|New York Stock Exchange, Inc.|
Securities and Exchange Commission Concept Release on
"Regulation of Market Information Fees and Revenues"
(Release No. 34-42208; File No. S7-28-99)
Legislative History and Subsequent Administration
of Securities Exchange Act Section 11A
Prepared by Debevoise & Plimpton
Debevoise & Plimpton
875 THIRD AVENUE
NEW YORK, NY 10022
TELECOPIER: (212) 909-6836
April 5, 2000
Mr. Robert G. Britz
Group Executive Vice President
New York Stock Exchange, Inc.
11 Wall Street
New York, NY 10005
Re: SEC Concept Release on the Regulation of
Dear Mr. Britz:
Enclosed is a memorandum that addresses the legislative history of the provisions of Section 11A of the Securities Exchange Act of 1934 that relate to the fees charged for market information. The memorandum explains that these provisions were designed to prohibit an exclusive processor of securities information from engaging in anti-competitive or discriminatory practices, but were not intended to establish a utility-type rate-making regime to govern the fees charged for market information. The memorandum also describes the manner in which the Securities and Exchange Commission has administered the relevant provisions since 1975, and points out the need for the agency to justify any decision to depart from the policies and practices established over 25 years. Because the fees charged for market information have declined in real terms over this period and now account for a fraction of one percent of the industry's total expenses, this would be a difficult burden to meet.
As you know, I was a member of the SEC's staff in various positions between 1971 and 1981. I served as student to Gene Rotberg and later as a trial attorney in the Commission's Division of Trading and Markets under Irv Pollock -- both provocateurs in the epic that led to the elimination of fixed minimum commission rates in the securities industry. As Special Counsel to Chairman Garrett, Executive Assistant to Chairmen Hills and Williams, and ultimately General Counsel under Chairmen Williams and Shad, I was a close witness to the development of the legislative record for the Securities Act Amendments of 1975 and their subsequent implementation by the Commission. Unquestionably, I believe that no one at the Commission during those times contemplated that any sort of rate-making regime would be in the agency's future. Nonetheless, I did not have to take an "I was there" approach in the memorandum, because the record speaks for itself.
In the process of defining the overarching objectives in enacting Section 11A, there was a vigorous back room debate on Capitol Hill over the choice of the verb with which Congress would express its direction for SEC involvement in the development of a national securities market. After sparring on the subject with ideologues of every stripe, Congress settled on the verb "facilitate" rather than "establish." It was a wise choice, and one which reflected the congressional judgment that both the Commission and the securities industry should have maximum flexibility in designing the contours of a national market system.
Utility-type rate making is the antithesis of flexibility, and it can hardly be seen as a protocol suited to "facilitate" -- or as Webster's defines it, "make easier" -- the process of establishing market data fees. The simple fact of the matter is that the statute requires only that market data fees be "fair and reasonable."
Please let me know if there is any additional assistance that I can provide.
Ralph C. Ferrara
Debevoise & Plimpton
555 13TH STREET, N.W.
WASHINGTON, DC 20004
TELECOPIER: (202) 383-8118
March 30, 2000
|Memorandum to:|| Robert G. Britz
Group Executive Vice President
New York Stock Exchange, Inc.
|From:|| Ralph C. Ferrara
Phillip D. Parker
Legislative History and Subsequent Administration
of Securities Exchange Act Section 11A
I. Introduction and Summary
In the Securities Act Amendments of 1975 (the "1975 Amendments"),1 Congress amended the Securities Exchange Act of 1934 (the "Exchange Act") by adding Section 11A. That section directs the Securities and Exchange Commission ("SEC" or the "Commission") to facilitate the establishment of a national market system for securities in accordance with specific objectives, one of which is to ensure the availability of market information to broker-dealers and investors. Section 11A(c)(1) provides the Commission with rule-making authority to ensure that market information is provided on terms that are "fair and reasonable" and "not unreasonably discriminatory." Congress did not provide any specific standards, however, to be used in determining when the terms on which market information is supplied are "fair and reasonable" and "not unreasonably discriminatory."
