81 FR 49300 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 2 to a Proposed Rule Change and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Change, as Modified by Amendment Nos. 1 and 2, Establishing Fees Relating to End Users and Amending the Definition of “Affiliate,” as Well as Amending the NYSE Price List To Reflect the Changes
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 144 (July 27, 2016)
Federal Register Volume 81, Issue 144 (July 27, 2016)
| Page Range | 49300-49304 | |
| FR Document | 2016-17673 |
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)] [Notices] [Pages 49300-49304] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-17673] [[Page 49300]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-78387; File No. SR-NYSE-2016-11] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Amendment No. 2 to a Proposed Rule Change and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Change, as Modified by Amendment Nos. 1 and 2, Establishing Fees Relating to End Users and Amending the Definition of ``Affiliate,'' as Well as Amending the NYSE Price List To Reflect the Changes July 21, 2016. I. Introduction On April 4, 2016, New York Stock Exchange LLC (the ``Exchange'' or ``NYSE'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to amend the co-location section of the NYSE Price List to establish fees relating to end users of certain co-location Users in the Exchange's data center and to amend the definition of ``Affiliate.'' The Commission published the proposed rule change for comment in the Federal Register on April 22, 2016.\3\ On April 29, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.\4\ The Commission received two comment letters on the proposed rule change.\5\ On June 8, 2016, the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change to July 21, 2016.\6\ On June 24, 2016, the Exchange filed Amendment No. 2 to the proposed rule change.\7\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 34-77642 (April 18, 2016), 81 FR 23786 (``Notice''). \4\ Amendment No. 1 made technical changes relating to the General Notes numbering and references in the Co-location section of the Price List. \5\ See Letter from Michael Friedman, General Counsel and Chief Compliance Officer, Trillium, to Brent J. Fields, Secretary, Securities and Exchange Commission, dated May 13, 2016 (``Friedman Letter''), and Letter from Eero Pikat to Brent J. Fields, Secretary, Securities and Exchange Commission, dated, May 13, 2016 (``Pikat Letter'') (together, the ``Comment Letters''). In response to the Comment Letters, the NYSE submitted a response (``Response Letter'') and filed Amendment No. 2. \6\ See Securities Exchange Act Release No. 34-77976 (June 2, 2016), 81 FR 36981. \7\ As more fully described below, in Amendment No. 2 the Exchange proposes that Rebroadcasting Users and Transmittal Users would not be charged for their first two Multicast End Users and Unicast End Users, respectively, and offers additional support for the proposal. Amendment No. 2 is available on the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-11/nyse201611-4.pdf. --------------------------------------------------------------------------- The Commission is publishing this order to solicit comments on Amendment No. 2 from interested persons and to institute proceedings pursuant to Exchange Act Section 19(b)(2)(B) to determine whether to approve or disapprove the proposed rule change, as modified by Amendment Nos. 1 and 2.\8\ Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to the proposed rule change, nor does it mean that the Commission will ultimately disapprove the proposed rule change. Rather, as discussed below, the Commission seeks additional input on the proposed rule change, as modified by Amendment Nos. 1 and 2, and on the issues presented by the proposal. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- II. Description of the Proposal, as Modified by Amendment Nos. 1 and 2 The Exchange proposes to establish certain fees relating to end users. Specifically, the Exchange proposes to amend the co-location section of the NYSE Price List to (i) add the newly defined terms ``Rebroadcasting User'' and ``Multicast End User;'' as well as ``Transmittal User'' and ``Unicast End User;'' (ii) amend the definition of Affiliate; (iii) establish new reporting requirements applicable to Rebroadcasting Users and Transmittal Users; (iv) establish new fees applicable to Rebroadcasting Users and Transmittal Users; and (v) make certain related technical changes.\9\ --------------------------------------------------------------------------- \9\ See Notice, supra note 3, 81 FR at 23787; see also Amendment No. 1, supra note 4. --------------------------------------------------------------------------- The Exchange operates a data center in Mahwah, New Jersey (``data center'') from which it provides co-location services to Users.\10\ The Exchange states that in the data center, information flows over existing network connections in two formats: multicast and unicast. Multicast is a format in which information is sent one-way from the Exchange to multiple recipients at once, similar to a radio broadcast, and is currently employed for the transmission of market data.\11\ Users receiving market data through the multicast format can retransmit that data to their customers.\12\ Unicast format is a format that allows one-to-one communication, similar to a phone line, in which information is sent to and from the Exchange.\13\ --------------------------------------------------------------------------- \10\ For purposes of the Exchange's co-location services, a ``User'' means any market participant that requests to receive co- location services directly from the Exchange. \11\ See Notice, supra note 3, 81 FR at 23786. \12\ See id. \13\ See id. --------------------------------------------------------------------------- Rebroadcasting Users/Multicast End Users The Exchange proposes to add several new definitions to the Fee Schedules. The Exchange proposes to define a ``Rebroadcasting User'' as ``a User that rebroadcasts to its customers data received from the Exchange in multicast format, unless such User normalizes the raw market data before sending it to its customers.'' \14\ The Exchange also proposes to define ``Multicast End User'' as ``a customer of a Rebroadcasting User, or a customer of a Rebroadcasting User's Multicast End User customer, to whom the Rebroadcasting User or its Multicast End User sends data received from the Exchange in multicast format, other than an Affiliate of the Rebroadcasting User.'' \15\ The Exchange notes that a Multicast End User may be, but is not required to be, a User or a Hosted Customer, and also that a customer of a Rebroadcasting User would be considered a Multicast End User, irrespective of whether it receives the data from a Rebroadcasting User or another Multicast End User.\16\ Accordingly, as proposed, a Multicast End User is a recipient of raw Exchange market data that (i) originated from (but may not have been provided directly by) a User, provided such recipient is not an Affiliate of the originating User.\17\ --------------------------------------------------------------------------- \14\ See id. at 23787. Pursuant to the definition, the term ``Rebroadcasting User'' would exclude a User that ``normalizes'' (i.e., alters) raw market data before sending it a Multicast End User. The definition of Rebroadcasting User also would not apply to a User that rebroadcasts third party data, because that data is not received from the Exchange. See id. \15\ See id. \16\ See id. \17\ See id. --------------------------------------------------------------------------- In addition, as originally proposed, the Exchange would assess a Rebroadcasting User with one or two connections, either directly or through another Multicast End User, to a Multicast End User, a $1,700 monthly charge for the first two connections, and $850 for each additional connection to that Multicast End User.\18\ To assess the proposed fees accurately, a Rebroadcasting User would be required to report to the Exchange on a monthly basis the number of its Multicast End Users, and the number of connections it has to each.\19\ As more fully discussed [[Page 49301]] below, in Amendment No. 2, the Exchange proposes that a Rebroadcasting User would not be assessed a fee for its first two Multicast End Users.\20\ --------------------------------------------------------------------------- \18\ See id. \19\ See id. at 23788. \20\ See Amendment No. 2, supra note 7. --------------------------------------------------------------------------- Transmittal Users/Unicast End Users According to the Exchange, customers use unicast format to send messages related to orders or for clearing purposes.\21\ A User may enable one or more of its customers to transmit messages in unicast format to and from the Exchange.\22\ The Exchange proposes to define a ``Transmittal User'' as a User that enables its customers, or the customers of its customers, to transmit messages to and from the Exchange using the unicast format.\23\ A ``Unicast End User'' would be a customer of a Transmittal User, or a customer of a Transmittal User's Unicast End User customer, for whom the Transmittal User or its Unicast End User customer enables the transmission of messages to and from the Exchange in unicast format, other than a customer that (a) is an Affiliate of the Transmittal User or (b) sends all unicast transmissions through a floor participant, such as a floor broker.\24\ Customers of a Transmittal User that send all unicast transmissions through a floor participant, such as a floor broker, would not be considered a Unicast End User even if such customer is enabled to use unicast format.\25\ A Unicast End User may also enable one or more of their customers to transmit messages to and from the Unicast End User and thus such customers would also be considered a Unicast End User.\26\ To assess the proposed fees accurately, a Transmittal User would be required to report to the Exchange on a monthly basis the number of its Unicast End Users, and the number of connections it has to each.