81 FR 86036 - Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Change, as Modified by Amendment No. 1, Amending the Co-location Services Offered by the Exchange To Add Certain Access and Connectivity Fees
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 229 (November 29, 2016)
Federal Register Volume 81, Issue 229 (November 29, 2016)
| Page Range | 86036-86041 | |
| FR Document | 2016-28638 |
[Federal Register Volume 81, Number 229 (Tuesday, November 29, 2016)] [Notices] [Pages 86036-86041] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28638] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79379; File No. SR-NYSEArca-2016-89] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Change, as Modified by Amendment No. 1, Amending the Co-location Services Offered by the Exchange To Add Certain Access and Connectivity Fees November 22, 2016. I. Introduction On August 16, 2016, NYSE Arca, Inc. (``NYSE Arca'' or the ``Exchange'') 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 (1) to provide additional information regarding access to various trading and execution services; connectivity to market data feeds and testing and certification feeds; connectivity to Third Party Systems; and connectivity to DTCC provided to Users using data center local area networks; and (2) to establish fees relating to a User's access to various trading and execution services; connectivity to market data feeds and testing and certification feeds; connectivity to DTCC; and other services. The proposed rule change was published for comment in the Federal Register on August 26, 2016.\3\ The Commission received no comments in response to the proposed rule change.\4\ On October 4, 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 November 24, 2016.\5\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 34-78628 (August 22, 2016), 81 FR 59004 (``Notice''). \4\ The Commission notes that it did receive one comment letter on a related filing, NYSE-2016-45, which is equally relevant to this filing. See letter to Brent J. Fields, Secretary, Commission, from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC (IEX), dated September 9, 2016 (``IEX Letter''). On September 23, 2016, the NYSE submitted a response (``Response Letter''). \5\ See Securities Exchange Act Release No. 34-78967 (September 28, 2016), 81 FR 68480. --------------------------------------------------------------------------- On November 2, 2016, the Exchange filed Amendment No. 1 to the proposed rule change.\6\ The Commission is publishing this order to solicit comments on Amendment No. 1 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 No. 1.\7\ 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 No. 1, and on the issues presented by the proposal. --------------------------------------------------------------------------- \6\ Amendment No. 1 is discussed further infra. Amendment No. 1 is available on the Commission's Web site at https://www.sec.gov/comments/sr-nysearca-2016-89/nysearca201689-1.pdf. \7\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- II. Description of the Proposed Rule Change, as Modified by Amendment No. 1 The proposed rule change seeks to amend the co-location services offered by the Exchange to (1) provide additional information regarding the access to trading and execution services and connectivity to data provided to Users with local area networks available in the data center; and (2) establish fees relating to a User's \8\ access to trading and execution services; connectivity to data feeds and to testing and certification feeds; connectivity to clearing; and other services.\9\ --------------------------------------------------------------------------- \8\ 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. See Securities Exchange Act Release No. 76008 (September 29, 2015), 80 FR 60190 (October 5, 2015) (SR-NYSE-2015-40). As specified in the Fee Schedules, a User that incurs co-location fees for a particular co- location service pursuant thereto would not be subject to co- location fees for the same co-location service charged by the Exchange's affiliates NYSE MKT LLC (``NYSE MKT'') and NYSE Arca, Inc. (``NYSE Arca'' and, together with NYSE MKT, the ``Affiliate SROs''). See Securities Exchange Act Release No. 70206 (August 15, 2013), 78 FR 51765 (August 21, 2013) (SR-NYSE-2013-59). \9\ See Notice, supra note 3, 81 FR at 59004-59005. --------------------------------------------------------------------------- Background and Access to Exchange Systems As discussed more fully in the Notice, a User can purchase access to the Liquidity Center Network (``LCN'') and/or internet protocol (``IP'') network in the data center through the purchase of a 1, 10, or 40 Gb LCN circuit, a 10 Gb LX Circuit, bundled network access, Partial Cabinet Solution bundle, or 1, 10 or 40 Gb IP network access.\10\ The purchase of any of the LCN or IP network circuit options gives a User access \11\ to the Exchange's trading and execution systems, connectivity to the Exchange's certification and testing feeds,\12\ and the ability to connect to any NYSE Data Product.\13\ More specifically, access to the Exchange's trading and execution system provides a User with access to the Exchange's ``customer gateways that provide for order entry, order receipt (i.e. confirmation that an order has been received), receipt of drop copies and trade reporting (i.e. whether a trade is executed or cancelled), as well as for sending information to shared data services for clearing and settlement.'' \14\ The Exchange seeks to add clarifying language in its proposed [[Page 86037]] rule to reflect the services included with purchase of Exchange system access.\15\ --------------------------------------------------------------------------- \10\ See id. at 59005. \11\ The purchase of access is subject to receiving authorization from the NYSE, NYSE MKT or NYSE Arca for the Included Data Products, as applicable. See id. at 59005 n.10. \12\ Certification feeds are used to certify that a User conforms to any relevant technical requirements for receipt of data or access to Exchange systems. Testing feeds, which do not carry live production data, provide Users with an environment to conduct tests with the non-live data, including testing for upcoming Exchange releases and product enhancements or the User's own software development. See id. at 59005. These feeds are only available over the IP network, however a User without an IP network connection may obtain an IP network circuit for purposes of testing and certification for free for three months. See id. at 59005 n.12. \13\ See id. at 59005. \14\ See id. at 59006.The Exchange represents that connectivity to the Exchange systems can be obtained without the purchase of access to the LCN or IP network. See id. \15\ See id. --------------------------------------------------------------------------- Connectivity to Included Data Products As discussed more fully below, the Exchange offers connectivity to three types of data products: Included Data Products, Premium NYSE Data Products, and Third Party Data Feeds.\16\ As discussed more fully in the Notice, the Included Data Products include Consolidated Tape Association (``CTA'') disseminated data feeds and NMS data feeds.\17\ The CTA disseminates consolidated real-time trade and quote information in NYSE listed securities (Network A) and NYSE MKT, NYSE Arca and other regional exchanges' listed securities (Network B) pursuant to a national market system plan.\18\ The NMS data feeds include Consolidated Tape System and Consolidated Quote System data streams, as well as Options Price Reporting Authority feeds.\19\ To obtain connectivity to the Included Data Products, a User must enter into a contract with the data provider and pay any applicable fees.\20\ Once the Exchange receives an authorization from the data feed provider, the Exchange will provide connectivity to the Included Data Product(s) through a User's LCN or IP network port.\21\ The Exchange does not charge any additional fees for this connectivity ``because such access and connectivity is directly related to the purpose of co-location.'' \22\ The Exchange proposes to add language to the NYSE Arca Options Fee Schedule and the NYSE Arca Equities Schedule of Fees and Charges (collectively ``Fee Schedules'') to specify that there are no additional fees for connectivity to Included Data Products.\23\ --------------------------------------------------------------------------- \16\ See id. Neither the NYSE Data Products or Third Party Data Feeds provide access or order entry to the Exchange's execution system. See id. Connectivity to the NYSE Data Products is available in three forms: A resilient feed, ``Feed A'', or ``Feed B.'' A resilient feed includes two copies of the same feed for redundancy purposes and Feed A and Feed B are identical feeds. A User that wants redundancy would connect to both Feed A and Feed B or two resilient feeds, using two different ports. See id. at 59005; see also id. at 59005 n. 13. \17\ See Notice, supra note 3, 81 FR at 59006. \18\ See id. \19\ See id. \20\ See id. \21\ See id. \22\ See id.; see also Amendment No. 1, supra note 6. \23\ See Notice, supra note 3, 81 FR at 59006. --------------------------------------------------------------------------- Connectivity to Premium NYSE Data Products As part of its data product offerings, the Exchange now proposes to provide connectivity to Premium NYSE Data Products from the Exchange and its Affiliate SROs to Users over either the LCN and/or IP network ``because such access and connectivity is directly related to the purpose of co-location.'' \24\ The proposed rule change seeks to amend the Fee Schedules to specify the connectivity fees for Premium NYSE Data Products.