Subject: File Number SR-CTA/CQ-2017-02
From: Jay Froscheiser
Affiliation: DTN / Schneider Electric

April 18, 2017

The proposed clarification of rules appears to serve little purpose other than to increase administrative burden on vendors while either significantly increasing fees to investors/traders, or restricting their access to data altogether.   These are not minor clarifications, they are significant changes to the original agreement because it includes what was excluded previously.  As with other policies set by the participants, vague, overly broad, or ambiguous wording allows for too much interpretation that can later be applied as desired by the participants without giving vendors or users an ability to dispute or understand the fees that would be required without first applying to the exchanges.  As a vendor with a full time staff dedicated to exchange compliance, we are being asked once again by CTA participants to administer to our users new or re-defined data use policies that were previously approved and accepted.

At issue is the following:

  1. With the further clarification of the policy under this proposal, the participants have broadened the definition to ensure all investors/traders data usage would fall into one of the three non-display categories, because at a minimum, all platforms (regardless of the level of “display” or “non-display”) use the data to perform calculations on the data.  The calculations themselves are not displayed and thus subjects all usage of any analytics platform to non-display classification and fees.
  2. Defining non-display usage to include “automated order or quote generation” and “investment analysis”, and “portfolio evaluation” specifically would include every brokerage platform or analysis platform with the exception of software that solely displays last sale and bid/ask data to a quote grid.  This again, would subject all users of all software to access fees that are significantly higher than they pay today.
  3. Ambiguous descriptions such as specifying “any use of the data that does not make the data visibly available to the data recipient should be considered non-display use” is in contradiction with “when a data recipient is solely using the data for display purposes”.   There is further inadequate attempts to clarify by saying “the data recipient is subject to the access fee when the data it is receiving is used for non-display or can be manipulated and disseminated to other devices even if the data is also displayed on the device”.  As mentioned in item 2 above, there is no software in today’s market that ONLY provides a quote display.  In order to provide investors/traders equal access to interpret and analyze data and thus make investment/trading decisions, platforms that make the data available for display must be considered a “display app” regardless if it also provides functionality allowing an investor/trader to analyze or make calculations off the data in support of their investment/trading decisions.   As defined/clarified, all software in the marketplace and all uses of that software would classify a recipient as a non-display user and subject them to exuberant access fees that are prohibitively expensive to the average investor/trader, thus restricting their access to the data and the markets.
  4. The Plan amended in October 2014 – Release No 73278 - doesn’t provide for equitable distribution of fees that reflect the value derived by investors/traders.  The participants contend that non-display devices and display data usage have different relative value but the examples fail to show this.  How can any party (including the exchange) determine the “value derived” based on how or the amount of data that is being consumed?  Some users derive significant value by watching a single stock, while others derive value by evaluating relationships or trends between multiple stocks.  All data use in any form, whether it is streaming, in bar form, being displayed as numbers, being displayed as lines on a chart, being used to calculate indicators, etc is used to make an investment or trading decision.  True value can only be derived if or when the investor/trader makes money based on their personal evaluation and interpretation of the data.  In other words, the data itself is of little value if it can’t be utilized except to see a raw stock price.
  5. In the Access Fee Applicability,  the participants specify that “the access fee applies if the data recipient receives the data in such a manner that the data can be manipulated and disseminated to one or more devices, displays or otherwise, regardless of encryption or instructions from the redistribution vendor”.  This again would encompass every users access to data because there is no technical mechanism for a redistributor to 100% limit the users access to the data.  Even if there were technical ways to limit or encrypt the data, the participants are saying the access fee would still apply to the user.  Currently, as in the past, redistribution vendors provided contractual language to users that restricted their ability to redistribute information outside of the device and we have applied reasonable technical measures (such as restricting the data to only being made available on the local machine) to enforce the policies.  Under the new policy, the participants are saying this is no longer adequate.
  6. The participants specify: “Redistributors that provide market data to customers who use the data for non-display must submit a data feed request”.  However, there is no test or clearly defined definition being provided by the participants.  This means every investor/trader on every redistributor’s platform would need to be submitted to the exchange for review of applicability of the non-display policy.  This will create undo expense to redistributors, increase the onboarding time to customers (again limiting their access to the market), and based on the attempts to broadly define what “non-display” is would arguable re-classify every individual investor/trader as a non-display user subjected to access fees few individual investor/traders could afford.  In essence, cutting them out of the market entirely.
  7. We fail to see a cost basis for the exchange charging a different fee if the data is displayed on a screen or not.  All trading software has calculations that are made without display.  How these calculations are made, either through custom software, a scripting language within a charting package, in a spreadsheet, etc do not in any way impact the cost incurred by the participants.  Thus, charging significantly higher fees for this usage is nothing more than an attempt to increase revenue by the participants and/or limit access to the market by investors/traders who are unable to pay thousands of dollars per month in access fees.
    1. The commission evaluated market information fees in the past.  In the past, NASD had failed to submit an adequate cost-based justification for its fee/policies.  With the non-display rules and the clarification set out by the participants, there is no cost-based reasons for restricting an investor/trader’s access to data.  In fact, these new fees will serve only to limit competition for large scale high frequency trading organizations that can afford the access fees.

In summary, the non-display policy as clarified will significantly hurt individual investors/traders who will now be required to pay thousands of dollars in new access fees for access to data they use to analyze the markets and make investment/trading decisions.  Because these fees are going to be much greater than the average profit made from these user’s trading activity they will no longer be able to participate in the market, thus limiting competition for larger trading firms.  The proposed clarification will also hurt vendors/redistributors who provide value added services to investors/traders as they are left with participants having 100% discretion in determining a customer’s status with regards to non-display.

We would welcome open discussion with CTA participants and the SEC to discuss fee structures and policies that provide fair and open access to data while ensuring the exchanges costs are covered for providing economical access to market data to all market participants.

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Jay Froscheiser
Vice President, Active Trader Products
DTN / Schneider Electric