\27\ --------------------------------------------------------------------------- \21\ See Notice, supra note 3, 81 FR at 23787. \22\ See id. For example, a User that is a service bureau or extranet may use such connections to facilitate order routing and clearing by its customers. See id. \23\ See id. \24\ See id. A Unicast End User may be a User or a Hosted Customer. See id. \25\ See id. \26\ See id. The Exchange notes that it is not aware of any customer of a Unicast End User that enables its customers to transmit messages, but if such a relationship did exist, the customer would also be considered a Unicast End User. See id. \27\ See id. at 23788. --------------------------------------------------------------------------- As originally proposed, the Exchange would assess a Transmittal User with one or two connections, either directly or through another Unicast End User, to a Unicast End User, a $1,500 monthly charge for the first two connections,\28\ and $750 for each additional connection to that Unicast End User.\29\ As noted, there would be no charge to a Transmittal User for its connection to a customer submitting orders through a unicast connection to a floor participant.\30\ As more fully discussed below, in Amendment No. 2, the Exchange proposes that a Transmittal User would not be charged the proposed fee for its first two Unicast End Users.\31\ --------------------------------------------------------------------------- \28\ See id. at 23787. \29\ See id. \30\ See supra note 25 and accompanying text. \31\ See Amendment No. 2, supra note 7. --------------------------------------------------------------------------- Definition of Affiliate The Exchange also proposes that the terms Multicast End User and Unicast End User would exclude an entity that is an Affiliate of its Rebroadcasting User or Transmittal User, respectively.\32\ The Exchange proposes to amend its current definition of an Affiliate.\33\ Under the new definition, an ``Affiliate'' of a User would be any other User or Hosted Customer that is under common control with, controls, or is controlled by, the first User, provided that: (1) An ``Affiliate'' of a Rebroadcasting User is any Multicast End User that is under common control with, controls, or is controlled by the Rebroadcasting User; and (2) an ``Affiliate'' of a Transmittal User is any Unicast End User that is under common control with, controls, or is controlled by the Transmittal User.\34\ For purposes of this definition, ``control'' means ownership or control of 50% or greater.\35\ The purpose of the amendment is to provide that an ``Affiliate'' relationship exists whenever two entities are under common control, regardless of which entity controls the other.\36\ --------------------------------------------------------------------------- \32\ See Notice, supra note 3, 81 FR at 23787. Users excluding Affiliates from their list of Multicast End Users or Unicast End Users may be required to certify to the Exchange the Affiliate status of such end user. See id. at 23788-89. The Exchange may ask Users that are neither Rebroadcasting Users or Transmittal Users to certify their status as ordinary Users. See id. \33\ See Notice, supra note 3, 81 FR at 23788. \34\ See id. at 23787-88. \35\ See id. \36\ See id. --------------------------------------------------------------------------- Exchange Support for Rebroadcasting Users/Transmittal User Fees In its filing, the Exchange states that the proposed fees relate to additional connectivity and co-location services the Exchange provides to Rebroadcasting and Transmittal Users and would ``fairly and equitably allocate the costs associated with maintaining the Data Center facility, hardware and equipment and related to personnel required for installation and ongoing monitoring, support and maintenance of such service among all Users.'' \37\ According to the Exchange, in the absence of the proposed end user fees, ``no charges would be assessed related to the benefit that Multicast End Users and Unicast End Users receive from the services through the Rebroadcasting or Transmittal User from whom they receive data, and the Rebroadcasting or Transmittal Users would thus receive disproportionate benefits.'' \38\ --------------------------------------------------------------------------- \37\ See id. at 23791. \38\ See id. --------------------------------------------------------------------------- The Exchange represents that it incurs more costs on the account of Rebroadcasting and Transmittal Users; \39\ some of these costs being indirect, including overhead and technology infrastructure, administrative, maintenance and operational costs,\40\ and others being in form of direct network support.\41\ Additionally, the Exchange notes that it has established automated retransmission facilities for Users to receive multicast transmissions.\42\ --------------------------------------------------------------------------- \39\ See id. at 23788. \40\ See id. The Exchange notes, that it has made network infrastructure improvements over the years and established administrative controls. See id. \41\ See id. The Exchange states that when an issue arises, the Exchange and Rebroadcasting User or Transmittal User conduct a review to determine the cause of an issue, with the participation of the relevant Multicast or Unicast End User. The Exchange states that when the User is a Rebroadcasting User or Transmittal User, identifying the issue and providing the needed network support becomes more complicated because each of the entities involved has its own infrastructure and administration. By contrast, for Affiliates, the Exchange states that they typically act as one entity, with one infrastructure, one administration, and one network support group, making the network support effectively similar to supporting one entity. See id. \42\ See id. at 23789. --------------------------------------------------------------------------- As noted, the Commission received two comment letters.\43\ These commenters expressed concern about the effect of the Rebroadcasting User fees that would be passed on to them as Multicast End Users consuming Exchange market data. One of these commenters states that it should not have to pay fees to help support the co-location infrastructure because it is not co-located.\44\ This commenter states that for compliance purposes, a registered broker-dealer has no choice but to ``consume depth-of-book market data'' and that if the proposed fee is passed through, the commenter will have no choice but to accept it.\45\ The other commenter states that the proposal provides ``no evidence to support [the Exchange's] claim that its costs are [[Page 49302]] higher to support the customers of subvendors.'' \46\ This commenter states that the fees are ``assigned only to vendors' customers who buy data from [the Exchange's] competitors'' and is ``[b]y definition . . . anti-competitive.'' \47\ According to this commenter, the fees are introduced ``solely for the purpose of protecting market data revenue.'' \48\ --------------------------------------------------------------------------- \43\ See supra note 5. \44\ See Friedman Letter, supra note 5, at 1-2. \45\ See id. at 1-3. \46\ See Pikat Letter, supra note 5, at 1. \47\ See id. \48\ See id. --------------------------------------------------------------------------- In the Response Letter, the NYSE states that the Comment Letters have ``not provided any credible argument why the [. . .] proposal is not consistent with the requirements of the Act.'' \49\ The NYSE emphasizes that the proposal ``compares the support the Exchange provides to Rebroadcasting Users to the support required by Users that are not Rebroadcasting Users,'' \50\ and states that the proposal will not impact market data revenue.\51\ The NYSE states that ``a market participant has additional options outside of co-location for connecting to Exchange market data'' and that the commenters ``ignor[e] the basic fact that the Exchange voluntarily allows Rebroadcasting Users to provide services out of the Exchange's co-location facility.'' \52\ The NYSE further argues that it ``would be illogical to argue . . . that just because Rebroadcasting Users provide services that overlap with services offered by the Exchange, the Exchange cannot charge the Rebroadcasting Users for the Exchange's services.'' \53\ The NYSE states that it ``generally provides more direct support to Rebroadcasting Users than other Users'' and highlights the fact that a larger Rebroadcasting User made ``between 3.8 and 4.25 times as many calls as Users with similar power usage, and 4.25 to 8.5 times as many calls as Users with similar number of cabinets.'' \54\ --------------------------------------------------------------------------- \49\ See Response Letter, supra note 5, at 3. \50\ See id. at 7. \51\ See id. at 4. \52\ See id. at 6. \53\ See id. The Exchange also argues that ``Rebroadcasting Users are not direct competitors of the Exchange's co-location services . . . [since] for example, the Exchange does not provide Users with hardware such as routers or switches, and does not offer managed services.'' See id. \54\ See id. at 7-8. The NYSE also states that its proposed fees follow a similar example set by the Nasdaq Stock Market's Extranet Access Fee. See id. at 9. --------------------------------------------------------------------------- Amendment No. 2 In Amendment No. 2, the Exchange offers additional justification for the proposed rule change. In Amendment No. 2, the Exchange proposes that a Rebroadcasting User not be charged a fee for its first two Multicast End Users, and similarly that a Transmittal User not be charged a fee for its first two Unicast End Users.\55\ The Exchange states that it reviewed customer calls for assistance between June 1, 2015 and June 7, 2016, and compared the number of calls by Users it believes to be Rebroadcasting Users to the number of calls by a representative sample of other Users.