\25\ --------------------------------------------------------------------------- \24\ See id.; see also Amendment No. 1, supra note 6. \25\ See Notice, supra note 3, 81 FR at 59006. --------------------------------------------------------------------------- As discussed more fully in the Notice, the Premium NYSE Data Products are ``equity market data products that are variants of the equity Included Data Products. Each Premium NYSE Data Product integrates, or includes data elements from, several Included Data Products.'' \26\ These Integrated Feeds include ``depth of book order data (with add, modify and delete orders), trades (with corrections and cancel/errors), opening and closing imbalance data, security status updates (e.g., trade corrections and trading halts) and stock summary messages. The stock summary messages display a market's opening price, high price, low price, closing price, and cumulative volume for a security. Only the Integrated Feeds offer all these components in sequence in one feed.'' \27\ Additionally, the NYSE BQT data feed includes, among other things, certain data elements from six of the equity Included Data Products of the Exchange and Affiliated SROs in one data feed: NYSE Trades, NYSE BBO, NYSE Arca Trades, NYSE Arca BBO, NYSE MKT Trades, and NYSE MKT BBO.\28\ --------------------------------------------------------------------------- \26\ See id. Examples include: (1) The NYSE Integrated Feed that includes, among other items, data from three of the equity Included Data Products: NYSE OpenBook, NYSE Trades, and NYSE Order Imbalances; and (2) the NYSE BQT data feed that includes, among other items, specific data elements from six of the equity Included Data Products: NYSE Trades, NYSE BBO, NYSE Arca Trades, NYSE Arca BBO, NYSE MKT Trades, and NYSE MKT BBO. See id. Additionally, with respect to the NYSE Amex and NYSE Arca options data, neither NYSE Amex nor NYSE Arca offer Premium Data Products because there are ``no options data products that integrate, or include data elements from, other option data products in the same manner that the NYSE, NYSE MKT and NYSE Arca Integrated Feeds integrate, or include data elements from, equity Included Data Products.'' See id. \27\ See Amendment No. 1, supra note 6. \28\ See id. None of the Included Data Products provide Users with data from the Exchange and Affiliate SROs in one feed. See id. Also, according to the Exchange, the Premium Data Products contain more data overall in comparison to the Included Data Products and potentially can be subject to greater technical specifications in order to receive the feed(s). See Notice, supra note 3, 81 FR at 59007. ``For example, a User connecting to the NYSE Arca Integrated Feed, NYSE Integrated Feed or NYSE MKT Integrated Feed would need at least a 1 Gb IP network connection in order to connect to either Feed A or Feed B. To connect to a resilient feed, the User would require an LCN or IP network connection of at least 10 Gb.'' See id. at 59007 n. 13. --------------------------------------------------------------------------- As is the case with Included Data Products, a User of Premium NYSE Data Products must enter into a contract with the data provider for each feed and the provider would then authorize the Exchange to provide connectivity of the particular feed to that User's LCN or IP Network port.\29\ The Exchange proposes to charge a User a monthly recurring fee per each Premium NYSE Data Product feed for the connectivity provided by the Exchange.\30\ --------------------------------------------------------------------------- \29\ See Notice, supra note 3, 81 FR at 59007. \30\ See id. --------------------------------------------------------------------------- Connectivity to Third Party Data Feeds The Exchange's proposal further seeks to offer Third Party Data Feeds to Users and to charge a connectivity fee per feed as reflected on its Fee Schedules.\31\ In the data center, the Exchange receives Third Party Data Feeds from multiple national securities exchanges and other content service providers which it then provides to requesting Users for a fee.\32\ With the exceptions of Global OTC and NYSE Global Index, Users connect to Third Party Data Feeds over the IP network.\33\ In charging for this service, the Exchange notes that its practice is consistent with the monthly fee Nasdaq charges its co-location customers for connectivity to third party data.\34\ --------------------------------------------------------------------------- \31\ See id. at 59008. \32\ See id. \33\ See id. \34\ See id. The Exchange notes that Nasdaq charges monthly fees of $1,500 and $4,000 for connectivity to BATS Y and BATS, respectively, and of $2,500 for connectivity to EDGA or EDGX. See id. --------------------------------------------------------------------------- In order to connect to a Third Party Data Feed, a User must enter into a contract with the relevant third party market or content service provider, under which the third party market or content service provider charges the User for the data feed.\35\ The Exchange receives these Third Party Data Feeds over its fiber optic network and, after the data provider and User enter into a contract and the Exchange receives authorization from the data provider, the Exchange re- transmits the data to the User over a User's port.\36\ Users only receive, and are only charged for, the feed(s) which they have entered into contracts for.\37\ Additionally, the Exchange notes that Third Party Data Feeds do not provide access or order entry to its execution system or access to the execution system of the third party generating the feed.\38\ The [[Page 86038]] Exchange proposes to charge a monthly recurring fee for connectivity to each Third Party Data Feed, however for SuperFeed and MSCI it proposes to charge different fees which vary based on the bandwidth requirements for the connection.\39\ A User is free to receive all or some of the feeds included in the Fee Schedules.\40\ Moreover, the Exchange notes that Third Party Data Feed providers may charge redistribution fees, such as Nasdaq's Extranet Access Fees and OTC Markets Group's Access Fees,\41\ which the Exchange will pass through to the User in addition to charging the applicable connectivity fee.\42\ Finally, the Exchange permits third party markets or content providers that are also Users to connect to their own Third Party Data Feeds without a charge.\43\ The Exchange represents that it does not charge Users that are third party markets or content providers for connectivity to their own feeds because such parties generally receive their own feeds for purposes of diagnostics and testing.\44\ --------------------------------------------------------------------------- \35\ See id. \36\ See id. \37\ See id. \38\ See id. There is one exception to this for the ICE feeds which include both market data and trading and clearing services. In order to receive the ICE feeds, a User must receive authorization from ICE to receive both market data and trading and clearing services. See id. \39\ See id. \40\ See id. \41\ See id. at 59008-59009. \42\ See id. \43\ See id. at 59009. \44\ See id. --------------------------------------------------------------------------- Connectivity to Other Services As part of its data center offerings, the Exchange also seeks to provide access and connectivity to Third Party Systems/content service providers, the DTCC \45\ (collectively ``Service Providers''), third party certification and testing feeds,\46\ and Virtual Control Circuits \47\ (``VCCs'').\48\ The proposed rule change seeks to amend the Fee Schedules to add new fees for connectivity to these Service Providers and third party certification and testing feeds and to specify that connectivity is dependent on a User meeting the necessary technical requirements, paying the applicable fees, and the Exchange receiving authorization to establish a connection for a User.\49\ Similarly, the proposed rule change seeks to amend the Fee Schedules to add a new fee for connectivity for VCCs which will similarly require permission from the other User before the Exchange will establish the connection.\50\ Accordingly, the Exchange proposes to amend its Fee Schedules to add recurring monthly connectivity fees for Service Providers and VCCs based upon the bandwidth requirements per system and/or VCC connection between two Users.\51\ For third party certification and testing feeds, the Exchange proposes to revise its Fee Schedules to include a monthly recurring $100 fee per feed.\52\ --------------------------------------------------------------------------- \45\ ``Such connectivity to DTCC is distinct from the access to shared data services for clearing and settlement services that a User receives when it purchases access to the LCN or IP network. The shared data services allow Users and other entities with access to the Trading Systems to post files for settlement and clearing services to access.'' See id. at 59009 n. 33. \46\ Certification feeds certify that a User conforms to any of the relevant content service providers' requirements for accessing Third Party Systems or receiving Third Party Data, whereas testing feeds provide Users an environment in which to conduct system tests with non-live data. See id. at 59009. \47\ A VCC (previously called a ``peer to peer'' connection) is a two-way connection through which two participants can establish a connection between two points over dedicated bandwidth using the IP network to be used for any purpose. See id. \48\ See id. at 59007-59009. \49\ See id. \50\ See id. at 59009. \51\ See id. at 59007-59009. \52\ See id. at 59009. --------------------------------------------------------------------------- For each service, a User must execute a contract with the respective Service Provider and/or third party certification and testing feed provider(s) pursuant to which a User pays each the associated fee(s) for their services.\53\ Once the Exchange receives authorization from the Service Provider and/or third party certification and testing feed provider(s), the Exchange will enable a User to connect to the Service Provider and/or third party certification and testing feed(s) over the IP Network.\54\ Similarly, with respect to VCCs, the Exchange will not establish a VCC connection over its IP Network until the other User confirms the VCC request.\55\ Finally, the Exchange notes, that its execution system does not provide access to Service Provider systems, nor do the Service Provider systems provide access to the Exchange's execution system.