[Federal Register Volume 64, Number 223 (Friday, November 19, 1999)]
[Notices]
[Pages 63350-63352]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-30274]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42138; File No. SR-CTA/CQ-99-02]
Consolidated Tape Association; Order Granting Approval of Fifth
Charges Amendment to the Second Restatement of the Consolidated Tape
Association Plan and the Fourth Charges Amendment to the Restated
Consolidated Quotation Plan
November 15, 1999.
I. Introduction
On August 2, 1999, the Consolidated Tape Association (``CTA'') and
the Consolidated Quotation (``CQ'') Plan Participants
(``Participants'')\1\ filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') amendments to the Restated CTA Plan and CQ
Plan pursuant to Section 11A(a)(3) of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 11Aa3-2 thereunder.\3\ Notice of the
proposed plan amendments appeared in the Federal Register on August 30,
1999.\4\ The Commission received two comment letters in response to the
proposals.\5\
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This order approves the proposed plan amendments.
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\1\ The amendments were executed by each Participant in each of
the Plans. The participants include American Stock Exchange LLC
(``Amex''), Boston Stock Exchange, Inc., Chicago Board Options
Exchange, Inc., Chicago Stock Exchange, Inc., Cincinnati Stock
Exchange, Inc., National Association of Securities Dealers, Inc.,
New York Stock Exchange, Inc. (``NYSE''), Pacific Exchange, Inc.,
and Philadelphia Stock Exchange, Inc.
\2\ 15 U.S.C. 78k-1(a)(3).
\3\ 17 CFR 240.11Aa3-2.
\4\ Securities Exchange Act Rel. No. 41767 (August 19, 1999), 64
FR 47204.
\5\ See letters from Gene L. Finn, Finn Associates, Inc.,
received September 23, 1999 (``Finn Letter'') and Sam Scott Miller,
Orrick, Herrington & Sutcliffe LLP, to Jonathan G. Katz, Secretary,
Commission, dated September 7, 1999 (``Schwab Letter No. 1''). In
this letter, Schwab requests that the Commission incorporate by
reference comments it submitted concerning network A's proposed
reduction in fees. See letter from Sam Scott Miller, Orrick,
Herrington & Sutcliffe, LLP, to Jonathan G. Katz, Secretary,
Commission, dated July 26, 1999 (``Schwab Letter No. 2'').
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II. Description of the Proposal
A. Nonprofessional Subscriber Service Rates
The participants under the Plans that make network B last sale
information and Network B quotation information available (the
``Network B Participants'') currently impose on vendors a monthly fee
of $3.25 for each nonprofessional subscriber to whom the vendor
provides a Network B market data display service. These amendments
propose to reduce that monthly fee from $3.25 to $1.00 for each
nonprofessional subscriber to whom a vendor provides a Network B
display service during the month.
For the nonprofessional subscriber rates (rather than the much
higher professional subscriber rates) to apply to an of its
subscribers, a vendor must make certain that the subscriber qualifies
as a nonprofessional subscriber,\6\ subject to the same criteria that
have applied since 1985, when the network B Participants first
established a reduced rate for nonprofessional subscribers. Only those
nonprofessional subscribers that actually gain access to at least one
real-time Network B quote or price during the month will be charged the
proposed fees by the Network B Participants.
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\6\ A ``nonprofessional subscriber'' shall receive the
information solely for his personal, non-business use. The
subscriber shall not furnish the information to any other person.
See NYSE and the Amex Application and Agreement for the Privilege of
Receiving Last Sale Information & Bond Last Sale Information as a
Nonprofessional Subscriber, for the qualifications necessary to be
classified as a nonprofessional subscriber.
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B. Pay-for-Use-Rates
Since February 1997, the Network B Participants have conducted a
pilot program pursuant to which vendors, providing Network B market
data display services to nonprofessional subscribers, have been
afforded the following tiered usage schedule as an alternative to the
flat $3.25 monthly rate the Network B Participants have historically
imposed on nonprofessional subscribers.
