81 FR 86050 - Self-Regulatory Organizations; NYSE MKT LLC; 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 | 86050-86055 | |
| FR Document | 2016-28637 |
[Federal Register Volume 81, Number 229 (Tuesday, November 29, 2016)] [Notices] [Pages 86050-86055] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28637] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79378; File No. SR-NYSEMKT-2016-63] Self-Regulatory Organizations; NYSE MKT LLC; 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 MKT LLC (the ``Exchange'' or ``NYSE MKT'') 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. 34-78629 (August 22, 2016), 81 FR 58992 (``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. 34-78968 (September 28, 2016), 81 FR 68493. --------------------------------------------------------------------------- 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-nysemkt-2016-63/nysemkt201663-1.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 58993. --------------------------------------------------------------------------- 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 rule to reflect the services included with purchase of Exchange system access.\15\ --------------------------------------------------------------------------- \10\ See id. \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 58993 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 58993. 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 58993 n.12. \13\ See id. at 58993. \14\ See id. 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\ [[Page 86051]] 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 MKT Equities Price List and the NYSE Amex Options Fee Schedule (collectively ``Fee Schedules'') to specify that there are no additional fees for connectivity to Included Data Products.\23\ --------------------------------------------------------------------------- \16\ See id. at 58993-58994. Neither the NYSE Data Products or Third Party Data Feeds provide access or order entry to the Exchange's execution system. See id. at 58994 n. 15. 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 58993; see also id. at 58993 n. 13. \17\ See Notice, supra note 3, 81 FR at 58994. \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 58994. --------------------------------------------------------------------------- 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 58995. --------------------------------------------------------------------------- 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. at 58994. 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 58995. ``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 58993 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 58994. \30\ See id. at 58995. --------------------------------------------------------------------------- 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 58996. \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 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 [[Page 86052]] 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. \42\ See id. \43\ See id. at 58996. \44\ See id. at 58997. --------------------------------------------------------------------------- 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 58998 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 58997. \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 58995, 58997. \49\ See id. \50\ See id. at 58997. \51\ See id. at 58995, 58997. \52\ See id. at 58997. --------------------------------------------------------------------------- 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 58995, 58997. \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 58995. 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 58997. \55\ See id. at 58997. \56\ See id. at 58995, 58997. --------------------------------------------------------------------------- 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 [[hairsp]] 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 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 [[Page 86053]] 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-NYSEMKT-2016-63 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 58999. \80\ See id. \81\ See id. \82\ See id. \83\ See id. \84\ See id. \85\ See Amendment No. 1, supra note 6. --------------------------------------------------------------------------- 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 [[Page 86054]] 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-NYSEMKT-2016-63 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-NYSEMKT-2016-63. 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 [[Page 86055]] 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-NYSEMKT-2016-63, and should be submitted by December 20, 2016. Rebuttal comments should be submitted by January 3, 2017. --------------------------------------------------------------------------- \93\ 17 CFR 200.30-3(a)(57). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\93\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-28637 Filed 11-28-16; 8:45 am] BILLING CODE 8011-01-P
![86050 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
not edit personal identifying On October 4, 2016, the Commission and execution services; connectivity to
information from submissions. You extended the time period within which data feeds and to testing and
should submit only information that to approve the proposed rule change, certification feeds; connectivity to
you wish to make available publicly. All disapprove the proposed rule change, or clearing; and other services.9
submissions should refer to File institute proceedings to determine
Background and Access to Exchange
Number SR–ICEEU–2016–013 and whether to approve or disapprove the
Systems
should be submitted on or before proposed rule change to November 24,
December 20, 2016. 2016.5 As discussed more fully in the Notice,
On November 2, 2016, the Exchange a User can purchase access to the
For the Commission, by the Division of
filed Amendment No. 1 to the proposed Liquidity Center Network (‘‘LCN’’) and/
Trading and Markets, pursuant to delegated
authority.10 rule change.6 The Commission is or internet protocol (‘‘IP’’) network in
publishing this order to solicit the data center through the purchase of
Robert W. Errett,
comments on Amendment No. 1 from a 1, 10, or 40 Gb LCN circuit, a 10 Gb
Deputy Secretary.