\56\ --------------------------------------------------------------------------- \53\ See id. at 59007-59009. \54\ See id. For Third Party Systems, once the Exchange receives the authorization from the respective third party it establishes a unicast connection between the User and the relevant third party over the IP network. See id. at 59007. For the DTCC, ``[t]he Exchange receives the DTCC feed over its fiber optic network and, after DTCC and the User enter into the services contract and the Exchange receives authorization from DTCC, the Exchange provides connectivity to DTCC to the User over the User's IP network port.'' See id. at 59009. \55\ See Notice, supra note 5, 81 FR at 59009. \56\ See id. at 59008-59009. --------------------------------------------------------------------------- As noted above, the Commission received one comment letter on a related filing which is equally applicable to this filing.\57\ This commenter (1) requested clarification about the history of the fees and ``the increasing costs of maintaining the data center and providing co- location compared to any related fee revenue'' and (2) expressed a concern about whether ``there are any true alternatives that are practically available to various types of participants who are seeking to compete with those who are paying exchanges for co-location and data services.'' \58\ Specifically, the commenter noted that the NYSE states that the connectivity fees are used to defray the costs associated with providing co-location to Users, but, the commenter questions whether the fees to cover the increasing costs of providing co-location are applied in an equitable manner.\59\ Moreover, with respect to alternatives, the commenter noted that broker-dealers face best execution obligations that are ``critically impacted by sub-millisecond differences in access to exchange systems and market data.'' \60\ As a result, market participants face the quandary of whether to trade from outside the data center if other members are trading from inside.\61\ Additionally, some broker-dealers trading for clients ``may be practically required to buy and consume proprietary market data feeds directly from exchanges in order to provide competitive products for those clients.''\62\ The commenter believes that this environment ``imposes a form of trading tax on all members by offering different methods of access to different members.'' \63\ The commenter questions whether true alternatives are available for participants seeking to compete with firms paying for exchange co-location and data services and whether the Exchange's ability to set fees is truly constrained by market forces for a ``comparable product''.\64\ --------------------------------------------------------------------------- \57\ See IEX Letter, supra note 4. \58\ See id. at 1-2. \59\ See id. \60\ See id. at 2. \61\ See id. \62\ See id. \63\ See id. \64\ See id. --------------------------------------------------------------------------- As discussed above, the Exchange submitted a response to the commenter on the related filing.\65\ The Exchange in its Response Letter stated that historical information about the development of these product offerings is ``not required by the Act and is not relevant to [] the substance of the Proposal--which is, by definition, forward looking . . .'' \66\ Additionally, the Response Letter noted that costs are not the only consideration in setting its prices, but rather the prices ``include the competitive landscape; whether Users would be required to utilize a given service; the alternatives available to Users; and, significantly, the benefits Users obtain from the [[Page 86039]] services.'' \67\ With respect to the commenter's concern about members needing additional information to assess the fixed costs of exchange membership, the Exchange responded that these are not fixed costs of ``Exchange members'' but instead costs to any User who voluntarily chooses to purchase such services based upon ``[t]he form and latency of access and connectivity that bests suits a User's needs . . .'' \68\ Users do not require the Exchange's access or connectivity to trade on the Exchange and can instead use alternative access and connectivity options for trading if they choose.\69\ --------------------------------------------------------------------------- \65\ See Response Letter, supra note 4. \66\ See id. at 2. \67\ See id. \68\ See id. at 4. \69\ See id. --------------------------------------------------------------------------- In response to the commenter's argument regarding different methods of access to trading, the Exchange stated that ``it is a vendor of fair and non-discriminatory access, and like any vendor with multiple product offerings, different purchasers may make different choices regarding which products they wish to purchase.'' \70\ The Exchange further stated in response to the commenter's concern of a lack of true alternatives for a ``comparable product'', that the filing lists several alternative options for Users and a User can evaluate the ``relative benefits of those alternatives and choose whichever it deems most beneficial to it . . .'' \71\ --------------------------------------------------------------------------- \70\ See id. at 5. The Exchange makes a further argument about the Exchange being a regulated co-location space whereas other unregulated co-location options are available. See id. \71\ See id. at 6. The Exchange noted that it is not addressing the commenter's statements about broker-dealers needing to purchase market data from the Exchange as that is outside the scope of this proposal. See id. at 5 n.13. --------------------------------------------------------------------------- Amendment No. 1 In Amendment No. 1, the Exchange offers additional justification for the proposed rule change.\72\ In Amendment No. 1, the Exchange addressed (1) the benefits offered by the Premium NYSE Data Products that are not present in the Included Data Products, (2) how Premium NYSE Data Products are related to the purpose of co-location, (3) the similarity of charging for connectivity to Third Party Systems and DTCC and charging for connectivity to Premium NYSE Data Products and (4) the costs incurred by the Exchange in providing connectivity to Premium NYSE Data Products to Users in the data center.\73\ In the Amendment, the Exchange provided further detail on the benefits provided to Users through the Premium NYSE Data Products including ``depth of book order data (with add, modify and delete orders), trades (with corrections and cancel/errors), opening and closing imbalance data, security status updates (e.g., trade corrections and trading halts) and stock summary messages.'' \74\ The Exchange also clarified which costs are associated with providing Users with access and connectivity to the various services discussed in the filing, including the Premium NYSE Data Products. --------------------------------------------------------------------------- \72\ See Amendment No. 1, supra note 6. \73\ See id. \74\ See id.; see also supra note 27 and accompanying text. --------------------------------------------------------------------------- III. Proceedings To Determine Whether To Disapprove SR-NYSEArca-2016-89 and Grounds for Disapproval Under Consideration The Commission is instituting proceedings pursuant to Section 19(b)(2)(B) of the Act \75\ to determine whether the proposed rule change, as modified by Amendment No. 1, 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 modified by Amendment No. 1. Institution of proceedings does not indicate that the Commission has reached any conclusions with respect to any of the issues involved. Rather, as described below, the Commission seeks and encourages interested persons to provide comments on the proposed rule change, as modified by Amendment No. 1. --------------------------------------------------------------------------- \75\ 15 U.S.C. 78s(b)(2)(B). --------------------------------------------------------------------------- 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,'' \76\ --------------------------------------------------------------------------- \76\ 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,'' \77\ and --------------------------------------------------------------------------- \77\ 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].'' \78\ --------------------------------------------------------------------------- \78\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- As discussed above, the Exchange's proposal would, among other things, establish fees relating to a User's access to trading and execution services, connectivity to data feeds and to testing and certification feeds, connectivity to clearing, and other services. The Exchange believes that the proposed fees are consistent with Sections 6(b)(4), (5), and (8) of the Act because the fees charged for co- location services are constrained by the active competition for the order flow and other business from such market participants.\79\ The Exchange stated that charging excessive fees would make it stand to lose not only co-location revenues but also the liquidity of the formerly co-located trading firms.\80\ Additionally, the Exchange believes that because there are alternatives for a User both in and outside of the data center if it believes the fees are too excessive, the fees are consistent with the Act.\81\ Specifically, the Exchange noted that a User could terminate its co-location arrangement with the exchange ``and adopt a possible range of alternative strategies, including placing their servers in a physically proximate location outside the exchange's data center (which could be a competing exchange), or pursuing strategies less dependent upon the lower exchange-to-participant latency associated with co-location.'' \82\ Additionally, ``[a]s alternatives to using the Access and Connectivity provided by the Exchange, a User may access or connect to such services and products through another User or through a connection to an Exchange access center outside the data center, third party access center, or third party vendor. The User may make such connection through a third party telecommunication provider, third party wireless network, the SFTI network, or a combination thereof.'' \83\ However, the Exchange also stated that the expectation of co-location was that normally Users would expect reduced latencies in sending orders to the Exchange and in receiving market data from the Exchange by being co- located.