82 FR 15741 - Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Partial Amendment No. 4 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 Through 4, To Amend the Co-Location Services Offered by the Exchange To Add Certain Access and Connectivity Fees
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 60 (March 30, 2017)
Federal Register Volume 82, Issue 60 (March 30, 2017)
| Page Range | 15741-15749 | |
| FR Document | 2017-06258 |
[Federal Register Volume 82, Number 60 (Thursday, March 30, 2017)] [Notices] [Pages 15741-15749] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-06258] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80311; File No. SR-NYSE-2016-45] Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Partial Amendment No. 4 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 Through 4, To Amend the Co-Location Services Offered by the Exchange To Add Certain Access and Connectivity Fees March 24, 2017. I. Introduction On July 29, 2016, the New York Stock Exchange LLC (``NYSE'' 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 to amend the co-location services offered by the Exchange to add certain access and connectivity fees, applicable to Users \3\ in the Exchange's data center in [[Page 15742]] Mahwah, NJ (``Data Center''). The Exchange proposed to: (1) Provide additional information regarding access to the trading and execution systems of the Exchange and its affiliated SROs, and establish fees for connectivity to certain NYSE, NYSE Arca, and NYSE MKT market data feeds; and (2) provide and establish fees for connectivity to data feeds from third party markets and other content service providers (``Third Party Data Feeds''); access to the trading and execution services of Third Party markets and other content service providers (``Third Party Systems''); connectivity to Depository Trust & Clearing Corporation (``DTCC'') services; connectivity to third party testing and certification feeds; and the use of virtual control circuits (``VCCs''). --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ 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 Price List, 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''). See Securities Exchange Act Release No. 70206 (August 15, 2013), 78 FR 51765 (August 21, 2013) (SR-NYSE-2013-59). --------------------------------------------------------------------------- The Commission published the proposed rule change for comment in the Federal Register on August 17, 2016.\4\ On August 16, 2016, the Exchange filed Amendment No. 1 to the proposed rule change, which was published for comment in the Federal Register on September 26, 2016.\5\ The Commission received one comment letter in response to the proposed rule change, as modified by Amendment No. 1, to which the Exchange responded on September 23, 2016.\6\ 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 15, 2016.\7\ --------------------------------------------------------------------------- \4\ See Securities Exchange Act Release No. 34-78556 (August 11, 2016), 81 FR 54877. \5\ See Securities Exchange Act Release No. 34-78887 (September 20, 2016), 81 FR 66095. (``First Amended Notice''). Amendment No. 1 superseded and replaced the proposed rule change in its entirety, but notably: (i) Amended the third party data feed MSCI from 20 Gigabits (``Gb'') to 25 Gb and amended the price from $2000 to $1200; (ii) clarified the costs associated with providing a greater amount of bandwidth for Premium NYSE Data Products for a particular market as compared to the bandwidth requirements for the Included Data Products for that same market; (iii) provided further details on Premium NYSE Data Products, including their composition, product release dates, and further detail on the reasonableness of their applicable fees; (iv) added an explanation for the varying fee differences for the same Gb usage for third party data feeds, DTCC, and VCCs. \6\ See letter to Brent J. Fields, Secretary, Commission, from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC (``IEX I Letter''), dated September 9, 2016. Responding to the IEX I Letter, see letter to Brent J. Fields, Commission, from Martha Redding, Associate General Counsel and Assistant Secretary, NYSE, dated September 23, 2016 (``Response Letter I''), available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-3.pdf. \7\ See Securities Exchange Act Release No. 34-78966 (September 28, 2016), 81 FR 68475. --------------------------------------------------------------------------- On November 2, 2016, the Exchange filed partial Amendment No. 2 to the proposed rule change.\8\ On November 21, 2016, the Commission instituted proceedings (``Order Instituting Proceedings'' or ``OIP'') to determine whether to approve or disapprove the proposed rule change, as modified by Amendment Nos. 1 and 2.\9\ The proposed rule change, as modified by Amendment Nos. 1 and 2, is referred to as the ``Prior Proposal.'' --------------------------------------------------------------------------- \8\ In partial Amendment No. 2 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. Amendment No. 2 is available on the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-4.pdf. \9\ See Securities Exchange Act Release 34-79316 (November 15, 2016), 81 FR 83303. --------------------------------------------------------------------------- On December 9, 2016, the Exchange filed Amendment No. 3 to the proposed rule change.\10\ Amendment No. 3, which superseded and replaced the Prior Proposal in its entirety, was published for comment in the Federal Register on December 29, 2016.\11\ --------------------------------------------------------------------------- \10\ Amendment No. 3, as filed by the Exchange, is available on the Commission's Web site at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-5.pdf. \11\ See Securities Exchange Act Release No. 34-79674 (December 22, 2016), 81 FR 96053 (``Notice of Amendment No. 3''). --------------------------------------------------------------------------- The Commission received seven additional comment letters following publication of the Order Instituting Proceedings.\12\ Some of these comment letters addressed only the Prior Proposal, and some addressed the Prior Proposal, as modified by Amendment No. 3. The Exchange responded to the comment letters submitted after the OIP in letters dated January 17, 2017 and February 13, 2017.\13\ --------------------------------------------------------------------------- \12\ See letter to Brent J. Fields, Commission, from Adam C. Cooper, Senior Managing Director and Chief Legal Officer, Citadel Securities, dated December 12, 2016 (``Citadel Letter''); letter to Brent J. Fields, Commission, from Melissa MacGregor, Managing Director and Associate General Counsel, SIFMA, dated December 12, 2016 (``SIFMA I Letter''); letter to Brent J. Fields, Commission, from Joe Wald, Chief Executive Officer, Clearpool Group, dated December 16, 2016 (``Clearpool Letter''); letter to Brent J. Fields, Secretary, Commission, from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated December 21, 2016 (``IEX II Letter''); letter to Brent J. Fields, Commission, from David L. Cavicke, Chief Legal Officer, Wolverine LLC (``Wolverine Letter''); letter to Bent J. Fields, Secretary, Commission, from Stefano Durdic, Managing Director, R2G Services, LLC, dated January 21, 2017 (``R2G Letter''); letter to Brent J. Fields, Commission, from Melissa MacGregor, Managing Director and Associate General Counsel, SIFMA, dated February 6, 2017 (``SIFMA II Letter''). All comments received by the Commission on the proposed rule change are available on the Commission's Web site at: https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645.shtml. \13\ See letter to Brent J. Fields, Commission, from Martha Redding, Associate General Counsel and Assistant Secretary, NYSE, dated January 17, 2017; letter to Brent J. Fields, Commission, from Martha Redding, Associate General Counsel and Assistant Secretary, NYSE, dated February 13, 2017 (``Response Letter II'' and ``Response Letter III,'' respectively), available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645.shtml. --------------------------------------------------------------------------- On February 7, 2017, the Exchange filed partial Amendment No. 4 to the proposed rule change.\14\ On February 15, 2017, pursuant to Section 19(b)(2) of the Act,\15\ the Commission designated a longer period for Commission action on proceedings to determine whether to disapprove the proposed rule change, as modified by Amendment Nos. 1 through 4.\16\ The Commission is publishing this notice to solicit comment on partial Amendment No. 4 and, and is approving the proposed rule change, as modified by Amendment Nos. 1 through 4, on an accelerated basis. --------------------------------------------------------------------------- \14\ In partial Amendment No. 4 the Exchange proposes to (1) remove reference to the National Stock Exchange from its list of Third Party Systems, and (2) provide and establish fees for connectivity to three additional Third Party Data Feeds--ICE Data Services Consolidated Feed, ICE Data Services PRD, and ICE Data Services PRD CEP, which are feeds owned by the Exchange's ultimate parent, but not by the Exchange or its affiliated self-regulatory organizations, NYSE MKT or NYSE Arca. Partial Amendment No. 4 is available at https://www.sec.gov/comments/sr-nyse-2016-45/nyse201645-5.pdf. \15\ 15 U.S.C. 78s(b)(2). \16\ See Securities Exchange Act Release No. 34-80002 (February 9, 2017), 82 FR 10827. The Commission designated April 14, 2017 as the date by which it should determine whether to disapprove the proposed rule change. --------------------------------------------------------------------------- II. Description of the Proposed Rule Change, as Modified by Amendment Nos. 1 Through 4 A. Background: Prior Proposal and the Order Instituting Proceedings In the proposed rule change, as modified by Amendment Nos. 1 through 4 (also referred to as the ``Current Proposal''), the Exchange proposes to amend the co-location services offered by the Exchange to add certain access and connectivity services and establish fees applicable to Users in the Data Center. Specifically, the Exchange proposes to provide and establish fees for connectivity to: (i) Third Party Data Feeds, (ii) Third Party Systems, (iii) DTCC services, (iv) third party testing and certification feeds; and for the use of VCCs.