In determining what Congress intended with respect to the fees charged for market information, it is important to recognize that Congress was not acting on a clean slate when it enacted the 1975 Amendments. By the time the legislation was enacted, there had been several years of public discussion and debate about the framework that should be established for the collection and dissemination of consolidated market information. In addition, the Commission had already approved the transaction information reporting plan filed by the Consolidated Tape Association ("CTA") pursuant to Exchange Rule 17a-15, which had first been proposed by the Commission in 1972 and adopted in 1974.
The legislative history reflects that the relevant provisions of Section 11A were principally designed to remove any doubts regarding the Commission's statutory authority to mandate the collection and dissemination of consolidated market information, and to address the types of issues that had delayed the early development of the consolidated tape. These issues primarily concerned conflicts between the registered exchanges, as opposed to the fees charged for market information.
As noted in the Commission's Concept Release on the Regulation of Market Information Fees and Revenues ("Concept Release"),2 market information revenues were an established source of funding for the self-regulatory organizations at the time the 1975 Amendments were enacted. They accounted for 14.7% of the New York Stock Exchange's ("NYSE") total revenues in 1975, and 28.2% of the American Stock Exchange's ("Amex") total revenues. Given the significance of market information revenues as a source of self-regulatory organization ("SRO") funding at the time, one must assume that any congressional intent to eliminate such revenues, or to subject them to some sort of cost-based justification, would have been expressly set forth in the statute or the accompanying legislative history. There is no evidence, however, that Congress intended such a result. Rather, the legislative history reflects that Congress was principally concerned that an exclusive processor, by reason of its control over consolidated market information, would have the ability to engage in anti-competitive practices that would discriminate against particular markets or firms and thereby thwart the development of a national market system. It imposed the requirement that market information fees be "fair and reasonable" and "not unreasonably discriminatory" out of concern that an exclusive processor of market information could establish a fee structure that hindered the ability of particular markets, broker-dealers, or vendors to compete in a national market system.
The understanding that Congress was principally concerned about anti-competitive or discriminatory practices, and did not intend to require a cost-based justification of market information fees, is also confirmed by the manner in which the Commission has subsequently administered Section 11A. In the 25 years since the 1975 Amendments were enacted, the Commission has consistently approved amendments to the CTA and other reporting plans without requiring a cost-based justification of the fees charged for market information. Except in the unique context of an exclusive processor that also acted as a vendor of the information, the Commission has never stated or implied that such a determination was contemplated by Congress.
II. Pre-1975 Development of the Consolidated Tape
Prior to the 1970s, both NYSE and Amex provided transaction reporting for securities listed on their respective exchanges through ticker tapes and electronic displays, but those systems did not report transactions executed on the regional exchanges or by over-the-counter market makers. In February 1971, in a letter transmitting its Institutional Investor Study Report to Congress,3 the Commission recommended the creation of a consolidated transaction reporting system that would report all transactions in listed securities, regardless of their place of execution. Shortly thereafter, the concept was endorsed in a report to the NYSE's Board of Governors,4 and the NYSE requested representatives of other exchanges to join it in forming an industry task force to study the issue.
In February 1972, the Commission's Policy Statement on the Future Structure of the Securities Markets stated that "[a]n essential step towards formation of a central market system is to make information on price, volume and quotes for all securities in all markets available to all investors."5 The Commission noted that "[a]ctions towards establishing such a system have already been initiated by a working committee formed by the industry for this purpose," and announced that it would be forming an Advisory Committee on Market Disclosure, which would include members of the industry task force, to make recommendations concerning a consolidated transaction reporting system. The Commission also announced its intention to adopt a rule under Section 17(a) of the Exchange Act to require consolidated transaction reporting.
