80 FR 66955 - Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Options Testing Facility

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 210 (October 30, 2015)

[Federal Register Volume 80, Number 210 (Friday, October 30, 2015)]
[Notices]
[Pages 66955-66958]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-27657]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76260; File No. SR-Phlx-2015-81]


Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change to Options 
Testing Facility

October 26, 2015.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on October 16, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend its Pricing Schedule at Chapter VII 
to adopt a new Section E, entitled ``Testing Facilities'' which 
describes fees in connection with the use of the Testing Facility 
(``NTF'') test environment located in Carteret, New Jersey.
    While the changes proposed herein are effective upon filing, the 
Exchange has designated that the amendments be operative on October 26, 
2015.
    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqomxphlx.cchwallstreet.com/, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for

[[Page 66956]]

the proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Phlx proposes to amend its Pricing Schedule at Chapter VII to adopt 
a new Section E, entitled ``Testing Facilities'' to establish fees to 
subscribe for testing. Currently, Options members may test in a virtual 
trading environment for purposes of testing in Ashburn, Virginia 
(``Ashburn''), at no cost. The NTF provides subscribers a virtual 
system environment for testing upcoming Phlx releases and product 
enhancements, as well as testing firm software prior to implementation. 
The test environment closely approximates the production environment to 
enable subscribers to test their automated systems that integrate with 
the Exchange.
    The Exchange is moving the options test environment from the 
Ashburn location to Carteret, NJ (``Carteret''), which is also the 
location of Phlx's primary trading System. While Options members will 
be able to continue to utilize the Ashburn facility at no cost until 
that facility is no longer in use, Options members will be able to 
subscribe to the Carteret test facility for future testing.\3\
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    \3\ The Exchange anticipates that it will sunset the Ashburn 
trading testing functionality on January 29, 2016.
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    The relatively large distance between the Ashburn Testing Facility 
and the majority of Phlx firms results in expensive connectivity costs 
for customers that connect via telecommunication providers. As a 
consequence, a large majority of member firms do not connect to Ashburn 
for NTF connectivity. In an effort to improve the utility of the NTF, 
Phlx is developing a test environment located in Carteret that will 
provide the same functionality as the testing functionality of Ashburn, 
yet more closely approximate the live trading environment due to its 
proximity to the System and upgraded hardware. In particular, the 
Carteret test environment will take advantage of technology upgrades 
Phlx is making to its trading-related systems. Unlike the Ashburn test 
environment, the Carteret test environment will provide dedicated 
connectivity to the facility via a cross-connection to either a member 
firm's direct connection router in Carteret or its co-location cabinet.
    Phlx notes that, because the Carteret facility also houses the 
System, subscribers to the Carteret test environment will no longer 
need to pay for third party connectivity to Ashburn,\4\ provided the 
sole purpose for connecting to Ashburn is for testing and not also for 
co-location or disaster recovery. Such member firms may use an existing 
connection to Carteret to access the NTF through the use of a dedicated 
switch port and cross connect within the facility. Similar to the 
equities test facility,\5\ the Exchange will assess a fee for the 
connection to this virtual trading environment for testing. 
Specifically, Phlx proposes a $1,000 per hand-off, per month fee for 
connection to the Testing Facility. The hand-off fee includes either a 
1Gb or 10Gb switch port and a cross connect to the Testing Facility. 
Subscribers shall also pay a one-time installation fee of $1,000 per 
hand-off.
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    \4\ Today, member firms pay fees to third party connectivity 
providers to provide connection from the member firm to Ashburn.
    \5\ See Phlx's Pricing Schedule at Chapter VIII concerning 
equities pricing.
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    The connectivity provided under this rule also provides 
connectivity to the other test environments of The NASDAQ Stock Market 
LLC and NASDAQ OMX BX, Inc. Additionally, the connectivity may be 
utilized for either equities or options testing. If for example a Phlx 
member has already paid the $1,000 per hand-off, per month for 
connection to the Testing Facility in Carteret, there would be no need 
to pay this fee for options testing.
    Notwithstanding the foregoing, Phlx will also continue to offer 
certain limited testing capabilities free of charge at Carteret. 
Options members that connect to Cartert's [sic] NTF through a virtual 
private network (``VPN'') through the internet for site-to-site limited 
order routing capability only will not be assessed a fee.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \6\ in general, and with Sections 6(b)(4) and 6(b)(5) 
of the Act,\7\ in particular. Phlx believes the proposal is consistent 
with Section 6(b)(4) of the Act \8\ in that it provides for the 
equitable allocation of reasonable dues, fees and other charges among 
members and issuers and other persons using any facility or system 
which the Exchange operates or controls.
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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(4) and (5).
    \8\ 15 U.S.C. 78f(b)(4).
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    The proposed fees are equitably allocated because all Options 
members desiring to connect to the Carteret test environment will be 
assessed a uniform fee for those services. The Exchange believes that 
offering subscribers the option to subscribe to either 1Gb or 10Gb for 
the same fee is an equitable allocation because, unlike the live 
trading environment, there is no competitive advantage to possessing a 
higher capacity switch port in the test environment. The test 
environment is designed to closely mirror the live trading environment 
for Options members, including matching the capacity of each Options 
member's live environment switch port. In the absence of any 
competitive advantage, charging a uniform fee for both 1Gb and 10Gb 
switch ports is an equitable allocation of fees. Phlx believes that 
charging a uniform fee will encourage member firms to subscribe to 
Carteret, and further encourage those that subscribe to use the same 
hardware as is used by them for connectivity to the live trading 
environment.
    The proposed fees are reasonable because they are designed to cover 
the costs incurred by the Exchange to develop the test facility and the 
costs incurred by the Exchange to continue to offer the test 
environment. The proposed fee should allow the Exchange to recoup these 
costs and also make a profit, while providing Options members with a 
superior test environment that more closely mirrors that of the live 
trading environment on the Exchange. Phlx believes that offering both 
1Gb and 10Gb connectivity for the same fee is reasonable as the 
increased incremental cost it incurs by offering the 10Gb switch port 
at the lower fee is outweighed by the benefit all subscribers will 
receive if Options members use hardware identical to what they use in 
the live trading environment, hence furthering the goal of creating a 
test environment that closely mirrors the live trading environment.
    Further, the connectivity provided under this rule also provides 
connectivity to the other test environments of The NASDAQ Stock Market 
LLC and NASDAQ OMX BX, Inc. This connectivity may be utilized for 
either equities or options testing. If for example a Phlx member has 
already paid the $1,000 per hand-off, per month for connection to the 
Testing Facility in Carteret, there would be no need to pay this fee 
for options testing.