\17\ --------------------------------------------------------------------------- \17\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96054, and partial Amendment No. 4 supra note 14. A VCC is a unicast connection between two Users over dedicated bandwidth using the IP network. See Notice of Amendment No. 3, supra note 11, 81 FR at 96057. --------------------------------------------------------------------------- [[Page 15743]] In the Prior Proposal (i.e., prior to filing Amendment No. 3), the Exchange also had proposed to provide additional information about access to NYSE, NYSE Arca, and NYSE MKT trading and execution services, and to establish fees for connectivity to certain proprietary market data feeds.\18\ Specifically, the Exchange had proposed that connectivity to most of the Exchange's and its affiliated SROs' proprietary market data products would be included in the purchase price of an LCN/IP network connection in the Data Center, but that an additional connectivity fee (``Premium NYSE Product Connectivity Fee'') would apply to the NYSE Integrated Feed, NYSE Arca Integrated Feed, NYSE MKT Integrated Feed, and the NYSE Best Quote and Trades (BQT) feed (``Premium NYSE Data Products'').\19\ As a result, the purchase of access to NYSE, NYSE Arca, and NYSE MKT trading and execution services, would not include connectivity to every purchased proprietary data product; and whereas the Exchange would charge no additional fees for connectivity to most of the Exchange's and its affiliated SROs' data products, it would charge additional fees for connectivity to Premium NYSE Data Products. --------------------------------------------------------------------------- \18\ For a detailed description of the Prior Proposal, see the First Amended Notice, supra note 5, and the OIP, discussing Amendment No. 2, supra note 9. \19\ See the First Amended Notice, supra note 5, and the OIP, discussing Amendment No. 2, supra note 9. --------------------------------------------------------------------------- The Commission specifically requested comment on this aspect of the Prior Proposal in the OIP. In particular, in the OIP, the Commission expressed concern that the Exchange had not identified a distinction between the provision of connectivity to Premium NYSE Data Products and the Exchange's and its affiliated SROs' other data products, and noted that the Premium NYSE Data Products are similar to such other data products.\20\ In addition, the Commission requested comment on whether charging fees for connectivity to Premium NYSE Data Products in a different manner from other Exchange and affiliated SRO proprietary market data products was consistent with Section 6(b)(4) of the Act.\21\ The Commission also sought comment on whether Users would have viable alternatives to paying the Exchange a connectivity fee for the Premium NYSE Data Products.\22\ As discussed below, several commenters stated that it was inequitable for the Exchange to charge a separate and additional connectivity fee for some Exchange and affiliated SRO proprietary market data products and not others, and that receiving the Premium NYSE Data Products from an alternative source was not a viable option.\23\ --------------------------------------------------------------------------- \20\ See OIP, supra note 9, 81 FR at 83308. \21\ See id. \22\ See id. at 83307. \23\ See infra notes 70-72 and accompanying text. --------------------------------------------------------------------------- In Amendment No. 3, the Exchange eliminated the Premium NYSE Product Connectivity Fee from the Current Proposal, and that fee is therefore no longer presented to the Commission for consideration. B. Description of the Current Proposal As stated above and more fully described in the Notice of Amendment No. 3, as partially modified by Amendment No. 4, the Exchange proposes to provide and establish fees for connectivity to: (i) Third Party Data Feeds, (ii) Third Party Systems, (iii) DTCC services, (iv) third party testing and certification feeds; and for the use of VCCs.\24\ --------------------------------------------------------------------------- \24\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96054 and partial Amendment No. 4 supra note 14. --------------------------------------------------------------------------- Regarding Third Party Data Feeds, the Exchange proposes to offer Users the option to connect to Third Party Data Feeds in the Data Center for a monthly connectivity fee per feed.\25\ The Exchange states that it receives Third Party Data Feeds in the Data Center from multiple national securities exchanges and other content service providers which it then provides to requesting Users for a fee.\26\ The Exchange states that its proposal to charge Users a monthly fee for connectivity to Third Party Data Feeds is consistent with the monthly connectivity fee Nasdaq charges its co-location customers for connectivity to third party data.\27\ According to the Exchange, the proposed fees ``allow the Exchange to defray or cover the costs associated with offering Users connectivity to Third Party Data Feeds while providing Users the convenience of receiving such Third Party Data Feeds within co-location.'' \28\ Additionally, the Exchange noted that some of the proposed fees vary depending on the bandwidth considerations and, in cases where the bandwidth requirements are the same as other proposed services such as Third Party Systems or VCCs, the prices reflect ``the competitive considerations and the costs the Exchange incurs in providing such connections.'' \29\ --------------------------------------------------------------------------- \25\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96055. \26\ See id. \27\ See id. The Exchange notes that Nasdaq charges monthly fees of $1,500 and $4,000 for connectivity to BATS Y and BATS data feeds, respectively, and of $2,500 for connectivity to EDGA or EDGX. See id. \28\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96059; partial Amendment No. 4, supra note 14. \29\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96059; partial Amendment No. 4, supra note 14. --------------------------------------------------------------------------- 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.\30\ 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's port.\31\ Users only receive, and are only charged for, the feed(s) for which they have entered into contracts.\32\ 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.\33\ The Exchange proposes to charge a set monthly recurring connectivity fee per Third Party Data Feed, as set forth in the proposed Price List.\34\ A User is free to receive all or some of the feeds included in the Price List.\35\ 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, which the Exchange will pass through to the User in addition to charging the applicable connectivity fee.\36\ --------------------------------------------------------------------------- \30\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96055. \31\ See id. \32\ See id. \33\ See id. at 96056. The Exchange notes that 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. \34\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96056, as modified by partial Amendment No. 4, supra note 14 (adding additional Third Party Data Feeds). \35\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96056. \36\ See id. --------------------------------------------------------------------------- The Exchange represents that ``as alternatives to using the [proposed connectivity to Third Party Data Feeds] provided by the Exchange, a User may access or connect to such . . . 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 [[Page 15744]] through a third party telecommunication provider, third party wireless network, the SFTI network, or a combination thereof.'' \37\ --------------------------------------------------------------------------- \37\ See id. at 96058. --------------------------------------------------------------------------- As more fully described in the Notice of Amendment No. 3, as modified by partial Amendment No. 4, the Exchange also proposes to provide and establish fees for connectivity (also referred to as ``Access'') to Third Party Systems,\38\ to DTCC services,\39\ and to third party certification and testing feeds, and charge a monthly recurring fee.\40\ The Exchange proposes to amend the Price List to provide and establish fees for connectivity to these service providers and certification/testing feeds.\41\ The Exchange states that connectivity is dependent on a User meeting the necessary technical requirements, paying the applicable fees, and the Exchange receiving authorization from the relevant third party service provider to make the connection.\42\ --------------------------------------------------------------------------- \38\ The Exchange states that it selects what connectivity to Third Party Systems to offer in the Data Center based on User demand. See id. at 96055. In partial Amendment No. 4, the Exchange removed the National Stock Exchange from the list of Third Party Systems, noting that it is now owned by the Exchange's parent. See partial Amendment No. 4, supra note 14. Establishing a User's access to a Third Party System does not give the Exchange any right to use the Third Party Systems; connectivity to a Third Party System does not provide access or order entry to the Exchange's execution system, and a User's connection to a Third Party System is not through the Exchange's execution system. See Notice of Amendment No. 3, supra note 11, 81 FR at 96055. \39\ The Exchange states that 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 Notice of Amendment No. 3, supra note 11, 81 FR at 96056 n. 25. \40\ 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 Notice of Amendment No. 3, supra note 11, 81 FR at 96056. \41\ See Notice of Amendment No. 3, supra note 11, 81 FR at 96055-96057. \42\ See id. --------------------------------------------------------------------------- For each service, a User must execute a contract with the respective third party service provider pursuant to which a User pays each the associated fee(s) for their services.