\56\ Consistent with its statements in the Response Letter, the Exchange states that ``a comparison of calls by the larger Rebroadcasting User showed that the larger Rebroadcasting User made between 3.8 and 4.25 times as many calls as Users with similar power usage, and 4.25 to 8.5 times as many calls as Users with similar numbers of cabinets. Indeed, such Rebroadcasting User made 20 more calls than the five largest Users combined.'' \57\ --------------------------------------------------------------------------- \55\ See Amendment No. 2, supra note 7. \56\ See id. \57\ See Response Letter, supra note 5, at 8; see also Amendment No. 2, supra note 7. --------------------------------------------------------------------------- The Exchange adds that it believes that Rebroadcasting Users that have only one or two Multicast End Users are an exception to the general statement that the Exchange has a greater administrative burden and incurs greater operational costs to support Rebroadcasting Users.\58\ The Exchange further states that it does not have visibility into the number of Unicast End Users that individual Transmittal Users have, but believes that it is reasonable to extrapolate that a Transmittal User that has only one or two Unicast End Users may not need more network support than other Users.\59\ Accordingly, the Exchange believes it is reasonable to not charge a Transmittal User a fee for its first two Unicast End Users.\60\ Finally, the Exchange states that its proposal is analogous to the Nasdaq Stock Market's Extranet Access Fee.\61\ --------------------------------------------------------------------------- \58\ See Amendment No. 2, supra note 7. \59\ See id. \60\ See id. \61\ The Exchange cites Nasdaq Stock Market Rule 7025 and Securities Exchange Act Release No. 74040 (January 13, 2015), 80 FR 2460 (January 16, 2015) (SR-NASDAQ-2015-003), and states: ``Extranet providers that establish a connection with Nasdaq to offer direct access connectivity to market data feeds are assessed a monthly access fee of $1,000 per recipient Customer Premises Equipment (``CPE'') Configuration. A CPE Configuration is any line, circuit, router package, or other technical configuration used by an extranet provider to provide a direct access connection to Nasdaq market data feeds to a recipient's site. No extranet access fee is charged for connectivity to market data feeds containing only consolidated data.).'' See id. --------------------------------------------------------------------------- III. Proceedings to Determine Whether To Approve or Disapprove File No. SR-NYSE-2016-11 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act \62\ to determine whether the proposed rule change should be approved or disapproved. Institution of such proceedings is appropriate at this time in view of the legal and policy issues raised by the proposed rule change, as discussed below. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described in greater detail below, the Commission seeks and encourages interested persons to provide additional comment on the proposed rule change. --------------------------------------------------------------------------- \62\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also provides that proceedings to determine whether to disapprove a proposed rule change must be concluded within 180 days of the date of publication of notice of the filing of the proposed rule change. See id. The time for conclusion of the proceedings may be extended for up to 60 days if the Commission finds good cause for such extension and publishes its reasons for so finding. See id. --------------------------------------------------------------------------- Pursuant to Section 19(b)(2)(B) of the Act, the Commission is providing notice of the following grounds for disapproval that are under consideration:Section 6(b)(4) of the Act, which requires that the rules of a national securities exchange ``provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities,'' \63\ --------------------------------------------------------------------------- \63\ 15 U.S.C. 78f(b)(4). --------------------------------------------------------------------------- Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be ``designed to perfect the operation of a free and open market and a national market system'' and ``protect investors and the public interest,'' and not be ``designed to permit unfair discrimination between customers, issuers, brokers, or dealers,'' \64\ and --------------------------------------------------------------------------- \64\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- Section 6(b)(8) of the Act, which requires that the rules of a national securities exchange ``not impose any burden on competition not necessary or appropriate in furtherance of the purposes of [the Act].'' \65\ --------------------------------------------------------------------------- \65\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- As discussed above, the Exchange states that the proposed end user fees applicable to Rebroadcasting Users and Transmittal Users would ``fairly and equitably allocate the costs associated with maintaining the Data Center facility, hardware and equipment and related to personnel required for [[Page 49303]] installation and ongoing monitoring, support and maintenance of such service among all Users.'' \66\ Although the Exchange notes that it has expended a variety of resources in connection with the support of Rebroadcasting Users and Transmittal Users, such as technology infrastructure, maintenance and operational costs, it does not explain--with one exception--how those expenditures do not equally benefit all Users.\67\ The Exchange does take the position that it ``generally provides more direct support to Rebroadcasting Users and Transmittal Users than other Users, typically in the form of network support'' and that ``[b]ased on its experience . . . when the User is a Rebroadcasting User or Transmittal User, pinpointing the issue and providing the needed network support becomes more difficult because each entity involved has its own infrastructure and administration.'' \68\ The only evidence the Exchange provides in support of its assertion, however, is call log data showing that a single large Rebroadcasting User made substantially more customer assistance calls to the Exchange than other Users over a certain period.\69\ The Commission is concerned that such data may not be sufficient to demonstrate that the proposed new end user fees are reasonable, equitably allocated and not unfairly discriminatory, as required by the Act. In addition, to the extent the Exchange is focused on more directly recovering the costs of network support, it has not explained why it has not proposed to do so more precisely, such as by imposing a fee per customer service call, rather than by targeting a subset of customers of co-located Users regardless of their network support needs. --------------------------------------------------------------------------- \66\ See note 37 supra and accompanying text. \67\ See Notice, supra note 3, 81 FR at 23789. \68\ See id. at 23790. \69\ See Amendment No. 2, supra note 7. --------------------------------------------------------------------------- Furthermore, the proposed fees would not apply to all end users of Rebroadcasting Users and Transmittal Users. For example, they would not apply to end users that are Affiliates of a Rebroadcasting User or a Transmittal User. While the Exchange asserts that ``[i]n its experience, entities that are Affiliates typically act as one entity, with one infrastructure, one administration, and one network support group,'' so that ``the Exchange is effectively supporting one entity, irrespective of how many Affiliate end users are involved,'' \70\ the Exchange provides no evidence to support its implication that Rebroadcasting Users and Transmittal Users with Affiliate end users require less Exchange resources than those with non-Affiliate end users. In addition, the proposed fees would not apply with respect to the first two end users of a Rebroadcasting User or a Transmittal User.\71\ While the Exchange expresses its belief that, ``based on the information available to it, Rebroadcasting Users [or Transmittal Users] that have only one or two [end users] are an exception to the general statement that the Exchange has a greater administrative burden and incurs greater operational costs to support Rebroadcasting Users [or Transmittal Users],'' \72\ it offers no evidence in support of this belief. Finally, the proposed fees would not apply to Unicast End Users that send all unicast transmissions through a floor participant, such as a floor broker. In this case, the Exchange does not justify the exception on the basis of the Exchange resources required to support this type of end user, but rather because it ``would encourage sending orders to Floor brokers for execution, thereby encouraging displayed liquidity'' and ``promoting public price discovery . . . which benefits all market participants.'' \73\ The Exchange, however, provides no evidence to support the proposition that Unicast End Users submitting all of their orders through floor brokers provide more displayed liquidity or otherwise improve the market quality of the Exchange more than other types of Unicast End Users. Accordingly, the Commission is concerned that the Exchange has not demonstrated that the exceptions to its proposed new end user fees are reasonable, equitably allocated and not unfairly discriminatory, as required by the Act. --------------------------------------------------------------------------- \70\ See Notice, supra note 3, 81 FR at 23790. \71\ See Amendment No. 2, supra note 7. \72\ See id. \73\ See Notice, supra note 3, 81 FR at 23791. --------------------------------------------------------------------------- Finally, the Commission is concerned that the Exchange has not demonstrated that its proposal does not impose an unnecessary or inappropriate burden on competition. The Exchange asserts that it meets this statutory standard because ``it operates in a highly-competitive market in which market participants can readily favor competing venues if, for example, they deem fee levels at a particular venue to be excessive or if they determine that another venue's products and services are more competitive than on the Exchange.'' \74\ In response to a commenter's concern that the proposal could have an anti- competitive impact on vendors and their customers, the Exchange takes the position that Rebroadcasting Users like vendors ``are not direct competitors of the Exchange's co-location services,'' because ``[w]hile both offer connectivity to Exchange market data, Rebroadcasting Users provide their customers services that the Exchange's co-location service does not,'' such as hardware (e.g., routers and switches) and fully-managed services.