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U.S. Securities and Exchange Commission

before the

Rel. No. 43316 / September 21, 2000

Admin. Proc. File No. 3-9967

In the Matter of the Application of





The Cincinnati Stock Exchange, Inc. ("CSE") has filed an appeal from "an adverse action" taken by the Consolidated Tape Association ("CTA"). The CTA is the policy making body for the CTA Plan and administers the Consolidated Tape System, which makes available last sale transaction information for trades executed in eligible securities. Pursuant to Section 11A of the Securities Exchange Act of 1934, 1 the Commission approved a plan and amendments to that plan (together, the "CTA Plan"), which, taken together, set forth the rules for the operation of the CTA and the rights and obligations of the CTA Plan Participants. 2

CTA Plan Section XII(b)(iv) provides that no CTA Participant may be charged for receiving or using any portion of the Consolidated Tape's last sale price information so long as that information isfurnished to the Participant "only at premises occupied solely by such Participant or on the [Participant's] trading floor or trading floors (as the term is generally understood)" or for regulatory, surveillance, or other CTA-approved purposes. Under CTA Plan Section XII(b)(iv), the data may not "be retransmitted from, or otherwise made available to any person not located within or on, such premises or trading floor."

In its application, the CSE alleges that it operates a "geographically dispersed electronic trading floor, which includes the premises on which each member's CSE operation is located." In November 1996, the CTA voted to charge CSE specialists a "market data display device" fee. The CSE asserts that the CTA has violated the CTA Plan by imposing on its specialists this fee for receiving Consolidated Tape data.

By order dated October 20, 1999, we sought the views of the CSE and the CTA as to whether Commission consideration of the CSE's application is appropriate under Exchange Act Section 11A(b)(5) 3 or Exchange Act Rules 11Aa3-1(f) or 11Aa3-2(e). 4 In the event that the Commission granted review, we asked the parties to address what procedural rules should be employed. 5 We also invited any interested person to address any of these issues.


We received briefs from the CSE and the CTA. 6 In addition, the Division of Market Regulation filed a brief as amicus curiae.

A. The CSE asserts that Commission review is appropriate because the CTA's imposition of market data display device fees on CSE's specialists constitutes an impermissible prohibition or limitation on access to the facilities and services of the CTA. The CSE argues that the CTA's action violates CTA Plan Section XII(b)(iv), which permits Participant specialists free access to Consolidated Tape last sales price information on the "tradingfloor or trading floors" of the Participant. The CSE avers that the CTA Participants understood that, beginning in 1985, CSE conducted trading on an electronic trading floor. Between 1985 and 1996, although the CSE operated an electronic trading floor, CSE specialists obtained market data without charge and with the knowledge of the other CTA Participants. The CSE claims that the 1996 Commission approval of the CSE's Preferencing Program, which permitted certain CSE specialists "to internalize" their customer order flow, "caused the [CTA] Administrator and other CTA Participants to reconsider the competitive threat posed by the CSE."

The CSE further argues that the CTA's action violates CTA Plan Section IX(a)(i), which requires that dissemination of Consolidated Tape market data be "on terms that are not unreasonably discriminatory to" Participants and their members. The CSE asserts that no other exchange specialists are charged fees for access to market data and that imposition of those fees on CSE specialists is therefore discriminatory and anti-competitive. 7

B. The CTA does not address directly whether the Commission has jurisdiction over the appeal. However, it asserts, without elaboration, that "the CSE's protest over the November 1996 vote fails under any reading of the language of the" CTA Plan. The CTA represents that CTA Plan Participants attempted to settle the matter. 8 The CTA asserts that this issue "is headed for resolution as a policy matter, making it inappropriate for the Commission to hear the appeal."

C. The Division of Market Regulation states that Exchange Act Section 11A(b)(5)(A) requires the Commission to review any limitation on access to services offered by a registered securities information processor upon application of the aggrieved person. If the Commission concludes that an adverse actionconstitutes a limitation on services, the Division suggests, the Commission must further consider whether the action is inconsistent with the Exchange Act or the rules thereunder.

The Division believes that CTA's imposition of market data display device fees on the CSE specialists is a limitation on the CSE specialists' access to a registered security information processor's services. Noting that market data is a principal tool of market participants, the Division asserts that "[l]imiting access to this data stream by charging CSE specialists" negatively affects "CSE and its specialists in the form of higher costs, lost revenue, and lost market share." The Division states that the CTA's action mandates Commission review. The Division further recommends that the Commission conduct further proceedings to consider whether the CTA's action is inconsistent with the Exchange Act and the rules thereunder.