\43\ Once the Exchange receives authorization from the third party service provider, 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.\44\ The proposed recurring monthly fees for connectivity to Third Party Systems and DTCC are based upon the bandwidth requirements per system.\45\ --------------------------------------------------------------------------- \43\ See id. \44\ 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 96055. 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 96056-96057. \45\ See id. at 96055-96057. --------------------------------------------------------------------------- The Exchange represents that as alternatives to using the proposed connectivity to Third Party Systems, to DTCC services, and to third party certification and testing feeds offered 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.'' \46\ --------------------------------------------------------------------------- \46\ See id. at 96058. --------------------------------------------------------------------------- Finally, as more fully described in the Notice of Amendment No. 3, as partially modified by partial Amendment No. 4, the Exchange also proposes to provide and establish fees for VCCs.\47\ A VCC (previously called a ``peer to peer'' connection) is a unicast 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.\48\ The proposed recurring monthly fees for VCCs are based upon the bandwidth requirements per VCC connection between two Users.\49\ Connectivity to VCCs will similarly require permission from the other User before the Exchange will establish the connection.\50\ As an alternative to using a VCC, Users can connect to other Users through a cross-connect.\51\ --------------------------------------------------------------------------- \47\ See id. at 96057. \48\ See id. \49\ See id. \50\ See id. \51\ See id. at 96058. --------------------------------------------------------------------------- The Exchange states in reference to all of the proposed services that in adding the fees it seeks to defray or cover its costs in providing these voluntary services to Users, and that in order to provide these services it must, among other things, provide, maintain and operate the data center facility hardware and technology infrastructure; and handle the installation, administration, monitoring, support and maintenance of such services, including by responding to any production issues.\52\ The Exchange also states that the fees charged for co-location services are constrained by the active competition for the order flow and other business from such market participants,\53\ and 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.\54\ Additionally, the Exchange states that Users have alternatives if they believe the fees are excessive.\55\ Specifically, the Exchange notes 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 [D]ata [C]enter (which could be a competing exchange), or pursuing strategies less dependent upon the lower exchange-to-participant latency associated with colocation.'' \56\ --------------------------------------------------------------------------- \52\ See id. \53\ See id. \54\ See id. \55\ See id. \56\ See id. --------------------------------------------------------------------------- III. Summary of Comments Received and Exchange Responses The Commission received eight comment letters from six commenters on the proposed rule change, as modified by Amendment Nos. 1 through 4.\57\ The Exchange submitted three letters in response to the comments.\58\ --------------------------------------------------------------------------- \57\ See supra notes 6 and 12. In addition, one commenter noted that it filed a denial of access petition on the proposal. See SIFMA I Letter at 1 and SIFMA II Letter at 3. \58\ See Response Letters I, II, and III, supra notes 6 and 13. --------------------------------------------------------------------------- A. Comment Submitted Prior to the OIP The Commission received one comment letter prior to publication of the OIP.\59\ The initial commenter requested that the Exchange provide additional information on the history of all of the proposed fees (which the commenter believed were already in effect), and the relationship between the fees and the Exchange's costs to maintain the Data Center and provide co-location services.\60\ The commenter urged ``additive transparency'' to enable members to evaluate the fixed costs of exchange membership and whether fees were applied equitably.\61\ This commenter also stated that broker-dealers ``may be practically required to buy and consume proprietary market data feeds directly from exchanges in order to provide competitive products for those clients, and that the trading environment ``imposes a form of trading tax on all members by offering different [[Page 15745]] methods of access to different members.'' \62\ The commenter questioned 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,'' and urged that the Exchange provide information and analysis on how its ability to set co-location fees is constrained by market forces for a ``comparable product.'' \63\ --------------------------------------------------------------------------- \59\ See IEX I Letter, supra note 6. \60\ See id. at 1-2. \61\ See id. \62\ See id. at 2. \63\ See id. --------------------------------------------------------------------------- In response, the Exchange replied that historical information about the development of its product offerings is ``not required by the Act and is not relevant to [ ] the substance of the Proposal--which is, by definition, forward looking . . . .'' \64\ The Exchange added that costs are not its only consideration in setting prices, but rather that 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.'' \65\ 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.'' \66\ The Exchange further stated that co-location fees are not fixed costs to members, but 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.'' \67\ The Exchange added that Users do not require the Exchange's access or connectivity offerings in co-location to trade on the Exchange and can instead use alternative access and connectivity options for trading if they choose.\68\ --------------------------------------------------------------------------- \64\ See Response Letter I, supra note 6, at 3. \65\ See id. \66\ See id. at 5. \67\ See id. at 4. \68\ See id. --------------------------------------------------------------------------- B. Comments Following Publication of the OIP (i) Comments on the Premium NYSE Product Connectivity Fee and Cumulative Fees Generally As noted above, the Commission specifically requested comment on the Premium NYSE Product Connectivity Fee in the OIP.\69\ In response, some commenters objected to the establishment of a separate connectivity fee for Premium NYSE Data Products as duplicative of fees already charged for bandwidth and access to the market data product itself, and therefore that this fee would result in an inequitable allocation of fees, inconsistent with Section 6(b)(4) of the Act.\70\ Another commenter similarly objected to an additional connectivity/ bandwidth charge for each Premium NYSE Data Product as an example of ``double dipping,'' and a fee having ``no merit'' on its own.\71\ Additionally, some commenters objected to the reasonableness of the proposed Premium NYSE Product Connectivity Fee on the basis that there was no viable alternative to paying the fee to obtain connectivity to the Premium NYSE Data Products.\72\ --------------------------------------------------------------------------- \69\ See OIP, supra note 9 and Section II.A. supra. \70\ See Citadel Letter at 2; Clearpool Letter at 4. \71\ See Wolverine Letter at 3. See also Citadel Letter at 2; R2G Letter at 3 (each expressing concern about cumulative fees). \72\ See Citadel Letter at 3 (``there is no readily available substitute or equivalent means of access to the Premium NYSE Data Products''); Wolverine Letter at 3 (objecting to the statement ``the Exchange is not the exclusive method to connect to Premium NYSE Data Products'' noting that it is ``misleading at best.''). See also R2G Letter at 1-2 (stating, its view that the Prior Proposal ``raises serious concerns'' under the Exchange Act, but that ``Amendment No. 3 adequately addresses the original concerns,'' and adding that it would, however, object if the Exchange similarly sought to apply the logic of Amendment No. 3 regarding Third Party Systems to any ``NYSE Proprietary Product''). --------------------------------------------------------------------------- In response to comments on the Premium NYSE Product Connectivity Fee, the Exchange noted that it was no longer proposing that fee and that the questions posed in the OIP about that fee were moot.\73\ --------------------------------------------------------------------------- \73\ See Response Letter II at 4, 7-8. The Exchange also stated, as discussed further below, that it did not agree with commenters suggesting that a connectivity fee is indistinguishable from a market data fee. --------------------------------------------------------------------------- Some commenters opposed to the Premium NYSE Product Connectivity Fee also expressed broader concern about ``layered'' and cumulative fees charged by the Exchange to access market data.