interested persons and to institute LX Circuit, bundled network access,
[FR Doc. 2016–28634 Filed 11–28–16; 8:45 am] Partial Cabinet Solution bundle, or 1, 10
proceedings pursuant to Exchange Act
BILLING CODE 8011–01–P Section 19(b)(2)(B) to determine or 40 Gb IP network access.10 The
whether to approve or disapprove the purchase of any of the LCN or IP
proposed rule change, as modified by network circuit options gives a User
SECURITIES AND EXCHANGE Amendment No. 1.7 Institution of access 11 to the Exchange’s trading and
COMMISSION proceedings does not indicate that the execution systems, connectivity to the
[Release No. 34–79378; File No. SR– Commission has reached any Exchange’s certification and testing
NYSEMKT–2016–63] conclusions with respect to the feeds,12 and the ability to connect to any
proposed rule change, nor does it mean NYSE Data Product.13 More specifically,
Self-Regulatory Organizations; NYSE that the Commission will ultimately access to the Exchange’s trading and
MKT LLC; Order Instituting disapprove the proposed rule change. execution system provides a User with
Proceedings To Determine Whether To Rather, as discussed below, the access to the Exchange’s ‘‘customer
Approve or Disapprove a Proposed Commission seeks additional input on gateways that provide for order entry,
Change, as Modified by Amendment the proposed rule change, as modified order receipt (i.e. confirmation that an
No. 1, Amending the Co-location by Amendment No. 1, and on the issues order has been received), receipt of drop
Services Offered by the Exchange To presented by the proposal. copies and trade reporting (i.e. whether
Add Certain Access and Connectivity a trade is executed or cancelled), as well
Fees II. Description of the Proposed Rule as for sending information to shared
Change, as Modified by Amendment data services for clearing and
November 22, 2016. No. 1 settlement.’’ 14 The Exchange seeks to
I. Introduction The proposed rule change seeks to add clarifying language in its proposed
amend the co-location services offered rule to reflect the services included with
On August 16, 2016, NYSE MKT LLC by the Exchange to (1) provide purchase of Exchange system access.15
(the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed additional information regarding the
with the Securities and Exchange Connectivity to Included Data Products
access to trading and execution services
Commission (‘‘Commission’’), pursuant and connectivity to data provided to As discussed more fully below, the
to Section 19(b)(1) of the Securities Users with local area networks available Exchange offers connectivity to three
Exchange Act of 1934 (‘‘Act’’) 1 and Rule in the data center; and (2) establish fees types of data products: Included Data
19b–4 thereunder,2 a proposed rule relating to a User’s 8 access to trading Products, Premium NYSE Data
change (1) to provide additional Products, and Third Party Data Feeds.16
information regarding access to various which is equally relevant to this filing. See letter
trading and execution services; to Brent J. Fields, Secretary, Commission, from John 9 See Notice, supra note 3, 81 FR at 58993.
connectivity to market data feeds and Ramsay, Chief Market Policy Officer, Investors 10 See id.
testing and certification feeds; Exchange LLC (IEX), dated September 9, 2016 (‘‘IEX 11 The purchase of access is subject to receiving
Letter’’). authorization from the NYSE, NYSE MKT or NYSE
connectivity to Third Party Systems; Arca for the Included Data Products, as applicable.
On September 23, 2016, the NYSE submitted a
and connectivity to DTCC provided to response (‘‘Response Letter’’). See id. at 58993 n.10.
Users using data center local area 5 See Securities Exchange Act Release No. 34– 12 Certification feeds are used to certify that a
networks; and (2) to establish fees 78968 (September 28, 2016), 81 FR 68493. User conforms to any relevant technical
relating to a User’s access to various 6 Amendment No. 1 is discussed further infra. requirements for receipt of data or access to
Amendment No. 1 is available on the Commission’s Exchange systems. Testing feeds, which do not
trading and execution services; carry live production data, provide Users with an
Web site at https://www.sec.gov/comments/sr-
connectivity to market data feeds and nysemkt-2016-63/nysemkt201663-1.pdf. environment to conduct tests with the non-live
testing and certification feeds; 7 15 U.S.C. 78s(b)(2)(B). data, including testing for upcoming Exchange
connectivity to DTCC; and other 8 For purposes of the Exchange’s co-location releases and product enhancements or the User’s
own software development. See id. at 58993. These
services. The proposed rule change was services, a ‘‘User’’ means any market participant
feeds are only available over the IP network,
published for comment in the Federal that requests to receive co-location services directly
however a User without an IP network connection
from the Exchange. See Securities Exchange Act
Register on August 26, 2016.3 The Release No. 76008 (September 29, 2015), 80 FR
may obtain an IP network circuit for purposes of
Commission received no comments in testing and certification for free for three months.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
60190 (October 5, 2015) (SR–NYSE–2015–40). As
See id. at 58993 n.12.
response to the proposed rule change.4 specified in the Fee Schedules, a User that incurs 13 See id. at 58993.
co-location fees for a particular co-location service
14 See id. The Exchange represents that
10 17 pursuant thereto would not be subject to co-location
CFR 200.30–3(a)(12). connectivity to the Exchange systems can be
1 15
fees for the same co-location service charged by the
U.S.C. 78s(b)(1). Exchange’s affiliates NYSE MKT LLC (‘‘NYSE obtained without the purchase of access to the LCN
2 17 CFR 240.19b–4. or IP network. See id.