\75\ The Exchange, however, does not clearly explain why the imposition of additional per-customer fees on co- located vendors and other redistributors of market data and connectivity services is not an unnecessary or inappropriate burden on competition with the Exchange's direct offering of such products, even if those redistributors offer other ancillary services. --------------------------------------------------------------------------- \74\ See id. at 23791-92. The Exchange cites several additional justifications that closely mirror those, noted above, that support its assertion that its proposed fees are reasonable, equitably allocated and not unfairly discriminatory. \75\ See Response Letter, supra note 5, at 6. --------------------------------------------------------------------------- For all of the foregoing reasons, the Commission believes that questions are raised as to whether the proposed fees are consistent with the Act, and specifically, with its requirements that exchange fees be reasonable and equitably allocated; be designed to perfect the mechanism of a free and open market and the national market system, protect investors and the public interest, and not be unfairly discriminatory; and not impose an unnecessary or inappropriate burden on competition.\76\ --------------------------------------------------------------------------- \76\ 15 U.S.C. 78f(b)(4), (b)(5), and (b)(8). --------------------------------------------------------------------------- IV. Procedure: Request for Written Comments The Commission requests that interested persons provide written submissions of their views, data and arguments with respect to the concerns identified above, as well as any other concerns they may have with the proposed rule change, as modified by Amendment Nos. 1 and 2. In particular, the Commission invites the written views of interested persons concerning whether the proposal, as modified by Amendment Nos. 1 and 2, is consistent with Sections 6(b)(4), (5), or (8) \77\ or any other provision of the Act, or the rules and regulations thereunder. Although there does not appear to be any issue relevant to approval or disapproval which would be facilitated by an oral presentation of views, data, and arguments, the Commission will consider, pursuant to Rule 19b-4 under the Act,\78\ any request for an [[Page 49304]] opportunity to make an oral presentation.\79\ --------------------------------------------------------------------------- \77\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). \78\ 17 CFR 240.19b-4. \79\ Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants to the Commission flexibility to determine what type of proceeding--either oral or notice and opportunity for written comments--is appropriate for consideration of a particular proposal by a self-regulatory organization. See Securities Act Amendments of 1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975). --------------------------------------------------------------------------- Interested persons are invited to submit written data, views, and arguments regarding whether the proposal, as modified by Amendment Nos. 1 and 2, should be approved or disapproved by August 17, 2016. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by August 31, 2016. In light of the concerns raised by the proposed rule change, as discussed above, the Commission invites additional comment on the proposed rule change, as modified by Amendment Nos. 1 and 2, as the Commission continues its analysis of the proposed rule change's consistency with Sections 6(b)(4), (5) and (8),\80\ or any other provision of the Act, or the rules and regulations thereunder. The Commission asks that commenters address the sufficiency and merit of the Exchange's statements in support of the proposed rule change, as modified by Amendment Nos. 1 and 2, in addition to any other comments they may wish to submit about the proposed rule change. --------------------------------------------------------------------------- \80\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). --------------------------------------------------------------------------- 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 No. SR-NYSE-2016-11 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 No. SR-NYSE-2016-11. 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 No. SR-NYSE-2016-11, and should be submitted by August 17, 2016. Rebuttal comments should be submitted by August 31, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\81\ --------------------------------------------------------------------------- \81\ 17 CFR 200.30-3(a)(57). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-17673 Filed 7-26-16; 8:45 am] BILLING CODE 8011-01-P
![49300 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
SECURITIES AND EXCHANGE Exchange filed Amendment No. 2 to the retransmit that data to their customers.12
COMMISSION proposed rule change.7 Unicast format is a format that allows
The Commission is publishing this one-to-one communication, similar to a
[Release No. 34–78387; File No. SR–NYSE–
order to solicit comments on phone line, in which information is sent
2016–11] Amendment No. 2 from interested to and from the Exchange.13
persons and to institute proceedings
pursuant to Exchange Act Section Rebroadcasting Users/Multicast End
Self-Regulatory Organizations; New Users
York Stock Exchange LLC; Notice of 19(b)(2)(B) to determine whether to
Filing of Amendment No. 2 to a approve or disapprove the proposed The Exchange proposes to add several
Proposed Rule Change and Order rule change, as modified by Amendment new definitions to the Fee Schedules.
Instituting Proceedings To Determine Nos. 1 and 2.8 Institution of proceedings The Exchange proposes to define a
Whether To Approve or Disapprove a does not indicate that the Commission ‘‘Rebroadcasting User’’ as ‘‘a User that
Proposed Change, as Modified by has reached any conclusions with rebroadcasts to its customers data
Amendment Nos. 1 and 2, Establishing respect to the proposed rule change, nor received from the Exchange in multicast
Fees Relating to End Users and does it mean that the Commission will format, unless such User normalizes the
Amending the Definition of ‘‘Affiliate,’’ ultimately disapprove the proposed rule raw market data before sending it to its
as Well as Amending the NYSE Price change. Rather, as discussed below, the customers.’’ 14 The Exchange also
List To Reflect the Changes Commission seeks additional input on proposes to define ‘‘Multicast End User’’
the proposed rule change, as modified as ‘‘a customer of a Rebroadcasting User,
July 21, 2016. by Amendment Nos. 1 and 2, and on the or a customer of a Rebroadcasting User’s
issues presented by the proposal. Multicast End User customer, to whom
I. Introduction
the Rebroadcasting User or its Multicast
On April 4, 2016, New York Stock II. Description of the Proposal, as End User sends data received from the
Exchange LLC (the ‘‘Exchange’’ or Modified by Amendment Nos. 1 and 2 Exchange in multicast format, other
‘‘NYSE’’) filed with the Securities and The Exchange proposes to establish than an Affiliate of the Rebroadcasting
Exchange Commission (‘‘Commission’’), certain fees relating to end users. User.’’ 15 The Exchange notes that a
pursuant to Section 19(b)(1) of the Specifically, the Exchange proposes to Multicast End User may be, but is not
Securities Exchange Act of 1934 amend the co-location section of the required to be, a User or a Hosted
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a NYSE Price List to (i) add the newly Customer, and also that a customer of a
proposed rule change to amend the co- defined terms ‘‘Rebroadcasting User’’ Rebroadcasting User would be
location section of the NYSE Price List and ‘‘Multicast End User;’’ as well as considered a Multicast End User,
to establish fees relating to end users of ‘‘Transmittal User’’ and ‘‘Unicast End irrespective of whether it receives the
certain co-location Users in the User;’’ (ii) amend the definition of data from a Rebroadcasting User or
Exchange’s data center and to amend Affiliate; (iii) establish new reporting another Multicast End User.16
the definition of ‘‘Affiliate.’’ The requirements applicable to Accordingly, as proposed, a Multicast
Commission published the proposed Rebroadcasting Users and Transmittal End User is a recipient of raw Exchange
rule change for comment in the Federal Users; (iv) establish new fees applicable market data that (i) originated from (but
Register on April 22, 2016.3 On April to Rebroadcasting Users and Transmittal may not have been provided directly by)
29, 2016, the Exchange filed Users; and (v) make certain related a User, provided such recipient is not an
Amendment No. 1 to the proposed rule technical changes.9 Affiliate of the originating User.17
change.4 The Commission received two The Exchange operates a data center In addition, as originally proposed,
comment letters on the proposed rule in Mahwah, New Jersey (‘‘data center’’) the Exchange would assess a
change.5 On June 8, 2016, the from which it provides co-location Rebroadcasting User with one or two
Commission extended the time period services to Users.10 The Exchange states connections, either directly or through
within which to approve the proposed that in the data center, information another Multicast End User, to a
rule change, disapprove the proposed flows over existing network connections Multicast End User, a $1,700 monthly
rule change, or institute proceedings to in two formats: multicast and unicast. charge for the first two connections, and
determine whether to approve or Multicast is a format in which $850 for each additional connection to
disapprove the proposed rule change to information is sent one-way from the that Multicast End User.18 To assess the
July 21, 2016.6 On June 24, 2016, the Exchange to multiple recipients at once, proposed fees accurately, a
similar to a radio broadcast, and is Rebroadcasting User would be required
1 15 U.S.C. 78s(b)(1).
