April 5, 2000
Mr. Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: Securities and Exchange Commission File No. S7-28-99
Dear Mr. Katz:
Reuters America Inc.1 welcomes this opportunity to offer its comments to the Securities and Exchange Commission (the "Commission") on the Concept Release on Regulation of Market Information Fees and Revenues. As a leading vendor of market information, we know the importance of timely and reliable quote and price information to market participants. Investors rely on this information to make investment decisions and evaluate the quality of execution they receive. Broad dissemination of information allows markets to allocate capital efficiently, increases investor confidence and ultimately increases participation in the markets. Markets benefit in the form of increased trading and greater liquidity.
Twenty-five years have passed since enactment of the current system for dissemination of U.S. equity market information.2 Since that time, advances in technology have reshaped the way equities are traded. Electronic trading systems now compete with traditional securities exchanges, which themselves are increasingly automated. The Internet has developed into a robust tool for the delivery of information. Yet, the full benefits of technological change have not been reaped in the dissemination of market information.
Suggestions for reducing administrative costs
of the market information dissemination system:
The Commission should encourage the members of the national market system plans to update the market information dissemination system. It should be easier to administer and more flexible to accommodate new technologies and electronic commerce initiatives. Reducing administrative burdens and simplifying the fee structures will reduce costs for system participants. This in turn will lower costs of information to investors, who will then enjoy greater access to information.
Reuters America Inc. believes that reduction of the administrative burden on market participants must be a priority. The high costs of administration impose hidden costs on all users of the data, from vendors to investors. This results in effective market data costs that are well in excess of the fees published by the self-regulatory organizations. Reuters America Inc. is pleased to make the following suggestions for reducing the administrative costs of the market information dissemination system:
The SEC should promote uniformity among the different national market system plans.
Currently, each plan has unique administrative requirements and fee structures. As described in detail in the Concept Release, features such as permissioning, billing, inventory management and reporting differ from plan to plan. This complicates the process for both vendors and end users and increases the costs of administration with no corresponding benefit to investors.
Prior Approval and Exhibit A requirements for vendors and end users should be eliminated.
This would allow for faster response to marketplace needs. As described in greater detail in the attached Addendum, turnaround time on approvals currently can stretch for weeks and even months. In addition, as the self-regulatory organizations demutualize, they will become competitors in the information business. New York Stock Exchange president Richard Grasso has already said of his institution, "the fundamental business is moving to financial data."3 In an environment where first mover advantage is significant, the prior approval/Exhibit A process can provide the exchanges undue commercial advantage. Information vendors and sub-vendors should not have to give a competitor advance notice of their business plans via the Exhibit A process. It should be replaced by simple, clear contract language defining authorized uses. This language should be displayed to the public.
Click-on agreements should be allowed for all users.
Currently, the national market system plans limit use of click-on agreements to non-professionals and usage-based users. The exchanges' failure to implement click-on agreements for professional users coupled with the prior approval requirements slows down the process of providing data to users and adds unnecessary paperwork. It does not recognize the current electronic commerce environment, including the widespread legal support for click-on agreements. It is particularly cumbersome, given that only a few exchanges in the world require subscriber agreements at all.
Fee structures should be simplified.
1) NYSE and Amex "program C" classification charges should be eliminated. These are effectively add-on charges based on how data recipients use the data. The standard end user fees should account for all uses of the data. As they become competitive entities, the exchanges can no longer maintain the position that any use of data is unauthorized until specifically authorized by them.
2) Indirect access fees should be eliminated. Currently, clients who take a data feed service, either directly from NYSE, Amex or OPRA or from a vendor, must pay an indirect access fee. Clients who have the data directed to stand-alone terminals do not pay such a fee. This effectively imposes a tax on data feed vendors and data feed recipients. Market information fees should be technology-neutral.
3) Inflexible pricing structures should be eliminated. The current fee structures of NYSE and OPRA result in a complete lack of flexibility when it comes to administration of exchange fees. In an electronic commerce environment, the cost of administration could be reduced substantially if more flexible and simplified billing models were available. For example, an option allowing vendor billing will in many cases reduce the administrative cost. Because the pricing tiers are applied to an end user firm's entire organization, the exchanges themselves must do the billing.
4) NYSE and Amex fees for delayed indices should be eliminated. Since delayed prices are free, delayed indices should be free as well. There is no justification for charging for delayed indices. Many firms would like to put delayed NYSE or Amex indices on their web sites but do not because of the fee liability.