MKT’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’ and,
3 See Securities Exchange Act Release No. 34– 15 See id.
together with NYSE MKT, the ‘‘Affiliate SROs’’).
78629 (August 22, 2016), 81 FR 58992 (‘‘Notice’’). See Securities Exchange Act Release No. 70206 16 See id. at 58993–58994. Neither the NYSE Data
4 The Commission notes that it did receive one (August 15, 2013), 78 FR 51765 (August 21, 2013) Products or Third Party Data Feeds provide access
comment letter on a related filing, NYSE–2016–45, (SR–NYSE–2013–59). or order entry to the Exchange’s execution system.
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![86052 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
Fee Schedules.40 Moreover, the Accordingly, the Exchange proposes to providing co-location to Users, but, the
Exchange notes that Third Party Data amend its Fee Schedules to add commenter questions whether the fees
Feed providers may charge recurring monthly connectivity fees for to cover the increasing costs of
redistribution fees, such as Nasdaq’s Service Providers and VCCs based upon providing co-location are applied in an
Extranet Access Fees and OTC Markets the bandwidth requirements per system equitable manner.59 Moreover, with
Group’s Access Fees,41 which the and/or VCC connection between two respect to alternatives, the commenter
Exchange will pass through to the User Users.51 For third party certification and noted that broker-dealers face best
in addition to charging the applicable testing feeds, the Exchange proposes to execution obligations that are ‘‘critically
connectivity fee.42 Finally, the revise its Fee Schedules to include a impacted by sub-millisecond differences
Exchange permits third party markets or monthly recurring $100 fee per feed.52 in access to exchange systems and
content providers that are also Users to For each service, a User must execute market data.’’ 60 As a result, market
connect to their own Third Party Data a contract with the respective Service participants face the quandary of
Feeds without a charge.43 The Exchange Provider and/or third party certification whether to trade from outside the data
represents that it does not charge Users and testing feed provider(s) pursuant to center if other members are trading from
that are third party markets or content which a User pays each the associated inside.61 Additionally, some broker-
providers for connectivity to their own fee(s) for their services.53 Once the dealers trading for clients ‘‘may be
feeds because such parties generally Exchange receives authorization from practically required to buy and consume
receive their own feeds for purposes of the Service Provider and/or third party proprietary market data feeds directly
diagnostics and testing.44 certification and testing feed from exchanges in order to provide
Connectivity to Other Services provider(s), the Exchange will enable a competitive products for those
User to connect to the Service Provider clients.’’ 62 The commenter believes that
As part of its data center offerings, the and/or third party certification and this environment ‘‘imposes a form of
Exchange also seeks to provide access testing feed(s) over the IP Network.54 trading tax on all members by offering
and connectivity to Third Party Similarly, with respect to VCCs, the different methods of access to different
Systems/content service providers, the Exchange will not establish a VCC members.’’ 63 The commenter questions
DTCC 45 (collectively ‘‘Service connection over its IP Network until the whether true alternatives are available
Providers’’), third party certification and other User confirms the VCC request.55 for participants seeking to compete with
testing feeds,46 and Virtual Control Finally, the Exchange notes, that its firms paying for exchange co-location
Circuits 47 (‘‘VCCs’’).48 The proposed execution system does not provide and data services and whether the
rule change seeks to amend the Fee
access to Service Provider systems, nor Exchange’s ability to set fees is truly
Schedules to add new fees for
do the Service Provider systems provide constrained by market forces for a
connectivity to these Service Providers
access to the Exchange’s execution ‘‘comparable product’’.64
and third party certification and testing
system.56 As discussed above, the Exchange
feeds and to specify that connectivity is
As noted above, the Commission submitted a response to the commenter
dependent on a User meeting the
received one comment letter on a on the related filing.65 The Exchange in
necessary technical requirements,
related filing which is equally its Response Letter stated that historical
paying the applicable fees, and the
applicable to this filing.57 This information about the development of
Exchange receiving authorization to
commenter (1) requested clarification these product offerings is ‘‘not required
establish a connection for a User.49
about the history of the fees and ‘‘the by the Act and is not relevant to [] the
Similarly, the proposed rule change
increasing costs of maintaining the data substance of the Proposal–which is, by
seeks to amend the Fee Schedules to
center and providing co-location definition, forward looking . . . .’’ 66
add a new fee for connectivity for VCCs
compared to any related fee revenue’’ Additionally, the Response Letter noted
which will similarly require permission
and (2) expressed a concern about that costs are not the only consideration
from the other User before the Exchange
whether ‘‘there are any true alternatives in setting its prices, but rather the prices
will establish the connection.50
that are practically available to various ‘‘include the competitive landscape;
