market
data products provided by competing consolidators.\2078\ The Commission
believes that a reasonable range of firms who could switch to using
consolidated market data products from using proprietary data feeds is
10 to 15. A typical firm using non-display feeds typically requires
feeds from 10 exchanges,\2079\ which the Commission estimates would
cost approximately $1.1 million per year, per use case.\2080\ The
Commission also believes that the typical broker-dealer firm would have
2 use cases, so that the total spent on these proprietary data feeds
would be $2.2 million. Using the 6% fee charged by normalizers
discussed above, the Commission believes that there is between
approximately $1.3 million and $2 million in revenue available to
competing consolidators from this market segment.
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    \2078\ See infra Section V.C.4(a) for additional discussion of
this point, including how the expanded content of core data will be
part of the reason firms may switch. These details were also
discussed in the Proposing Release 85 FR at 16853.
    \2079\ Specifically, those exchanges are NYSE, NYSE American,
NYSE Arca, Nasdaq, Nasdaq BX, PSX, Cboe BYX, Cboe BZX, Cboe EDGA,
and Cboe EDGX.
    \2080\ See Katsuyama Letter II; Letter from John Ramsay, Chief
Market Policy Officer, Investors Exchange LLC, to Brent J. Fields,
Secretary, Commission (Feb. 4, 2019).
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    If these 10 to 15 firms switch from using proprietary market data
obtained from direct connections to the exchanges to using a competing
consolidator, then they will no longer pay connectivity fees to the
exchanges for their data access.\2081\ As in the case of connectivity
fees for the exclusive SIPs, the Commission believes that the
connectivity fees for the proprietary feed connections to which these
market participants cease to subscribe represents potential revenue for
competing consolidators. The Commission estimates that the connectivity
fees associated with these 10 to 15 dropped connections total
approximately $27 million to $40 million.\2082\
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    \2081\ See supra Section V.B.3(c) for discussion of connectivity
services.
    \2082\ This estimate follows a similar methodology as in note
2076. The Commission assumed that a given percentage of total
proprietary data feed revenue comes from customers who also make up
the same percentage of proprietary data connectivity revenue. The
Commission estimates that 10 to 15 proprietary data customers, each
with 2 non-display use cases, represent approximately $21.9 million
to $32.9 million in proprietary data revenue. Using the revenue
numbers from Section V.B.2(e), the Commission estimates that this is
approximately between 8% and 12% of total exchange proprietary data
revenue ($21.9 million/$269.0 million; $32.9 million/$269.0
million). The assumption that these customers make up the same
percentage of total exchange connectivity revenue yields that these
customers are responsible for between $26.6 million and $40.0
million of total exchange connectivity revenue (8% x $327 million;
12% x $327 million). In this calculation, the connectivity revenue
that pertains to the exclusive SIPs is subtracted from total
connectivity revenue to produce the base of proprietary data
connectivity revenue. The conservative estimate of the upper bound
on SIP connectivity revenue discussed in note 2077 of $18 million
was used in both cases (10 and 15 switching users) to yield $327
million for proprietary connectivity revenue.
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    The Commission believes that even though the $78 to $97 million
estimated potential annual revenue is an underestimate, it is still
large enough to support multiple competing consolidators. The estimated
ongoing costs per competing consolidator range from $6.6 million to $8
million (including the ongoing Regulation SCI costs),\2083\ leaving
substantial room for profits for multiple competing consolidators even
after incurring initial costs.
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    \2083\ See infra Sections V.C.2(d) and V.C.2(e)(ii) for a
discussion about the ongoing cost potential competing consolidators
might incur. See also infra note 2256 for the total direct cost
numbers.
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    Finally, some commenters argued that most market participants
interested in consolidated market data might become self-aggregators,
which might shrink the customer base available to competing
consolidators preventing the emergence of a healthy competing
consolidator market.\2084\ While acknowledging that some market
participants might become self-aggregators,\2085\ the Commission
believes the market will still support multiple competing
consolidators. A variety of market participants will likely demand the
entirety or a subset of consolidated market data, including market
participants who currently rely on SIP data as well as market
participants who might switch from the exchanges' proprietary data