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APPENDIX D Network A in Perspective: 1975 - 2000

New York Stock Exchange, Inc. Comments to Securities and Exchange Commission Concept Release on "Regulation of Market Information Fees and Revenues" (Release No. 34-42208; File No. S7-28-99). APPENDIX D Network A in Perspective: 1975 - 2000. Table of Contents

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APPENDIX D Network A in Perspective: 1975 - 2000

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  1. New York Stock Exchange, Inc. Comments toSecurities and Exchange Commission Concept Release on "Regulation of Market Information Fees and Revenues"(Release No. 34-42208; File No. S7-28-99) APPENDIX DNetwork A in Perspective: 1975 - 2000

  2. Table of Contents • Section I — Factual Record ……………………………………………………………………. 4 • A. Data Distribution ……………………………………………………………………………………. 4 • B. Network Reliability …………………………………………………………………………………. 5 • C. Uniform Treatment …………………………………………………………………………………. 5 • D. Fair and Reasonable Terms …………………………………………………………………………. 7 • Section II — Network A Developments …………………………………………………… 10 • A. The 1970's: Consolidation of Data ………………………………………………………………… 10 • 1. The Consolidated Tape …………………………………………………………………….. 10 • 2. The Advent of CTA ………………………………………………………………………… 10 • 3. High Speed Line Development …………………………………………………………….. 10 • 4 Initial Network A Rates ……………………………………………………………………. 11 • B. The 1980's-1990’s: Evolution to Ubiquity ………………………………………………………... 12 • 1. The Market for Market Data - Professionals ………………………………………………. 12 • 2. The Market for Market Data - Individual Investors ………………………………………… 13 • Section III — Network A Revenues and Rates ………………………………………….. 18 • A. Access Fee Revenues ……………………………………………………………………………... 18 • 1. Importance to Network A Revenues ……………………………………………………….. 18 • 2. Current Rates ……………………………………………………………………………….. 19 • 3. Administration ……………………………………………………………………………… 19 • 4. Subsriber Population ……………………………………………………………………….. 19 • B. Computer Program Classification Fee Revenues …………………………………………………. 20 • 1. Importance to Network A Revenues ……………………………………………………….. 20 • 2. Administration ……………………………………………………………………………… 20 • 3. Current Rates ……………………………………………………………………………….. 21 • 4. Subscriber Population ………………………………………………………………………. 21 • C. Display Device Fee Revenues - Professional Subscribers ………………………………………... 22 • 1. Importance to Network A Revenues ……………………………………………………….. 22 • 2. Brief History of Rates ………………………………………………………………………. 22 • 3. Current Rates ……………………………………………………………………………….. 24 • 4. Administration ……………………………………………………………………………… 24 • 5. Subscriber Population ………………………………………………………………………. 25 • D. Display Device Fee Revenues - Nonprofessional Subscribers …………………………………… 26 • 1. Importance to Network A Revenues ……………………………………………………….. 26 • 2. Brief History ………………………………………………………………………………... 26 • 3. Current Rates ……………………………………………………………………………….. 27 • 4. Administration ……………………………………………………………………………… 27 • 5. Subscriber Population ………………………………………………………………………. 28 2

  3. Table of Contents • Section III — Network A Revenues and Rates (continued) • E. Display Fee Revenues - Usage-Based Services …………………………………………………… 29 • 1. Importance to Network A Revenues ……………………………………………………….. 29 • 2. Current Rates ……………………………………………………………………………….. 29 • 3. Administration ……………………………………………………………………………… 30 • 4. Subscriber Population ………………………………………………………………………. 30 • F. Ticker Display on Television ……………………………………………………………………… 31 • G. Communication Facilities Revenues ……………………………………………………………… 32 3

  4. NYSE was instrumental in the creation of Network A under the CTA Plan and the CQ Plan and has led its evolution. The purpose of this document is to provide a factual record for Network A and to provide information and background regarding the evolution of Network A rates, policies and practices over the past 25 years. Section I places Network A in a factual context. Section II highlights Network A’s evolution over the past two and one-half decades. Section III provides a historical look at each component of the Network A revenue stream and fee structure. • Section I  Factual Record • A. Data Distribution • An estimated 65 million Americans directly hold shares in NYSE-listed securities. Many access real-time Network A data in the traditional manner: they call their broker. • Over twelve million investor accounts have on-line access to real-time Network A data from services provided by their brokers. • Broker-dealers and other professionals receive real-time Network A data on over 400,000 display terminals located around the globe. • During 1999, vendors and broker-dealers electronically fulfilled over 2 billion inquiries for price information through a usage-based program developed by Network A. • Upwards of 100 million people have access to free Network A data on public web sites. • Over 350,000 individual investors have been authorized to receive unlimited access to real-time Network A data from vendors and broker-dealers. • In excess of 70 million cable television subscribers received free real-time access to the Network A ticker on their television sets. • Investors can receive Network A data by means of personal computer, hand-held computer, telephone audio voice response, cellular phone, pager device, automated teller machine, public ticker. • Today, people can see Network A data while dining in a restaurant, while standing in Times Square, while shopping at a mall, while flying in a plane or while watching television. In most cases, they pay no fees. 4