40 See id.
types of participants who are seeking to whether Users would be required to
41 See id. compete with those who are paying utilize a given service; the alternatives
42 See id. exchanges for co-location and data available to Users; and, significantly, the
43 See id. at 58996. services.’’ 58 Specifically, the benefits Users obtain from the
44 See id. at 58997. commenter noted that the NYSE states services.’’ 67 With respect to the
45 ‘‘Such connectivity to DTCC is distinct from
that the connectivity fees are used to commenter’s concern about members
the access to shared data services for clearing and defray the costs associated with needing additional information to assess
settlement services that a User receives when it
purchases access to the LCN or IP network. The the fixed costs of exchange membership,
shared data services allow Users and other entities
51 See id. at 58995, 58997. the Exchange responded that these are
52 See id. at 58997.
with access to the Trading Systems to post files for not fixed costs of ‘‘Exchange members’’
settlement and clearing services to access.’’ See id. 53 See id. at 58995, 58997.
but instead costs to any User who
at 58998 n. 33. 54 See id. For Third Party Systems, once the
46 Certification feeds certify that a User conforms Exchange receives the authorization from the
voluntarily chooses to purchase such
to any of the relevant content service providers’ respective third party it establishes a unicast services based upon ‘‘[t]he form and
requirements for accessing Third Party Systems or connection between the User and the relevant third latency of access and connectivity that
receiving Third Party Data, whereas testing feeds party over the IP network. See id. at 58995. For the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
provide Users an environment in which to conduct DTCC, ‘‘[t]he Exchange receives the DTCC feed over 59 See id.
system tests with non-live data. See id. at 58997. its fiber optic network and, after DTCC and the User 60 See
47 A VCC (previously called a ‘‘peer to peer’’ enter into the services contract and the Exchange id. at 2.
61 See id.
connection) is a two-way connection through which receives authorization from DTCC, the Exchange
62 See id.
two participants can establish a connection between provides connectivity to DTCC to the User over the
two points over dedicated bandwidth using the IP User’s IP network port.’’ See id. at 58997. 63 See id.
network to be used for any purpose. See id. 55 See id. at 58997. 64 See id.
48 See id. at 58995, 58997. 56 See id. at 58995, 58997. 65 See Response Letter, supra note 4.
49 See id. 57 See IEX Letter, supra note 4. 66 See id. at 2.
50 See id. at 58997. 58 See id. at 1–2. 67 See id.
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![Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices 86053
bests suits a User’s needs . . . .’’ 68 discussed in the filing, including the constrained by the active competition
Users do not require the Exchange’s Premium NYSE Data Products. for the order flow and other business
access or connectivity to trade on the from such market participants.79 The
III. Proceedings To Determine Whether
Exchange and can instead use Exchange stated that charging excessive
To Disapprove SR–NYSEMKT–2016–63
alternative access and connectivity fees would make it stand to lose not
and Grounds for Disapproval Under
options for trading if they choose.69 only co-location revenues but also the
In response to the commenter’s Consideration
liquidity of the formerly co-located
argument regarding different methods of The Commission is instituting trading firms.80 Additionally, the
access to trading, the Exchange stated proceedings pursuant to Section Exchange believes that because there are
that ‘‘it is a vendor of fair and non- 19(b)(2)(B) of the Act 75 to determine alternatives for a User both in and
discriminatory access, and like any whether the proposed rule change, as outside of the data center if it believes
vendor with multiple product offerings, modified by Amendment No. 1, should the fees are too excessive, the fees are
different purchasers may make different be approved or disapproved. Institution consistent with the Act.81 Specifically,
choices regarding which products they of such proceedings is appropriate at the Exchange noted that a User could
wish to purchase.’’ 70 The Exchange this time in view of the legal and policy terminate its co-location arrangement
further stated in response to the issues raised by the proposed rule with the exchange ‘‘and adopt a possible
commenter’s concern of a lack of true change, as modified by Amendment No. range of alternative strategies, including
alternatives for a ‘‘comparable product’’, 1. Institution of proceedings does not placing their servers in a physically
that the filing lists several alternative indicate that the Commission has proximate location outside the
