|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)
|Comments on:|| Fee Discounts |
Plan and SRO Disclosure
Elsewhere, the Exchange's response to the Concept Release addresses the by-products of joint market activity in the market data arena (such as subsidies and rebates), the governance process through which the industry establishes market data fees, policies and practices and the implications for public utility-like rate-making. In this Appendix, we examine the remaining issues as to which the Concept Release seeks comment: fee discounts; NMS plan and SRO disclosure; market data administration; and pilot programs.
Fee discounts have prevailed for many decades. When Network A adopted the pre-existing NYSE rate structure at the advent of CTA in the mid 1970's, it inherited a high first-unit fee and lower additional-unit fees. The more devices that a consumer had at a location, the less it paid on a per-device basis. In addition, members paid lower fees than non-members.
In approving the CTA Plan, the Commission approved the predecessor fee structure, including the discounts, and affirmed the Exchange's belief that the long-standing discounts were not "unreasonably discriminatory" and therefore complied with the standards of the Securities Exchange Act of 1934 (the "Exchange Act"). The Commission has affirmed similar Network A judgments under that standard ever since.
The Concept Release seeks comment as to whether long-standing fee discounts comport with those standards. It cites three categories of fee-allocation issues for review: (1) volume discounts (the enterprise arrangement, the 14-tier professional display device fee structure, the two-tier nonprofessional subscriber fee structure and the three-tier per-query fee structure)1, (2) the dichotomy between professional and nonprofessional subscriber fees2, and (3) fee differences between on-line brokerage and telephone-based brokerage3.
Each of these categories raises the same overarching issue: whether the array of Network A market data fees equitably distributes among broker-dealers, institutional investors and vendors4, a fair share of the funding of the market data-component of the markets' revenues. The Exchange seeks to produce an optimal mix of market data revenues that neither discriminates against nor subsidizes any business model or channel of distribution, while continuing to provide the different segments of the securities industry with the data tools that they request and to further other Exchange Act objectives.A. The Process of Determining New Fees and Fee Changes
The Exchange Act's "no unreasonable discrimination" standard does not, of course, mean "no discrimination." Each market data fee is designed to serve a particular distribution channel and to play a particular role in market data distribution and cost allocation.5 To determine the level at which to propose a new fee or fee change, Network A goes through the governance process that the Exchange's response to the Concept Release describes, with all of its checks and balances.
The Exchange's market data staff plays a key role in that process. The staff engages with representatives of investors, brokers and vendors on a daily basis and participates actively in a number of securities and information industry trade associations, including the Financial Information Services Division of the Software and Information Industry Association, the Financial Information Forum and the Securities Industry Association. Through those contacts and that participation, the staff vets new ideas with all segments of the industry.
In "working" a new idea, the staff strives to build a consensus. That often involves going back and forth among constituents in a process that is aptly described as indirect negotiation. The staff explains and discusses. It listens to comments, suggestions and complaints. It gauges the impact that a new fee offering or a change to an existing fee may have (1) on services as to which other market data fees apply and (2) on the balance between the markets' funding needs and the objective of widespread data distribution. It seeks to assure that the Network A fee schedule accommodates the changing ways for distributing market data that new technologies make possible. It endeavors to recommend fee and policy changes that are neutral as to the delivery channel and/or the technology used.
The staff then digests all of the industry input and its thinking on these other considerations and crafts a proposal. Given the indirect negotiation process, the resulting proposal frequently reflects compromises among business models.
If Exchange management believes that the proposal merits further attention, the Exchange brings the proposal to CTA for discussion. The CTA representatives take the proposal to their respective boards for scrutiny by each board's public representatives. If all of the boards approve, Network A submits the proposal to the Commission, which subjects it to public comment and then determines whether the proposal satisfies Exchange Act standards. If the Commission approves, the proposed fee or fee change becomes part of the Network A fee schedule.B. The Inevitability of Disparate Treatment
Because the markets find it appropriate to apply different billing metrics (e.g., per-device, per-subscriber and per-quote metrics) to different segments of the industry and different distribution channels, it is inevitable that the Network A fee schedule will not charge all segments and channels identically. The subjective nature of any comparison between different business models and distribution channels makes any comparison of the different fees highly subjective.
For example, comparing the fees payable by registered representatives providing market prices to their customers over the telephone to the fees payable by a broker that provides its customer with on-line access to that information entails assigning value to voice communications, ascertaining differences in elasticities of demand between market professionals and individual investors, and estimating the level of data consumption by day-traders relative to market professionals and retail investors.