  5. B. Network Reliability • All Consolidated Tape System (“CTS”) and Consolidated Quotation System (“CQS”) hardware is fully redundant. All peripheral devices are fully duplexed. The computer systems are operational at two separate sites providing redundancy in the unfortunate event of a disaster at either location. • Both CTS and CQS service uptime percentages have exceeded 99.9 percent every year since the systems commenced operations in 1976 and 1978, respectively. • CTS capacity has kept ahead of the growth in the number of Network A transaction reports from 21.7 million in 1985 to 274.8 million in 1999. • CQS capacity has kept ahead of the growth in the number of quotations from 30.8 million in 1985 to 506.3 million in 1999. • Both CTS and CQS are ready to accommodate the industry’s planned conversion to decimals in July 2000. CTS and CQS capacity has been upgraded to meet projected increases in activity levels for transactions and quotations in a decimal environment. • C. Uniform Treatment • All parties that are provided access to Network A data and who gain control over the potential redistribution of that data enter into the same standard form of Commission-approved agreement (“vendor form of agreement”). • All parties that execute the vendor form of agreement are permitted to furnish unlimited quantities of market data to their customers and clients via electronic services. • All Network A professional subscribers sign the same form of Commission-approved professional subscriber agreement. • Network A professional subscribers are permitted to furnish “limited amounts” of market data to their customer and clients over the telephone. • Nonprofessional subscribers enter into contracts with vendors rather than directly with Network A. But Network A requires those contracts to contain substantially similar terms and conditions. • Network A imposes the same market data fees on its members as it imposes on non-members. • Network A applies the same fee schedule to all vendors, broker-dealers and investors. • Network A does not discriminate based upon the geographical location of a data recipient. 5

  6. 1 NYSE, not Network A, does impose a fee for the redistribution of delayed last sale prices over cable television. • Network A provides for the following differentiations within its fee schedule: • 1. it charges significantly different rates in respect of vendor services that provide an unlimited display of real-time market data depending on whether the end-user is a professional or a nonprofessional subscriber, • 2. it provides volume discounts for professional subscribers, for vendors of usage- based services and for vendors of nonprofessional subscriber services, • 3. it offers an enterprise maximum to its broker-dealer customers, • 4. it provides exchanges that are CTA members with an exemption for display device fees in respect of terminals located on the floors of these exchanges, • 5. it does not charge for the distribution or display of delayed last sale prices.1 • Network A waives fees for the display of real-time Network A data used in schools and universities as part of educational programs. • Network A does not charge for terminals maintained by subscribers on a “hot stand-by” basis for disaster recovery or back-up purposes. 6

  7. Compound Annual Growth 1985-1999 2 SIAC, Two Year Processor Review – Period ended December 31, 1998. • D. “Fair and Reasonable” Terms • Network A terms and conditions provide a level playing field for all data recipients - vendors, broker-dealers and investors, based on their intended use of market data. • Network A vets each new fee proposal with a cross-section of each industry constituency and with trade groups, subjects each fee to the approval of the constituent-representative boards of directors of the CTA markets and of the Commission under a public comment process. • Network A pricing terms and conditions are generally neutral as regards technology and/or alternative forms of distribution media. • Network A’s policy is to impose only a single device fee in situations where a professional user employs multiple terminals, each enabled for the display of Network A data, or where multiple vendor services are displayed on a single terminal. • Over the past fifteen years, Network A revenues have grown at a rate of 9.2 percent per year, while the number of trades and quotes processed have grown 21.0 percent per year.2 7

  8. As the Concept Release notes, for 1998, total industry market data revenues amounted to less than one-quarter of one percent of all securities industry revenues. On a unit cost basis, the industry’s cost of Network A data has declined significantly over the past fifteen years. Considering that data revenue to the exchanges equals data costs to the industry, the unit cost to the securities industry overall for each Network A real-time trade/quote message disseminated has shrunk from an average of $1.00 per message in 1985 to $0.23 per message in 1999. Unit Cost Per Transaction • Revenues from Network A fees constitute nearly the same percentage of NYSE revenues today as they did a quarter century ago. Market Data Revenues as a Percent of All NYSE Revenues 8

  9. Other Market Fees 3 As a bit of historical trivia, NYSE notes that in the 1880’s, NYSE charged approximately $25 per month (actually $6 per week per terminal) for the NYSE ticker service. At the end of December 1999, NYSE (Network A) charged professional subscribers a blended average of $24.90 per terminal per month. Applying the Consumer Price Index adjustment to the cost of NYSE last rate prices in the 1880’s yields an amount for the same service today of $420 per month. • Network A's blended monthly rate per professional display device ($24.90 for 1999) 3 compares favorably with monthly terminal fees charged by other markets, both in North American and around the globe. London Stock Exchange CBOT CME NASDAQ – Level 2 – Level 1 Amsterdam Stock Exchange Australian Stock Exchange Canadian Exchange Group Brussels Stock Exchange Network B – Non-Member – Member Deutsche Borse Hong Kong Stock Exchange Network A Tokyo Stock Exchange 9