In March 1972, the Commission published notice of proposed Rule 17a-15, which would have required each exchange to file a plan with the Commission for the dissemination by vendors of consolidated transaction information.6 The release did not make any reference to the right of the exchanges to impose charges for the market information that would be provided to vendors and, as noted in the Concept Release, both the NYSE and Amex questioned the Commission's authority to adopt a rule that would deprive them of their right to derive revenues from the dissemination of transaction data. The NYSE and Amex also proposed, as an alternative to the proposed rule, establishing a consolidated reporting system that would be administered for the participating exchanges by the Securities Industry Automation Corporation ("SIAC"), a jointly owned subsidiary of the NYSE and Amex.7
In July 1972, the Commission's Advisory Committee on Market Disclosure ("Advisory Committee") submitted a report containing its recommendations for a composite transaction reporting system.8 The report recommended a system in which each market center would collect and validate its own data and transmit it to a central processor or service bureau for sequencing. It also recommended that the processor should function under a set of rules approved by the Commission and operate as a "neutral" body (i.e., one not under the control or domination of any particular market center). The Advisory Committee suggested that the processor "might take the form of a corporate enterprise jointly owned and controlled by the various exchanges and the NASD," and stated that "[i]t cannot yet be determined whether the proposal by the NYSE and Amex that [SIAC] serve as such a service bureau satisfies the criteria which we have suggested as being appropriate." Finally, the Advisory Committee recommended that "[t]he governing body which controls the system should be permitted to charge for the data which it will furnish, on an exclusive basis, to subscribers, directly or through vendors, and to use the revenues therefrom for self-regulatory purposes."
Shortly after receiving the Advisory Committee's report, the Commission republished a revised version of Rule 17a-15 for comment.9 The rule as reproposed followed the recommendation of the Advisory Committee by providing that the exchanges and the National Association of Securities Dealers ("NASD") could act jointly to establish a plan in which transaction information would be collected and processed by a central processor. It also provided that "[n]othing in this Rule shall preclude any exchange or association, separately or jointly, from imposing reasonable, uniform charges (irrespective of geographic location) for distribution of the information provided in connection with compliance with this Rule." Rule 17a-15 was adopted by the Commission, with only minor revisions, in November 1972.10
In response to Rule 17a-15, the NYSE, Amex, NASD, and three regional exchanges submitted a plan for a consolidated tape system in March 1973.11 Negotiations concerning various aspects of the plan took place over the following year, during which time the Commission issued two letters commenting on the plan and requesting changes.12 The CTA plan was declared effective in May 1974.13
There were many points in dispute between the NYSE and Amex and the regional exchanges, the resolution of which delayed the effective date of the CTA plan.14 The initial plan, for example, would have permitted termination of daily reporting when the NYSE closed, thereby preventing closing transactions on the Pacific exchange from being reported. There also was disagreement over whether transactions in a particular security should be reported during a period when trading in that security was suspended by its primary market. With respect to the manner in which information would be displayed, there were disagreements over whether the market in which each transaction was executed should be identified. Finally, there was disagreement over the criteria for determining the eligibility of securities to be included in the reporting system.
The Commission's comment letters addressed each of these issues but did not address the subject of fees, which the plan indicated would be based on the preexisting fee structures for the NYSE and Amex ticker services. The size of these fees was not a subject of controversy, and there appears to have been a general assumption that the exchanges would continue to generate revenues from the dissemination of market data. In January 1974, for example, Commission Chairman Garrett delivered a speech in which he described the essential elements of the CTA plan and stated that the plan "is not expected to increase the costs of broker-dealers who now subscribe to either of the present NYSE or Amex tapes."15
At the same time as it declared the consolidated tape effective, the Commission proposed amendments to Rule 17a-15 to provide for an appeals process in connection with the operation of the plan.16 These amendments, which were adopted by the Commission in November 1974,17 were designed to facilitate the Commission's ability to resolve disputes among the CTA participants.