1-50 quotes=$0.50 per month, per quote
51-250 quotes=$3.25 per month, per user
251+quotes=$35.00 per month, per user
Based on their experience with the tiered usage schedule and their
extensive consultation with vendors and member organizations, the
Network B Participants are proposing to alter the tiered usage schedule
and to make the altered fee structure part of the Network B rate
schedule.
Under the altered rates, each vendor would pay:
i. Three-quarter of one cent ($0.0075) per quote packet \7\ for
each of the first 20 million quote packets that it distributes during a
month;
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\7\ A ``quote packet'' refers to any data element, or all data
elements, relating to a single issue. Last sale price, opening
price, high price, low price, volume, net change, bid, offer, size,
best bid and best offer all exemplify data elements. `'IBM''
exemplifies a single issue. An index value constitutes a single
issue data element.
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ii. one-half of one cent ($0.005) per quote packet for each of the
next 20 million quote packets that it distributes during that month
(i.e., quote packets 20,000,001 through 40,000,000 million); and
iii. one-quarter of one cent ($0.0025) for every quote packet in
excess of 40 million that it distributes during that month.
C. Interplay of Nonprofessional-Subscriber and Pay-for-Use Rates
The Network B Participants further propose to reduce the cost
exposure of vendors and broker-dealers by permitting them to limit the
amount due from each nonprofessional subscriber each month. The vendors
and broker-dealers would be eligible to pay the lower of either (i) the
aggregate pay-per-use fees that would apply to the subscriber's usage
during the month or (ii) the flat monthly $1.00 nonprofessional
subscriber fee. The Network B Participants propose to offer this
flexibility to each subscriber that qualifies as a nonprofessional
subscriber and that has agreed to the terms and conditions that apply
to the receipt of market information as a nonprofessional subscriber.
For ease of administration, the Network B Participants proposed to
allow each vendor and broker-dealer to apply the $1.00 fee for any
month in which each nonprofessional subscriber retrievers 134 or more
quote packets during the month, without regard to the marginal per-
quote rate that the vendor or broker-dealer pays that month (i.e.,
three-quarters, one-half or one-quarter cent per quote packet). In
addition, each vendor may reassess each month to determine which fee is
more economical, the per-quote fee or the nonprofessional subscriber
fee.
III. Summary of Comments
The Commission received two comment letters concerning the proposed
amendments to the CTA and CQ Plans.\8\ One comment contends that
because the nonprofessional fees are ``per se'' discriminatory, the
Commission should abrogate them.\9\ Finn also believes that ``without
audited incremental cost information, the reasonableness of specific
fees cannot be determined.''\10\ Moreover, without proper documentation
to support the implementation of these fees, Finn believes the proposal
is inconsistent with the Act's standards of fairness and
competition.\11\ Furthermore, Finn suggests that all SRO fee structures
be reviewed to determine the feasibility of establishing a universal
rate for access to all market data.\12\
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\8\ See note 5 supra.
\9\ Finn Letter at 2-3.
\10\ Id. at 6.
\11\ Id. at 2.
\12\ Id. at 5.
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The other commenter, however, supported approval of the proposed
fee reductions, but also asserted that other aspects of the proposal
were not consistent with the statutory standards applicable to market
information fees and should be abrogated.\13\ Schwab stated that,
although the fee reductions benefit retail investors, the CTA's overall
fee structure is not fair and reasonable because the fees charged are
unrelated to the actual costs of providing the market information.\14\
Moreover, Schwab notes that the reduced costs of collecting and
disseminating market information have resulted from an increase in
dissemination of market information through electronic means. According
to Schwab, because the new fee structure does not reflect these reduced
costs, the fee structure does not comply with the standards of Section
11A of the Act.\15\
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\13\ Schwab Letter No. 2 at 6-7.
\14\ Id. at 4.
\15\ Id. at 5-6.