\84\ Therefore, as the Exchange states in Amendment No. 1, both Included Data Products and Premium NYSE Data Products are ``directly related to the purpose of co-location.'' \85\ --------------------------------------------------------------------------- \79\ See Notice, supra note 3, 81 FR at 59010-59011. \80\ See id. at 59011. \81\ See id. \82\ See id. \83\ See id. \84\ See id. \85\ See Amendment No. 1, supra note 6. --------------------------------------------------------------------------- [[Page 86040]] The commenter suggests that Users do not in fact have alternatives to paying the connectivity fee to obtain Premium NYSE Data Products.\86\ If these products are integral to co-located Users for trading on the Exchange, the Commission questions whether obtaining the information contained in these products from another source is, in fact, a viable alternative given the importance of receiving such information in a timely manner. The Commission is concerned that the Exchange has not supported its argument that there are viable alternatives for Users inside the data center in lieu of obtaining such information from the Exchange. The Commission seeks comment on whether Users do have viable alternatives to paying the Exchange a connectivity fee for the Premium NYSE Data Products. --------------------------------------------------------------------------- \86\ See IEX Letter, supra note 4. --------------------------------------------------------------------------- Additionally, the Exchange states that both Included Data Products and Premium NYSE Data Products are ``directly related to the purpose of co-location.'' The Commission is concerned that the Exchange has not made clear why including the cost of connectivity to the Included Data Products in the purchase of a LCN or IP network connection and charging an additional fee to obtain the Premium NYSE Data Products is an equitable allocation of reasonable dues, fees, and other charges among Users in the data center; does not unfairly discriminate between customers, issuers, brokers, or dealers; and does not impose a burden on competition which is not necessary or appropriate in furtherance of the purposes of the Act. The Commission is concerned that the Exchange has not identified a distinction between the provision of connectivity to Included Data Products and the provision of connectivity to Premium NYSE Data Products, as opposed to a distinction between the utility of the Included Data Products and Premium NYSE Data Products to Users, which the Exchange has demonstrated, even though these are all NYSE proprietary data products. Therefore, the Commission is concerned that the Exchange has not identified a reasonable basis for charging Users a separate connectivity fee for the Premium NYSE Data Products while including connectivity in the purchase price for a LCN/IP network connection. The Exchange stated in its filing that both are ``directly related to the purpose of co-location'' but it has not clearly justified why this permits including the connectivity fee for Included Data Products as part of the LCN or IP Network connection, even for those Users that do not use the Included Data Products, but not including the connectivity fee for the Premium NYSE Data Products as well. Similarly, the Exchange justifies the costs associated with providing these feeds by stating ``[i]n order to offer connectivity to the Premium NYSE Data Products, the Exchange must provide, maintain and operate the data center facility hardware and technology infrastructure. The Exchange must handle the installation, administration, monitoring, support and maintenance of the connectivity, including by ensuring that the network infrastructure has the necessary bandwidth for the Premium NYSE Data Products and responding to any production issues.'' \87\ The Commission does not believe the Exchange has clearly explained why the same rationale would not apply to the Included Data Products. The Exchange has sought to justify this on the basis that the Premium NYSE Data Products are similar to any other service offered by the Exchange such as connectivity to Third Party Systems and DTCC.\88\ The Commission however is concerned that these Premium NYSE Data Products are similar to the Included Data Products and therefore should not include different fee structures as they are the same offering by the Exchange within the contemplated purpose of co-location. The Commission seeks comment on whether charging fees for connectivity to Included Data Products and Premium NYSE Data Products in a different manner is consistent with Section 6(b)(4) of the Act. --------------------------------------------------------------------------- \87\ See Amendment No. 1, supra note 6. \88\ See id. --------------------------------------------------------------------------- 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 No. 1. In particular, the Commission invites the written views of interested persons concerning whether the proposal, as modified by Amendment No. 1, is consistent with Sections 6(b)(4), (5), or (8) \89\ 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,\90\ any request for an opportunity to make an oral presentation.\91\ --------------------------------------------------------------------------- \89\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). \90\ 17 CFR 240.19b-4. \91\ Section 19(b)(2) of the Act, as amended by the Securities Act Amendments of 1975, Public Law 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 No. 1, should be approved or disapproved by December 20, 2016. Any person who wishes to file a rebuttal to any other person's submission must file that rebuttal by January 3, 2017. 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 No. 1, as the Commission continues its analysis of the proposed rule change's consistency with Sections 6(b)(4), (5) and (8),\92\ 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 No. 1, in addition to any other comments they may wish to submit about the proposed rule change. --------------------------------------------------------------------------- \92\ 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-NYSEArca-2016-89 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-NYSEArca-2016-89. 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 [[Page 86041]] 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-NYSEArca-2016-89, and should be submitted by December 20, 2016. Rebuttal comments should be submitted by January 3, 2017. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\93\ --------------------------------------------------------------------------- \93\ 17 CFR 200.30-3(a)(57). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2016-28638 Filed 11-28-16; 8:45 am] BILLING CODE 8011-01-P
![86036 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
available for Web site viewing and testing and certification feeds; and execution services; connectivity to
printing in the Commission’s Public connectivity to DTCC; and other data feeds and to testing and
Reference Room, 100 F Street NE., services. The proposed rule change was certification feeds; connectivity to
Washington, DC 20549, on official published for comment in the Federal clearing; and other services.9
business days between the hours of Register on August 26, 2016.3 The
10:00 a.m. and 3:00 p.m. Copies of the Commission received no comments in Background and Access to Exchange
filing also will be available for response to the proposed rule change.4 Systems
inspection and copying at the principal On October 4, 2016, the Commission As discussed more fully in the Notice,
office of the Exchange. All comments extended the time period within which a User can purchase access to the
received will be posted without change; to approve the proposed rule change, Liquidity Center Network (‘‘LCN’’) and/
the Commission does not edit personal disapprove the proposed rule change, or
or internet protocol (‘‘IP’’) network in
identifying information from institute proceedings to determine
submissions. You should submit only the data center through the purchase of
whether to approve or disapprove the
information that you wish to make a 1, 10, or 40 Gb LCN circuit, a 10 Gb
proposed rule change to November 24,
available publicly. All submissions LX Circuit, bundled network access,
2016.5
should refer to File Number SR– On November 2, 2016, the Exchange Partial Cabinet Solution bundle, or 1, 10
NYSEARCA–2016–147, and should be filed Amendment No. 1 to the proposed or 40 Gb IP network access.10 The
submitted on or before December 20, rule change.6 The Commission is purchase of any of the LCN or IP
2016. publishing this order to solicit network circuit options gives a User
comments on Amendment No. 1 from access 11 to the Exchange’s trading and
For the Commission, by the Division of
Trading and Markets, pursuant to delegated interested persons and to institute execution systems, connectivity to the
authority.21 proceedings pursuant to Exchange Act Exchange’s certification and testing
Robert W. Errett, Section 19(b)(2)(B) to determine feeds,12 and the ability to connect to any
Deputy Secretary. whether to approve or disapprove the NYSE Data Product.13 More specifically,
[FR Doc. 2016–28635 Filed 11–28–16; 8:45 am] proposed rule change, as modified by access to the Exchange’s trading and
Amendment No. 1.7 Institution of execution system provides a User with
BILLING CODE 8011–01–P
proceedings does not indicate that the access to the Exchange’s ‘‘customer
Commission has reached any gateways that provide for order entry,
SECURITIES AND EXCHANGE conclusions with respect to the order receipt (i.e. confirmation that an
COMMISSION proposed rule change, nor does it mean order has been received), receipt of drop
that the Commission will ultimately copies and trade reporting (i.e. whether
[Release No. 34–79379; File No. SR– a trade is executed or cancelled), as well
NYSEArca–2016–89]
disapprove the proposed rule change.