The Commission also published for comment a revised version of proposed Rule 17a-14 to provide for a consolidated quotation reporting system.18 The Commission's release stated that "[i]t is the Commission's view that the self-regulatory organizations, because of their unique role in the statutory scheme . . . are the most appropriate bodies to collect, process and make available consolidated, real-time quotation data." Accordingly, the rule permitted the SROs to file plans, similar to the CTA plan filed under Rule 17a-15, to implement a composite quotation system. This was consistent with the Advisory Committee's recommendation that a quotation reporting system should be operated by the processor of the consolidated tape system.19
In summary, by the time that Congress considered and enacted the 1975 Amendments, the Commission had already approved the framework for consolidated transaction and quotation reporting systems. Under the CTA plan approved by the Commission, the fee structures that had previously been in place for the NYSE and Amex ticker systems were extended to Network A (NYSE-listed securities) and Network B (Amex- and regional exchange-listed securities). Because this plan was already in existence, Congress knew precisely what it was dealing with when it enacted the 1975 Amendments. If Congress had intended that the fees charged for market information be eliminated, or subjected to some type of cost-based justification, it would have made its intentions clear.
III. The 1975 Amendments
As noted above, the 1975 Amendments provided the Commission with broad authority to oversee the development of a national market system for securities by adding Section 11A to the Exchange Act. The Amendments directed the Commission to use this authority in a manner designed to further the objectives set forth in Section 11A(a)(1)(C), which include (1) "fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets," and (2) "the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities."
In order to ensure that the Commission would have the authority to regulate the collection, processing, and dissemination of market information, Congress defined the term "securities information processor" ("SIP")20 and provided that a SIP must register with the Commission if it operates as an "exclusive processor"21 on behalf of a national securities exchange or registered securities association. This has the effect of requiring entities such as SIAC to register as SIPs, without requiring registration of vendors that disseminate information obtained from a registered SIP.
Several sections added by the 1975 Amendments directly relate to the terms upon which market information must be made available. Section 11A(b)(3) provides that a registered SIP, insofar as it acts as an exclusive processor, must operate "fairly and efficiently." Section 11A(b)(5) provides that, if a registered SIP prohibits or limits the access of any person to its services, the prohibition or limitation is subject to Commission review and may be set aside if it is inconsistent with the Exchange Act and the rules and regulations thereunder or if it involves unfair discrimination.22 Section 11A(c)(1) provides that the Commission may adopt rules for a number of purposes, including (1) to assure that all SIPs may obtain market information from exclusive processors on terms that are "fair and reasonable," and (2) to assure that all persons have access to market information on terms that are "not unreasonably discriminatory." Finally, Section 6(b)(4) requires the rules of a national securities exchange to provide for the "equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities."
The legislative history indicates that Congress intended to ensure that the Commission had clear statutory authority to regulate the development of a composite reporting system and resolve the types of disputes that had been associated with the development of the consolidated tape system over the previous three years. The Senate Report on S. 249, for example, after noting that "there are significant questions as to the SEC's authority to regulate persons operating and administering [composite tape and quotation] systems," states that "S. 249 is designed to make the SEC's authority over such systems and the operations of a national market system clear."23
That Congress was principally concerned about the competitive issues that had delayed the development of the composite tape system, as opposed to the fees charged for market information, is reflected in the discussion of the rule-making authority provided to the Commission. After describing the rule-making provisions of Section 11A(c)(1), the Senate Report states:
Examples of the types of subjects as to which the SEC would have the authority to promulgate rules under these provisions include: the hours of operation of any type of quotation system, trading halts, what and how information is displayed and qualifications for the securities to be included on any tape or within any quotation systems.24
Significantly, these are precisely the subjects that led to disagreements among the exchanges and delays in the development of the consolidated tape. Although not purporting to be a comprehensive list, the selection of examples illustrates that the primary concern about the existing CTA composite tape system was the potential that the primary markets (i.e., the NYSE and Amex) would seek to exercise power in a way that disadvantaged the regional exchanges and thereby hindered the development of a national market system.