options for Users and a User can reached any conclusions with respect to exchange’s data center (which could be
evaluate the ‘‘relative benefits of those any of the issues involved. Rather, as a competing exchange), or pursuing
alternatives and choose whichever it described below, the Commission seeks strategies less dependent upon the
deems most beneficial to it . . . .’’ 71 and encourages interested persons to lower exchange-to-participant latency
Amendment No. 1 provide comments on the proposed rule associated with co-location.’’ 82
change, as modified by Amendment No. Additionally, ‘‘[a]s alternatives to using
In Amendment No. 1, the Exchange 1. the Access and Connectivity provided
offers additional justification for the Pursuant to Section 19(b)(2)(B) of the by the Exchange, a User may access or
proposed rule change.72 In Amendment Act, the Commission is providing notice connect to such services and products
No. 1, the Exchange addressed (1) the of the following grounds for disapproval through another User or through a
benefits offered by the Premium NYSE that are under consideration: connection to an Exchange access center
Data Products that are not present in the • Section 6(b)(4) of the Act, which outside the data center, third party
Included Data Products (2) how requires that the rules of a national access center, or third party vendor. The
Premium NYSE Data Products are securities exchange ‘‘provide for the User may make such connection
related to the purpose of co-location, (3) equitable allocation of reasonable dues, through a third party
the similarity of charging for fees, and other charges among its telecommunication provider, third party
connectivity to Third Party Systems and members and issuers and other persons wireless network, the SFTI network, or
DTCC and charging for connectivity to using its facilities,’’ 76 a combination thereof.’’ 83 However, the
Premium NYSE Data Products and (4) • Section 6(b)(5) of the Act, which Exchange also stated that the
the costs incurred by the Exchange in requires, among other things, that the
providing connectivity to Premium expectation of co-location was that
rules of a national securities exchange normally Users would expect reduced
NYSE Data Products to Users in the data be ‘‘designed to perfect the operation of
center.73 In the Amendment, the latencies in sending orders to the
a free and open market and a national Exchange and in receiving market data
Exchange provided further detail on the market system’’ and ‘‘protect investors from the Exchange by being co-
benefits provided to Users through the and the public interest,’’ and not be located.84 Therefore, as the Exchange
Premium NYSE Data Products including ‘‘designed to permit unfair
‘‘depth of book order data (with add, states in Amendment No. 1, both
discrimination between customers, Included Data Products and Premium
modify and delete orders), trades (with issuers, brokers, or dealers,’’ 77 and NYSE Data Products are ‘‘directly
corrections and cancel/errors), opening • Section 6(b)(8) of the Act, which related to the purpose of co-location.’’ 85
and closing imbalance data, security requires that the rules of a national
status updates (e.g., trade corrections The commenter suggests that Users do
securities exchange ‘‘not impose any not in fact have alternatives to paying
and trading halts) and stock summary burden on competition not necessary or
messages.’’ 74 The Exchange also the connectivity fee to obtain Premium
appropriate in furtherance of the NYSE Data Products.86 If these products
clarified which costs are associated with purposes of [the Act].’’ 78
providing Users with access and are integral to co-located Users for
As discussed above, the Exchange’s trading on the Exchange, the
connectivity to the various services proposal would, among other things, Commission questions whether
establish fees relating to a User’s access obtaining the information contained in
68 See id. at 4. to trading and execution services, these products from another source is,
69 See id. connectivity to data feeds and to testing in fact, a viable alternative given the
70 See id. at 5. The Exchange makes a further
argument about the Exchange being a regulated co-
and certification feeds, connectivity to importance of receiving such
location space whereas other unregulated co- clearing, and other services. The information in a timely manner. The
asabaliauskas on DSK3SPTVN1PROD with NOTICES
location options are available. See id. Exchange believes that the proposed
71 See id. at 6. The Exchange noted that it is not
fees are consistent with Sections 6(b)(4), 79 See Notice, supra note 3, 81 FR at 58999.
addressing the commenter’s statements about (5), and (8) of the Act because the fees 80 See
broker-dealers needing to purchase market data id.
from the Exchange as that is outside the scope of charged for co-location services are 81 See id.
82 See id.
this proposal. See id. at 5 n.13.