Rather, as discussed below, the as for sending information to shared
Self-Regulatory Organizations; NYSE Commission seeks additional input on data services for clearing and
Arca, Inc.; Order Instituting the proposed rule change, as modified settlement.’’ 14 The Exchange seeks to
Proceedings To Determine Whether To by Amendment No. 1, and on the issues add clarifying language in its proposed
Approve or Disapprove a Proposed presented by the proposal.
Change, as Modified by Amendment II. Description of the Proposed Rule from the Exchange. See Securities Exchange Act
No. 1, Amending the Co-location Release No. 76008 (September 29, 2015), 80 FR
Change, as Modified by Amendment 60190 (October 5, 2015) (SR–NYSE–2015–40). As
Services Offered by the Exchange To No. 1 specified in the Fee Schedules, a User that incurs
Add Certain Access and Connectivity co-location fees for a particular co-location service
Fees The proposed rule change seeks to pursuant thereto would not be subject to co-location
amend the co-location services offered fees for the same co-location service charged by the
November 22, 2016. by the Exchange to (1) provide Exchange’s affiliates NYSE MKT LLC (‘‘NYSE
additional information regarding the MKT’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’ and,
I. Introduction together with NYSE MKT, the ‘‘Affiliate SROs’’).
access to trading and execution services See Securities Exchange Act Release No. 70206
On August 16, 2016, NYSE Arca, Inc. and connectivity to data provided to (August 15, 2013), 78 FR 51765 (August 21, 2013)
(‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed Users with local area networks available (SR–NYSE–2013–59).
with the Securities and Exchange in the data center; and (2) establish fees 9 See Notice, supra note 3, 81 FR at 59004–59005.
Commission (‘‘Commission’’), pursuant relating to a User’s 8 access to trading
10 See id. at 59005.
11 The purchase of access is subject to receiving
to Section 19(b)(1) of the Securities
authorization from the NYSE, NYSE MKT or NYSE
Exchange Act of 1934 (‘‘Act’’) 1 and Rule 3 See Securities Exchange Act Release No. 34–
Arca for the Included Data Products, as applicable.
19b–4 thereunder,2 a proposed rule 78628 (August 22, 2016), 81 FR 59004 (‘‘Notice’’). See id. at 59005 n.10.
4 The Commission notes that it did receive one
change (1) to provide additional 12 Certification feeds are used to certify that a
comment letter on a related filing, NYSE–2016–45,
information regarding access to various which is equally relevant to this filing. See letter
User conforms to any relevant technical
trading and execution services; requirements for receipt of data or access to
to Brent J. Fields, Secretary, Commission, from John Exchange systems. Testing feeds, which do not
connectivity to market data feeds and Ramsay, Chief Market Policy Officer, Investors carry live production data, provide Users with an
testing and certification feeds; Exchange LLC (IEX), dated September 9, 2016 (‘‘IEX environment to conduct tests with the non-live
Letter’’).
connectivity to Third Party Systems; data, including testing for upcoming Exchange
On September 23, 2016, the NYSE submitted a releases and product enhancements or the User’s
and connectivity to DTCC provided to response (‘‘Response Letter’’). own software development. See id. at 59005. These
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Users using data center local area 5 See Securities Exchange Act Release No. 34–
feeds are only available over the IP network,
networks; and (2) to establish fees 78967 (September 28, 2016), 81 FR 68480. however a User without an IP network connection
relating to a User’s access to various 6 Amendment No. 1 is discussed further infra. may obtain an IP network circuit for purposes of
trading and execution services; Amendment No. 1 is available on the Commission’s testing and certification for free for three months.
Web site at https://www.sec.gov/comments/sr- See id. at 59005 n.12.
connectivity to market data feeds and nysearca-2016-89/nysearca201689-1.pdf. 13 See id. at 59005.
7 15 U.S.C. 78s(b)(2)(B). 14 See id. at 59006.The Exchange represents that
21 17 CFR 200.30–3(a)(12). 8 For purposes of the Exchange’s co-location connectivity to the Exchange systems can be
1 15 U.S.C. 78s(b)(1). services, a ‘‘User’’ means any market participant obtained without the purchase of access to the LCN
2 17 CFR 240.19b–4. that requests to receive co-location services directly or IP network. See id.