Not surprisingly, market constituents that try to make those comparisons will not all agree as to the equities of the revenue mix.C. Comportment with Exchange Act Objectives
The fee-setting determinations of the Exchange's management, constituency-sensitive market data staff and publicly-oriented board of directors, as well as the management, market data departments and boards of its fellow markets, attest to their collective judgment that the rates applicable to each distribution channel are reasonable for that channel. By "reasonable," they mean that each fee will generate a contribution to the market data revenue pool that equitably allocates costs to the distribution channel to which the fee applies. Consensus building, negotiation among industry constituents and compromise determine what constitutes an "equitable" contribution.
Factors influencing that process include effecting widespread distribution (e.g., a cable television rate), promoting the interests of individual investors (e.g., a low fee for nonprofessional subscribers) and promoting fair competition among brokers (e.g., imposing fees both on on-line brokers and on telephone-based brokers).
Because "fair allocation" underlies Network A fee decisions, the markets cannot justify the application of different fees to different business models and distribution channels entirely on the basis of the three factors that the Concept Release cites as legitimate bases (differences in the relevant costs of providing different services, differences in degrees of use, and differences in the quality of the services provided). Instead, current fee levels reflect industry consensus on cost allocation.D. Volume Discounts
Because the Network A 14-tier professional display device structure derives from the process of industry consensus, negotiation and compromise and the approval of constituency-laden market boards, it cannot be unreasonably discriminatory. For the same reason, neither are Network A nonprofessional subscriber fees that fall once a vendor provides service to 250,000 subscribers or per-query fees that fall after a vendor reaches the 20-million and 40-million quote packet plateaus in a month. Neither is the enterprise maximum that places a ceiling on the amount of a broker's aggregate fees for professional and nonprofessional display services at $500,000 per month.
These volume discounts mirror standard practice in most industries, both regulated and free market, and, among other attributes, neither deter retail investors from using real-time market information nor preclude broker-dealers from providing enhanced information services to their retail customers. They provide incentives for broker-dealers and vendors to expand data distribution. For all of these reasons, it is eminently reasonable for the industry to effect volume discounts6.E. Professional and Retail Investor Fees
Traditionally, the markets have looked to data consumption by broker-dealers, investment banks, investment advisors, institutional investors and other market professionals to produce the preponderance of market data revenues. The advent of on-line trading has somewhat shifted the balance toward the retail investor segment of the market7, but the per-quote and nonprofessional subscriber fees still generate less than one-fifth of market data revenues. That fact derives not only from greater data usage by market professionals, but also from the significantly higher data fees that market professionals pay. Because both the larger contributions and higher fees reflect industry consensus, the Exchange believes that they represent acceptable and appropriate outcomes under the Exchange Act's national market system goals and its standards for market data fees.
The Concept Release struggles with this notion. On the one hand, it asks whether per-quote fees "are now low enough and structured in a way that they do not significantly limit the availability of real-time information to retail investors."8 But then it asks whether fee discounts comport with the Exchange Act standard of neutral treatment of firms and customers9.
The Concept Release strains to justify the difference in fees applicable to professionals and nonprofessionals on the basis of a lower level of usage by nonprofessional subscribers. The Exchange has no basis for estimating the number of hours in a month that retail investors, on average, spend looking at real-time market data. It notes that the "nonprofessional subscriber" category of data recipient includes a wide spectrum, from heavy users of market data, such as day traders, to occasional investors who access data infrequently.
If anything, the Exchange believes that the retail investor rates (that is, fees that brokers and vendors pay to provide per-quote services and nonprofessional subscriber services) and professional subscriber rates (which permit registered representatives to provide data to customers over the telephone) are, if anything, disproportionate to differences in usage.
Instead, the Exchange justifies the lower retail fees based upon constituency consensus on the optimal dispersion of data fee obligations among different business models, as well as its own desire (as well as Congress's) to provide retail investors with ready access to real-time information.