currently employed for the transmission to report to the Exchange on a monthly
2 17 CFR 240.19b–4. of market data.11 Users receiving market basis the number of its Multicast End
3 See Securities Exchange Act Release No. 34– data through the multicast format can Users, and the number of connections it
77642 (April 18, 2016), 81 FR 23786 (‘‘Notice’’). has to each.19 As more fully discussed
4 Amendment No. 1 made technical changes 7 As more fully described below, in Amendment
relating to the General Notes numbering and No. 2 the Exchange proposes that Rebroadcasting 12 See id.
references in the Co-location section of the Price Users and Transmittal Users would not be charged 13 See
List. for their first two Multicast End Users and Unicast id.
14 See id. at 23787. Pursuant to the definition, the
5 See Letter from Michael Friedman, General End Users, respectively, and offers additional
Counsel and Chief Compliance Officer, Trillium, to support for the proposal. Amendment No. 2 is term ‘‘Rebroadcasting User’’ would exclude a User
Brent J. Fields, Secretary, Securities and Exchange available on the Commission’s Web site at https:// that ‘‘normalizes’’ (i.e., alters) raw market data
Commission, dated May 13, 2016 (‘‘Friedman www.sec.gov/comments/sr-nyse-2016–11/ before sending it a Multicast End User. The
sradovich on DSK3GMQ082PROD with NOTICES
Letter’’), and Letter from Eero Pikat to Brent J. nyse201611–4.pdf. definition of Rebroadcasting User also would not
Fields, Secretary, Securities and Exchange 8 15 U.S.C. 78s(b)(2)(B). apply to a User that rebroadcasts third party data,
Commission, dated, May 13, 2016 (‘‘Pikat Letter’’) 9 See Notice, supra note 3, 81 FR at 23787; see because that data is not received from the Exchange.
(together, the ‘‘Comment Letters’’). also Amendment No. 1, supra note 4. See id.
15 See id.
In response to the Comment Letters, the NYSE 10 For purposes of the Exchange’s co-location
16 See id.
submitted a response (‘‘Response Letter’’) and filed services, a ‘‘User’’ means any market participant
17 See id.
Amendment No. 2. that requests to receive co-location services directly
6 See Securities Exchange Act Release No. 34– from the Exchange. 18 See id.
77976 (June 2, 2016), 81 FR 36981. 11 See Notice, supra note 3, 81 FR at 23786. 19 See id. at 23788.
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below, in Amendment No. 2, the charge for the first two connections,28 required for installation and ongoing
Exchange proposes that a and $750 for each additional connection monitoring, support and maintenance of
Rebroadcasting User would not be to that Unicast End User.29 As noted, such service among all Users.’’ 37
assessed a fee for its first two Multicast there would be no charge to a According to the Exchange, in the
End Users.20 Transmittal User for its connection to a absence of the proposed end user fees,
customer submitting orders through a ‘‘no charges would be assessed related
Transmittal Users/Unicast End Users unicast connection to a floor to the benefit that Multicast End Users
According to the Exchange, customers participant.30 As more fully discussed and Unicast End Users receive from the
use unicast format to send messages below, in Amendment No. 2, the services through the Rebroadcasting or
related to orders or for clearing Exchange proposes that a Transmittal Transmittal User from whom they
purposes.21 A User may enable one or User would not be charged the proposed receive data, and the Rebroadcasting or
more of its customers to transmit fee for its first two Unicast End Users.31 Transmittal Users would thus receive
messages in unicast format to and from disproportionate benefits.’’ 38
Definition of Affiliate The Exchange represents that it incurs
the Exchange.22 The Exchange proposes
The Exchange also proposes that the more costs on the account of
to define a ‘‘Transmittal User’’ as a User
terms Multicast End User and Unicast Rebroadcasting and Transmittal
that enables its customers, or the
End User would exclude an entity that Users; 39 some of these costs being
customers of its customers, to transmit
is an Affiliate of its Rebroadcasting User indirect, including overhead and
messages to and from the Exchange
or Transmittal User, respectively.32 The technology infrastructure,
using the unicast format.23 A ‘‘Unicast
Exchange proposes to amend its current administrative, maintenance and
End User’’ would be a customer of a
definition of an Affiliate.33 Under the operational costs,40 and others being in
Transmittal User, or a customer of a
new definition, an ‘‘Affiliate’’ of a User form of direct network support.41
Transmittal User’s Unicast End User
would be any other User or Hosted Additionally, the Exchange notes that it
customer, for whom the Transmittal
Customer that is under common control has established automated
User or its Unicast End User customer
with, controls, or is controlled by, the retransmission facilities for Users to
enables the transmission of messages to
first User, provided that: (1) An receive multicast transmissions.42
and from the Exchange in unicast
‘‘Affiliate’’ of a Rebroadcasting User is As noted, the Commission received
format, other than a customer that (a) is two comment letters.43 These
any Multicast End User that is under
an Affiliate of the Transmittal User or commenters expressed concern about
common control with, controls, or is
(b) sends all unicast transmissions the effect of the Rebroadcasting User
controlled by the Rebroadcasting User;
through a floor participant, such as a fees that would be passed on to them as
and (2) an ‘‘Affiliate’’ of a Transmittal
floor broker.24 Customers of a Multicast End Users consuming
User is any Unicast End User that is
Transmittal User that send all unicast Exchange market data. One of these
under common control with, controls,
transmissions through a floor commenters states that it should not
or is controlled by the Transmittal
participant, such as a floor broker, have to pay fees to help support the co-
User.34 For purposes of this definition,
would not be considered a Unicast End location infrastructure because it is not
‘‘control’’ means ownership or control
User even if such customer is enabled co-located.44 This commenter states that
of 50% or greater.35 The purpose of the
to use unicast format.25 A Unicast End for compliance purposes, a registered
amendment is to provide that an
User may also enable one or more of broker-dealer has no choice but to
‘‘Affiliate’’ relationship exists whenever
their customers to transmit messages to ‘‘consume depth-of-book market data’’
two entities are under common control,
and from the Unicast End User and thus and that if the proposed fee is passed
regardless of which entity controls the
such customers would also be through, the commenter will have no
other.36
considered a Unicast End User.26 To choice but to accept it.45 The other
assess the proposed fees accurately, a Exchange Support for Rebroadcasting commenter states that the proposal
Transmittal User would be required to Users/Transmittal User Fees provides ‘‘no evidence to support [the
report to the Exchange on a monthly In its filing, the Exchange states that Exchange’s] claim that its costs are
basis the number of its Unicast End the proposed fees relate to additional
Users, and the number of connections it connectivity and co-location services 37 See id. at 23791.
has to each.27 the Exchange provides to 38 See id.
