New York Stock Exchange, Inc.

Comments to
Securities and Exchange Commission Concept Release on
"Regulation of Market Information Fees and Revenues"
(Release No. 34-42208; File No. S7-28-99)


APPENDIX A


Map of Exchange Responses to the Issues as to Which
the Concept Release Seeks Comment





Map of Exchange Responses to the Issues
as to which the Concept Release Seeks Comment


A. Flexible, Cost-Based Approach to Evaluating the Fairness and Reasonableness of Market Information Fees and Revenues

1. Cost-Based Limit on Market Information Revenues

The Commission requests comment on all aspects of the concept of setting a cost-based limit on market information revenues.

Appendix B provides the legislative history of Congress's intentions regarding market data fees and revenue limitations. Appendix C-1 presents the views of economic experts to whom the Exchange turned for assistance in studying this issue. Appendix C-2 presents the views of the rate-regulation experts to whom the Exchange turned. Also in Appendix C is a letter from our experts giving an overview and synthesis of the two detailed memoranda. Part 1 of the letter of response (the "Response") to which this Appendix A is attached summarizes those appendices and presents the Exchange's own views on the question.

Comment is requested on the advisability and practicality of the flexible cost of serve approach, including whether a single approach is appropriate for each of the different Networks and for different types of securities.

See Part 1(B) of the Response and Appendix C (pp. 4,7 and 12-13).

Comment is requested on which costs the markets should be allowed to fund from market data fees, the appropriate size of standard allocation percentages, whether those percentages should vary from market to market and SRO to SRO, and other matters pertaining to the particulars of cost-based rate-making.

In Appendices C, C-1 and C-2, the Exchange's economic and regulatory experts explain that any sort of cost-based pricing is conceptually flawed and practically impossible. Part 1(B) of the Response summarizes those appendices and presents the Exchange's concurrence with that guidance. For those reasons, the Response does not address Concept Release questions regarding the details of cost-based rate-making.

Comment is requested on whether the cost of market information should include an allowance to provide a fair rate of return and, if so, how a fair rate of return should be determined.

See Appendix C (pp. 4, 8-10, and 12), Appendix C-1 (pp. 26-29), and Appendix C-2 (pp. 10, 13, 16-23, 28-29, 32-34, and 37-40).

The Commission also would be interested in suggestions for any alternative approaches to setting a fair and reasonable limit on market information revenues.

Appendix D makes the case that the system that has been in place for the past quarter century has worked well. Part 3 of the Response presents an alternative approach to cost-based rate making that the Exchange believes provides the optimal solution to the pricing concerns that the Commission raises in the Concept Release.

2. Fairness and Reasonableness of Specific Fees

Comment is requested on whether the fees for particular classes of subscribers, given their economic circumstances and their need for and use of real-time information, are at a sufficiently high level that a significant number of users are deterred from obtaining the information or that the quality of their information services is reduced.

See Part 2(A) of the Response and Sections I(A) and III of Appendix D.

Comment is requested on the fairness and reasonableness of all [Market Data] fees, which include fees for vendor access and a variety of other services.

See Part 2 of the Response, Appendix D (especially Section I(D)) and Section 1 of Appendix E.

a. Professional Subscriber Fees

Comment is requested on the fairness and reasonableness of professional subscriber fees. Consider whether they further the Exchange Act objective of making market information widely available and whether professional subscriber fees, in practice, limit the availability of market information.

See Part 2 of the Response and Sections I, II(B)(1) and III(C) of Appendix D, and Section 1 of Appendix E.

b. Retail Investor Fees

The Commission requests comment on whether retail investor fees now are low enough and structured in such a way that they do not significantly limit the availability of real-time information to retail investors, both in terms of the number of subscribers and the quality of information services.

See Part 2(A) of the Response and Sections I, II(B)(2), III(D) and III(E) of Appendix D.

Comment is requested on whether the current fee schedules could inappropriately restrict the information services that broker-dealers provide to their retail customers.

See Part 2(A) of the Response and Sections I, II(B)(2), III(D) and III(E) of Appendix D.

Comment is requested on whether the fees applicable to retail investors are unreasonably discriminatory compared to those for professional subscribers.

See Part 2 of the Response and Section 1 of Appendix E, especially Section 1(E).

Comment is requested on whether the difference in rates between professional and nonprofessional subscribers adequately reflects the difference in use.

See Part 2 of the Response and Section 1(E) of Appendix E.

Comment is requested on the number of hours in a month that retail investors, on average, could be expected to monitor real-time information.

See Section 1(E) of Appendix E.

The Commission requests comment on the fairness of fees for on-line services in comparison to fees for traditional telephone-based services.

See Part 2(C) of the Response and Section 1(F) of Appendix E.

The Commission requests comment on any issue relating to the effect of market information fee structures on broker-dealers conducting different types of business.

See Parts 1(B) and 2(C) of the Response and Section 1 of Appendix E.

Comment is requested on whether fees for on-line access to market information by retail investors are warranted by the degree of use and the quality of service provided.