  10. Section II  Network A Development • A. The 1970’s: Consolidation of Data • 1. The Consolidated Tape • During the decade of the 1970’s, the CTA markets responded to a combination of regulatory initiatives, changing technology, and increased levels of activity in the stock market by creating the infrastructure that exists today for delivery of transactions and quotations data regarding NYSE-listed stocks. In the early to mid-1970’s, the last sale information data streams of the several markets trading NYSE-listed stock were consolidated. The process began with NYSE contributing its pre-CTA ticker plant and network service to the consolidation effort. That plant and network service served as the technical foundation and administrative framework for CTA Network A. • 2. Advent of CTA • In June 1975, Network A commenced operation with NYSE, Midwest Stock Exchange, Philadelphia Stock Exchange, Pacific Stock Exchange, NASDAQ, Cincinnati Stock Exchange and Instinet reporting transactions in NYSE-listed stocks. The Boston Stock Exchange began reporting a month later. • In January 1976, the Commission declared the registration of the CTA Plan effective. Beginning that month, NYSE commenced to share transaction information revenues with the other markets. NYSE continued to administer and oversee the operation of its last sale information business as it had before consolidation. In its capacity as Network A administrator, NYSE has performed those functions ever since. • 3. High Speed Line Development • The NYSE ticker operates at a maximum of 15 characters per second (134.5 baud) in order to maintain visual acuity. It is not suitable for the timely display of transactions during higher levels of market activity or to facilitate sophisticated computer display and analysis. That, plus advances in technology, led to the develoment of a new high-speed output in order to assure timely distribution of transaction reports and to permit computer input for purposes of enhanced display and analysis • In March 1976, the CTS initiated high speed line service (4,800 baud) for both Network A and Network B data. The high speed line complemented the networks’ low speed ticker outputs, which also continued to be made available from CTS. The markets delegated to NYSE authority to administer the high-speed line on behalf of both Network A and Network B. 10

  11. In July 1978, the Commission declared the Consolidated Quotation Plan effective. In August 1978, the CQS commenced full operation with the Boston, Midwest, New York, Philadelphia and Pacific Stock Exchanges reporting quotations in NYSE-listed securities. As with last sale information, NYSE facilitated the start of consolidated reporting of quotation information by contributing its predecessor network for distributing bid-asked information to serve as the technical foundation and administrative framework and by overseeing the development of a high speed output. NASDAQ joined the CQ Plan at the end of 1978 and began to disseminate quotations over CQS in early 1979. In November 1979, the Cincinnati Stock Exchange became a CQ Plan Participant and commenced disseminating quotations in mid-1980. • 4. Initial Network A Rates • At the advent of CTA, Network A established access fees for those data recipients who wished to create a computer-to-computer linkage with the Network A processors and computer program classification feesfor those who wished touse market data for purposes other than interrogation display or ticker display. In addition, Network A adopted NYSE’s pre-existing structure for display device rates for interrogation display and ticker display services. • NYSE’s practice had been to levy fees on the basis of the quantity of ticker printers and/or ticker wallboard displays that were installed at a member’s office. The rate structure applied a fee for the first device at a location and a much lower fee (roughly 10 percent of the first unit fee) for each additional display unit at the same location. Also in 1978, when CQS data became available, NYSE’s predecessor display device fees and fee structure became the initial rate structure for Network A quotation information. 11

  12. B. The 1980’s – 1990’s: Evolution to Ubiquity • 1. The Market for Market Data – Professionals • As the 1980’s began, consolidated reporting was well established: • Eighteen data recipients (including the markets) connected their computers directly to the CTS and CQS computers. • Network A had an installed base of 58,900 vendor display terminals receiving real-time last sale price information and 50,000 units receiving quotation information. • 19,000 low-speed ticker displays were in operation. • For the full year 1979, the Network A rate structure generated $20.0 million in annual revenues. • The sources of these revenues derived mostly from ticker display and vendor interrogation services located in the offices of broker-dealers and institutional investors. • Very few individual investors subscribed to real-time vendor services. While CTA had no restrictions that precluded vendors from distributing real-time market data to individual investors, vendor services were too expensive to be attractive to most individuals. Most opted for delayed last sale price services that vendors made available at lower rates than real-time services and free of exchange fees. The Network A rate structure at the beginning of the decade was comprised of three categories of fees; access fees, computer program classification fees and display device fees. Within each category, separate rates applied for each of last sale price information and bid-asked quotation information. The structure provided for: • access fees that applied to high speed line data recipients that connect into the Network A computers or that receive an uncontrolled stream of Network A data from a third party; • computer program classification fees that applied to high speed line data recipients that use real-time data for purposes other than interrogation and display, e.g., to create stock tables for the newspapers, to perform computer tracking and analysis of price movements, to calculate indexes, to route orders, to facilitate market maker activity, etc.; and • display device fees that applied uniformly to all vendor display devices without regard to whether the user was a broker-dealer, an institution or a retail investor. The bid-asked component of the display device fee distinguished between member and non-member data users until 1984. The display device fees were levied on a per-location basis, and included a volume discount. 12