The stunning growth in retail investor consumption immediately after the Network A 1997 and 1999 rate reductions demonstrates that the sharply reduced fees have allowed many nonprofessionals to begin receiving real-time data on-line for the first time10. On the other hand, growth in the saturated professional subscriber segment of the industry derives solely from growth in the industry, especially in the number of registered representatives. Firms have long provided their salesmen and traders with the requisite data access11.F. On-Line and Telephone-Based Service Fee
In the December 8, 1999, meeting pursuant to which the Commission issued the Concept Release, Chairman Levitt asked:
"Is it unreasonable, do you think, to charge fees for distribution of market data by brokers to their on-line customers when fees are not charged to traditional brokers who deal with their customers, provide information, over the telephone?"
Chairman Levitt is not the first to have been mislead into thinking that brokers doing a traditional telephone-based business pay nothing, while on-line brokers pay per-quote or nonprofessional subscriber fees12.
The Exchange wishes to set the record straight. Brokers have always paid to dispense market data over the telephone because they pay for the devices that their registered representatives use to access that information. While the Exchange does not keep records of the Network A revenues attributable to registered representatives' distribution of data to their customers over the telephone, we can attempt to make a reasonable estimate. At the end of 1999, Exchange member firms employed 199,000 registered representatives. (That number includes neither registered representatives of brokers that are not Exchange members nor independent financial advisers; on the other hand, that number includes member firm employees that have qualified as registered representatives, but who use market data for purposes other than communicating with customers.) On average, Exchange member firms that employ those registered representatives paid Network A $20 per month per terminal. If we assume that the registered representatives' primary use of market data terminals was for communicating data to customers, then the member firms paid Network A $47.8 million for this activity, or 29.0 percent of Network A's 1999 total revenues of $165.1 million.
In contrast, we estimate 1999 Network A revenues from the rapidly growing on-line channel at $24.1 million, still well behind revenues from registered representatives' data distribution over the telephone. (To estimate payments from the on-line channel, we added (1) total 1999 Network A per-quote revenues of $18.6 million and (2) 6013 percent of the $9.1 million in 1999 Network A revenues from nonprofessional subscriber services, or $5.5 million.)
In economic terms14, Network A's fee structure for data delivery to retail customers consists of two components, one fixed and the other variable. The telephone-based channel incurs a relatively fixed component in the form of the flat, "all you can eat" monthly per-terminal fee. The on-line channel incurs the variable component in the forms of per-quote and per-nonprofessional subscriber fees. Purveyors of on-line services complain that fixed-component (telephone-based) services unfairly enable unlimited data use at no extra charge. However, the per-terminal fee is not entirely a fixed cost. Just as an on-line broker incurs more market data fees as its customers request more quotes (in the case of a "per-quote" service), or as it serves more customers (in the case of a "nonprofessional subscriber fee" service), so too the broker fielding more telephone inquiries from customers pays more market data fees as its business expands and the increased volume causes it to hire new representatives, each of whom needs an additional device.
Others have voiced concern that even if Network A imposes fees on both distribution channels, the current fee structure treats the channels unequally. In the Exchange's view, the very different nature of the two channels makes comparison difficult. The on-line channel permits the customer to receive unlimited amounts of the highest quality services on an anonymous basis. The telephone channel requires the customer to pick up the phone and call a broker and its dependence on oral communication makes only limited data transference possible. On the other hand, it does provide human interaction and the ability to ask questions that go beyond the mere statistics. These differences underscore the subjectivity inherent in comparing on-line business models and telephone-based business models and the concomitant subjectivity from allocating market costs between them. Given this "apples to oranges" reality, the Exchange believes that the best way to equitably allocate contributions toward market data revenues between the two channels is through consensus building15, negotiations among constituents and reliance on public board governance.
However, three factors suggest that Network A may now have achieved sustainable consensus on fair allocation. First, the industry is shifting toward the on-line model16. Every major telephone-based firm has instituted an on-line initiative or is in the process of doing so. As a result, the Exchange is witnessing a shift away from firms' use of registered representative devices in favor of increased reliance on per-quote and nonprofessional subscriber services. The Exchange anticipates that most firms will soon allow their customers to choose between trading on-line or trading by speaking to their broker over the telephone. As brokers' business models grow increasingly uniform (that is, toward the combined offering-model), firms will have less basis on which to claim unequal treatment.
Second, Network A's 1999 reduction of rates for on-line services appear to have stuck an acceptable balance. The 1999 reduction in per-quote fees (to the current three-tier structure) represented a response to the explosive growth in per-quote revenues17. Because that growth exceeded Network A's expectations, Network A re-calibrated the mix of market data revenues.