Exchange Act Section 11A(b)(5)(A) provides that, upon application by an aggrieved person, any prohibition or limitation of access to services by a registered securities information processor "shall be subject to review by the Commission." 9 In reviewing a prohibition or limitation under Exchange Act Section 11A(b)(5)(B), the Commission must determine, after notice and opportunity for hearing, whether the limitation or prohibition is consistent with the provisions of the Exchange Act or the rules thereunder and whether the aggrieved person has "been discriminated against unfairly" or whether the "prohibition or limitation imposes any burden on competition not necessary or appropriate" in furtherance of the purposes of the Exchange

Act. 10 If the Commission finds that the provision is inconsistent with the Act and unfairly discriminates or imposes an inappropriate burden on competition, the Commission "shall set aside the prohibition or limitation and require the registered securities information processor to permit such person access to services offered" by the processor. 11

Section 11A(a) further directs the Commission to "facilitate the establishment of a national market system, consistent with certain objectives," including improving the availability to broker-dealers and investors of "information with respect toquotations for and transactions in securities." 12 Congress determined that critical to this goal was a communications system that provided automated dissemination of last sale and quotation information. 13 The Commission has stated that Exchange Act Section 11A(c) requires securities information processors "to make available, on terms that are not inconsistent with the purposes of the Act, all securities information that they collect, process, distribute, or publish." 14

We believe that the CSE has made a showing that charging fees to its specialists is a limitation on access to the CTA's services. We have previously found that the imposition of an access fee can constitute a limitation on access to service offered by a securities information processor. 15 Congress imposed on the Commission "a responsibility to assure the processor's neutrality and the reasonableness of its charges in practice as well as in concept." 16 While we recognize that the CTA Participants have attempted to resolve this matter, CSE has not withdrawn its petition. We believe that Exchange Act Section 11A(b)(5) mandates Commission review of limitations on access by a registered security information processor upon petition by an aggrieved person. We therefore accept the CSE's application under Exchange Act 11A(b)(5). 17


We next address what procedures are appropriate. Our Rules of Practice do not specify a particular procedure for proceedings under Exchange Act Section 11A(b)(5).

The CTA recommends that the Commission "remand the matter to [the Commission's] Division of Market Regulation," asking that the Division "resolve the deadlock over proposed plan amendments" to delete the device fee exemption. Both the CSE and the Division assert that the factual record is incomplete. The CSE asks that we conduct "a full evidentiary hearing" under our Rules of Practice before an "administrative law judge, arbitrator, or mediator." The Division does not suggest particular procedures for that review or the receipt of applicable information. 18

We have considered the filings of the parties and the documents tendered to us by the CTA. We have also considered the procedures that we employed in earlier proceedings under Exchange Act Section 11A(b)(5). 19 We have determined that the record requires development in certain areas, including the construction and application of provisions of the CTA Plan, the impact of the CTA's action on the CSE and its specialists, how data are currently disseminated to the CSE and its specialists, and whether any other exchange specialists are subject to similar fees. We therefore direct the CTA and CSE to address, among other issues, the following questions:

1) What is the appropriate construction of the phrase "trading floor or trading floors (as the term is generally understood)" as used in the CTA Plan Section XII(b)(iv)?

2) Does the action of the CTA in imposing the market data display device fee on the CSE specialists constitute an amendment to the CTA Plan?

3) What impact, if any, has the November 1996 CTA adverse action had on the CSE and its specialists from 1996 to date?

4) Does CSE receive the market data directly from CTA and disseminate it directly to its specialists (i.e., through the National Securities Trading System)? If so:

a) Has this been the CTA's practice since the system's redesign in 1984?

b) When did CTA Participants become aware of this practice?

5) Do CSE specialists receive the market data feed directly from vendors?

a) If so, does the CSE contract with the vendors to disseminate the data or do the specialists contract with the vendors directly?

b) In either case, how long have such contracts or arrangements existed?

(6) Does CTA assess device unit fees against any other exchange Participant or the specialists of any other exchange Participant? If so:

a) Are the device units provided by vendors or exchange Participants?

b) Are the devices located on a trading floor or used in market making programs to execute transactions in listed securities?

We also invite any interested persons, including the Division of Market Regulation, to address any of these issues.

We have determined to appoint an administrative law judge to preside over this proceeding. The law judge shall have all the powers of a Hearing Officer under Rule of Practice 111. 20 The administrative law judge will have the authority to regulate the scope, schedule and course of the proceeding, as well as the conduct of the parties and their counsel. At this time, we have not concluded that a trial-type hearing conducted in accordancewith Parts 200 and 300 of our Rules of Practice is necessary. 21 We believe that the issues described above may be properly addressed in written submissions, including submissions from any party's expert, by the parties and any interested persons. However, the administrative law judge, in the exercise of his or her discretion, may determine which of our Rules of Practice it is appropriate to apply to this proceeding, including whether and in what form to receive additional evidence or documents, and whether and what kind of additional proceedings may be appropriate.