39 See id. at 23788.
As originally proposed, the Exchange Rebroadcasting and Transmittal Users
40 See id. The Exchange notes, that it has made
would assess a Transmittal User with and would ‘‘fairly and equitably allocate network infrastructure improvements over the years
one or two connections, either directly the costs associated with maintaining and established administrative controls. See id.
or through another Unicast End User, to the Data Center facility, hardware and 41 See id. The Exchange states that when an issue
a Unicast End User, a $1,500 monthly equipment and related to personnel arises, the Exchange and Rebroadcasting User or
Transmittal User conduct a review to determine the
28 See cause of an issue, with the participation of the
20 See Amendment No. 2, supra note 7. id. at 23787.
29 See
relevant Multicast or Unicast End User. The
21 See Notice, supra note 3, 81 FR at 23787. id. Exchange states that when the User is a
22 See id. For example, a User that is a service 30 See supra note 25 and accompanying text.
Rebroadcasting User or Transmittal User,
bureau or extranet may use such connections to 31 See Amendment No. 2, supra note 7.
identifying the issue and providing the needed
facilitate order routing and clearing by its 32 See Notice, supra note 3, 81 FR at 23787. Users network support becomes more complicated
customers. See id. excluding Affiliates from their list of Multicast End because each of the entities involved has its own
23 See id. Users or Unicast End Users may be required to infrastructure and administration. By contrast, for
sradovich on DSK3GMQ082PROD with NOTICES
24 See id. A Unicast End User may be a User or certify to the Exchange the Affiliate status of such Affiliates, the Exchange states that they typically act
a Hosted Customer. See id. end user. See id. at 23788–89. The Exchange may as one entity, with one infrastructure, one
25 See id. ask Users that are neither Rebroadcasting Users or administration, and one network support group,
26 See id. The Exchange notes that it is not aware Transmittal Users to certify their status as ordinary making the network support effectively similar to
of any customer of a Unicast End User that enables Users. See id. supporting one entity. See id.
33 See Notice, supra note 3, 81 FR at 23788. 42 See id. at 23789.
its customers to transmit messages, but if such a
34 See id. at 23787–88. 43 See supra note 5.
relationship did exist, the customer would also be
considered a Unicast End User. See id. 35 See id. 44 See Friedman Letter, supra note 5, at 1–2.
27 See id. at 23788. 36 See id. 45 See id. at 1–3.
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higher to support the customers of fee for its first two Multicast End Users, III. Proceedings to Determine Whether
subvendors.’’ 46 This commenter states and similarly that a Transmittal User To Approve or Disapprove File No. SR–
that the fees are ‘‘assigned only to not be charged a fee for its first two NYSE–2016–11 and Grounds for
vendors’ customers who buy data from Unicast End Users.55 The Exchange Disapproval Under Consideration
[the Exchange’s] competitors’’ and is states that it reviewed customer calls for The Commission is instituting
‘‘[b]y definition . . . anti- assistance between June 1, 2015 and proceedings pursuant to Section
competitive.’’ 47 According to this June 7, 2016, and compared the number 19(b)(2)(B) of the Act 62 to determine
commenter, the fees are introduced of calls by Users it believes to be whether the proposed rule change
‘‘solely for the purpose of protecting Rebroadcasting Users to the number of should be approved or disapproved.
market data revenue.’’ 48 calls by a representative sample of other Institution of such proceedings is
In the Response Letter, the NYSE
states that the Comment Letters have Users.56 Consistent with its statements appropriate at this time in view of the
in the Response Letter, the Exchange legal and policy issues raised by the
‘‘not provided any credible argument
states that ‘‘a comparison of calls by the proposed rule change, as discussed
why the [. . .] proposal is not consistent
larger Rebroadcasting User showed that below. Institution of proceedings does
with the requirements of the Act.’’ 49
the larger Rebroadcasting User made not indicate that the Commission has
The NYSE emphasizes that the proposal
between 3.8 and 4.25 times as many reached any conclusions with respect to
‘‘compares the support the Exchange
calls as Users with similar power usage, any of the issues involved. Rather, as
provides to Rebroadcasting Users to the
and 4.25 to 8.5 times as many calls as described in greater detail below, the
support required by Users that are not
Users with similar numbers of cabinets. Commission seeks and encourages
Rebroadcasting Users,’’ 50 and states that
Indeed, such Rebroadcasting User made interested persons to provide additional
the proposal will not impact market
20 more calls than the five largest Users comment on the proposed rule change.
data revenue.51 The NYSE states that ‘‘a
combined.’’ 57 Pursuant to Section 19(b)(2)(B) of the
market participant has additional
Act, the Commission is providing notice
options outside of co-location for The Exchange adds that it believes of the following grounds for disapproval
connecting to Exchange market data’’ that Rebroadcasting Users that have that are under consideration:
and that the commenters ‘‘ignor[e] the only one or two Multicast End Users are • Section 6(b)(4) of the Act, which
basic fact that the Exchange voluntarily an exception to the general statement requires that the rules of a national
allows Rebroadcasting Users to provide
that the Exchange has a greater securities exchange ‘‘provide for the
services out of the Exchange’s co-
administrative burden and incurs equitable allocation of reasonable dues,
location facility.’’ 52 The NYSE further
greater operational costs to support fees, and other charges among its
argues that it ‘‘would be illogical to
Rebroadcasting Users.58 The Exchange members and issuers and other persons
argue . . . that just because
further states that it does not have using its facilities,’’ 63
Rebroadcasting Users provide services
that overlap with services offered by the visibility into the number of Unicast • Section 6(b)(5) of the Act, which
Exchange, the Exchange cannot charge End Users that individual Transmittal requires, among other things, that the
the Rebroadcasting Users for the Users have, but believes that it is rules of a national securities exchange
Exchange’s services.’’ 53 The NYSE reasonable to extrapolate that a be ‘‘designed to perfect the operation of
Transmittal User that has only one or a free and open market and a national
states that it ‘‘generally provides more
two Unicast End Users may not need market system’’ and ‘‘protect investors
direct support to Rebroadcasting Users
more network support than other and the public interest,’’ and not be
than other Users’’ and highlights the fact
Users.59 Accordingly, the Exchange ‘‘designed to permit unfair
that a larger Rebroadcasting User made
believes it is reasonable to not charge a discrimination between customers,
‘‘between 3.8 and 4.25 times as many
issuers, brokers, or dealers,’’ 64 and
calls as Users with similar power usage, Transmittal User a fee for its first two
and 4.25 to 8.5 times as many calls as • Section 6(b)(8) of the Act, which
Unicast End Users.60 Finally, the
Users with similar number of requires that the rules of a national
Exchange states that its proposal is securities exchange ‘‘not impose any
cabinets.’’ 54 analogous to the Nasdaq Stock Market’s burden on competition not necessary or
Amendment No. 2 Extranet Access Fee.61 appropriate in furtherance of the
In Amendment No. 2, the Exchange purposes of [the Act].’’ 65
55 See
Amendment No. 2, supra note 7.
offers additional justification for the As discussed above, the Exchange
56 See
id.
proposed rule change. In Amendment states that the proposed end user fees
57 See Response Letter, supra note 5, at 8; see also
No. 2, the Exchange proposes that a applicable to Rebroadcasting Users and
Amendment No. 2, supra note 7.