Recently reported statistics hold that the proliferation of on-line services now allows over 12 million Americans to have on-line access to real-time market data. As the Commission has noted, on-line services are part of the mix of services that has allowed individual investors to enjoy "unprecedented access to market data."18 The reaction of Network A to the preferences of purveyors of on-line services and to the growth of that business has played a role in facilitating that unprecedented access.
And, finally, the Exchange responded to its constituents' concerns of excessive exposure to market data fee obligations by establishing the enterprise maximum, which provides a ceiling on a broker-dealer's aggregate exposure for market data fees. Whether the broker services its customer accounts via an on-line service, via the telephone or a combination of the two, its fee exposure is capped at $500,000 per month.G. Conclusion
If the Commission were to adopt the new criteria that the Concept Release articulates, much of the current Network A rate schedule would require overhaul. Because the fee-discount debate only pertains to the mix of market data revenues, not to the extent to which the markets may use that revenue source to fund their operations, Network A has no economic motive in preserving or altering that mix. Rather, the Exchange views its role as the facilitator of the process of negotiating the relative levels of the different fees among the different constituents and business models. In the Exchange's view, moving away from consensus as the means for determining market data fee allocations means moving away from fair allocation.
Currently, the Exchange makes the following disclosures:
The Concept Release seeks comment as to whether the markets should also make public audited lists of the revenues attributable to the different fees and the number of users participating in each of the different Network A fee programs. Because Network A presently maintains records of this revenue breakdown, the Exchange has no objection to releasing the information if the Commission determines to require the networks to do so.
The Concept Release also seeks comment on whether the markets should disclose the costs associated with the performance of their various SRO functions. Despite the Exchange's not-for-profit status as a membership organization, the Exchange has always conformed its annual report to substantially the same standards that apply to the public companies that list their shares for trading on the Exchange and it will continue to do so.
More detailed disclosure of the costs associated with the performance of each SRO function would push each market into product-line accounting, would produce arbitrary results that are susceptible to second guessing, would require the Commission to establish uniform accounting standards and procedures, would require each market to overhaul its accounting and auditing functions, and would require difficult allocations of overhead and other costs19. If the Commission were to mandate cost-based rate making, then all of these burdens would represent unavoidable consequences of that decision. If the Commission does not adopt a cost-based rate-making requirement, then such significant and expensive new burdens require careful thought and the assessment of a cost/benefit analysis.
The Exchange favors standardizing and streamlining the agreements, policies, and reporting requirements that apply to vendors, broker-dealers, and subscribers and the industry-wide standards for administering fee structures. It notes that the industry has undertaken a number of initiatives to reduce the administrative burden associated with the distribution of market data.
For instance, the Exchange has promulgated VARS, the vendor automated reporting service that has come to play an important role in electronic reporting and in facilitating more accurate and timely billing of professional display device fees, nonprofessional subscriber fees and per-quote fees. It has yielded direct privity of contract with each nonprofessional subscriber (so long as a vendor's contract with each such subscriber incorporates terms that protect the markets). 20 It has permitted subscribers to enter into "click-on" agreements, despite remaining legal uncertainties. It has promulgated an enterprise arrangement that lays the groundwork for potential reductions in reporting obligations. It has introduced a $1.00 cap that alleviates the need for a per-quote service purveyor to count a nonprofessional service subscriber's quote requests once the it has provided the subscriber with 134 requests in a month.
However, many industry efforts to standardize and streamline market data agreements and reporting requirements have demonstrated that arriving at consensus can be a daunting matter. Each of the initiatives to create an industry-wide uniform agreement has failed because the markets proved to be too far apart in their contractual needs. Discord emanated from the facts that the networks are not all governed by the same rules, that the networks continue to be private enterprises, each guided by its own counsel, and that the networks provided different categories of services.
The Exchange is prepared to work with trade groups and other representatives of its assorted constituents to renew their efforts to eliminate unnecessary administrative burdens of its customers. It is willing to try again to pursue uniform sets of contract terms and conditions. It is willing to review with those representatives (a) potentially suitable fee structures and policies that alleviate the burdens attendant to counting devices, subscribers or quotes and (2) ways in which new distribution channels and other new technologies can facilitate the data distribution process. Of course, there are constraints. Any change must permit the markets to preserve the contribution that market data fees make to the operation of the markets and cannot preclude the Exchange from protecting itself from liability, from adequately monitoring its agreements and from otherwise competing effectively. And, any joint, cooperative effort must safely comply with the legal constraints imposed by antitrust laws.