\74\ Some of these commenters believe that the rising costs related to the receipt of market data in co-location over time effectively impose a barrier to entry for smaller broker-dealers and new entrants, and are a burden on competition.\75\ For example, Wolverine stated that it has an aggregate cost of ``$123,750 per month of fixed costs in co-location, port, and access fees today, solely for access to NYSE controlled markets,'' which is ``an amount which presents a steep barrier to entry for new participants.'' \76\ Wolverine also estimated that its NYSE market data costs have increased ``over 700% over 8 years.'' \77\ Citadel similarly stated that ``additive and layered fees are a persistent problem with exchange fees more generally,'' and urged scrutiny of the aggregate impact of fees, ``in particular with respect to market data products where exchanges have a monopoly as the initial distributors.'' \78\ --------------------------------------------------------------------------- \74\ See Wolverine Letter at 1-3; Clearpool Letter at 3; Citadel Letter at 3; R2G Letter 1, 3-6. \75\ See Wolverine Letter at 1-3; Clearpool Letter at 3; Citadel Letter at 3. \76\ See Wolverine Letter at 3. \77\ See id. at 1 (also objecting to port and other charges (outside the scope of the Current Proposal) as unreasonable); see also R2G Letter at 3 (expressing agreement with Wolverine). \78\ See Citadel Letter at 2. --------------------------------------------------------------------------- Clearpool stated, among other things, that market participants are beholden to the exchanges for market data; that it is not feasible for broker-dealers with best execution obligations to rely on SIP data as an alternative to exchange proprietary data feeds; and that the role and cost of using SIP and proprietary feeds should be considered in connection with Commission proposals to improve Regulation NMS Rules 605 and 606 reporting.\79\ Clearpool advocated for the Commission to ``thoroughly review the issues around market data'' and to ensure that it is priced more competitively and equitably for all market participants.\80\ Clearpool also stated that high costs prevent new innovative technology services, including order routing, risk management, and transaction cost analysis services, from entering the market, and further, that increasing fees significantly reduce the margin that smaller broker-dealers can earn on a transaction, putting them at a disadvantage to larger firms that can absorb these costs.\81\ --------------------------------------------------------------------------- \79\ See Clearpool Letter at 2-4. \80\ See id. at 1, 4. \81\ See id. at 3. --------------------------------------------------------------------------- In response to these comments, the Exchange challenged Wolverine's assessment that Exchange fees have increased by 700% over the past eight years, explaining that it was a mischaracterization and did not represent a true comparison of the fees paid for particular data feeds in 2008 as compared to fees paid for those specific feeds today.\82\ The Exchange also rejected Wolverine's argument that all of its costs- including the optional cage surrounding its cabinets, power, cross connects, network ports and connectivity--should be treated as costs related to market access.\83\ The Exchange stated, that ``however self- servingly [Wolverine] tries to characterize them, these listed costs, [[Page 15746]] like rent and employee compensation and benefits, are simply costs associated with Wolverine's business activities. These business activities and Wolverine's business judgment--not the Exchange-- determine the most effective way for Wolverine to select the products and services it uses.'' \84\ --------------------------------------------------------------------------- \82\ See Response Letter II at 10 and n. 27. \83\ See id. at 10. \84\ See id. --------------------------------------------------------------------------- Regarding comments about market data and co-location fees more generally, the Exchange responded that a User that chooses to receive market data within co-location will incur several costs in addition to the cost a market data provider will charge for its data, including the costs associated with the LCN or IP network port, power, cross connects, and connectivity, but the need for equipment and connections to enable receipt of a market data feed within co-location does not convert the costs of such equipment and connections into market data fees.\85\ The Exchange also stated that some commenters were using the Prior Proposal as a ``departure point to discuss broader issues related to market data.'' \86\ The Exchange catalogued comments about exchange fees for proprietary market data products, the effect of Commission proposals to improve disclosure of order execution and order routing information under Rules 605 and 606 of Regulation NMS, and the payment of rebates for posted liquidity as comments beyond the scope of the Current Proposal, as well as the fees any one exchange might propose.\87\ --------------------------------------------------------------------------- \85\ See id. at 5. \86\ See id. \87\ See id. at 5-6. See also infra notes 117-127 discussing SIFMA's comments characterizing a variety of fees as market data fees and the Exchange's response. --------------------------------------------------------------------------- The Exchange also stated that market participants are not required to co-locate with or subscribe to proprietary market data products from an exchange, emphasizing that firms using exchange market data products in co-location ``have chosen to build business models based on speed.'' \88\ --------------------------------------------------------------------------- \88\ See Response Letter II at 11-12. --------------------------------------------------------------------------- (ii) Comments Regarding Competition and Alternatives to the Proposed Co-Location Services Some commenters addressing both the Prior Proposal and Amendment No. 3 suggested that co-location services in general are not optional.\89\ In the context of whether the Current Proposal's connectivity fees are reasonable, some of these commenters argued that there is a lack of competition for the Exchange's co-location and data services generally, and suggested a lack of viable alternatives to the Current Proposal's proposed connectivity services and fees in particular.\90\ For instance, SIFMA argued that the Exchange's ability to set co-location fees is not constrained by market forces because there is ``no comparable connectivity or product,'' and low-latency alternatives to these services do not exist.\91\ SIFMA stated that ``[a]ny alternative with severely increased latencies would not be a viable alternative.'' \92\ Similarly, IEX argued that if co-location services are optional, and therefore need not be purchased if the fees are excessive, then the Exchange should demonstrate how firms are not placed at a competitive disadvantage if they elect to not receive such services from the Exchange.\93\ In particular, IEX suggested that the Exchange provide data on the expected latency (or range of latencies) in receiving data or transmitting orders directly from the Exchange, compared to the equivalent latency (or range) for firms that rely on a third party access center.\94\ IEX requested that the NYSE ``explain whether it believes that this difference would not affect the ability of electronic market makers and other trading firms and active agency brokers to compete with firms in the same businesses that have faster access, and if so how it reached this conclusion.'' \95\ IEX also disputed that competition for order flow constrains pricing of co- location services, arguing that NYSE often displays protected quotes for certain stocks, a status it achieves by paying a high number of rebates for liquidity, and firms are forced to interact with it to avoid trade-throughs.\96\ Both IEX and SIFMA argued that in the absence of competition for the proposed services and fees (which, in SIFMA's view are indistinguishable from market data fees), the Exchange should be required to discuss the relationship between the proposed fees and increasing Data Center costs, or detail how the fee increases relate to the costs of providing the service, in order to justify the proposed fees as reasonable.\97\ --------------------------------------------------------------------------- \89\ See IEX I Letter at 2 (best execution requires broker- dealer to have ``effective access'' to exchanges); SIFMA II Letter at 4 (``brokers are legally obligated to seek best execution for their customers. They are required to consider the likelihood that a trade will be executed and whether there is an opportunity to obtain a price better than what is currently quoted.'') See also Citadel Letter at 3 (stating that ``competitive pressures oblige broker- dealers to seek the most efficient access to markets and market data to execute orders . . .,'' creating a risk for those firms that elect to trade with ``slower and less efficient access.''); R2G Letter at 3 (referring to an ``ever increasing need for speed''); Wolverine Letter at 1 (stating that it is ``required to subscribe to the lowest latency NYSE market data products and services''). \90\ See IEX I Letter at 2, IEX II Letter at 1-3, SIFMA I Letter at 2 and SIFMA II Letter at 2. Compare with comments alleging a lack of viable alternatives to connectivity to Premium NYSE Data Products, supra note 73. \91\ See SIFMA I Letter at 2. According to SIFMA, ``the mere presence of the IEX Letter in the comment file'' evidences of a lack of competitive market forces to constrain pricing, because IEX is a competitor to the Exchange. See id. at 3. \92\ See SIFMA I Letter at 3 (also stating ``different fees are charged for the different types of connectivity, with no rational basis, [is] unfairly discriminatory between customers.'') \93\ See IEX II Letter at 2. \94\ See id. \95\ See id. \96\ See id. at 3. See also SIFMA II Letter at 2 (expressing general agreement); see also SIFMA I Letter at 3 (stating that the presence of a comment letter from IEX cuts against the argument that competition for order flow constrains fees). See also Citadel Letter at 2 (urging greater transparency regarding the Exchange's Data Center costs). \97\ See IEX II Letter at 3; SIFMA II Letter at 2. --------------------------------------------------------------------------- In contrast, two commenters acknowledged the existence of alternatives to some Exchange co-location services.