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![86038 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
Exchange proposes to charge a monthly necessary technical requirements, and (2) expressed a concern about
recurring fee for connectivity to each paying the applicable fees, and the whether ‘‘there are any true alternatives
Third Party Data Feed, however for Exchange receiving authorization to that are practically available to various
SuperFeed and MSCI it proposes to establish a connection for a User.49 types of participants who are seeking to
charge different fees which vary based Similarly, the proposed rule change compete with those who are paying
on the bandwidth requirements for the seeks to amend the Fee Schedules to exchanges for co-location and data
connection.39 A User is free to receive add a new fee for connectivity for VCCs services.’’ 58 Specifically, the
all or some of the feeds included in the which will similarly require permission commenter noted that the NYSE states
Fee Schedules.40 Moreover, the from the other User before the Exchange that the connectivity fees are used to
Exchange notes that Third Party Data will establish the connection.50 defray the costs associated with
Feed providers may charge Accordingly, the Exchange proposes to providing co-location to Users, but, the
redistribution fees, such as Nasdaq’s amend its Fee Schedules to add commenter questions whether the fees
Extranet Access Fees and OTC Markets recurring monthly connectivity fees for to cover the increasing costs of
Group’s Access Fees,41 which the Service Providers and VCCs based upon providing co-location are applied in an
Exchange will pass through to the User the bandwidth requirements per system equitable manner.59 Moreover, with
in addition to charging the applicable and/or VCC connection between two respect to alternatives, the commenter
connectivity fee.42 Finally, the Users.51 For third party certification and noted that broker-dealers face best
Exchange permits third party markets or testing feeds, the Exchange proposes to execution obligations that are ‘‘critically
content providers that are also Users to revise its Fee Schedules to include a impacted by sub-millisecond differences
connect to their own Third Party Data monthly recurring $100 fee per feed.52 in access to exchange systems and
Feeds without a charge.43 The Exchange For each service, a User must execute market data.’’ 60 As a result, market
represents that it does not charge Users a contract with the respective Service participants face the quandary of
that are third party markets or content Provider and/or third party certification whether to trade from outside the data
providers for connectivity to their own and testing feed provider(s) pursuant to center if other members are trading from
feeds because such parties generally which a User pays each the associated inside.61 Additionally, some broker-
receive their own feeds for purposes of fee(s) for their services.53 Once the dealers trading for clients ‘‘may be
diagnostics and testing.44 Exchange receives authorization from practically required to buy and consume
the Service Provider and/or third party proprietary market data feeds directly
Connectivity to Other Services certification and testing feed from exchanges in order to provide
As part of its data center offerings, the provider(s), the Exchange will enable a competitive products for those
Exchange also seeks to provide access User to connect to the Service Provider clients.’’62 The commenter believes that
and connectivity to Third Party and/or third party certification and this environment ‘‘imposes a form of
Systems/content service providers, the testing feed(s) over the IP Network.54 trading tax on all members by offering
DTCC 45 (collectively ‘‘Service Similarly, with respect to VCCs, the different methods of access to different
Providers’’), third party certification and Exchange will not establish a VCC members.’’ 63 The commenter questions
testing feeds,46 and Virtual Control connection over its IP Network until the whether true alternatives are available
Circuits 47 (‘‘VCCs’’).48 The proposed other User confirms the VCC request.55 for participants seeking to compete with
rule change seeks to amend the Fee Finally, the Exchange notes, that its firms paying for exchange co-location
Schedules to add new fees for execution system does not provide
connectivity to these Service Providers and data services and whether the
access to Service Provider systems, nor
and third party certification and testing Exchange’s ability to set fees is truly
do the Service Provider systems provide
feeds and to specify that connectivity is constrained by market forces for a
access to the Exchange’s execution
dependent on a User meeting the ‘‘comparable product’’.64
system.56
As noted above, the Commission As discussed above, the Exchange
trading and clearing services. In order to receive the received one comment letter on a submitted a response to the commenter
ICE feeds, a User must receive authorization from related filing which is equally on the related filing.65 The Exchange in
ICE to receive both market data and trading and
applicable to this filing.57 This its Response Letter stated that historical
clearing services. See id. information about the development of
39 See id. commenter (1) requested clarification
40 See id. about the history of the fees and ‘‘the these product offerings is ‘‘not required
41 See id. at 59008–59009. increasing costs of maintaining the data by the Act and is not relevant to [] the
42 See id.
center and providing co-location substance of the Proposal—which is, by
43 See id. at 59009.
compared to any related fee revenue’’ definition, forward looking . . .’’ 66
44 See id. Additionally, the Response Letter noted
45 ‘‘Such connectivity to DTCC is distinct from
49 See id. that costs are not the only consideration
the access to shared data services for clearing and 50 See in setting its prices, but rather the prices
settlement services that a User receives when it id. at 59009.
purchases access to the LCN or IP network. The
51 See id. at 59007–59009. ‘‘include the competitive landscape;
shared data services allow Users and other entities 52 See id. at 59009.
whether Users would be required to
with access to the Trading Systems to post files for 53 See id. at 59007–59009.
utilize a given service; the alternatives
settlement and clearing services to access.’’ See id. 54 See id. For Third Party Systems, once the
at 59009 n. 33.
available to Users; and, significantly, the
Exchange receives the authorization from the
46 Certification feeds certify that a User conforms respective third party it establishes a unicast benefits Users obtain from the
to any of the relevant content service providers’ connection between the User and the relevant third
asabaliauskas on DSK3SPTVN1PROD with NOTICES
requirements for accessing Third Party Systems or party over the IP network. See id. at 59007. For the 58 See id. at 1–2.
receiving Third Party Data, whereas testing feeds DTCC, ‘‘[t]he Exchange receives the DTCC feed over 59 See id.
provide Users an environment in which to conduct its fiber optic network and, after DTCC and the User 60 See id. at 2.
system tests with non-live data. See id. at 59009. enter into the services contract and the Exchange
61 See id.
47 A VCC (previously called a ‘‘peer to peer’’ receives authorization from DTCC, the Exchange
62 See id.
connection) is a two-way connection through which provides connectivity to DTCC to the User over the
User’s IP network port.’’ See id. at 59009. 63 See id.
two participants can establish a connection between
55 See Notice, supra note 5, 81 FR at 59009. 64 See id.
two points over dedicated bandwidth using the IP
network to be used for any purpose. See id. 56 See id. at 59008–59009. 65 See Response Letter, supra note 4.
48 See id. at 59007–59009. 57 See IEX Letter, supra note 4. 66 See id. at 2.
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![Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices 86039
services.’’ 67 With respect to the modify and delete orders), trades (with As discussed above, the Exchange’s
commenter’s concern about members corrections and cancel/errors), opening proposal would, among other things,
needing additional information to assess and closing imbalance data, security establish fees relating to a User’s access
the fixed costs of exchange membership, status updates (e.g., trade corrections to trading and execution services,
the Exchange responded that these are and trading halts) and stock summary connectivity to data feeds and to testing
not fixed costs of ‘‘Exchange members’’ messages.’’ 74 The Exchange also and certification feeds, connectivity to
but instead costs to any User who clarified which costs are associated with clearing, and other services. The
voluntarily chooses to purchase such providing Users with access and Exchange believes that the proposed
services based upon ‘‘[t]he form and connectivity to the various services fees are consistent with Sections 6(b)(4),
latency of access and connectivity that discussed in the filing, including the (5), and (8) of the Act because the fees
bests suits a User’s needs . . .’’ 68 Users Premium NYSE Data Products. charged for co-location services are
do not require the Exchange’s access or constrained by the active competition
connectivity to trade on the Exchange III. Proceedings To Determine Whether
To Disapprove SR–NYSEArca–2016–89 for the order flow and other business
and can instead use alternative access from such market participants.79 The
and connectivity options for trading if and Grounds for Disapproval Under
Consideration Exchange stated that charging excessive
they choose.69 fees would make it stand to lose not
In response to the commenter’s The Commission is instituting
argument regarding different methods of only co-location revenues but also the
proceedings pursuant to Section liquidity of the formerly co-located
access to trading, the Exchange stated 19(b)(2)(B) of the Act 75 to determine
that ‘‘it is a vendor of fair and non- trading firms.80 Additionally, the
whether the proposed rule change, as
discriminatory access, and like any Exchange believes that because there are
modified by Amendment No. 1, should
vendor with multiple product offerings, alternatives for a User both in and
be approved or disapproved. Institution
different purchasers may make different outside of the data center if it believes
of such proceedings is appropriate at
choices regarding which products they the fees are too excessive, the fees are
this time in view of the legal and policy
wish to purchase.’’ 70 The Exchange issues raised by the proposed rule consistent with the Act.81 Specifically,
further stated in response to the change, as modified by Amendment No. the Exchange noted that a User could
commenter’s concern of a lack of true 1. Institution of proceedings does not terminate its co-location arrangement
alternatives for a ‘‘comparable product’’, indicate that the Commission has with the exchange ‘‘and adopt a possible
that the filing lists several alternative reached any conclusions with respect to range of alternative strategies, including
options for Users and a User can any of the issues involved. Rather, as placing their servers in a physically
evaluate the ‘‘relative benefits of those described below, the Commission seeks proximate location outside the
alternatives and choose whichever it and encourages interested persons to exchange’s data center (which could be
deems most beneficial to it . . .’’ 71 provide comments on the proposed rule a competing exchange), or pursuing
change, as modified by Amendment No. strategies less dependent upon the
Amendment No. 1
1. lower exchange-to-participant latency
In Amendment No. 1, the Exchange associated with co-location.’’ 82
Pursuant to Section 19(b)(2)(B) of the
offers additional justification for the Additionally, ‘‘[a]s alternatives to using
Act, the Commission is providing notice
proposed rule change.72 In Amendment the Access and Connectivity provided
of the following grounds for disapproval
No. 1, the Exchange addressed (1) the by the Exchange, a User may access or
that are under consideration:
benefits offered by the Premium NYSE
• Section 6(b)(4) of the Act, which connect to such services and products
Data Products that are not present in the through another User or through a
requires that the rules of a national
Included Data Products, (2) how connection to an Exchange access center
Premium NYSE Data Products are securities exchange ‘‘provide for the
equitable allocation of reasonable dues, outside the data center, third party
related to the purpose of co-location, (3) access center, or third party vendor. The
the similarity of charging for fees, and other charges among its
members and issuers and other persons User may make such connection
connectivity to Third Party Systems and through a third party
DTCC and charging for connectivity to using its facilities,’’ 76
Premium NYSE Data Products and (4) • Section 6(b)(5) of the Act, which telecommunication provider, third party
requires, among other things, that the wireless network, the SFTI network, or
the costs incurred by the Exchange in
rules of a national securities exchange a combination thereof.’’ 83 However, the
providing connectivity to Premium
be ‘‘designed to perfect the operation of Exchange also stated that the
NYSE Data Products to Users in the data
center.73 In the Amendment, the a free and open market and a national expectation of co-location was that
Exchange provided further detail on the market system’’ and ‘‘protect investors normally Users would expect reduced
benefits provided to Users through the and the public interest,’’ and not be latencies in sending orders to the
Premium NYSE Data Products including ‘‘designed to permit unfair Exchange and in receiving market data
‘‘depth of book order data (with add, discrimination between customers, from the Exchange by being co-
issuers, brokers, or dealers,’’ 77 and located.84 Therefore, as the Exchange
67 See id. • Section 6(b)(8) of the Act, which states in Amendment No. 1, both
68 See id. at 4. requires that the rules of a national Included Data Products and Premium
69 See id. securities exchange ‘‘not impose any NYSE Data Products are ‘‘directly
70 See id. at 5. The Exchange makes a further burden on competition not necessary or related to the purpose of co-location.’’ 85
asabaliauskas on DSK3SPTVN1PROD with NOTICES
argument about the Exchange being a regulated co- appropriate in furtherance of the
location space whereas other unregulated co-
location options are available. See id.