This congressional focus on the potential for anti-competitive or discriminatory activities is also reflected in the section-by-section analysis of S. 249 contained in the Senate Report. In describing Section 11A(c)(1)(C), which is the source of the "fair and reasonable" standard, the section-by-section analysis describes the standard as "reasonable and non-discriminatory":
The Commission would be required to assure that all securities information processors, i.e., vendors, have access for purposes of distributing, or publishing, on reasonable and non-discriminatory terms, the securities quotation and transaction information collected, processed, or prepared for distribution or publication by any exclusive processor of such information.25
In describing Section 11A(c)(1)(D), the section-by-section analysis states:
The SEC would be required to assure that all exchange members, brokers, dealers, and securities information processors as well as such other persons as the SEC deems appropriate, have access on reasonable and non-discriminatory terms to quotations and reports of transactions published by any self-regulatory organization or securities information processor. The SEC would thus be directed to remove present and future anti-competitive restrictions on access to basic market information, e.g., by eliminating rules giving members of an exchange an exclusive right to particular information.26
Once again, the only example cited is one that reflects concern about non-price restrictions that would be anti-competitive or discriminatory.
Nowhere in the Senate Report is there any reference to a concept that the fees charged for market information must be subjected to some sort of cost-based justification process. The Commission's Concept Release suggests that the need for some sort of cost-based justification may be inferred from the discussion set forth below, in which the Senate Report refers to an exclusive processor of market information as being, in effect, a "public utility." The context in which that reference is made, however, indicates that the focus was on the potential that an exclusive processor would act in a way that frustrated competition between markets and between vendors of market information.
After noting that SIAC would serve as the exclusive processor under the CTA plan approved by the Commission, the Senate Report states:
An exclusive processor of this sort will play a key role in determining how information about transactions in securities will reach the public. Its decisions as to who may report transactions through its facilities and in what manner will influence the extent and nature of competition among market facilities. And its decisions as to who may receive and disseminate the market information which it processes will structure the nature of the competition among vendors of market information. The Committee believes that if economics and sound regulation dictate the establishment of an exclusive central processor for the composite tape or any other element of the national market system, provision must be made to insure that this central processor is not under the control or domination of any particular market center. Any exclusive processor is, in effect, a public utility, and thus it must function in a manner which is absolutely neutral with respect to all market centers, all market makers, and all private firms. Although the existence of a monopolistic processing facility does not necessarily raise antitrust problems, serious antitrust questions would be posed if access to this facility and its services were not available on reasonable and nondiscriminatory terms to all in the trade or if its charges were not reasonable. Therefore, in order to foster efficient market development and operation and to provide a first line of defense against anti-competitive practices, Sections 11A(b) and (c)(1) would grant the SEC broad powers over any exclusive processor and assure the processor's neutrality and the reasonableness of its charges in practice as well as concept.27
When read in context, it is clear that this discussion reflects that Congress was principally concerned that permitting market information to be collected and disseminated by an exclusive processor created the potential for anti-competitive or discriminatory conduct if the exclusive processor is "under the control of any particular market center." The discussion refers to an exclusive processor as being, in effect, "a public utility" for the purpose of emphasizing the importance of ensuring that an exclusive processor function in a manner that is neutral with respect to "all market centers, all market makers, and all private firms." This means that Congress intended that SIAC, as an exclusive processor, be required to operate in a manner that is neutral as between the NYSE and other markets, and that it not be permitted to act in a way that discriminates against certain types of broker-dealers or vendors. It does not mean that Congress intended that SIAC, or any other exclusive processor, be subjected to utility-type rate making.
The passage cited above also states that antitrust issues would be raised if an exclusive processor's "services were not available on reasonable and nondiscriminatory terms to all in the trade or if its charges were not reasonable," and that Sections 11A(b) and (c)(1) would give the Commission the "responsibility to assure the processor's neutrality and the reasonableness of its charges in practice as well as concept." These references to "reasonable" charges do not support a conclusion that Congress intended that charges be justified on the basis of cost, however, because they essentially do nothing more than restate the standard that was already being applied under Rule 17a-15. There is no evidence that the Commission had made, or intended to make, cost-based determinations under Rule 17a-15, nor is there any evidence that the Commission recommended that such determinations be made.