\98\ One of these commenters noted that alternatives are present for Third Party System connectivity as evidenced by the fact that it ``finds NYSE's third part[y] system costs out of line and does not subscribe to this NYSE offering, instead implementing this connectivity internally using a proprietary network.'' \99\ Another commenter stated that it ``directly competes with NYSE for these [Third Party Systems] services and does so at prices significantly lower than the fees NYSE has proposed.'' \100\ --------------------------------------------------------------------------- \98\ See Wolverine Letter at 3; R2G Letter at 1-2. \99\ See Wolverine Letter at 3. \100\ See R2G Letter at 1-2. --------------------------------------------------------------------------- In response to comments that competitive forces do not constrain co-location fees and that alternatives to co-location services are lacking, the Exchange defended its representations that the proposed services are offered as a convenience to Users, are voluntary, and that Users have viable alternatives to the proposed services.\101\ The Exchange stated that additional latency in an alternative means of connectivity does not negate the viability of that alternative,\102\ and that commenters arguing that only an ``equivalent'' latency alternative is a viable alternative are misguided.\103\ The Exchange stated that, ``the Act does not require that there be at least one third party option available that has exactly the same characteristics as a proposed service before a national securities exchange can impose or change a fee for a service,'' adding that such a requirement would be ``untenable, as every exchange [[Page 15747]] would have to have an exact duplicate before it could charge a fee.'' \104\ Rather, the relevant question is whether a proposed fee would be ``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.'' \105\ The Exchange noted that it did not represent that the connectivity alternatives available to co-located Users (including alternatives for connectivity to Premium NYSE Data Products) are exactly the same as those proposed, but rather that the cited alternatives show that Users have the option ``to receive the same market data, or make the same trades, in other manners.'' \106\ The Exchange added that its cited alternatives ``offer distinct services and pricing structures that some Users may find more attractive than those proposed by the Exchange,'' and that these alternatives are ``real,'' even if not all Users will find them equally attractive for their individual business model.\107\ The Exchange stated that the viability of alternatives is ``underscored by the Wolverine Letter, which explicitly states that it does not object to the proposed fees for access to Third Party Systems in the Current Proposal on the basis that firms may contract with other parties or contract directly with network providers.'' \108\ The Exchange added that, ``[I]t is the Exchange's understanding that a User could access Third Party Systems and connect to Third Party Data Feeds, third party testing and certification feeds, and DTCC using one or more of the listed alternatives without increasing its latency levels--and, in many cases, the alternatives would offer lower latency.'' \109\ --------------------------------------------------------------------------- \101\ See Response Letter II at 6. \102\ See id. at 7-8. \103\ See id. at 7. \104\ See id. at 8. \105\ See id. \106\ See id. The Exchange also noted that Clearpool is not a co-location customer of the Exchange, which the Exchange believes illustrates that market participants can and do avail themselves of alternatives for connecting to NYSE market data products. See id. \107\ See id. In addition, in response to IEX's suggestion that the Exchange provide data on the expected latency (or range of latencies) in receiving data or transmitting orders directly from the Data Center, compared to the expected latency (or range) for firms that rely on a third party access center, the Exchange stated it could not do so without having access to the latency data of third parties, or each User's specific system configuration and latency needs and therefore could not satisfy IEX's ``deliberately impossible requirement.'' See id. at 7. \108\ See id. at 9. The Exchange did not similarly address the R2G Letter. \109\ See id. at 9-10. --------------------------------------------------------------------------- Further, the Exchange emphasized that while some commenters focus exclusively on latency as the only relevant consideration, ``Users with different investment strategies or business models may focus on other characteristics, including redundancy, resiliency, cost, and the services that third parties offer but the Exchange does not, such as managed services.'' \110\ The Exchange stated that alternatives exist as evidenced by the fact that ``there are at least six Users within the co-location hall that offer other Users or hosted customers access to trading or connectivity to market data, including the two other exchanges that are co-located with the Exchange, as well as the fact that Users may contract with any of the 15 telecommunication providers--including five third party wireless networks--available to Users to connect to third party vendors.'' \111\ The Exchange also noted that the alternatives are possible in part because the Exchange voluntarily allows Users to provide services to other Users and third parties out of the Exchange's co-location facility--that is, to compete with the Exchange using the Exchange's own facilities.\112\ For example, according to the Exchange, ``a User that wished to receive Nasdaq market data could connect directly to the Nasdaq server within co-location.'' \113\ Therefore, the Exchange believes that contrary to commenters' beliefs, the Exchange's cited alternatives offer comparable services that can be used in lieu of receiving Exchange offered services, and that there are competitive forces constraining pricing.\114\ --------------------------------------------------------------------------- \110\ See id. at 8 n.16. \111\ See id. at 9. \112\ See id. \113\ See id. at 10 n.24. \114\ See id. at 9. --------------------------------------------------------------------------- SIFMA raised additional arguments. SIFMA urged that ``[t]he proposed connectivity fees should be reviewed in a manner consistent with the decisions of the United States Court of Appeals for the District of Columbia Circuit'' in NetCoalition v. SEC, because says SIFMA, they are market data fees.\115\ SIFMA took the position that under NetCoalition I (615 F.3d 525 (D.C. Cir. 2010)) an exchange's assertion that order flow competition constrains pricing of data is insufficient.\116\ More specifically, in SIFMA's view ``port, power, cross connect, connectivity and cage fees, which are necessary in order to obtain the market data from NYSE,'' ``however labeled, are market data fees.'' \117\ SIFMA also noted that it had submitted a ``properly filed 19(d) denial of access petition on the proposal,'' but had requested that it be ``held in abeyance pending the decision in the NetCoalition follow-on proceedings . . . .'' \118\ SIFMA urged however, that such petition, despite its abeyance, not be ignored.\119\ --------------------------------------------------------------------------- \115\ See SIFMA II Letter at 2-3 (citing NetCoalition I, 615 F.3d 525 (D.C. Cir. 2010); NetCoalition II, 715 F.3d 342 (D.C. Cir. 2013)). \116\ SIFMA I Letter at 3 (noting that ``[t]he Court's NetCoalition decisions, the controlling law on this subject, rejected this order flow argument because, like here, there was no support for the assertion that order flow competition constrained the ability of the exchange to charge supracompetitive prices for data.''). \117\ See SIFMA II Letter at 3. See also SIFMA I Letter at 4 (stating that market data fees, port fees, hardware fees and connectivity fees are all ``within the ambit of the NetCoalition decisions.'') \118\ See SIFMA I Letter at 1; SIFMA II Letter at 3. \119\ See SIFMA II Letter at 3. --------------------------------------------------------------------------- In response to SIFMA on these points, the Exchange stated that, ``NetCoalition addressed the standards governing proprietary market data fees,'' and that it is ``incorrect'' to characterize the Current Proposal as establishing market data fees.\120\ The Exchange stated: --------------------------------------------------------------------------- \120\ See Response Letter III at 3-4. the fact that a User needs to have a port, power, and connectivity in place in order to be able to receive a market data feed within co-location does not convert the costs of such equipment and connections into market data fees. Rather, they are costs associated with the User's business activities. If a User opts to put a cage around its servers in the colocation hall, the cage fee it pays is a cost it chooses to incur in connection with the way it has chosen to do business, not a market data fee.\121\ --------------------------------------------------------------------------- \121\ See id. at 4 (emphasis in original). The Exchange distinguished the services and fees proposed in the Current Proposal from market data fees, emphasizing that they are connectivity fees or access fees applicable when a User chooses to utilize connectivity or access services within co-location.