purposes of [the Act].’’ 78 79 See Notice, supra note 3, 81 FR at 59010–
71 See id. at 6. The Exchange noted that it is not 59011.
74 See id.; see also supra note 27 and 80 See id. at 59011.
addressing the commenter’s statements about
broker-dealers needing to purchase market data accompanying text. 81 See id.
75 15 U.S.C. 78s(b)(2)(B). 82 See id.
from the Exchange as that is outside the scope of
this proposal. See id. at 5 n.13. 76 15 U.S.C. 78f(b)(4). 83 See id.
72 See Amendment No. 1, supra note 6. 77 15 U.S.C. 78f(b)(5). 84 See id.
73 See id. 78 15 U.S.C. 78f(b)(8). 85 See Amendment No. 1, supra note 6.
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![86040 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
The commenter suggests that Users do Users that do not use the Included Data the Act,90 any request for an
not in fact have alternatives to paying Products, but not including the opportunity to make an oral
the connectivity fee to obtain Premium connectivity fee for the Premium NYSE presentation.91
NYSE Data Products.86 If these products Data Products as well. Similarly, the Interested persons are invited to
are integral to co-located Users for Exchange justifies the costs associated submit written data, views, and
trading on the Exchange, the with providing these feeds by stating arguments regarding whether the
Commission questions whether ‘‘[i]n order to offer connectivity to the proposal, as modified by Amendment
obtaining the information contained in Premium NYSE Data Products, the No. 1, should be approved or
these products from another source is, Exchange must provide, maintain and disapproved by December 20, 2016. Any
in fact, a viable alternative given the operate the data center facility hardware person who wishes to file a rebuttal to
importance of receiving such and technology infrastructure. The any other person’s submission must file
information in a timely manner. The Exchange must handle the installation, that rebuttal by January 3, 2017. In light
Commission is concerned that the administration, monitoring, support and of the concerns raised by the proposed
Exchange has not supported its maintenance of the connectivity, rule change, as discussed above, the
argument that there are viable including by ensuring that the network Commission invites additional comment
alternatives for Users inside the data infrastructure has the necessary on the proposed rule change, as
center in lieu of obtaining such bandwidth for the Premium NYSE Data modified by Amendment No. 1, as the
information from the Exchange. The Products and responding to any Commission continues its analysis of
Commission seeks comment on whether production issues.’’ 87 The Commission the proposed rule change’s consistency
Users do have viable alternatives to does not believe the Exchange has with Sections 6(b)(4), (5) and (8),92 or
paying the Exchange a connectivity fee clearly explained why the same any other provision of the Act, or the
for the Premium NYSE Data Products. rationale would not apply to the rules and regulations thereunder. The
Additionally, the Exchange states that Included Data Products. The Exchange Commission asks that commenters
both Included Data Products and has sought to justify this on the basis address the sufficiency and merit of the
Premium NYSE Data Products are that the Premium NYSE Data Products Exchange’s statements in support of the
‘‘directly related to the purpose of co- are similar to any other service offered proposed rule change, as modified by
location.’’ The Commission is by the Exchange such as connectivity to Amendment No. 1, in addition to any
concerned that the Exchange has not Third Party Systems and DTCC.88 The other comments they may wish to
made clear why including the cost of Commission however is concerned that submit about the proposed rule change.
connectivity to the Included Data these Premium NYSE Data Products are Comments may be submitted by any
Products in the purchase of a LCN or IP similar to the Included Data Products of the following methods:
network connection and charging an and therefore should not include
additional fee to obtain the Premium different fee structures as they are the Electronic Comments
NYSE Data Products is an equitable same offering by the Exchange within • Use the Commission’s Internet
allocation of reasonable dues, fees, and the contemplated purpose of co- comment form (http://www.sec.gov/
other charges among Users in the data location. The Commission seeks rules/sro.shtml); or
center; does not unfairly discriminate comment on whether charging fees for • Send an email to rule-comments@
between customers, issuers, brokers, or connectivity to Included Data Products sec.gov. Please include File No. SR–
dealers; and does not impose a burden and Premium NYSE Data Products in a NYSEArca–2016–89 on the subject line.
on competition which is not necessary different manner is consistent with Paper Comments
or appropriate in furtherance of the Section 6(b)(4) of the Act.
purposes of the Act. The Commission is • Send paper comments in triplicate
concerned that the Exchange has not Procedure: Request for Written to Brent J. Fields, Secretary, Securities
identified a distinction between the Comments and Exchange Commission, 100 F Street
provision of connectivity to Included The Commission requests that NE., Washington, DC 20549–1090.