It is also significant that, in the same legislation, Congress made an explicit reference to a cost-based determination in the context of eliminating fixed commission rates. New Section 6(e)(1) prohibited an exchange from imposing a schedule of fixed commission rates, but provided that the Commission could permit an exchange to impose fixed commission rates if it made certain findings. Under Subparagraph A, which applied until November 1, 1976, an exchange could impose a "reasonable" schedule or fix "reasonable" rates of commissions if the Commission found that the schedule of fixed commission rates was in the public interest. Under Subparagraph B, which became applicable on November 1, 1976, a schedule of fixed commission rates could not be permitted by the Commission unless it made a finding that the rates "are reasonable in relation to the costs of providing the service for which such fees are charged (and the Commission publishes the standards employed in judging reasonableness)" (emphasis supplied). A comparison of the standards set forth in Section 6(e)(1)(A) and (B) illustrates two points. First, Congress knew how to require a cost-based justification process when it intended to do so, because it specifically used those words in Section 6(e)(1)(B). Second, a requirement that rates or fees must be "reasonable" and "in the public interest" does not, standing alone, mean that the rates have to be measured against the cost of providing the service.
IV. Post-1975 Review of Market Information Fees
In the 25 years since the 1975 Amendments were enacted into law, the Commission has approved many amendments to the CTA and other reporting plans. Where those amendments have related to fees, the Commission has consistently found that the charges imposed under the plans were "fair and reasonable" without subjecting those fees to any sort of cost-based justification.28 As noted in the Concept Release, the Commission has relied to a great extent on the ability of the SROs and the plans to negotiate fees that are acceptable to SRO members, information vendors, and other interested parties. This practice of deferring to the SROs on market information fee matters has led to increasingly wider dissemination of market information.29
The Commission's conclusion that plan amendments relating to fees should be subjected only to a general review for reasonableness, as opposed to any sort of cost-based determination, is reflected by the procedures established by Rule 11Aa3-2, which the Commission adopted in 1981 to specify the procedures and requirements for national market system ("NMS") plans.30 As originally proposed, the rule would have required all amendments to NMS plans to be approved by Commission order.31 As subsequently adopted, the rule provides that a plan amendment which is designated as "establishing or changing a fee or other charge" may be made effective on filing with the Commission, without any requirement that the Commission make an affirmative finding of reasonableness. The Commission may abrogate such an amendment at any time within 60 days of filing, if the Commission finds that such action is necessary or appropriate. In other words, the rule establishes a process whereby the Commission defers to the judgment of the SROs on matters such as fees, but reserves the right to require review of any plan amendment that appears on its face to raise issues that require review.32
Several of the Commission's orders have expressly contrasted a review for reasonableness with utility-type rate making. In 1980, for example, five exchanges filed under Section 11A(a)(3)(B) a proposed plan for the collection and dissemination of options last sale and quotation information, to be administered by the Options Price Reporting Authority ("OPRA"). The Commission's release specifically requested comment on whether the proposed OPRA plan, like other joint industry plans previously approved by the Commission, should specify the level of the fees that OPRA would be authorized to charge or the manner in which OPRA would calculate those fees.33 It noted that OPRA maintained that including its fees in the plan would require OPRA to obtain Commission approval every time there was a proposed fee change, which would involve the Commission in a "burdensome rate-making proceeding." The Commission responded by stating that "consideration of amendments to the OPRA plan dealing solely with fees would not involve the Commission in rate-making, but could simply involve a determination, among other matters, of whether OPRA had a reasonable basis upon which to derive the fee schedule."34
As noted in the Concept Release, the only Commission order which has required a cost-based justification for a proposed market information fee was entered in the context of a limitation of access proceeding involving the NASD and Instinet.35 That matter involved a situation in which Instinet was seeking to provide to subscribers a quotation service that would compete with the quotation service offered directly to subscribers by the NASD. The NASD proposed to charge subscribers to the Instinet service the same subscriber fee as that paid by its own subscribers, a proposal that would have made it impossible for Instinet to compete with the NASD as a vendor of quotation services. The Commission found that, in a situation where an exclusive processor of market information also operates as a vendor in direct competition with other vendors, its market data fees must be limited to the amount necessary to recover its costs.