\122\ The Exchange noted that two of the proposed fees are for services that facilitate Users' trading activities, and have nothing to do with market data: a proposed fee for access within co-location to the execution systems of third party markets and other content service providers, and a proposed fee for connectivity within co-location to DTCC services, such as clearing, fund transfer, insurance, and settlement services.\123\ The Exchange similarly distinguished the proposed connectivity fee for third party testing and certification feeds as not equivalent to providing a customer [[Page 15748]] with market data.\124\ Addressing the proposed connectivity fee for Third Party Data Feeds within co-location, the Exchange noted that this proposed fee ``has more often been mistaken for a market data fee,'' but distinguished the service of providing a User with connectivity to Third Party Data Feeds from the service that the third party providing the market data provides by sending the data over the connection, noting that the third party content service provider charges the User the market data fee.\125\ --------------------------------------------------------------------------- \122\ See id. at 5-6. The Exchange noted that SIFMA did not address VCC fees. See id. at 5, n. 17. \123\ See id. at 5-6 (also noting that fees for Third Party System and DTCC connectivity vary by bandwidth and are generally proportional to the bandwidth required). \124\ See id. at 5 (also noting that fees for connectivity to third party testing and certification feeds reflect that bandwidth requirements are generally not large, and the relatively low fee may encourage Users to conduct tests and certify conformance, which the Exchange believes generally benefits the markets). \125\ See id. at 5-6 (also noting that the fees for Third Party Data Feeds vary because Third Party Data Feeds vary in bandwidth; proximity to the Exchange, requiring different circuit lengths; fees charged by the third party provider, such as port feeds; and levels of User demand). --------------------------------------------------------------------------- The Exchange did not agree with SIFMA's contention that the Current Proposal would establish market data fees, nor agree that NetCoalition standard was applicable to the Current Proposal,\126\ but instead stated, ``[t]here is significant competition for the connectivity relevant to the Current Proposal;'' and ``even if the NetCoalition standard did apply, the Current Proposal satisfies it.'' \127\ --------------------------------------------------------------------------- \126\ See id. at 3. See also Response Letter II at 13. \127\ See Response Letter III at 3. See also Response Letter II at 13. --------------------------------------------------------------------------- Regarding SIFMA's denial of access petition, the Exchange responded that a denial of access petition is not a comment letter, and should not be treated as such given that SIFMA itself has requested that its denial of access petition on fee filings be held in abeyance pending a decision in the NetCoalition follow-on proceedings.\128\ --------------------------------------------------------------------------- \128\ See Response Letter III at 3. See also Response Letter II at 13; SIFMA Letter II at 3 (noting that ``SIFMA's 19(d)s will be held in abeyance pending the decision in the NetCoalition follow-on proceedings . . .''). --------------------------------------------------------------------------- IV. Discussion and Commission Findings After careful consideration of the proposed rule change, as modified by Amendment Nos. 1 through 4, the comments received, and the Exchange's responses to the comments, the Commission finds that the proposed rule change, as modified by Amendment Nos. 1 through 4, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(4) of the Act,\129\ which requires that an exchange have rules that provide for the equitable allocation of reasonable dues, fees and other charges among its members, issuers and other persons using its facilities; Section 6(b)(5) of the Act,\130\ which requires that the rules of an exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest, and not be designed to permit unfair discrimination between customers, issuers, brokers or dealers; and Section 6(b)(8) of the Act,\131\ which prohibits any exchange rule from imposing any burden on competition that is not necessary or appropriate in furtherance of the Act.\132\ --------------------------------------------------------------------------- \129\ 15 U.S.C. 78f(b)(4). \130\ 15 U.S.C. 78f(b)(5). \131\ 15 U.S.C. 78f(b)(8). \132\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). --------------------------------------------------------------------------- As discussed more fully above, some commenters oppose the proposed co-location fees on the basis that viable alternatives to the Exchange's co-location services are lacking, and particularly that similar low-latency alternatives to the Exchange's co-location services do not exist.\133\ According to these commenters, the lack of viable alternatives means that competitive forces do not constrain Exchange pricing of co-location services, and the Exchange's proposed fees should be subject to a cost-based assessment.\134\ --------------------------------------------------------------------------- \133\ See supra notes 63, 89-95, and accompanying text. \134\ See supra notes 60, 97, 115-117 and accompanying text. --------------------------------------------------------------------------- In response to these comments, the Exchange counters that co- location Users have several alternatives to the Exchange's proposed services, both inside and outside the Data Center. The Exchange explains that as alternatives to using the access to Third Party Systems, and connectivity to Third Party Data Feeds, third party testing and certification feeds, and DTCC, provided by the Exchange, a User may access or connect to such services and products through an Exchange access center, third party access center, or a third party vendor outside the Data Center, and may do so using a third party telecommunication provider, a third party wireless network, the Secure Financial Transaction Infrastructure (SFTI) network, or a combination thereof.\135\ Furthermore, the Exchange points out that alternatives to the Exchange's access and connectivity services also exist inside the Data Center, as evidenced by the fact that ``there are at least six Users within the co-location hall that offer other Users or hosted customers access to trading or connectivity to market data, including the two other exchanges that are co-located with the Exchange, as well as the fact that Users may contract with any of the 15 telecommunication providers--including five third party wireless networks--available to Users to connect to third party vendors.'' \136\ The Exchange notes that these alternatives are possible because the Exchange allows Users to provide services to other Users and third parties out of the Exchange's co-location facility--that is, to compete with the Exchange using the Exchange's own facilities.\137\ --------------------------------------------------------------------------- \135\ See Response Letter II at 6. \136\ See id. at 9. \137\ See id. --------------------------------------------------------------------------- The Commission has carefully considered the comments and the Exchange's response concerning the availability of alternatives to the Exchange's proposed access and connectivity services. In addition, the Commission notes that two commenters expressed the view that viable alternative means of accessing Third Party Systems are available.\138\ The Commission believes that viable alternatives to the Exchange's proposed co-location services are available which bring competitive forces to bear on the fees set forth in the Current Proposal.\139\ --------------------------------------------------------------------------- \138\ See supra notes 98-100. One of these commenters also stated its view that Amendment No. 3 addressed the concerns raised in the OIP. See supra note 72. Furthermore, the Exchange's proposal with respect to connectivity to Third Party Data Feeds is not novel, given that Nasdaq similarly charges connectivity fees for third party data feeds, as reflected on its co-location fee schedule. See Nasdaq Rule 7034. \139\ See also Securities Exchange Act Release No. 34-62397 (June 28, 2010); Securities Exchange Act Release No. 34-66013 (December 20, 2011), 76 FR 80992 (December 27, 2011) (noting ``that members may choose not to obtain low latency network connectivity through the Exchange and instead negotiate connectivity options separately through other vendors on site''); Securities Exchange Act Release No. 34-76748 (finding the establishment of an exclusive wireless connection consistent with the Act because, among other reasons, the alternatives suggested provided the same or similar speeds as compared to the NYSE's wireless connectivity); Securities Exchange Act Release No. 34-68735 (finding the establishment of an exclusive wireless connection consistent with the Act because, among other reasons, the alternatives suggested provided the same or similar speeds as compared to Nasdaq's wireless connectivity). --------------------------------------------------------------------------- Also, as discussed above, some commenters expressed concern that the proposed fees would impose a barrier to [[Page 15749]] entry on smaller broker-dealers and new entrants, and a burden on competition.