Rebroadcasting User not be charged a 58 See Amendment No. 2, supra note 7.
Transmittal Users would ‘‘fairly and
59 See id.
equitably allocate the costs associated
46 See Pikat Letter, supra note 5, at 1. 60 See id.
with maintaining the Data Center
47 See id. 61 The Exchange cites Nasdaq Stock Market Rule
facility, hardware and equipment and
48 See id.
7025 and Securities Exchange Act Release No.
related to personnel required for
49 See Response Letter, supra note 5, at 3.
74040 (January 13, 2015), 80 FR 2460 (January 16,
50 See id. at 7. 62 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
2015) (SR–NASDAQ–2015–003), and states:
51 See id. at 4. Act also provides that proceedings to determine
‘‘Extranet providers that establish a connection with
52 See id. at 6. whether to disapprove a proposed rule change must
Nasdaq to offer direct access connectivity to market
53 See id. The Exchange also argues that be concluded within 180 days of the date of
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data feeds are assessed a monthly access fee of publication of notice of the filing of the proposed
‘‘Rebroadcasting Users are not direct competitors of
$1,000 per recipient Customer Premises Equipment rule change. See id. The time for conclusion of the
the Exchange’s co-location services . . . [since] for
(‘‘CPE’’) Configuration. A CPE Configuration is any proceedings may be extended for up to 60 days if
example, the Exchange does not provide Users with
hardware such as routers or switches, and does not line, circuit, router package, or other technical the Commission finds good cause for such
offer managed services.’’ See id. configuration used by an extranet provider to extension and publishes its reasons for so finding.
54 See id. at 7–8. The NYSE also states that its provide a direct access connection to Nasdaq See id.
63 15 U.S.C. 78f(b)(4).
proposed fees follow a similar example set by the market data feeds to a recipient’s site. No extranet
access fee is charged for connectivity to market data 64 15 U.S.C. 78f(b)(5).
Nasdaq Stock Market’s Extranet Access Fee. See id.
at 9. feeds containing only consolidated data.).’’ See id. 65 15 U.S.C. 78f(b)(8).
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installation and ongoing monitoring, and Transmittal Users with Affiliate end the proposal could have an anti-
support and maintenance of such users require less Exchange resources competitive impact on vendors and
service among all Users.’’ 66 Although than those with non-Affiliate end users. their customers, the Exchange takes the
the Exchange notes that it has expended In addition, the proposed fees would position that Rebroadcasting Users like
a variety of resources in connection not apply with respect to the first two vendors ‘‘are not direct competitors of
with the support of Rebroadcasting end users of a Rebroadcasting User or a the Exchange’s co-location services,’’
Users and Transmittal Users, such as Transmittal User.71 While the Exchange because ‘‘[w]hile both offer connectivity
technology infrastructure, maintenance expresses its belief that, ‘‘based on the to Exchange market data,
and operational costs, it does not information available to it, Rebroadcasting Users provide their
explain—with one exception—how Rebroadcasting Users [or Transmittal customers services that the Exchange’s
those expenditures do not equally Users] that have only one or two [end co-location service does not,’’ such as
benefit all Users.67 The Exchange does users] are an exception to the general hardware (e.g., routers and switches)
take the position that it ‘‘generally statement that the Exchange has a and fully-managed services.75 The
provides more direct support to greater administrative burden and Exchange, however, does not clearly
Rebroadcasting Users and Transmittal incurs greater operational costs to explain why the imposition of
Users than other Users, typically in the support Rebroadcasting Users [or additional per-customer fees on co-
form of network support’’ and that Transmittal Users],’’ 72 it offers no
located vendors and other redistributors
‘‘[b]ased on its experience . . . when evidence in support of this belief.
of market data and connectivity services
the User is a Rebroadcasting User or Finally, the proposed fees would not
is not an unnecessary or inappropriate
Transmittal User, pinpointing the issue apply to Unicast End Users that send all
and providing the needed network unicast transmissions through a floor burden on competition with the
support becomes more difficult because participant, such as a floor broker. In Exchange’s direct offering of such
each entity involved has its own this case, the Exchange does not justify products, even if those redistributors
infrastructure and administration.’’ 68 the exception on the basis of the offer other ancillary services.
The only evidence the Exchange Exchange resources required to support For all of the foregoing reasons, the
provides in support of its assertion, this type of end user, but rather because Commission believes that questions are
however, is call log data showing that a it ‘‘would encourage sending orders to raised as to whether the proposed fees
single large Rebroadcasting User made Floor brokers for execution, thereby are consistent with the Act, and
substantially more customer assistance encouraging displayed liquidity’’ and specifically, with its requirements that
calls to the Exchange than other Users ‘‘promoting public price discovery . . . exchange fees be reasonable and
over a certain period.69 The which benefits all market equitably allocated; be designed to
Commission is concerned that such data participants.’’ 73 The Exchange, perfect the mechanism of a free and
may not be sufficient to demonstrate however, provides no evidence to open market and the national market
that the proposed new end user fees are support the proposition that Unicast system, protect investors and the public
reasonable, equitably allocated and not End Users submitting all of their orders interest, and not be unfairly
unfairly discriminatory, as required by through floor brokers provide more discriminatory; and not impose an
the Act. In addition, to the extent the displayed liquidity or otherwise unnecessary or inappropriate burden on
Exchange is focused on more directly improve the market quality of the competition.76
recovering the costs of network support, Exchange more than other types of
it has not explained why it has not Unicast End Users. Accordingly, the IV. Procedure: Request for Written
proposed to do so more precisely, such Commission is concerned that the Comments
as by imposing a fee per customer Exchange has not demonstrated that the
exceptions to its proposed new end user The Commission requests that
service call, rather than by targeting a
fees are reasonable, equitably allocated interested persons provide written
subset of customers of co-located Users
and not unfairly discriminatory, as submissions of their views, data and
regardless of their network support
required by the Act. arguments with respect to the concerns
needs.
Furthermore, the proposed fees would Finally, the Commission is concerned identified above, as well as any other
not apply to all end users of that the Exchange has not demonstrated concerns they may have with the
Rebroadcasting Users and Transmittal that its proposal does not impose an proposed rule change, as modified by
Users. For example, they would not unnecessary or inappropriate burden on Amendment Nos. 1 and 2. In particular,
apply to end users that are Affiliates of competition. The Exchange asserts that the Commission invites the written
a Rebroadcasting User or a Transmittal it meets this statutory standard because views of interested persons concerning
User. While the Exchange asserts that ‘‘it operates in a highly-competitive whether the proposal, as modified by
‘‘[i]n its experience, entities that are market in which market participants can Amendment Nos. 1 and 2, is consistent
Affiliates typically act as one entity, readily favor competing venues if, for with Sections 6(b)(4), (5), or (8) 77 or any
with one infrastructure, one example, they deem fee levels at a other provision of the Act, or the rules
administration, and one network particular venue to be excessive or if and regulations thereunder. Although
support group,’’ so that ‘‘the Exchange they determine that another venue’s there does not appear to be any issue
is effectively supporting one entity, products and services are more relevant to approval or disapproval
irrespective of how many Affiliate end competitive than on the Exchange.’’ 74 In which would be facilitated by an oral
users are involved,’’ 70 the Exchange response to a commenter’s concern that presentation of views, data, and