72 See Amendment No. 1, supra note 6. 75 15 U.S.C. 78s(b)(2)(B). 83 See id.
73 See id. 76 15 U.S.C. 78f(b)(4). 84 See id.
74 See id.; see also supra note 27 and 77 15 U.S.C. 78f(b)(5). 85 See Amendment No. 1, supra note 6.
accompanying text. 78 15 U.S.C. 78f(b)(8). 86 See IEX Letter, supra note 4.
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![86054 Federal Register / Vol. 81, No. 229 / Tuesday, November 29, 2016 / Notices
Commission is concerned that the maintenance of the connectivity, Interested persons are invited to
Exchange has not supported its including by ensuring that the network submit written data, views, and
argument that there are viable infrastructure has the necessary arguments regarding whether the
alternatives for Users inside the data bandwidth for the Premium NYSE Data proposal, as modified by Amendment
center in lieu of obtaining such Products and responding to any No. 1, should be approved or
information from the Exchange. The production issues.’’ 87 The Commission disapproved by December 20, 2016. Any
Commission seeks comment on whether does not believe the Exchange has person who wishes to file a rebuttal to
Users do have viable alternatives to clearly explained why the same any other person’s submission must file
paying the Exchange a connectivity fee rationale would not apply to the that rebuttal by January 3, 2017. In light
for the Premium NYSE Data Products. Included Data Products. The Exchange of the concerns raised by the proposed
Additionally, the Exchange states that has sought to justify this on the basis rule change, as discussed above, the
both Included Data Products and that the Premium NYSE Data Products Commission invites additional comment
Premium NYSE Data Products are are similar to any other service offered on the proposed rule change, as
‘‘directly related to the purpose of co- by the Exchange such as connectivity to modified by Amendment No. 1, as the
location.’’ The Commission is Third Party Systems and DTCC.88 The Commission continues its analysis of
concerned that the Exchange has not Commission however is concerned that the proposed rule change’s consistency
made clear why including the cost of these Premium NYSE Data Products are with Sections 6(b)(4), (5) and (8),92 or
connectivity to the Included Data similar to the Included Data Products any other provision of the Act, or the
Products in the purchase of a LCN or IP and therefore should not include rules and regulations thereunder. The
network connection and charging an different fee structures as they are the Commission asks that commenters
additional fee to obtain the Premium same offering by the Exchange within address the sufficiency and merit of the
NYSE Data Products is an equitable the contemplated purpose of co- Exchange’s statements in support of the
allocation of reasonable dues, fees, and location. The Commission seeks proposed rule change, as modified by
other charges among Users in the data comment on whether charging fees for Amendment No. 1, in addition to any
center; does not unfairly discriminate connectivity to Included Data Products other comments they may wish to
between customers, issuers, brokers, or and Premium NYSE Data Products in a submit about the proposed rule change.
different manner is consistent with Comments may be submitted by any
dealers; and does not impose a burden
Section 6(b)(4) of the Act. of the following methods:
on competition which is not necessary
or appropriate in furtherance of the Procedure: Request for Written Electronic Comments
purposes of the Act. The Commission is Comments • Use the Commission’s Internet
concerned that the Exchange has not comment form (http://www.sec.gov/
The Commission requests that
identified a distinction between the rules/sro.shtml); or
interested persons provide written
provision of connectivity to Included
submissions of their views, data and • Send an email to rule-comments@
Data Products and the provision of sec.gov. Please include File No. SR–
arguments with respect to the concerns
connectivity to Premium NYSE Data NYSEMKT–2016–63 on the subject line.
identified above, as well as any other
Products, as opposed to a distinction
concerns they may have with the Paper Comments
between the utility of the Included Data
proposed rule change, as modified by
Products and Premium NYSE Data • Send paper comments in triplicate
Amendment No. 1. In particular, the
Products to Users, which the Exchange to Brent J. Fields, Secretary, Securities
Commission invites the written views of
has demonstrated, even though these are and Exchange Commission, 100 F Street
interested persons concerning whether
all NYSE proprietary data products. NE., Washington, DC 20549–1090.
the proposal, as modified by
Therefore, the Commission is concerned All submissions should refer to File No.