  13. As the new century begins, this basic fee structure remains in place and continues to account for the bulk of Network A revenue. • For the full year 1999, Network A revenues aggregated $165.1 million, 82 percent of which derived from the same professional sources, broker-dealers and institutional investors, and from the same types of access fees, computer program classification fees and display device fees as in 1980. • Access fees and computer program classification fees continue to have the same structure and the rates for each are the same as when they were first introduced in 1976 and 1978 respectively. • Display device fees were restructured in 1987 to create the present 14-tier display unit fee structure. The 1987 revisions (a) eliminated the location bias implicit in the old structure’s “first unit” fee, (b) unbundled the communication facilities component of the ticker display fee and (c) combined the fees for ticker, last sale and quotation information into a single charge. • From 1987 to the present, Network A made one additional change in display device fees for professional subscribers, a 6 percent increase in 1992. • At the end of 1999, the Network A installed base of display devices aggregated 419,000 terminals located in the offices of broker-dealers and institutional investors around the globe. Ticker display services have declined to roughly 1,000 locations. The number of data recipients with direct access has grown to approximately 50 and the number of data recipients with indirect access has grown to over 1,100. In summary, the professional segment of the market for market data is a mature and fully saturated market segment. The potential for more widespread dissemination of real-time data within this segment is modest and likely to track overall securities industry growth. The only major uncertainties regarding this market segment involve 1) how Internet developments play out longer term and whether the exchanges will be able to continue to rely on the vendor community to provide the delivery vehicles and the application of display services for this segment of the market, and 2) whether the growth in on-line services will negatively impact the overall demand for professional display devices. 2. The Market for Market Data – Individual Investors At the beginning of the 1980’s, few, if any, individual investors had contracted to receive vendor services. An individual investor that wished to check the price of a security had to either call his/her broker for a price or check the stock tables in the newspaper. On a limited basis, several cable television systems displayed the delayed NYSE ticker. 13

  14. 4 Pilot authority represented the industry’s reaction to the fact that Commission rules under section 11A of the Exchange Act did not (and still do not) include a counterpart mechanism to Commission Rule 19b-4 (f) (6), which allows SROs (but not Network A) to submit on an effective-upon-filing basis proposed rule changes that neither affect the protection of investors nor burden competition. However, the advent of the personal computer in the early 1980’s gave rise to several new vendors. As that era’s major vendors (e.g., Quotron, Bunker-Ramo and GTE) continued to focus on servicing higher-end professional clients, a number of the new vendors expressed interest in developing services directed at the individual investor and they sought Network A’s cooperation to help promote their efforts. Network A’s first initiative came in 1984 with the introduction of a new and significantly lower set of fees that applied for vendor services provided to any person who qualified as a nonprofessional subscriber. The term nonprofessional was defined to be synonymous with individual investor. Network A’s intent was to carve-out individual investors and to offer a rate inducement to vendors in an effort to promote more widespread dissemination of real-time data to this segment of the investor community. Network A set its new rates for vendor services provided to nonprofessional subscribers at roughly 10 percent of the rates that then applied for display services provided to professional subscribers. Network A also developed new, streamlined administrative procedures to facilitate vendor record keeping and the registration of this new class of subscriber. The initial rates were set at $7.50 and $6.00 for each of last sale prices and bid-asked prices, respectively. Three years later, Network A combined these rates into a single rate, and reduced that rate to $4.00 per month. In 1992, a 6 percent increase changed this rate to $4.25, and it remained at this level until 1997. Despite these efforts to elicit greater participation by individual investors, the number of nonprofessional subscribers remained below expectations. As Network A entered the 1990’s, a handful of vendors and broker-dealers were experimenting with offering real-time services, but the subscriber population had only grown to approximately 10,500 receiving real-time service. Technology advances, while significant, still were not at a level whereby services could be delivered on a wide scale on a cost-effective basis. It was also apparent that the availability of delayed data at no cost presented a barrier to achieving both the goal of more widespread dissemination of real-time data and the goal of fairly allocating a share of the market costs to vendors and broker-dealers delivering data to investors via interrogation services. Many individual investors had personal computers and received nascent “dial-up” services from the likes of Prodigy, CompuServe and America On-line. Though those services were inexpensive, they offered only delayed market data, primarily because the markets impose no fees on vendors for delayed services and do not require subscribers to execute agreements. In 1983, recognizing that the new data delivery techniques probably would not “fit” well within its historical framework of rates, policies and practices, Network A had obtained SEC approval for authority to experiment with alternative pricing models and streamlined administrative procedures on a pilot test basis.4 The pilot authority was designed to enable 14