Pilot authority allows the markets to contract with a limited universe of market participants to test the viability or desirability of a proposed new or innovative market data service or fee alternative on a discrete, limited basis and to do so without requiring the networks (1) to first endure the administrative process associated with making a new fee a part of the permanent rate schedule and (2) to offer the pilot test to everyone before its viability has been substantiated.21
If the pilot program indicates that the new service or fee alternative is not appropriate for the marketplace, the network can merely end the pilot. If the new service or fee alternative proves to be worthwhile, the network would file the new service's fee with the Commission and seek Commission approval to make the new service a part of the network's permanent offering. In this way, pilot programs smooth the market's evolution and minimize the potential for disruption.
When the Commission sought public comment on pilot authority, prior to its approval of that authority in 198322, no one commented. At that time, market professionals accounted for almost all data receipt and the ability to experiment was uncontroversial. However, the acceleration of the trend toward consumer data consumption in recent years has made vendors and brokers increasingly sensitive to what the competition is doing. That sensitivity triggers their call for greater disclosure of the markets' pilot programs and has fueled the Concept Release's request for comments in this area.
However, the Exchange notes an inter-network issue that impacts the timing of disclosure. Because nine (and soon more) markets participate in the four joint venture networks, and most participate in more than one of those networks (with some participating in all four), immediate disclosure of the terms and conditions of pilots prevents one network from reaping the rewards inherent in being the first to pilot test a new product23. As soon as one market discloses its new offering, the other networks do not have to work hard to clone that offering for themselves24.
If industry constituents deem pilot disclosure to be useful, the Exchange posits that only delayed disclosure would be appropriate. For instance, the Exchange would not object to filing the terms and conditions of a pilot with the Commission for publication in the Federal Register 90 days after the pilot commences25.
Regarding the duration of pilot programs, the Exchange would not object to reasonable time limitations for pilot programs, as long as the time limitation for each pilot program is sufficient to permit adequate testing of that pilot program.
In sum, pilot programs have played a useful role in the formation and implementation of innovative new services and fee structures (e.g., per-quote and cable television services)26. The Exchange believes that most brokers, investors and vendors understand this and agree with the Exchange that the markets should retain the authority to conduct pilot programs. However, the Exchange would not object to some sort of "delayed" disclosure.
|1||Concept Release, at p. 74.|
|2||Id., at pp. 7, 72-73.|
|3||Id., at p. 73.|
|4||Nonprofessional investors are excluded from this distribution mix because the markets chose not to impose fees directly on them.|
|5||For instance, per-quote rates are designed for on-line services. Rates for nonprofessional investors accommodate purveyors of services to nonprofessional subscribers. Display device fees are designed for professional subscriber services, including the relay of information to retail customers by registered representatives. The different display device fee tiers accommodates professional data users of different sizes. The markets' determination not to charge for delayed data has implications for vendors that may consider including delayed data services in their mix of offerings.|
|6||Of course, as the Exchange has noted in filings with the Commission, the Exchange spends proportionately less to administer a large consumer than a small one, though only at the margin.|
|7||By allowing brokers and vendors to cap the amount of on-line fees that they pay in respect of an individual investor at $1.00 per month, Network A ties the per-quote rate into the nonprofessional subscriber rate. In the short time that the cap has been available, it has succeeded in motivating brokers to provide more complete, dynamically updated services to their retail customers.|
|8||Concept Release at p. 73.|
|9||Id., at p. 74.|
|10||In its notice seeking comment on Network A's proposal to reduce nonprofessional subscriber fees and per-quote fees to their current levels, the Commission specifically solicited comment as to the discriminatory nature of the fees. (Release No. 34-41572; File No. SR-CTA/CQ-99-01; June 28, 1999). The Commission received but one comment on that topic, a letter from Charles Schwab & Co., Inc. ("Schwab").|
|11||Schwab asserts in its response to the Concept Release that a nearly ten-fold increase in "retail fees" from 1994 to 1998, as opposed to a 1-1/2-fold increase in "professional fees" over that same period, evidences ever-increasing profits for the markets. Of course, retail fees have dropped considerably since 1994, not increased, and professional subscriber fees have remained static. If Schwab is referring to increases in revenues, the phenomenon Schwab cites reflects the explosive growth in on-line access, as opposed to the slower growth of the more mature professional segment of the industry. Despite that growth, market data revenues as a percentage of total Exchange revenues have remained steady over a long period of time. (See Section I(D) of Appendix D.)|