\140\ The Commission does not believe that the Current Proposal would impose a burden on competition inconsistent with the Act because, as discussed above, viable alternatives to the Exchange's proposed services exist, both inside and outside the Data Center. --------------------------------------------------------------------------- \140\ See supra notes 75-81 and accompanying text. --------------------------------------------------------------------------- Finally, the Commission notes that several commenters believed the originally proposed NYSE Premium Connectivity Fee to be duplicative and an inequitable allocation of fees.\141\ Because the Exchange eliminated that fee in Amendment No. 3, the Commission believes that these concerns have been addressed.\142\ --------------------------------------------------------------------------- \141\ See supra notes 70-72 and accompanying text. \142\ The Commission believes that comments expressing concerns about proprietary market data fees more generally are outside the scope of the Current Proposal. --------------------------------------------------------------------------- Accordingly, the Commission finds that the Current Proposal is consistent with the Act. V. Solicitation of Comments on Partial Amendment No. 4 Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether partial Amendment No. 4 is consistent with the Exchange Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-NYSE-2016-45 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSE-2016-45. 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 20549-1090, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR- NYSE-2016-45 and should be submitted on or before April 20, 2017. VI. Accelerated Approval of Proposed Rule Change, as Modified by Amendment Nos. 1-4 The Commission finds good cause to approve the proposed rule change, as modified by Amendment Nos. 1-4, prior to the thirtieth day after the date of publication of notice of the amended proposal in the Federal Register. The revisions made to the proposal in partial Amendment No. 4 \143\ (1) removed reference to the National Stock Exchange (NSX) from its list of Third Party Systems, (2) added three additional Third Party Data Feeds--ICE Data Services Consolidated Feed, ICE Data Services PRD, and ICE Data Services PRD CEP, (3) added connectivity fees for each of the newly added Third Party Data feeds. With respect to NSX, the Exchange represents that NSX was acquired by the NYSE Group on January 31, 2017, making it no longer a Third Party System. The Commission believes this characterization is consistent with the NYSE Group's similarly situated affiliated exchanges, NYSEArca and NYSEMKT, which, like NSX are solely within the NYSE Group's control. Regarding the ICE Data Services feeds, the Exchange notes that it has an indirect interest in these feeds because ICE Data Services is owned by the Exchange's ultimate parent, Intercontinental Exchange, Inc. As represented in partial Amendment No. 4, the Exchange considers the ICE Data Services Consolidated Feed (like the NYSE Global Index feed), a Third Party Data Feed because it includes third party market data rather than exclusively the proprietary market data of the Exchange and its affiliated SROs, NYSE MKT and NYSE Arca.\144\ The Commission believes that partial Amendment No. 4 does not raise issues not previously raised in the proposed rule change, as modified Amendment Nos. 1-3, and addressed in Exchange Response Letters I, II, and III. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act,\145\ to approve the proposed rule change, as modified by Amendment Nos. 1-4, on an accelerated basis. --------------------------------------------------------------------------- \143\ See partial Amendment No. 4, supra note 14. \144\ See id. \145\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VII. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\146\ that the proposed rule change (SR-NYSE-2016-45) be, and hereby is, approved on an accelerated basis. --------------------------------------------------------------------------- \146\ See id. \147\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\147\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-06258 Filed 3-29-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices 15741
security in a manner which will arise for affected Contract owners achieve this limitation, the Replacement
permanently affected all the investors in as a result of the Substitutions. Fund’s investment adviser will waive
the trust, the Contracts provide each 5. The rights or obligations of the fees or reimburse the Replacement Fund
Contract owner with the right to Companies under the Contracts of in certain amounts to maintain expenses
exercise his or her own judgment and affected Contract owners will not be at or below the limit. Any adjustments
transfer account values into other sub- altered in any way. will be made at least on a quarterly
accounts. Moreover, the Contracts will 6. Affected Contract owners will be basis. In addition, the Companies will
offer affected Contract owners the permitted to make at least one transfer not increase the Contract fees and
opportunity to transfer amounts out of of Contract value from the sub-account charges, including asset based charges
the affected sub-accounts into any of the investing in the Existing Fund (before such as mortality expense risk charges
remaining sub-accounts without cost or the Effective Date) or the Replacement deducted from the sub-accounts that
other disadvantage. The Substitution, Fund (after the Effective Date) to any would otherwise be assessed under the
therefore, will not result in the type of other available investment option under terms of the Contracts for a period of at
costly forced redemptions that Section the Contract without charge for a period least two years following the Effective
26(c) was designed to prevent. beginning at least 30 days before the Date.
Applicants also maintain that the Effective Date through at least 30 days
following the Effective Date. Except as For the Commission, by the Division of
Substitutions are unlike the type of Investment Management, under delegated
substitutions which Section 26(c) was described in any market timing/short- authority.
designed to prevent in that by term trading provisions of the relevant
Eduardo A. Aleman,
purchasing a Contract, Contract owners prospectus, the Company will not
exercise any right it may have under the Assistant Secretary.
select much more than a particular
Contract to impose restrictions on [FR Doc. 2017–06244 Filed 3–29–17; 8:45 am]
registered management open-end
investment company in which to invest transfers between the sub-accounts BILLING CODE 8011–01–P
their account values. They also select under the Contracts, including
the specific type of insurance coverage limitations on the future number of
offered by the Companies under their transfers, for a period beginning at least SECURITIES AND EXCHANGE
Contracts as well as other rights and 30 days before the Effective Date COMMISSION
privileges set forth in the Contracts. through at least 30 days following the [Release No. 34–80311; File No. SR–NYSE–
Applicants’ Conditions: Effective Date. 2016–45]
Applicants agree that any order 7. All affected Contract owners will be
granting the requested relief will be notified, at least 30 days before the Self-Regulatory Organizations; New
subject to the following conditions: Effective Date about: (a) The intended York Stock Exchange LLC; Notice of
1. The proposed Substitutions will substitution of Existing Funds with the Filing of Partial Amendment No. 4 and
not be effected unless the Companies Replacement Funds; (b) the intended Order Granting Accelerated Approval
determine that: (a) The Contracts allow Effective Date; and (c) information with of a Proposed Rule Change, as
the substitution of shares of registered respect to transfers as set forth in Modified by Amendment Nos. 1
open-end investment companies in the Condition 6 above. In addition, the Through 4, To Amend the Co-Location
manner contemplated by the Companies will deliver to all affected Services Offered by the Exchange To
application; (b) the Substitutions can be Contract owners, at least 30 days before Add Certain Access and Connectivity
consummated as described in the the Effective Date, a prospectus for each Fees
application under applicable insurance applicable Replacement Fund.
laws; and (c) any regulatory 8. The Companies will deliver to each March 24, 2017.
requirements in each jurisdiction where affected Contract owner within five (5) I. Introduction
the Contracts are qualified for sale have business days of the Effective Date a
On July 29, 2016, the New York Stock
been complied with to the extent written confirmation which will
Exchange LLC (‘‘NYSE’’ or the
necessary to complete the Substitutions. include: (a) A confirmation that the
‘‘Exchange’’) filed with the Securities
2. The Companies or their affiliates Substitutions were carried out as
and Exchange Commission
will pay all expenses and transaction previously notified; (b) a restatement of
(‘‘Commission’’), pursuant to Section
costs of the Substitutions, including the information set forth in the pre-
19(b)(1) of the Securities Exchange Act
legal and accounting expenses, any Substitution notice; and (c) values of the
of 1934 (‘‘Act’’) 1 and Rule 19b–4
applicable brokerage expenses and other Contract owner’s positions in the
thereunder,2 a proposed rule change to
fees and expenses. No fees or charges Existing Fund before the Substitution
amend the co-location services offered
will be assessed to the Contract owners and the Replacement Fund after the
by the Exchange to add certain access
to effect the Substitutions. Substitution.
3. The proposed Substitutions will be 9. After the Effective Date the and connectivity fees, applicable to
effected at the relative net asset values Applicants agree not to change a Users 3 in the Exchange’s data center in
of the respective shares in conformity Replacement Fund’s sub- adviser 1 15 U.S.C. 78s(b)(1).
with Section 22(c) of the 1940 Act and without first obtaining shareholder 2 17 CFR 240.19b–4.