  15. the Network administrators to test new services on a limited basis before adding the new service to the official Network A rate schedule. If the pilot did not prove useful, the pilot structure provided an easy means to decommission it. In the early 1990’s, Network A exercised this pilot test authority to permit pilot programs designed to try and overcome some of the barriers to wider dissemination of real-time data. Two broker-dealers and a vendor worked with Network A to experiment with three different “pay-for-use” metrics: an over-riding royalty (Mead Data’s Lexis-Nexis unit); a cents-per-minute-on-line service (Charles Schwab & Co., Inc.); and a cents-per-quote service (Fidelity Brokerage Services, Inc.). All three pilots required the service provider to offer only real-time data during market hours. That allowed Network A to pursue its objective of promoting real-time data distribution. Of the three pilots, the per-quote model proved to be the most attractive. The per-minute pilot attracted only one other participant and only for a brief period. The royalty pilot attracted no additional participants. NYSE ended both of these pilots in 1997, by which time the vendors of those pilot services had switched, or were prepared to switch, to per-quote services. The feedback from the pilot led Network A to abandon its efforts to incent conversions from delayed data to real-time data. The pilot service providers encouraged Network A to eliminate the prohibition against the delivery of delayed data during market hours and to apply the per-quote fee only during market hours. Those changes comported with the per- quote services that the NASD permitted at one cent per-quote, a program that NASD had filed with the Commission in 1995. In August 1997, Network A reconfigured the format for the per-quote pilot along those lines. Whereas Network A charged one-half cent per quote for the predecessor 24 hour/7 day program, it proposed to follow the NASD in charging a rate of one cent per-quote for the reconfigured market-hours-only program. (At that time, OPRA had proposed, and the Commission had approved, a rate of two cents per-quote for a similar market-hours program.) In addition, Network A was satisfied that the per-quote model had proven its durability in the pilot competitions and thus filed the restructured program with the Commission as part of the Network A rate schedule on an effective-on-filing basis, anticipating that the precedents set by NASD and OPRA made the filing non controversial. At the same time, Network A proposed to increase its monthly fee for vendor services provided to nonprofessional subscribers from $4.25 to $5.25 per subscriber per month. The Commission received one comment letter on the filing, from Schwab. Schwab objected to the proposed one cent rate. The Commission indicated that it wanted more time to consider Schwab’s comment letter. Rather than having the Commission abrogate the Network A filing, Network A withdrew its per-quote filing and simultaneously instituted a pilot on identical terms in order to prevent the discontinuation of per-quote services by Schwab and approximately 30 other organizations. (The proposed increase in the nonprofessional fee received no negative comments and was approved by the Commission.) 15

  16. 1998 and 1999 were characterized by unprecedented growth in investor demand for access to real-time data via on-line brokerage services as technology and the Internet came of age. Real-time prices became the standard and the industry approached Network A to help facilitate their response. Network A, accordingly, had extensive dialogue with its broker-dealer and vendor constituencies, during which many pricing concepts and models were considered and tested. As a result, effective October 1999, the Commission approved revised fees for services provided to individual investors and a cap on a broker-dealer’s aggregate exposure in respect of market data fees associated with such activity: • 1. New monthly fees for vendors of real-time services to nonprofessional subscribers replaced the old rate of $5.25, as follows: • a) $1.00 for each of a vendor’s first 250,000 nonprofessional subscribers and • b) $0.50 for each additional subscriber that received service during the month. • 2. For vendors offering usage-based services (where it does not matter whether the user is a professional or a nonprofessional), the per-quote rate of one cent was replaced by a three-tier structure as follows: • a) $0.0075 for each of the first 20 million quotes disseminated during the month; • b) $0.005 for each of the next 20 million quotes; and • c) $0.0025 for each additional quote beyond 40 million. • In addition, the vendor is allowed to cap the maximum monthly amount payable for any nonprofessional subscriber at the base nonprofessional subscriber monthly rate of $1.00. • 3. For broker-dealers, Network A introduced an enterprise maximum of $500,000 per month, which put a ceiling on a broker-dealer’s maximum exposure in any month equal to the aggregate amount that it might incur in respect of: • a) fees for professional display devices used by its officers, partners and employees, including registered representatives providing market data telephonically to their customers and clients, plus • b) fees incurred for the delivery of real-time Network A market data to its nonprofessional customers via on-line, vendor-type services. 16