The Nasdaq Stock Market has made progress toward simplified fee structures. Nasdaq's flat fee structure enables vendors to bill subscribers in an electronic commerce environment. Nasdaq uses one subscriber agreement for all subscribers, professional and non-professional, and allows click-on agreements for any user. Nasdaq does not impose fees on delayed indices. In part for these reasons, Nasdaq has lower market information fees than the other US equities exchanges. We still believe there is room for improvement. For instance, while Nasdaq does allow use of click-on agreements for any subscriber, the click-on agreement requirements themselves are highly burdensome.4
Contract terms should be more flexible.
Compared to exchanges around the world, U.S. exchanges have far more complicated procedures and more restrictive contracts regarding the dissemination of market information. For example, NYSE's contractual position that any use of data is unauthorized until approved by the exchange is contrary to that of the vast majority of exchanges worldwide. Not surprisingly, the U.S. exchanges also have larger market data administration departments to oversee this complexity. This creates higher costs for the exchanges and, consequently, for vendors and users of U.S. market information. Greater flexibility in contract terms would do much to reduce these costs.
Pilot programs should be limited in duration.
Pilot programs provide critical flexibility, particularly in the current rapidly changing environment. Reuters America Inc. strongly supports the use of pilot programs as a means to ensure that the exchanges and vendors can respond quickly to the evolving demands of the marketplace. Pilots should not, however, multiply or become permanent fixtures to the point where they undermine the goal of uniformity. Reuters America Inc. believes a one-year time period for pilot programs would be reasonable. Under certain circumstances, such as when the results of the pilot program are not clear and more time would allow a determination of the program's merits, the exchanges should be able to seek permission from the Commission for an extension of limited duration.
Vendors and end users should play a greater role in the governance of the market information dissemination system.
Specific issues that should be subject to review by vendors and end users include changes to fee structures and changes to administrative requirements. This broader industry participation would serve to accomplish two objectives. First, it would provide a regular means to ensure exchanges gather feedback on proposed changes prior to submitting requests for approval to the Commission. Second, it would ensure that the exchanges are fully aware of the implications of any proposed changes on vendors and investors. In our experience, the administrative burdens placed upon users of the data are lower when exchanges actively solicit input from affected parties before making changes. While we do not believe that vendors and end users must have voting rights within the plans, the views of vendors and end users should be presented to the Commission when the self-regulatory organizations make any filings with the Commission. An inclusive process of this sort would reduce the number of contentious issues submitted to the Commission for decision, resulting in faster turnaround time for plan changes.
Conclusion: Dissemination of market information
should move into the realm of electronic commerce.
Reuters America Inc. believes that the system for disseminating market information should be at the cutting edge of technology. Customers should be able to subscribe electronically and have information distributed to them in whatever format makes most sense for their purposes. The changes suggested above will make the current system more user-friendly and efficient, allowing wider distribution of more information at less cost to investors. In addition, the Commission should consider whether investors would be better served by a less centralized system, where market information was made available without the current centralization through a processor. The phenomenal growth in the use of the Internet suggests that new types and sources of information will be available to investors within a few years. It may be counterproductive to try to force all of this information through a central bottleneck.5
Reuters America Inc. looks forward to working with the Commission, the national market system plans, its customers and other market participants to improve the system for dissemination of U.S. equity market information. Together, we can shape a system that takes advantage of available technologies to provide investors with more efficient access to reliable and current information.
Reuters Information Marketing
|cc:||The Honorable Arthur Levitt, Chairman
The Honorable Norman S. Johnson, Commissioner
The Honorable Isaac C. Hunt, Jr., Commissioner
The Honorable Paul R. Carey, Commissioner
The Honorable Laura Simone Unger, Commissioner
Annette L. Nazareth, Director, Division of Market Regulation
Robert L.D. Colby, Deputy Director, Division of Market Regulation,
and Senior Advisor to the Chairman
Belinda Blaine, Associate Director, Division of Market Regulation
Elizabeth K. King, Associate Director, Division of Market Regulation
Daniel M. Gray, Division of Market Regulation
|1||Reuters America Inc. is an indirect wholly owned subsidiary of Reuters Group PLC ("Reuters"). Reuters supplies the global financial markets and the news media with the widest range of information and news products, including real-time financial data, historical and graphical databases, and news, news video, news pictures and graphics. Reuters also provides global solutions and technologies for the financial markets. It designs and installs enterprise-wide information and risk management systems and provides equity and foreign exchange transaction systems.|
|2||See Securities Acts Amendments of 1975, Pub. L. No. 94-29, 89 Stat. 97 (1975).|
|3||Reuters, January 20, 2000, "NYSE's Grasso unconcerned with upstart competitors."|
|4||Nasdaq requires maintenance of records for all click-on subscribers for the entire length of the account plus 10 years (Nasdaq On-line Subscriber Agreement question 8a).; users must click on 7 individual boxes plus type in their name, title and date and click on "I agree".|
|5||For example, even with a fourfold increase in OPRA traffic capacity (from 3,000 to 12,000 updates per second), OPRA will be unable to handle forecast update rates by the second half of this year without implementing major quote mitigation strategies. Meanwhile, Nasdaq recently informed the SEC that it will be unable to implement decimal pricing under the currently ordered timeframes due to capacity constraints.|
REUTERS AMERICA INC. COMMENTS ON
SECURITIES AND EXCHANGE COMMISSION
CONCEPT RELEASE ON REGULATION OF
MARKET INFORMATION FEES AND REVENUES
April 5, 2000
The Lack of Click-On Agreements and Prior Approvals
for Professional Users Significantly Adds to Administrative Burden
Consider the example of a new professional client who orders an Internet-delivered service from Reuters America Inc. Assume the client will not be redistributing the data to third parties. The lack of click-on agreements for receipt of New York Stock Exchange, American Stock Exchange and Options Price Reporting Authority data add significantly in terms of time and cost.