Amendment No. 1, is consistent with
that the Exchange has not identified a SR–NYSEMKT–2016–63. This file
Sections 6(b)(4), (5), or (8) 89 or any
reasonable basis for charging Users a number should be included on the
other provision of the Act, or the rules
separate connectivity fee for the subject line if email is used. To help the
and regulations thereunder. Although
Premium NYSE Data Products while Commission process and review your
there does not appear to be any issue
including connectivity in the purchase comments more efficiently, please use
relevant to approval or disapproval
price for a LCN/IP network connection. only one method. The Commission will
which would be facilitated by an oral
The Exchange stated in its filing that post all comments on the Commission’s
presentation of views, data, and
both are ‘‘directly related to the purpose Internet Web site (http://www.sec.gov/
arguments, the Commission will
of co-location’’ but it has not clearly rules/sro.shtml). Copies of the
consider, pursuant to Rule 19b–4 under
justified why this permits including the submission, all subsequent
the Act,90 any request for an
connectivity fee for Included Data amendments, all written statements
opportunity to make an oral
Products as part of the LCN or IP with respect to the proposed rule
presentation.91
Network connection, even for those change that are filed with the
Users that do not use the Included Data 87 See Amendment No. 1, supra note 6. Commission, and all written
Products, but not including the 88 See id. communications relating to the
connectivity fee for the Premium NYSE 89 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8). proposed rule change between the
Data Products as well. Similarly, the 90 17 CFR 240.19b–4. Commission and any person, other than
Exchange justifies the costs associated those that may be withheld from the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
91 Section 19(b)(2) of the Act, as amended by the
with providing these feeds by stating Securities Act Amendments of 1975, Public Law public in accordance with the
94–29 (June 4, 1975), grants to the Commission
‘‘[i]n order to offer connectivity to the flexibility to determine what type of proceeding— provisions of 5 U.S.C. 552, will be
Premium NYSE Data Products, the either oral or notice and opportunity for written available for Web site viewing and
Exchange must provide, maintain and comments—is appropriate for consideration of a printing in the Commission’s Public
operate the data center facility hardware particular proposal by a self-regulatory Reference Room, 100 F Street NE.,
organization. See Securities Act Amendments of
and technology infrastructure. The 1975, Senate Comm. on Banking, Housing & Urban Washington, DC 20549 on official
Exchange must handle the installation, Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
administration, monitoring, support and (1975). 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 86055
business days between the hours of group of investment companies as the www.sec.gov/search/search.htm or by
10:00 a.m. and 3:00 p.m. Copies of such Funds (‘‘Funds of Funds’’) to acquire calling (202) 551–8090.
filing also will be available for shares of the Funds.
Summary of the Application
inspection and copying at the principal
office of the Exchange. All comments APPLICANTS: OWLshares Trust (‘‘Trust’’), 1. Applicants request an order that
received will be posted without change; a Delaware statutory trust registered would allow Funds to operate as index
the Commission does not edit personal under the Act as an open-end exchange traded funds (‘‘ETFs’’).1 Fund
identifying information from management investment company with shares will be purchased and redeemed
submissions. You should submit only multiple series, New Millennium at their NAV in Creation Units only. All
information that you wish to make Macro, LLC d/b/a OWLshares Advisors orders to purchase Creation Units and
available publicly. All submissions (the ‘‘Initial Adviser’’), a Nevada limited all redemption requests will be placed
should refer to File No. SR–NYSEMKT– liability company registered as an by or through an ‘‘Authorized
2016–63, and should be submitted by investment adviser under the Participant’’, which will have signed a
December 20, 2016. Rebuttal comments Investment Advisers Act of 1940, and participant agreement with the
should be submitted by January 3, 2017. ALPS Distributors, Inc. (‘‘Distributor’’), Distributor. Shares will be listed and
a Colorado corporation and broker- traded individually on a national
For the Commission, by the Division of securities exchange, where share prices
Trading and Markets, pursuant to delegated dealer registered under the Securities
authority.93 Exchange Act of 1934 (‘‘Exchange Act’’). will be based on the current bid/offer
market. Any order granting the
Robert W. Errett, FILING DATES: The application was filed
requested relief would be subject to the
Deputy Secretary. on June 11, 2015 and amended on terms and conditions stated in the
[FR Doc. 2016–28637 Filed 11–28–16; 8:45 am] October 23, 2015, June 29, 2016 and application.