  17. Usage-Based Revenues $ Millions When Network filed with the commission in 1997 to formally establish the one-cent rate, Schwab claimed that Network A had doubled its rates. The reality is that the one-cent rate was effectively a rate cut. Costs to firms overall, and Schwab in particular, were reduced by 50 percent immediately. But there was an immediate doubling of the number of usage-based vendors and an immediate increase in the volume of market data disseminated to individual investors, but an immediate decline in Network A revenues from usage-based fees. Another significant NYSE initiative of the 1990’s was the introduction of real-time ticker displays on cable and broadcast television. In 1996, Network A began to enter into pilot programs that permitted cable and broadcast television networks to replace their Network A delayed ticker displays with Network A real-time tickers. In this way, Network A has been able to “democratize” access to the real-time ticker for cable television viewers in much the same way as the development of the Internet has democratized access to real-time data for investors with personal computers. This pilot program has proven successful and remains active. In summary and as indicated above, the more interesting story of the past two decades relates to the 18 percent of Network A’s 1999 revenues derived from broker-dealer and vendor services provided to individual investors. Over this period, Network A made substantial progress in achieving more widespread dissemination of real-time data within the individual investor segment of the market. Today, real-time data has become pervasively -- and inexpensively -- available through a variety of media and alternative sources. The Internet and other technologies have made it cost-effective for broker-dealers and other vendors to provide their on-line customers with access to real-time market data. Most of those retail customers pay their brokers nothing for that access, just as they pay nothing when they call their brokers for data over the telephone. 17

  18. Network A Revenue Summary Access Fee Revenues • Section III  Network A Revenues and Rates • Network A revenues for the year 1999 aggregated $165.1 million, the various components of which are as follows: • A. Access Fee Revenues • 1. Importance to Network A Revenues • Access fees generated $10.2 million in revenues in 1999, 6.2 percent of total Network A revenues. • Network A and Network B share access fee revenue on the basis of each network’s pro-rata share of total messages processed by CTS and CQS. • Access fees are levied on data recipients who have “direct access” via a computer-to- computer linkage with CTS and /or CQS or who receive “indirect access” via a data feed service provided by a third party vendor. 18

  19. 2. Current Rates • Access fees entitle data recipients to receive both Network A and Network B market data. The monthly rates for indirect access are one-half the rates for direct access, as follows: • The above rates are the same today as in 1976 and 1978 when the CTS and CQS high speed outputs initially became operational. 3. Administration • NYSE administers the agreement process and is responsible for account management functions for direct and indirect access recipients. • All direct and indirect access recipients are required to execute the vendor form of agreement which, among other things, governs redistribution of real-time market data to internal users and to third parties and the vendor’s obligation to report display device activity to the Network A and Network B Administrators. • Direct access data recipients are entitled to one primary and one backup circuit plus support services provided by personnel employed by the CTS/CQS processor. • Administrative processes are the same for both direct and indirect access subscribers. Both are required to execute the vendor form of agreement, and to complete an Exhibit A to the agreement describing their intended use of market data, and to subsequently submit reports to the Network A and Network B Administrators accounting for such use. • A short form Exhibit A format has been developed for use by those whose redistribution of market data is limited to within their own company. In addition, this short form Exhibit A has been designed to cover market data provided by all North American equities and options exchanges. 4. Subscriber Population • The number of direct access recipients has remained relatively constant at a level of about 50-55. • Indirect access subscribers have proliferated as a result of continuing growth in data feed services, which has been a 1990’s phenomenon. • The number of indirect access subscribers currently totals 1,161. • Reuters is Network A’s largest data feed supplier. Bridge, S&P Comstock, PC Quote, Data Broadcasting, and ILX also provide significant data feed services. CTSCQSDirect Access $750 $700 Indirect Access $375 $350 19

  20. Program Classification Fee Revenues • B.Computer Program Classification Fee Revenues • 1. Importance to Network A Revenues • Computer Program Application fees generated $2.9 million in revenues in 1999, 1.8 percent of total Network A revenues. • 2. Administration • Computer Program Classification fees are levied on direct and/or indirect access recipients that receive real-time market data for purposes other than interrogation or ticker display. • Different rates apply depending upon whether the data recipient’s use of real-time market data is to create stock tables for publication in the print media (Class B); to route customer orders, to price portfolios, to perform surveillance functions, to create delayed last sale price services, to develop software/systems (Class C); to run analysis programs that support trading decisions, to conduct options analysis and/or program trading (Class D); or to support proprietary execution facilities (Class E). • NYSE determines which rates will apply, if any, during the process of contracting with a potential data recipient based on declarations in Exhibit A made by the data recipient as to its intended use of Network A data. 20

  21. 3. Current Rates • The current monthly rates that follow are the same today as when first initiated in the CTA and CQ Plans in 1976 and 1978 respectively: CTSCQS Class B Compilation of stock tables $500 $500 Class C Operations control programs $500 $500 Class D Analysis programs $500 $500 Class E Market making programs $3000 $3000 • 4. Subscriber Population • Growth in the 1990’s derived primarily from growth in the number of organizations using market data in operations control programs or to offer proprietary execution facilities. • Class C users totaled 254 at year end 1999 and accounted for roughly one-half of monthly revenues in this category. • Class E users totaled 27 and accounted for one-third of monthly revenue in this category. • Class D users totaled 66 and Class B users totaled 16 and accounted for the remainder. 21