Data Products and the provision of interested persons provide written All submissions should refer to File No.
connectivity to Premium NYSE Data submissions of their views, data and SR–NYSEArca–2016–89. This file
Products, as opposed to a distinction arguments with respect to the concerns number should be included on the
between the utility of the Included Data identified above, as well as any other subject line if email is used. To help the
Products and Premium NYSE Data concerns they may have with the Commission process and review your
Products to Users, which the Exchange proposed rule change, as modified by comments more efficiently, please use
has demonstrated, even though these are Amendment No. 1. In particular, the only one method. The Commission will
all NYSE proprietary data products. Commission invites the written views of post all comments on the Commission’s
Therefore, the Commission is concerned interested persons concerning whether Internet Web site (http://www.sec.gov/
that the Exchange has not identified a the proposal, as modified by rules/sro.shtml). Copies of the
reasonable basis for charging Users a Amendment No. 1, is consistent with submission, all subsequent
separate connectivity fee for the Sections 6(b)(4), (5), or (8) 89 or any amendments, all written statements
Premium NYSE Data Products while other provision of the Act, or the rules
including connectivity in the purchase and regulations thereunder. Although 90 17 CFR 240.19b–4.
price for a LCN/IP network connection. there does not appear to be any issue 91 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
asabaliauskas on DSK3SPTVN1PROD with NOTICES
The Exchange stated in its filing that relevant to approval or disapproval 94–29 (June 4, 1975), grants to the Commission
both are ‘‘directly related to the purpose which would be facilitated by an oral flexibility to determine what type of proceeding—
of co-location’’ but it has not clearly presentation of views, data, and either oral or notice and opportunity for written
justified why this permits including the arguments, the Commission will comments—is appropriate for consideration of a
connectivity fee for Included Data particular proposal by a self-regulatory
consider, pursuant to Rule 19b–4 under organization. See Securities Act Amendments of
Products as part of the LCN or IP 1975, Senate Comm. on Banking, Housing & Urban
Network connection, even for those 87 See Amendment No. 1, supra note 6. Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
88 See id. (1975).
86 See IEX Letter, supra note 4. 89 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). 92 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
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![Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices 86041
with respect to the proposed rule comments on the proposed rule change determined by the Board or its designee,
change that are filed with the from interested persons. hours during which transactions in
Commission, and all written options on individual securities may be
I. Self-Regulatory Organization’s
communications relating to the made on the Exchange shall correspond
Statement of the Terms of Substance of
proposed rule change between the to the normal hours for business set
the Proposed Rule Change
Commission and any person, other than forth in the rules of the primary
those that may be withheld from the The Exchange proposes to amend exchange listing the securities
public in accordance with the NYSE MKT Rule 901NY to permit the underlying the options.
provisions of 5 U.S.C. 552, will be Chief Executive Officer of the Exchange The Exchange proposes to amend the
available for Web site viewing and or his or her designee to take certain first paragraph of Rule 901NY to
printing in the Commission’s Public actions in connection with the trading provide that, except as may be
Reference Room, 100 F Street NE., of securities on the NYSE Amex Options otherwise determined by the Board as to
Washington, DC 20549 on official marketplace. The proposed rule change particular days, the Exchange shall be
business days between the hours of is available on the Exchange’s Web site open for the transaction of business on
10:00 a.m. and 3:00 p.m. Copies of such at www.nyse.com, at the principal office every business day. The Exchange
filing also will be available for of the Exchange, and at the proposes to remove the current
inspection and copying at the principal Commission’s Public Reference Room. exclusion of Saturdays and Sundays
office of the Exchange. All comments II. Self-Regulatory Organization’s because Saturdays and Sundays are not
received will be posted without change; Statement of the Purpose of, and business days and therefore no
the Commission does not edit personal Statutory Basis for, the Proposed Rule exclusion is needed. Finally, the
identifying information from Change amended paragraph would provide that
submissions. You should submit only the hours at which trading sessions
information that you wish to make In its filing with the Commission, the shall open and close may be specified
available publicly. All submissions self-regulatory organization included by Exchange rule, as well as by the
should refer to File No. SR–NYSEArca– statements concerning the purpose of, Board. The two paragraphs of the
2016–89, and should be submitted by and basis for, the proposed rule change present rule would become paragraphs
December 20, 2016. Rebuttal comments and discussed any comments it received (a) and (b). These proposed rule changes
should be submitted by January 3, 2017. on the proposed rule change. The text are based in part Exchange Rule 51(a)—
of those statements may be examined at Equities as well as on New York Stock
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
the places specified in Item IV below. Exchange LLC (‘‘NYSE LLC’’) Rule
authority.93 The Exchange has prepared summaries, 51(a).4
set forth in sections A, B, and C below,
Robert W. Errett, The Exchange proposes to add new
of the most significant parts of such
Deputy Secretary.
statements. paragraphs (c), (d), and (e) to Rule
[FR Doc. 2016–28638 Filed 11–28–16; 8:45 am] 901NY. These proposed changes are
BILLING CODE 8011–01–P A. Self-Regulatory Organization’s based on Rule 51(b)–(d)—Equities and
Statement of the Purpose of, and the NYSE Rule 51(b) and (c). New
Statutory Basis for, the Proposed Rule paragraph (c) would provide that,
SECURITIES AND EXCHANGE Change except as may be otherwise determined
COMMISSION 1. Purpose by the Board of Directors, the CEO of the
Exchange or his or her designee may
The Exchange proposes to amend halt or suspend trading in some or all
[Release No. 34–79374; File No. SR–
NYSEMKT–2016–106] NYSE Amex Options Rule 901NY securities traded on the Exchange;
(Trading Sessions) to permit the Chief extend the hours for the transaction of
Self-Regulatory Organizations; NYSE Executive Officer (‘‘CEO’’) of the business on the Exchange; close some or
MKT LLC; Notice of Filing and Exchange or his or her designee to take all Exchange facilities; determine the
Immediate Effectiveness of Proposed certain actions in connection with the duration of any such halt, suspension or
Rule Change Amending NYSE MKT trading of securities on the Exchange. closing undertaken; or determine to
Rule 901NY The Exchange believes the proposed trade securities on the Exchange’s
rule change would make Rule 901NY disaster recovery facility.5
November 22, 2016. more reflective of the organizational
Pursuant to Section 19(b)(1) 1 of the structure of the Exchange. At the same 4 See Securities Exchange Act Release No. 58705
Securities Exchange Act of 1934 (the time, the proposed rule changes would (October 1, 2008), 73 FR 58995 (October 8, 2008)
ensure that the Board of Directors of the (SR–Amex–2008–63). NYSE LLC is an affiliate of
‘‘Act’’),2 and Rule 19b–4 thereunder,3 the Exchange. See Securities Exchange Act Release
notice is hereby given that on November Exchange continues to have the No. 45433 (February 12, 2002), 67 FR 7441
10, 2016, NYSE MKT LLC (the authority to take action it deems (February 19, 2002) (SR–NYSE–2001–55). The
‘‘Exchange’’ or ‘‘NYSE MKT’’) filed with necessary or appropriate in particular Exchange notes that its affiliate NYSE Arca, Inc. is
situations. submitting substantially the same proposed rule
the Securities and Exchange change for NYSE Arca Rule 7.1 and NYSE Arca
Commission (the ‘‘Commission’’) the The first paragraph of Rule 901NY Equities Rule 7.1. See SR–NYSEArca–2016–148.
proposed rule change as described in provides that, unless otherwise ruled by 5 As part of its business continuity and disaster
the Board of the Exchange or its
asabaliauskas on DSK3SPTVN1PROD with NOTICES
Items I and II below, which Items have recovery plans, the Exchange maintains a disaster
designee, the Exchange shall be open for recovery facility, which is a secondary data center
been prepared by the self-regulatory located in a geographically diverse location, as
organization. The Commission is the transaction of business daily except required by Regulation SCI. See 14 CFR
publishing this notice to solicit on Saturdays and Sundays, and that the 242.1001(a)(2)(v) (requiring policies and procedures
hours at which trading sessions shall for business continutity [sic] and disaster recovery
93 17 open and close shall be established by plans that include maintaining backup and recovery
CFR 200.30–3(a)(57). capabilities sufficiently resilient and geographically
1 15 U.S.C. 78s(b)(1). the Board or its designee. Commentary diverse and that are reasonably designed to achieve
2 15 U.S.C. 78a. .01 to Rule 901NY notes that, except next business day resumption of trading and two-
3 17 CFR 240.19b–4. under unusual conditions as may be Continued
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Document Created: 2016-11-29 00:32:58
Document Modified: 2016-11-29 00:32:58
| 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 86036 |
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