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Schwab believes that the tiered fee structure improperly
discriminates among broker-dealers and vendors based on the number of
subscribers they have and their subscribers' use of market data.\16\
However, it suggests that a lower-level fee of $.50 is a more
appropriate level for the monthly unlimited-use fee and should be
applied [to] all subscribers.\17\ Schwab also believes that the
enterprise cap included in the Network A proposal could be similarly
implemented in the context of this proposal.\18\ While Schwab believed
the cap for Network A was excessive, it
[[Page 63352]]
noted a cost-based cap may be the most equitable means for assessing
fees and reducing the costs of market data users.\19\
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\16\ Schwab Letter No. 2 at 3.
\17\ Schwab Letter No. 1 at 2. See also Securities Exchange Act
Rel. No. 41977 (Oct. 5, 1999), 64 FR 55503 (Oct. 13, 1999), where
the monthly fee for each nonprofessional subscriber was reduced to
$1.00 for each of the first 250,000 nonprofessional subscribers who
received Network A market data and $.50 for each additional
subscriber.
\18\ Id.
\19\ Id.
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IV. Discussion
The Commission finds that the proposed plan amendments are
consistent with the Act and the rules and regulations thereunder.\20\
Specifically, the Commission finds that approval of the amendments is
consistent with Rule 11Aa3-2(c)(2) \21\ of the Act.
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\20\ The Commission has considered the proposed amendments'
impact on efficiency, competition, and capital formation. 15 U.S.C.
78c(f). The Commission realizes that the modified fee structure, as
applied, may create competitive disparties. The new fee structure
will, however, reduce the cost of access to market information,
which should result in a reduction of costs for investors. The
competitive concerns and solutions suggested by the commenters will
be addressed in the Commission's forthcoming concept release on
market information fees and revenues.
\21\ 17 CFR 240.11Aa3-2(c)(2).
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The Commission currently is conducting a broad review of the fee
structures for obtaining market information and of the role of market
information revenues in funding the self-regulatory organizations. As
part of its review, the Commission intends to issue a release
describing existing market information fees and revenues and inviting
public comment on the subject. The proposed rule change implicates many
of the issues that the Commission is reviewing. These include
identifying the appropriate standards for determining (1) whether the
fees charged by an exclusive processor of market information are fair
and reasonable, and (2) whether a fee structure is unreasonably
discriminatory or an inappropriate burden on competition.
The Commission has decided to approve the proposed plan amendments
pending its review because they represent, in part, a very substantial
reduction in the market information fees applicable to retail
investors. In particular, the monthly fee for non-professional
subscribers would be reduced from $3.25 per month to no greater than
$1.00 per month. Under this monthly fee structure, there would be no
limit on the amount of market information that retail investors would
be entitled to receive. Such, a fee structure may enable vendors, to
provide retail investors with more useful services than have previously
been provided. In this regard, the proposed plan amendments are
consistent with, and significantly further, one of the principal
objectives for the national market system set forth in Section
11A(a)(1)(C)(iii)--increasing the availability of market information to
broker-dealers and investors. The Commission wishes to emphasize,
however, that its review of market information fees and revenues is
ongoing and may require a re-evaluation of the fee structures contained
in the proposed plan amendments at some point in the future.
The Commission recognizes that one commenter opposes the proposal,
while the other supports approval of the proposed fee reductions
primarily because they represent an improvement over the CTA's current
fee structure. Other issues raised by the commenters (e.g.,
discriminatory impact of the CTA fee structure on on-line investors,
the appropriate standard to be applied in assessing the fairness and
reasonableness of market information fees) have broader implications on
the functioning and regulation of the national market system. As such,
these issues will be addressed in the Commission's forthcoming concept
release on market information fees and revenues.
The Commission also finds that the minor, non-substantive changes
made to the form of Schedules A-3 of Exhibit E to both the CTA and CQ
Plans reflect the proposed amendments, thereby clarifying the fee
schedules to make them more understandable.
V. Conclusion
It is therefore ordered, pursuant to Section 11A of the Act,\22\
and the rules thereunder, that the proposed amendments to the Plans
(SR-CTA/CQ-99-02) are approved.
\22\ 15 U.S.C. 78k-1.
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(27).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-30274 Filed 11-18-99; 8:45 am]
BILLING CODE 8010-01-M