[[Page 66957]]

    The Exchange also believes the proposal furthers the objectives of 
Section 6(b)(5) of the Act \9\ in that it is designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general to protect investors and the public interest and is not 
designed to permit unfair discrimination between customer, issuers, 
brokers and dealers. Phlx does not believe that the proposed fees are 
unfairly discriminatory to subscribers utilizing 10Gb live trading 
environment connectivity because, unlike the live trading environment 
where the capacity of connectivity to Phlx may confer a competitive 
advantage to a market participant and therefore price differentiation 
is appropriate for the benefit conferred, there is no such benefit 
conferred in the trade test environment. Phlx does not believe that the 
proposed fees are unfairly discriminatory among subscribers to the 
Carteret test facility because all Options members that subscribe to 
the service will be assessed the same fees. Because the proposed fees 
do not discriminate between 1Gb and 10Gb connectivity options, Options 
members are able to subscribe to Carteret without regard to the cost of 
their switch port capacity election. Phlx believes that by not 
discriminating on this basis it will encourage members to connect to 
the Carteret test environment in the same manner as they do to the live 
trading environment, and thereby help Carteret more closely mirror the 
live test environment, as discussed above. Providing a more useful and 
accurate test environment will serve to improve live trading on Phlx 
and the national market system by permitting Options members the 
ability to accurately test changes prior to implementing them in the 
live trading environment, thereby reducing the likelihood of a 
potentially disruptive system failure in the live trading environment, 
which has the potential to affect all market participants.
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    \9\ 15 U.S.C. 78f(b)(5).
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    Finally, the Exchange will continue to offer Options members 
certain limited testing capabilities free of charge at Carteret through 
VPN. While this feature offers limited capability in terms of 
functionality, the Exchange continues to offer a free of charge 
alternative to Options Participants [sic] desiring to utilize the NTF.

B. Self-Regulatory Organization's Statement on Burden on Competition

    Phlx does not believe that the proposed rule change will result in 
any intra-market or inter-market burdens on competition that are not 
necessary or appropriate in furtherance of the purposes of the Act, as 
amended. The proposed fees for access to the Carteret test environment 
more closely approximate the live trading environment. Subscribing 
member firms will be able to more accurately test their trading systems 
and avoid potentially disruptive system failures in the live trading 
environment. Despite the fee that will now be assessed to Options 
members for testing, the Exchange believes that Options members 
utilizing this service will benefit from the move to Carteret because 
the test environment is designed to closely mirror the live trading 
environment for Options members, including matching the capacity of 
each Options member's live environment switch port.
    Also, the connectivity provided under this rule also provides 
connectivity to the other test environments of The NASDAQ Stock Market 
LLC and NASDAQ OMX BX, Inc. Members that are already connected for 
equities testing would not incur an additional charge. This 
connectivity may be utilized for either equities or options testing. 
Finally, subscribing to the test facility is optional.
    Additionally, the Exchange does not believe that the move to 
Carteret and imposition of connectivity fees to the NTF creates an 
undue burden on competition because the Exchange will continue to offer 
Options members certain limited testing capabilities free of charge at 
Carteret through VPN.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\10\
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    \10\ 15 U.S.C. 78s(b)(3)(A)(ii).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is: (i) 
Necessary or appropriate in the public interest; (ii) for the 
protection of investors; or (iii) otherwise in furtherance of the 
purposes of the Act. If the Commission takes such action, the 
Commission shall institute proceedings to determine whether the 
proposed rule should be approved or disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-Phlx-2015-81 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-Phlx-2015-81. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2015-81, and should be 
submitted on or before November 20, 2015.


[[Page 66958]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-27657 Filed 10-29-15; 8:45 am]
BILLING CODE 8011-01-P