As the Concept Release notes, the Commission's order emphasized that it was the competitive context of the proceedings that led to its conclusion that a cost-based limitation of the fees was necessary. Where an exclusive processor of market information also acts as a vendor, strictly limiting its market information fees to the amount necessary to recover its costs is the only way to ensure that it functions in a manner which, in the words of the Senate Report, is "absolutely neutral" with respect to competing vendors. This type of neutrality concern is not raised where an exclusive processor of market information is not in competition with vendors of that information.
In addition to making this distinction clear in the Instinet order itself, the Commission has subsequently stated in an order approving fee changes in the plan administered by OPRA that a cost-based justification is not necessary in a case where an exclusive processor is not in competition with vendors. In finding that the fees proposed by OPRA were consistent with the Exchange Act, the Commission stated that "[b]ecause OPRA is not in direct competition with the vendors that will be subject to the redistribution fee, the analysis applied in the Instinet case is not strictly applicable."36
The manner in which the Commission has administered the provisions of Section 11A over the past 25 years would be relevant in the event that the Commission sought to adopt a rule that would subject market information fees to some sort of cost-based justification process. Although an agency's construction of a statute which it administers is ordinarily entitled to some deference upon judicial review, courts tend to grant less deference, and demand a more thorough agency explanation, when an agency adopts a rule that departs from its prior practices or policies.37
The legislative history of Section 11A reflects that Congress was principally concerned that an exclusive processor of market information could engage in anti-competitive and discriminatory conduct that would frustrate competition by placing particular markets, broker-dealers, or vendors at a disadvantage. It therefore directed the Commission to ensure that an exclusive processor operates in an "absolutely neutral" fashion. It is not necessary to subject the fees charged for market information to any sort of cost-based justification process in order to ensure neutrality, however, except in unusual circumstances where an exclusive processor is directly competing with vendors, nor is it necessary to achieve the other objectives of the 1975 Amendments.
The Commission has administered the provisions of Section 11A for 25 years without interpreting them as requiring that the fees for market information be subjected to a cost-based justification process. The legislative history does not suggest any reason why the Commission should change its long-standing interpretation of the statute and take a fundamentally different approach to the review of market information fees.
|1 .||Pub. L. No. 94-29, 89 Stat. 97 (June 4, 1975).|
|2 .||Exchange Act Release No. 42208 (Dec. 9, 1999).|
|3 .||SEC Institutional Investor Study Report, H.R. Doc. No. 92-64, 92d Cong., 1st Sess. (1971).|
|4 .||William McChesney Martin, Jr., The Securities Markets, A Report with Recommendations Submitted to the Board of Governors of the New York Stock Exchange (Aug. 5, 1971).|
|5 .||Statement of the Securities and Exchange Commission on the Future Structure of the Securities Markets (Feb. 2, 1972).|
|6 .||Exchange Act Release No. 9530 (Mar. 8, 1972).|
|7 .||See New York Stock Exchange, Special Membership Bulletin (May 25, 1972).|
|8 .||Report to the Securities and Exchange Commission by the Advisory Committee on Market Disclosure on a Composite Transaction Reporting System (July 17, 1972).|
|9 .||Exchange Act Release No. 9731 (Aug. 14, 1972).|
|10 .||Exchange Act Release No. 9850 (Nov. 8, 1972).|
|11 .||Exchange Act Release No. 10026 (Mar. 5, 1973).|
|12 .||Exchange Act Release No. 10218 (June 13, 1973); Exchange Act Release No. 10671 (Mar. 8, 1974).|
|13 .||Exchange Act Release No. 10787 (May 10, 1974).|
|14 .||See, e.g., Sec. Reg. & L. Rep. (BNA) No. 259 Special Supplement (June 26, 1974) (describing disagreements among the participants in the CTA plan).|