sradovich on DSK3GMQ082PROD with NOTICES
provides no evidence to support its arguments, the Commission will
implication that Rebroadcasting Users
71 See
Amendment No. 2, supra note 7. consider, pursuant to Rule 19b–4 under
72 See
id. the Act,78 any request for an
73 See Notice, supra note 3, 81 FR at 23791.
66 See note 37 supra and accompanying text. 74 See id. at 23791–92. The Exchange cites several
67 See Notice, supra note 3, 81 FR at 23789. 75 See Response Letter, supra note 5, at 6.
additional justifications that closely mirror those,
68 See id. at 23790. 76 15 U.S.C. 78f(b)(4), (b)(5), and (b)(8).
noted above, that support its assertion that its
69 See Amendment No. 2, supra note 7. 77 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
proposed fees are reasonable, equitably allocated
70 See Notice, supra note 3, 81 FR at 23790. and not unfairly discriminatory. 78 17 CFR 240.19b–4.
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![49304 Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
opportunity to make an oral change that are filed with the 19b–4 thereunder,2 a proposed rule
presentation.79 Commission, and all written change to amend the co-location section
Interested persons are invited to communications relating to the of the NYSE MKT Equities Price List
submit written data, views, and proposed rule change between the and the NYSE Amex Options Fee
arguments regarding whether the Commission and any person, other than Schedule to establish fees relating to
proposal, as modified by Amendment those that may be withheld from the end users of certain co-location Users in
Nos. 1 and 2, should be approved or public in accordance with the the Exchange’s data center and to
disapproved by August 17, 2016. Any provisions of 5 U.S.C. 552, will be amend the definition of ‘‘Affiliate.’’ The
person who wishes to file a rebuttal to available for Web site viewing and Commission published the proposed
any other person’s submission must file printing in the Commission’s Public rule change for comment in the Federal
that rebuttal by August 31, 2016. In light Reference Room, 100 F Street NE., Register on April 22, 2016.3 On April
of the concerns raised by the proposed Washington, DC 20549 on official 29, 2016, the Exchange filed
rule change, as discussed above, the business days between the hours of Amendment No. 1 to the proposed rule
Commission invites additional comment 10:00 a.m. and 3:00 p.m. Copies of such change.4 The Commission received no
on the proposed rule change, as filing also will be available for comments on the proposed rule
modified by Amendment Nos. 1 and 2, inspection and copying at the principal change.5 On June 8, 2016, the
as the Commission continues its office of the Exchange. All comments Commission extended the time period
analysis of the proposed rule change’s received will be posted without change; within which to approve the proposed
consistency with Sections 6(b)(4), (5) the Commission does not edit personal rule change, disapprove the proposed
and (8),80 or any other provision of the identifying information from rule change, or institute proceedings to
Act, or the rules and regulations submissions. You should submit only determine whether to approve or
thereunder. The Commission asks that information that you wish to make disapprove the proposed rule change to
commenters address the sufficiency and available publicly. All submissions July 21, 2016.6 On June 24, 2016, the
merit of the Exchange’s statements in should refer to File No. SR–NYSE– Exchange filed Amendment No. 2 to the
support of the proposed rule change, as 2016–11, and should be submitted by proposed rule change.7
modified by Amendment Nos. 1 and 2, August 17, 2016. Rebuttal comments The Commission is publishing this
in addition to any other comments they should be submitted by August 31, order to solicit comments on
may wish to submit about the proposed 2016. Amendment No. 2 from interested
rule change. persons and to institute proceedings
Comments may be submitted by any For the Commission, by the Division of pursuant to Exchange Act Section
of the following methods: Trading and Markets, pursuant to delegated
19(b)(2)(B) to determine whether to
authority.81
Electronic Comments approve or disapprove the proposed
Robert W. Errett,
rule change, as modified by Amendment
• Use the Commission’s Internet Deputy Secretary. Nos. 1 and 2.8 Institution of proceedings
comment form (http://www.sec.gov/ [FR Doc. 2016–17673 Filed 7–26–16; 8:45 am]
rules/sro.shtml); or BILLING CODE 8011–01–P 2 17 CFR 240.19b–4.
• Send an email to rule- 3 See Securities Exchange Act Release No. 34–
comments@sec.gov. Please include File 77640 (April 18, 2016), 81 FR 23780 (‘‘Notice’’).
No. SR–NYSE–2016–11 on the subject SECURITIES AND EXCHANGE 4 Amendment No. 1 makes technical changes
line. relating to the General Notes numbering and
COMMISSION references in the Co-location section of the Fee
Paper Comments Schedules. Because Amendment No. 1 is technical,
[Release No. 34–78389; File No. SR– the Commission is not soliciting comment thereon.
• Send paper comments in triplicate NYSEMKT–2016–15] 5 The Commission received two comment letters
to Brent J. Fields, Secretary, Securities on a companion filing, NYSE–2016–11 (the ‘‘NYSE
and Exchange Commission, 100 F Street Self-Regulatory Organizations; NYSE companion filing’’), filed by the Exchange’s affiliate,
NE., Washington, DC 20549–1090. MKT LLC; Notice of Filing of the New York Stock Exchange LLC (‘‘NYSE’’). See
Amendment No. 2 to a Proposed Rule Letter from Michael Friedman, General Counsel and
All submissions should refer to File No. Chief Compliance Officer, Trillium, to Brent J.
SR–NYSE–2016–11. This file number Change and Order Instituting Fields, Secretary, Securities and Exchange
should be included on the subject line Proceedings To Determine Whether To Commission, dated May 13, 2016 (‘‘Friedman
if email is used. To help the Approve or Disapprove a Proposed Letter’’), and Letter from Eero Pikat to Brent J.
Change, as Modified by Amendment Fields, Secretary, Securities and Exchange
Commission process and review your Commission, dated, May 13, 2016 (‘‘Pikat Letter’’)
comments more efficiently, please use Nos. 1 and 2, Establishing Fees (together, the ‘‘Comment Letters’’).
only one method. The Commission will Relating to End Users and Amending In response to the Comment Letters, the NYSE
post all comments on the Commission’s the Definition of ‘‘Affiliate,’’ as well as submitted a response (‘‘Response Letter’’) and filed
Amending the NYSE MKT Equities Amendment No. 2 to the NYSE companion filing.
Internet Web site (http://www.sec.gov/ As they are relevant to the instant filing, the
rules/sro.shtml). Copies of the Price List and the NYSE Amex Options Comment Letters and Response Letter on the NYSE
submission, all subsequent Fee Schedule To Reflect the Changes companion filing are discussed below.
6 See Securities Exchange Act Release No. 34–
amendments, all written statements July 21, 2016. 77978 (June 2, 2016), 81 FR 36966.
with respect to the proposed rule 7 As more fully described below, in Amendment
I. Introduction
No. 2 the Exchange proposes that Rebroadcasting
79 Section 19(b)(2) of the Act, as amended by the On April 4, 2016, NYSE MKT LLC Users and Transmittal Users would not be charged
Securities Act Amendments of 1975, Pub. L. 94–29 (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed for their first two Multicast End Users and Unicast
sradovich on DSK3GMQ082PROD with NOTICES
(June 4, 1975), grants to the Commission flexibility End Users, respectively, and offers additional
to determine what type of proceeding—either oral with the Securities and Exchange support for the proposal. Amendment No. 2 is
or notice and opportunity for written comments— Commission (‘‘Commission’’), pursuant available on the Commission’s Web site at https://
is appropriate for consideration of a particular to Section 19(b)(1) of the Securities www.sec.gov/comments/sr-nysemkt-2016-15/
proposal by a self-regulatory organization. See Exchange Act of 1934 (‘‘Act’’) 1 and Rule nysemkt201615-2.pdf. The Commission notes that
Securities Act Amendments of 1975, Senate Comm. in the comment file, Amendment No. 2 contains a
on Banking, Housing & Urban Affairs, S. Rep. No. cover page that erroneously refers to Amendment
75, 94th Cong., 1st Sess. 30 (1975). 81 17 CFR 200.30–3(a)(57). No. 1.
80 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). 1 15 U.S.C. 78s(b)(1). 8 15 U.S.C. 78s(b)(2)(B).
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Document Created: 2018-02-08 08:02:41
Document Modified: 2018-02-08 08:02:41
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 49300 |
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