  22. C.Display Device Fee Revenues – Professional Subscribers • 1. Importance to Network A Revenues • For the full year 1999, display fee revenues generated from professional subscribers aggregated $120.6 million and represented 73.1 percent of total Network A revenues. • Professional subscribers have historically provided the bulk of Network A revenues. Display Device Revenues  Professional Subscribers • 2. Brief History of Rates • When CTA started in 1974, no differentiation in rates was recognized between types of subscribers - professional users and individual investors were charged the same rates. When CQ started in 1978, different rates applied based on whether the subscriber was a member or a nonmember, but there was no separate rate category for retail investors. • The rates in effect when the CTA/CQ Plans were created applied in respect of terminals at each subscriber location and the services enabled for display on such terminals (e.g. ticker display of last sale prices, the interrogation display of last sale prices and/or the interrogation display of bid-asked prices). Those rates were as follows: 1st UnitEach Additional Unit Ticker display $75.00 $3.50 Last Sale $41.00 $4.10 Bid-asked: NYSE member $35.00 $3.50 CQ member $57.00 $5.70 Nonmember $57.00 $5.70 22

  23. Network A Average Monthly Device Fees $ Millions • From 1976 to 1987, the above rates were adjusted on several occasions. • Increases for ticker and last sale were driven primarily by inflation and increases in communications costs initiated by common carriers. • The rates for bid-asked for NYSE members and nonmembers increased pursuant to an approved schedule by approximately 8 percent per year for the first six years following SEC approval of the CQ Plan. The differential as between NYSE members and members of CQ Participant Exchanges was thus equalized after five years; however, the differential as regards nonmembers remained until 1987 when an overall restructuring was implemented. • In 1987, communications facilities were unbundled and the separate rates for ticker display, last sale and bid-asked interrogation were combined. A new 14-tier structure was introduced and the rates applied in respect of each subscriber’s total quantity of display units. • Since 1987, these rates have been changed one time. That was a single increase of 6 percent implemented in January 1992. • The average monthly revenue generated on a per device basis at the end of 1999 was $24.90, as compared to $25.06 at the end of 1984. • On an inflation adjusted basis, the real cost of a monthly display unit for professional subscribers has effectively declined over this period as indicated on the chart below. 23

  24. 3. Current Rates The current rates for display devices located on the premises of professional subscribers are: Number of UnitsRate Per Unit 1 $127.25 2 79.50 3 58.25 4 53.00 5 47.75 6 - 9 39.75 10 - 19 31.75 20 - 29 30.25 30 - 99 27.50 100 - 249 26.50 250 - 749 23.75 750 - 4,999 20.75 5,000 - 9,999 19.75 10,000 + 18.75 • 4. Administration • NYSE administers the Network A roster of professional subscribers. • Each subscriber is required to execute a standard form subscriber agreement that has been subjected to the Commission’s regulatory review process. • NYSE invoices each professional subscriber each month based on its total quantity of display devices (as reported by vendors and/or by the subscriber directly.) • In the mid-1980’s, NYSE developed a system, the Vendor Automated Reporting System (VARS), to facilitate more timely and accurate reporting of subscriber display device installs, relocations, and removals. • NYSE has continued to upgrade and to operate VARS ever since. In addition to Network A, VARS supports vendor reporting to Network B, OPRA, NASDAQ, Toronto Stock Exchange and several futures exchanges. The costs of operating VARS are mutualized among the participating exchanges. 24

  25. 5. Subscriber Population • At the end of 1999, the Network A subscriber database included approximately 13,100 professional subscribers with 419,113 display devices installed in their offices around the globe. • 12,700 professional subscribers had from 1 to 99 devices installed on their premises, for a total of 90,900 devices. These devices represented 22 percent of the installed base and accounted for monthly revenues of $3.6 million. • 421 subscribers had 100 or more devices installed in their offices, for a total of 328,229 devices. These devices represented 78 percent of the installed base and accounted for monthly revenues of $6.8 million. 25

  26. Display Fee Revenues — Nonprofessional Subscribers • D. Display Fee Revenues – Nonprofessional Subscribers • 1. Importance to Network A Revenues • Display fees generated in respect of vendor/broker-dealer services provided to nonprofessional subscribers aggregated $9.1 million in 1999, or 5.5 percent of total Network A revenues. • During the first nine months of 1999, the monthly rate that applied for vendor services provided to nonprofessional subscribers was $5.25. The rate was significantly reduced in October 1999 – see below. • 2. Brief History of Rates • Vendor initiatives to develop real-time services for individual investors led Network A to introduce a new metric and significantly lower rates in order to support these initiatives. • The initial rates for vendor services provided to “nonprofessional investors” were introduced in 1984 – $7.50 per month for last sale data and $6.00 for bid-asked data. (The corresponding monthly rates for professional subscribers were $68.00 and $90.50, respectively.) • In order to receive the benefit of these lower rates, the vendor that provides the real-time service has an obligation to assure that its subscriber qualifies for as a nonprofessional, i.e. that the subscriber is a natural person who (a) receives the data for his/her personal use and (b) is not a registered person with any SRO or other securities industry regulatory body. • In 1987, the separate fees for last sale and bid-asked data were combined and replaced by a lower rate of $4.00 per month per subscriber. A 6 percent increase was implemented in 1992 increasing the amountto $4.25. In 1997 another increase was 26