Accordingly, IT IS ORDERED that the application for review of the Cincinnati Stock Exchange, Inc. be, and it hereby is, accepted; and it is further

ORDERED that the Chief Administrative Law Judge Brenda P. Murray shall designate an administrative law judge to preside over this proceeding in accordance with this order; and it is further

ORDERED that submissions may be received from the parties and any interested party, as well as from our Division of Market Regulation.

By the Commission.

Jonathan G. Katz


1 15 U.S.C. § 78k-1.

2 See, e.g., Order Granting Approval of Proposed Restatements and Amendments to the Restated Consolidated Tape Assocation Plan and the Consolidated Quotations Plan, Exchange Act Rel. No. 37191 (May 9, 1996), 61 SEC Docket 2367 (approving the Second Restatement of the CTA Plan).

The CTA Plan Participants currently are eight national securities exchanges and the National Association of Securities Dealers, Inc.

3 See Section III, infra.

4 17 C.F.R. §§ 240.11Aa3-1(f), 11Aa3-2(e) (generally permitting discretionary appeals arising from the operation of a transaction reporting plan and appeals of action taken or failure to act by any person in connection with a national market system plan).

5 We also asked what remedies would be available in the event that the Commission declined review of the CSE's application.

6 The CTA represents that its submission reflects the views of the Participants, except the CSE and the Chicago Board Options Exchange, Inc.

7 The CSE also asserts that this change to the fee arrangements required an amendment to the CTA Plan. CTA Plan amendments require unanimous consent by the Participants. CTA Plan Section IV(b). According to the CSE, the CTA Administrator instead categorized the action as "operational" and sought "only majority support for its action."

8 Under the proposed settlement, the Participants would have agreed to delete the exemption from payment of market data display device fees for devices located on Participants' trading floors. The proposed settlement failed because an amendment of the CTA Plan requires the unanimous consent of the Participants and, according to the CTA, one Participant objected to deleting the exemption.

9 15 U.S.C. § 78k-1(b)(5). The CTA is registered as an exclusive securities information processor. See Exchange Act Rel. No. 12035, 41 Fed. Reg. 4372 (Jan. 29, 1976) (granting registration to CTA).

10 15 U.S.C. § 78k-1(b)(5)(B).

11 Id.

12 15 U.S.C. § 78k-1(a)(1)(C)(iii), (2).

13 S. Rep. No. 75, 94th Cong., 1st Sess. 9 (1975) ("Senate Report").

14 Institutional Networks Corporation, Exchange Act Rel. No. 20874 (Apr. 17, 1984), 34 SEC Docket 435, 436, aff'd, NASD v. SEC, 801 F.2d 1415, 1419 (D.C. Cir. 1986) ("Instinet").

15 Instinet, 34 SEC Docket at 439. See also Bunker Ramo Corporation, Exchange Act Rel. No. 15372 (Nov. 29, 1978), 16 SEC Docket 286, 287 (stating, "imposition of an access fee can be a limitation upon access to a service offered by an exclusive processor.")

16 Senate Report at 12. See also Senate Report at 11 (stating that an exclusive securities information processor should "function in a manner which is absolutely neutral with respect to all market centers, all market makers, and all private firms.")

17 In light of our conclusion that this matter is subject to review under Exchange Act Section 11A(b)(5), we do not reach the question of whether we should take discretionary review of the CSE's application under Exchange Act Rules 11Aa3-1(f) or 11Aa3-2(e).

18 The Division recommends that "the Commission should summarily stay the proceeding until sufficient information is obtained to allow the Commission to effectively review the actions of the CTA." However, to date, the CSE has not requested a stay.

19 In Bunker Ramo, the Commission invited briefs and submissions from interested persons. In addition, the Commission conducted public hearings before a staff member who was designated as a hearing officer to receive data, views, and arguments on certain issues. Exchange Act Rel. No. 14606 (Mar. 24, 1978), 14 SEC Docket 605-06; Exchange Act Rel. No. 14784 (May 19, 1978), 14 SEC Docket 1159, 1163-64. In Instinet, the Commission sought from the parties and other interested persons written comments addressing the issues identified in the order. Exchange Act Rel. No. 20088 (Aug. 16, 1983), 28 SEC Docket at 482.

20 17 C.F.R § 201.111.

21 17 C.F.R. Parts 200, 300.