See Section I(A), I(C) and I(F) of Appendix E.

c. Fee Discounts

The Commission requests comment on whether fee discounts are consistent with the Exchange Act objective that exclusive processors of information should remain neutral in their treatment of firms and customers.

See Part 2(C) of the Response and Section I of Appendix E.

Comment is requested on whether the size of fee discounts should be strictly limited to differences in administrative costs.

See Part 2(C) of the Response and Section I of Appendix E.


B. Distribution of Network Revenues to SROs and SRO Funding

1. Direct Funding of Market Regulation Costs

The Commission requests comment on whether a portion of market information revenues should be earmarked to fund (a) market oversight, (b) technology, and other SRO costs, that directly enhance the integrity and reliability of market information, or (c) any other SRO costs. It asks whether a function's costs (e.g., market regulation) can be readily identified and whether direct funding would create an inappropriate incentive for the SROs to increase these costs beyond reasonable levels.

Part 1(B) of the Response and Appendices C, C-1 and C-2 explain why any sort of cost-based rate regulation is conceptually flawed and practically impossible. For the same reasons, the Exchange believes that "earmarking" market data revenues to fund particular functions is unwise. See, also, Part 2(B) of the Response.

2. Compensating SROs in Accordance with the Value of Their Market Information

Comment also is requested on whether revenue distribution should reflect more directly the value that each SRO's information contributes to the stream of consolidated information made available to the public.

See Part 3 of the Response and Appendix C-1 (pp. 34-39).

Does the current practice of allocating revenues based solely on an SRO's proportion of transaction volume adequately further the Exchange Act objectives of maintaining the quality of market information and encouraging fair competition? Does it accurately reflect the value of an SRO's quotations?

See Part 3 of the Response, Appendix C-1 (pp. 34-39) and Appendix C-2 (pp. 9-10).

Is there a basis for distributing a portion of Network revenues based directly on the value of quotations? Is it possible to devise a pragmatic formula or algorithm (or a combination) that would reward markets that provide "price discovery"? Is there a way to reward markets that are the first to publish quotations at the best prices and in the largest sizes? Assuming a formula could be found to assess the value of quotations in an individual security, how should the results be aggregated for all of the securities that are included in a Network?

Part 3 of the Response proposes an alternative to the current system that responds to each of the concerns that underlie these questions.

3. SRO Rebates to Members

The Commission requests comment on whether rebates of Market data fees to members are consistent with the Exchange Act objective of fair competition. Are they equitable allocations of an SRO's charges among its members? Do rebate programs indicate that market information revenues exceed self-regulatory funding requirements?

See Part 3 of the Response. (Because the Commission's rebate concerns emanate from the fact that market data revenue distributions to some markets exceed the value of those markets' data contributions, rebates represent one of the "undesirable effects" that Part 3 discusses.). See, also, Appendix C-1 (pp. 34-39).


C. Plan and SRO Disclosure

The Commission requests comment on whether the Plans should be required to make annual filings for the Networks that would be available to the public. These filings could include (1) a complete listing of all their fees, and (2) the number of users participating in each of their different fee programs, and (3) audited financial statements setting forth their revenues (including an itemized listing of revenues attributable to their different fees), expenses, and distributions.

See Part 1(B) of the Response and Section II of Appendix E.

Comment is requested on whether the SROs should be required to provide greater disclosure of their financial condition, including disclosure of the costs associated with the performance of their various SRO functions.

See Section II of Appendix E.


D. Plan Governance, Administration, and Oversight

Comment is requested on whether network governance structures should be broadened to include such parties as vendors, broker-dealers, and investors.

See Part 2(B) of the Response.

If participation in the governance of the Plans were broadened, should non-SRO parties be included on the Operating Committee? Should an industry advisory committee be established? How about additional committees with broad participation to address particular issues? How should non-SRO representatives be selected and should they have a vote?

Part 2(B) of the Response explains why the current form of market data governance structure is preferable to the alternatives that the Concept Release discusses. Because the Exchange views the current system as preferable, the Response does not address the particulars of the Concept Release's alternatives.

Comment is requested on whether the Plans should establish industry-wide standards for administering their fee structures and, if so, the most appropriate means for the Plans to act jointly in developing such standards.

See Section III of Appendix E.

Comment is requested on the advisability and usefulness of pilot programs.

See Section IV of Appendix E.

Should pilot programs be eliminated entirely or should the Plans have some flexibility to experiment with innovative services and fee structures without first going through the process of a Commission filing and public comment?

See Section IV of Appendix E.

If pilot programs should continue in some form, comment is requested on whether they should be limited to a specified time period (for example, one year), after which the program could not be continued unless it was filed with the Commission.

See Section IV of Appendix E.

Finally, comment is requested on whether the terms and conditions of all pilot programs should be made available to the public in some fashion prior to initiation of the program.

See Section IV of Appendix E.

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The Commission invites public comment on all of the foregoing matters, as well as on any other matters relating to the arrangements for disseminating market information that commenters believe the Commission should consider in concluding its review and formulating proposals.

See the Response and Appendices B through E.