|15 .||See, e.g., The Consolidated Tape: A Perspective, Address by SEC Chairman Ray Garrett, Jr., before the National Association of Securities Dealers (Jan. 15, 1974).|
|16 .||Exchange Act Release No. 10788 (May 10, 1974).|
|17 .||Exchange Act Release No. 11097 (Nov. 13, 1974).|
|18 .||Exchange Act Release No. 10969 (Aug. 14, 1974).|
|19 .||See Report to the Securities and Exchange Commission by the Advisory Committee on Market Disclosure on a Composite Quotation System (Nov. 21, 1972).|
|20 .||Section 3(a)(22)(A) of the Exchange Act defines the term "SIP" as "any person engaged in the business of (1) collecting, processing, or preparing for distribution or publication . . . transactions in or quotations for any security . . . or (2) distributing or publishing . . . on a current or continuous basis, information with respect to such transactions or quotations."|
|21 .||Section 3(a)(22)(B) of the Exchange Act defines "exclusive processor" as "any securities information processor or self-regulatory organization which engages on an exclusive basis on its own behalf in collecting, processing, or preparing for distribution or publication any information with respect to (i) transactions or quotations on or effected or made by means of any facility of such exchange or (ii) quotations distributed or published by means of any electronic system operated or controlled by such association."|
|22 .||The provisions of Section 11A(b)(5) are very similar to those adopted by the Commission when it amended Rule 17a-15 in 1974 in order to establish an appeals procedure.|
|23 .||Senate Committee on Banking, Housing & Urban Affairs, Report to Accompany S. 249: Securities Act Amendments of 1975, S. Rep. No. 94-75, 94th Cong., 1st Sess. (1975) ("Senate Report") at 9.|
|24 .||Id. at 11.|
|25 .||Id. at 104 (emphasis supplied).|
|27 .||Id. at 11-12.|
|28 .||In Exchange Act Release No. 14416 (Jan. 26, 1978), the Commission stated that it intended to take action to address vendor practices which made it relatively more difficult to recall last sale data for transactions on exchanges other than the NYSE. The Commission also indicated that it intended to examine a number of areas relating to the consolidated transaction reporting system, including "the propriety of allowing self-regulatory organizations to impose charges on securities information processors and subscribers to their services with respect to market information required to be disclosed by Commission rules." Although the Commission subsequently took action with respect to other areas noted in the release (e.g., voting arrangements among joint plan participants, prohibitions against retransmission), it did not take any action with respect to fees.|
|29 .|| The Commission has noted, in the context of approving charges for market information, that:
Competition among technology and information providers continues to thrive. Over the past few years, individual investors have enjoyed unprecedented access to market data through varied media, including CNN, CNBC, satellite services, on-line computer services, the World Wide Web, and the Internet.Exchange Act Release No. 36542 (Nov. 30, 1995).
|30 .||Exchange Act Release No. 17580 (Feb. 26, 1981).|
|31 .||See Exchange Act Release No. 16410 (Dec. 7, 1979).|
|32 .||In 1997, in response to a request made by the Commission's staff, the CTA withdrew a plan amendment establishing usage-based fees for market information. See Exchange Act Release No. 39370 (Nov. 26, 1997).|
|33 .||Exchange Act Release No. 16519 (Jan. 22, 1980). At the time the plan was filed, the Commission had not yet adopted Rule 11Aa3-2.|
|34 .||The Commission subsequently approved the OPRA plan with fee provisions that were consistent with Rule 11Aa3-2, which had just been adopted but was not yet effective. The release approving the OPRA plan stated that "the fee provisions in the revised Plan recognize both the Commission's concern that the current level of OPRA fees be included as part of the Plan and OPRA's concern that it be able to revise its fees expeditiously." Exchange Act Release No. 17638 (Mar. 18, 1981).|
|35 .||Exchange Act Release No. 20874 (Apr. 17, 1984).|
|36 .||See Exchange Act Release No. 36542 at n.21 (Nov. 30, 1995).|
|37 .||See, e.g., Simmons v. ICC, 829 F.2d 150, 155 (D.C. Cir. 1987) ("a new rule constituting a departure from past policy or practice amplifies the need for an adequate explanation").|