BILLING CODE 8011–01–P October 13, 2016. 2. Each Fund will hold investment
HEARING OR NOTIFICATION OF HEARING: An positions selected to correspond
order granting the requested relief will generally to the performance of an
SECURITIES AND EXCHANGE be issued unless the Commission orders Underlying Index. In the case of Self-
COMMISSION a hearing. Interested persons may Indexing Funds, an affiliated person, as
[Investment Company Act Release No. request a hearing by writing to the defined in section 2(a)(3) of the Act
32363; 812–14485] Commission’s Secretary and serving (‘‘Affiliated Person’’), or an affiliated
applicants with a copy of the request, person of an Affiliated Person (‘‘Second-
OWLshares Trust, et al.; Notice of personally or by mail. Hearing requests Tier Affiliate’’), of the Trust or a Fund,
Application should be received by the Commission of the Adviser, of any sub-adviser to or
by 5:30 p.m. on December 19, 2016, and promoter of a Fund, or of the Distributor
November 22, 2016. will compile, create, sponsor or
should be accompanied by proof of
AGENCY: Securities and Exchange service on applicants, in the form of an maintain the Underlying Index.2
Commission (‘‘Commission’’). affidavit, or for lawyers, a certificate of 3. Shares will be purchased and
ACTION: Notice of an application for an service. Pursuant to rule 0–5 under the redeemed in Creation Units and
order under section 6(c) of the Act, hearing requests should state the generally on an in-kind basis. Except
Investment Company Act of 1940 (the nature of the writer’s interest, any facts where the purchase or redemption will
‘‘Act’’) for an exemption from sections bearing upon the desirability of a include cash under the limited
2(a)(32), 5(a)(1), 22(d), and 22(e) of the hearing on the matter, the reason for the circumstances specified in the
Act and rule 22c–1 under the Act, under request, and the issues contested. application, purchasers will be required
sections 6(c) and 17(b) of the Act for an Persons who wish to be notified of a to purchase Creation Units by
exemption from sections 17(a)(1) and hearing may request notification by depositing specified instruments
17(a)(2) of the Act, and under section writing to the Commission’s Secretary. (‘‘Deposit Instruments’’), and
12(d)(1)(J) for an exemption from shareholders redeeming their shares
ADDRESSES: Secretary, Securities and
sections 12(d)(1)(A) and 12(d)(1)(B) of will receive specified instruments
Exchange Commission, 100 F Street NE.,
the Act. The requested order would (‘‘Redemption Instruments’’). The
Washington, DC 20549–1090;
permit (a) index-based series of certain Deposit Instruments and the
Applicants: OWLshares Trust, 312
open-end management investment Redemption Instruments will each
Arizona Avenue, Santa Monica, CA
companies (‘‘Funds’’) to issue shares
90401; New Millennium Macro, LLC,
redeemable in large aggregations only 1 Applicants request that the order apply to the
312 Arizona Avenue, Santa Monica, CA initial series of the Trust and any additional series
(‘‘Creation Units’’); (b) secondary market
90401; and ALPS Distributors, Inc., of the Trust, and any other open-end management
transactions in Fund shares to occur at
1290 Broadway, Suite 1100, Denver, CO investment company or series thereof, that may be
negotiated market prices rather than at created in the future (each, included in the term
80203.
net asset value (‘‘NAV’’); (c) certain ‘‘Fund’’), each of which will operate as an ETF and
Funds to pay redemption proceeds, FOR FURTHER INFORMATION CONTACT: Kay- will track a specified index comprised of domestic
under certain circumstances, more than Mario Vobis, Senior Counsel, at (202) or foreign equity and/or fixed income securities
551–6728, or Mary Kay Frech, Branch (each, an ‘‘Underlying Index’’). Any Fund will (a)
seven days after the tender of shares for be advised by the Initial Adviser or an entity
redemption; (d) certain affiliated Chief, at (202) 551–6821 (Division of controlling, controlled by, or under common
persons of a Fund to deposit securities Investment Management, Chief control with the Initial Adviser (each, an
asabaliauskas on DSK3SPTVN1PROD with NOTICES
into, and receive securities from, the Counsel’s Office). ‘‘Adviser’’) and (b) comply with the terms and
conditions of the application.
Fund in connection with the purchase SUPPLEMENTARY INFORMATION: The 2 Each Self-Indexing Fund will post on its Web
and redemption of Creation Units; and following is a summary of the site the identities and quantities of the investment
(e) certain registered management application. The complete application positions that will form the basis for the Fund’s
investment companies and unit may be obtained via the Commission’s calculation of its NAV at the end of the day.
Applicants believe that requiring Self-Indexing
investment trusts outside of the same Web site by searching for the file Funds to maintain full portfolio transparency will
number, or for an applicant using the help address, together with other protections,
93 17 CFR 200.30–3(a)(57). Company name box, at http:// conflicts of interest with respect to such Funds.
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Document Created: 2016-11-29 00:32:56
Document Modified: 2016-11-29 00:32:56
| 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 86050 |
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