Before providing the client with New York Stock Exchange data, Reuters America Inc. must contact the NYSE to determine if the client is already approved to receive NYSE data. If the client has not already been approved, we must provide the client with a written copy of the NYSE's Agreement for Receipt of Consolidated Network A Data and NYSE Market Data. The amount of time the client takes to complete the Agreement can vary greatly, as clients often have their counsel review the document. Once the executed Agreement is returned to us, we forward the Agreement and a "Request for Authorization of Controlled Devices" form to the NYSE. We must then wait for confirmation of approval from the exchange. NYSE policy for "controlled" (non-datafeed) devices is to respond within 48-72 hours, but this process can take up to two weeks. Further paperwork is required for company name changes and relocations
Similarly, Reuters America Inc. must contact the American Stock Exchange to determine if the client is approved to receive Amex data. If the client has not already been approved, we must provide the client with a written copy of Agreement for Receipt of Consolidated Network B Data and Amex Market Data. Once the executed Agreement is returned to us, we forward the Agreement plus an "Amex Service Order" form to the exchange. Again, we must then wait for confirmation of approval from the exchange. While no prior approval is required for receipt of OPRA data, we must provide the client with a written copy of the OPRA subscriber agreement. Only after the executed copy is returned to us may we permit the client to receive OPRA data.
If the client will be taking a datafeed service rather than a "controlled" service and redistributing data to third parties, which is becoming increasingly common with the increases in one-line trading and information, the procedures are even more complicated. In that case, before providing the client with New York Stock Exchange or American Stock Exchange data, Reuters America must request authorization from the exchanges via the "Vendor Datafeed Authorization Request Approval" form. We then must wait for the NYSE to send the Agreement and Exhibit A to the client. The NYSE sends a notice of authorization (for both NYSE and Amex data) to Reuters America. While NYSE policy is that this may take up to 45 days, this time period commences only after the client has returned the Agreement and Exhibit A to the exchange. Therefore, the actual delay can be much longer. For additional datafeeds, a new request must be sent and the process described above repeats all over again.
Before providing the client with OPRA data, we must provide a copy of the OPRA subscriber agreement. Once the executed agreement is returned to us, we forward the agreement to OPRA for approval and wait for confirmation.
Nasdaq procedures are somewhat less onerous. If the client is taking a controlled (non-datafeed) service, the client may click on and complete the Nasdaq subscriber agreement directly. We may permit the client to receive Nasdaq data via controlled devices without waiting for prior approval. (Similarly, the client can complete click on agreements to receive Chicago Mercantile Exchange and New York Board of Trade data without prior approval.) If the client is taking a datafeed and redistributing data, we must contact Nasdaq to determine if the client is already approved to receive Nasdaq data via datafeed. If the client is not already approved, we must provide the client with copy of the Nasdaq Agreement/Attachment A. The client submits completed documents directly to Nasdaq. After we receive confirmation of approval from Nasdaq, we may provide data to the client.
For other U.S. exchanges, including the New York Mercantile Exchange and the Chicago Board of Trade, the client must execute a written copy of the Addendum. After the executed copy is returned to us, we may permit the client to receive data without waiting for prior approval.
The practices of U.S. exchanges are cumbersome compared to foreign exchanges. The vast majority of foreign exchanges do not require subscriber agreements or prior approvals. As such, clients can begin receiving data immediately after we receive an order.