|12||For example, the Concept Release attributes to Schwab an assertion that "any fee applicable to retail investors for on-line access to market information constitutes unreasonable discrimination against on-line investors and their broker-dealers." (Concept Release, p. 73.)|
|13||Both brokers and vendors provide services to which the nonprofessional subscriber fee applies. Sixty percent represents the Exchange's estimate of the percentage of those services that brokers provide.|
|14||The economic aspects of the Network A fee structure are discussed in greater detail in Appendix C-2.|
|15||The history of per-quote fees is a case study of the success of the consensus-building process. The introduction of the usage-based pilots in the early 1990s represents one example. So does the restructuring of per-quote fees in 1997. (See Section II(B)(2) of Appendix D and footnote 20 below for a more complete description.)|
|16||To illustrate the shift, the Exchange cites a Wall Street Journal article from last March. It describes the decision of a large mutual-fund company to require 30,000 of its retail customers to start accessing data from the company through the company's web-site or via an automated telephone system, and to stop calling the company to receive that information from a representative. The move allows the company to reduce the number of devices as to which it has to pay the professional device fee (and, more significantly, the number of registered representatives that it has to pay to respond to phone calls) while increasing the fees it pays to provide per-quote and nonprofessional subscriber services. The company determined that, after accounting for personnel and technology costs, as well as the markets' data fees, the on-line service would be less expensive to provide than the telephone-based service. Network A leaves it to each broker to determine which pricing alternative, or combination of alternatives, best fits its business model. (John Hechinger, "Cutting the Cord: Fidelity to Restrict Access of Frequent Phoners," The Wall Street Journal, March 26, 1999, p. C1.)|
|17||See Section II(B)(2) of Appendix D for the history of reductions in the per-quote fee.|
|18||Release No. 34-36542 (Nov. 30, 1995).|
|19||PHB Haigler Bailly's "Issues Surrounding Cost-Based Regulation of Market Information Prices" (attached as Appendix C-1) discusses these burdens and other related problems in greater detail.|
|20||A March 14, 2000, letter to the Commission from David Pottruck of Schwab (the letter in which Schwab responds to the Concept Release; the "Schwab Response") recommends that the markets dispense with nonprofessional subscriber contractual undertakings altogether. The Exchange finds this extraordinary, given Schwab's considerable efforts to procure Federal legislation designed to destroy the non-contractual basis for assuring that market data fees continue to contribute appropriate amounts to the costs of operating the securities markets.|
|21||Despite the contrary claim of the Schwab Response, pilot authority is not intended to "permit market data fees to be raised . . . without prior public notice and comment." (Schwab Response, p. 3.) and Network A has never used pilot authority in that manner. The Schwab Response is alluding to the nominal change in Network A per-quote pilot program fees from one-half-cent per quote to one-cent per quote. As Section II(B)(2) of Appendix D describes, the one-cent pilot did not amount to an increase in rates. Introduction of the revised pilot triggered explosive growth in demand for per-quote services. Yet, as Chart XX of Appendix D illustrates, Network A revenues immediately declined by 50 percent.|
|22||See Section II(B)(2) of Appendix D.|
|23||Today, the Exchange, in its capacity as Network A administrator, discloses each new pilot to the Commission and its fellow Network A markets at the CTA meeting following implementation of the pilot. That process has worked adequately, as evidenced by the advantage Network A procured when it took the lead in allowing cable television networks to broadcast the real-time Network A ticker. By the time NASD discovered the Network A initiative, Network A's program was already in place.|
|24||A model in which the markets compete with one another for market data business would better address this business-secret disclosure problem than does the current model of joint-market action and the attendant inter-market discussions of pilots and other issues.|
|25||The Commission recognized this tension between the importance of confidentiality and the need for disclosure in the context of the implementation of new trading systems. In adopting Rule 19b-5, it required firms to file pilot trading systems at least 20 days prior to implementation of pilot trading systems, but agreed to keep those filings confidential until after implementation of the trading system. See Release Nos. 34-39884 (April 17, 1998) and 34-40760 (December 8, 1998).|
|26||Network A Pilot Programs are discussed in detail in a January 27, 1998, letter from Thomas E. Haley, Chairman, CTA, to Richard R. Lindsay, Director, Division of Market Regulation, Securities and Exchange Commission, dated January 27, 1998.|