  27. $ Millions Pre-nonpro Fee History — Nonprofessional Subscribers implemented bringing the rate to $5.25. In 1999, this rate was reduced by approximately 80 percent. • The chart below illustrates the history of Network A fees applied to vendor/broker-dealer services provided to nonprofessional subscribers. 3. Current Rates • The current monthly rates, which became effective October 1, 1999, are as follows: First 250,000 subscribers $1.00 each In excess of 250,000 $0.50 each • 4. Administration • The nonprofessional fee is imposed on the vendor/broker-dealer. (In contrast, NYSE bills professional subscribers directly, monthly in advance.) • Vendor liability is based on the total number of nonprofessional subscribers that received real-time service during the month. Whether the vendor recovers these fees from the nonprofessional subscriber is up to the vendor. • NYSE has developed a form of “click-on” agreement for use by vendors to sign-up nonprofessional subscribers on-line. 27

  28. 5. Subscriber Population • While nonprofessional rates were first established in 1984, this segment of the investor community languished until the last three years when the Internet and low-cost PC’s made cost-effective services a reality. • Data Broadcasting Corporation dominated this market during the period 1984-1994 and continues to be a major player with roughly 25,000 nonprofessional subscribers. • Schwab was the first broker-dealer to offer services to its nonprofessional customers, but growth in the recent two years has been primarily driven by growth in on-line brokerage with Datek Securities, Inc. and E*Trade Group accounting for the major share. In the first three months since October 1999, when Network A’s new rates became effective, Charles Schwab and First International Financial Corp have converted close to 100,000 of their usage-based customers to full monthly service. • As noted below, the reduction in nonprofessional rates in October prompted a significant increase in the number of subscribers and an equally dramatic decline in Network A monthly revenues. Number of Non-Professional Subscribers Demand for unlimited real-time data by non-professionals is a relatively new phenomenon 28

  29. Display Fee Revenues — Usage-Based Services • E. Display Fee Revenues – Usage-Based Services • 1. Importance to Network A Revenues • Usage-based fees generated from vendors for the delivery of real-time market data to subscribers on a pay-for-use basis aggregated $18.6 million in revenues in 1999, or 11.2 percent of total Network A revenues. 2. Current Rates • During the first nine months of 1999, the rate for usage-based services was one cent per quote. In October 1999, new rates as indicated below became effective. • Usage-based fees were established in the early 1990’s on a pilot basis. • See Section II above for history of usage based pilots. • New monthly usage-based fees were approved by the Commission and became effective in October 1999, utilizing a tiered structure as follows: 1 to 20 million quotes $.0075 ea. 20 to 40 million quotes .0050 ea. Over 40 million quotes .0025 ea. 29

  30. 3. Administration • The new fees continue to be levied on the vendor that provides the service and are billed monthly. • The vendor’s exposure for Network A fees in respect of any nonprofessional subscriber whose usage exceeds 133 quotes per month is limited to $1.00 (i.e., the monthly nonprofessional rate). • Network A has developed a “click-on” agreement and permits vendors/broker-dealers to sign-up subscribers on-line. 4. Subscriber Population • In excess of sixty broker-dealers and vendors are currently signed up to provide usage-based services. • The quantity of quote packets disseminated during 1999 averaged more than 150 million per month. 30

  31. Real-time Cable TV Revenues • F. Ticker Display on Television • 1999 revenues generated from the display of the Network A real-time ticker on television aggregated $2.1 million, or 1.3 percent of total Network A revenues. • This is a pilot program commenced in December 1996 with CNBC and CNNfn. • The duration of this is for a period not to exceed five years. • The purpose of the pilot was to promote real-time ticker service on cable television and over-the-air television. • Network A pilots rates were established at $2 per 1000 households reached and remain in effect. 31

  32. Communication Facilities Revenues • G. Communication Facilities Revenues • Communication facilities revenue totaled $1.5 million in 1999, or 0.9 percent of Network A total revenues. • The number of locations subscribing to the Network A ticker service has declined steadily for the past decade. Fewer than 1,000 locations received ticker service at year-end 1999 from Network A. • Ticker service is available from several vendors who offer delivery alternatives. • Communications facilities rates have fluctuated over the years primarily as a result of changes in the rates charged by communications companies such as AT&T, New York Telephone, etc. • Service in Unites States was restructured in 1999 with arrangements concluded in June 1999 for a private network to take over the Network A ticker networks, inclusive of network administration and billing. Network A will cease to provide communications facilities by mid-year 2000. 32

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