Rule 22c–1 thereunder without the approval of either (a) the sub-adviser 3 For purposes of the Exchange’s co-location
imposition of any transfer or similar change or (b) the parties’ continued services, a ‘‘User’’ means any market participant
charges by Applicants. The ability to rely on their manager-of-
asabaliauskas on DSK3SPTVN1PROD with NOTICES
that requests to receive co-location services directly
Substitutions will be effected without managers exemptive order. from the Exchange. See Securities Exchange Act
Release No. 76008 (September 29, 2015), 80 FR
change in the amount or value of any 10. For two years following the 60190 (October 5, 2015) (SR–NYSE–2015–40). As
Contracts held by affected Contract Effective Date the net annual expenses specified in the Price List, a User that incurs co-
owners. of each Replacement Fund that is a location fees for a particular co-location service
4. The proposed Substitutions will in Transamerica Series Trust Fund will not pursuant thereto would not be subject to co-location
fees for the same co-location service charged by the
no way alter the tax treatment of exceed the net annual expenses of the Exchange’s affiliates NYSE MKT LLC (‘‘NYSE
affected Contract owners in connection corresponding Existing Fund as of the MKT’’) and NYSE Arca, Inc. (‘‘NYSE Arca’’). See
with their Contracts, and no tax liability fund’s most recent fiscal year. To Continued
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![Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices 15743
In the Prior Proposal (i.e., prior to several commenters stated that it was bandwidth requirements are the same as
filing Amendment No. 3), the Exchange inequitable for the Exchange to charge a other proposed services such as Third
also had proposed to provide additional separate and additional connectivity fee Party Systems or VCCs, the prices reflect
information about access to NYSE, for some Exchange and affiliated SRO ‘‘the competitive considerations and the
NYSE Arca, and NYSE MKT trading and proprietary market data products and costs the Exchange incurs in providing
execution services, and to establish fees not others, and that receiving the such connections.’’ 29
for connectivity to certain proprietary Premium NYSE Data Products from an To connect to a Third Party Data
market data feeds.18 Specifically, the alternative source was not a viable Feed, a User must enter into a contract
Exchange had proposed that option.23 with the relevant third party market or
connectivity to most of the Exchange’s In Amendment No. 3, the Exchange content service provider, under which
and its affiliated SROs’ proprietary eliminated the Premium NYSE Product the third party market or content service
market data products would be included Connectivity Fee from the Current provider charges the User for the data
in the purchase price of an LCN/IP Proposal, and that fee is therefore no feed.30 The Exchange receives these
network connection in the Data Center, longer presented to the Commission for Third Party Data Feeds over its fiber
but that an additional connectivity fee consideration. optic network and, after the data
(‘‘Premium NYSE Product Connectivity provider and User enter into a contract
B. Description of the Current Proposal
Fee’’) would apply to the NYSE and the Exchange receives authorization
Integrated Feed, NYSE Arca Integrated As stated above and more fully from the data provider, the Exchange re-
Feed, NYSE MKT Integrated Feed, and described in the Notice of Amendment transmits the data to the User’s port.31
the NYSE Best Quote and Trades (BQT) No. 3, as partially modified by Users only receive, and are only charged
feed (‘‘Premium NYSE Data Amendment No. 4, the Exchange for, the feed(s) for which they have
Products’’).19 As a result, the purchase proposes to provide and establish fees entered into contracts.32 Additionally,
of access to NYSE, NYSE Arca, and for connectivity to: (i) Third Party Data the Exchange notes that Third Party
NYSE MKT trading and execution Feeds, (ii) Third Party Systems, (iii) Data Feeds do not provide access or
services, would not include DTCC services, (iv) third party testing order entry to its execution system or
connectivity to every purchased and certification feeds; and for the use access to the execution system of the
proprietary data product; and whereas of VCCs.24 third party generating the feed.33 The
the Exchange would charge no Regarding Third Party Data Feeds, the Exchange proposes to charge a set
additional fees for connectivity to most Exchange proposes to offer Users the monthly recurring connectivity fee per
of the Exchange’s and its affiliated option to connect to Third Party Data Third Party Data Feed, as set forth in the
SROs’ data products, it would charge Feeds in the Data Center for a monthly proposed Price List.34 A User is free to
additional fees for connectivity to connectivity fee per feed.25 The receive all or some of the feeds included
Premium NYSE Data Products. Exchange states that it receives Third in the Price List.35 The Exchange notes
The Commission specifically Party Data Feeds in the Data Center from that Third Party Data Feed providers
requested comment on this aspect of the multiple national securities exchanges may charge redistribution fees, such as
Prior Proposal in the OIP. In particular, and other content service providers Nasdaq’s Extranet Access Fees and OTC
in the OIP, the Commission expressed which it then provides to requesting Markets Group’s Access Fees, which the
concern that the Exchange had not Users for a fee.26 The Exchange states Exchange will pass through to the User
identified a distinction between the that its proposal to charge Users a in addition to charging the applicable
provision of connectivity to Premium monthly fee for connectivity to Third connectivity fee.36
NYSE Data Products and the Exchange’s Party Data Feeds is consistent with the The Exchange represents that ‘‘as
and its affiliated SROs’ other data monthly connectivity fee Nasdaq alternatives to using the [proposed
products, and noted that the Premium charges its co-location customers for connectivity to Third Party Data Feeds]
NYSE Data Products are similar to such connectivity to third party data.27 provided by the Exchange, a User may
other data products.20 In addition, the According to the Exchange, the access or connect to such . . . products
proposed fees ‘‘allow the Exchange to through another User or through a
Commission requested comment on
defray or cover the costs associated with connection to an Exchange access center
whether charging fees for connectivity
offering Users connectivity to Third outside the data center, third party
to Premium NYSE Data Products in a
Party Data Feeds while providing Users access center, or third party vendor. The
different manner from other Exchange
the convenience of receiving such Third User may make such connection
and affiliated SRO proprietary market
Party Data Feeds within co-location.’’ 28
data products was consistent with
Section 6(b)(4) of the Act.21 The Additionally, the Exchange noted that 29 See Notice of Amendment No. 3, supra note 11,
some of the proposed fees vary 81 FR at 96059; partial Amendment No. 4, supra
Commission also sought comment on note 14.
depending on the bandwidth
whether Users would have viable 30 See Notice of Amendment No. 3, supra note 11,
considerations and, in cases where the 81 FR at 96055.
alternatives to paying the Exchange a
31 See id.
connectivity fee for the Premium NYSE 23 See infra notes 70–72 and accompanying text. 32 See id.
Data Products.22 As discussed below, 24 See Notice of Amendment No. 3, supra note 11, 33 See id. at 96056. The Exchange notes that there
81 FR at 96054 and partial Amendment No. 4 supra is one exception to this for the ICE feeds which
Users over dedicated bandwidth using the IP note 14. include both market data and trading and clearing
network. See Notice of Amendment No. 3, supra 25 See Notice of Amendment No. 3, supra note 11, services. In order to receive the ICE feeds, a User
asabaliauskas on DSK3SPTVN1PROD with NOTICES
note 11, 81 FR at 96057. 81 FR at 96055. must receive authorization from ICE to receive both
18 For a detailed description of the Prior Proposal, 26 See id. market data and trading and clearing services. See
see the First Amended Notice, supra note 5, and the 27 See id. The Exchange notes that Nasdaq charges id.
OIP, discussing Amendment No. 2, supra note 9. monthly fees of $1,500 and $4,000 for connectivity 34 See Notice of Amendment No. 3, supra note 11,
19 See the First Amended Notice, supra note 5,
to BATS Y and BATS data feeds, respectively, and 81 FR at 96056, as modified by partial Amendment
and the OIP, discussing Amendment No. 2, supra of $2,500 for connectivity to EDGA or EDGX. See No. 4, supra note 14 (adding additional Third Party
note 9. id. Data Feeds).
20 See OIP, supra note 9, 81 FR at 83308. 28 See Notice of Amendment No. 3, supra note 11, 35 See Notice of Amendment No. 3, supra note 11,
21 See id. 81 FR at 96056.
81 FR at 96059; partial Amendment No. 4, supra
22 See id. at 83307. note 14. 36 See id.
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![15744 Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices
through a third party recurring monthly fees for connectivity Exchange also states that the fees
telecommunication provider, third party to Third Party Systems and DTCC are charged for co-location services are
wireless network, the SFTI network, or based upon the bandwidth requirements constrained by the active competition
a combination thereof.’’ 37 per system.45 for the order flow and other business
As more fully described in the Notice The Exchange represents that as from such market participants,53 and
of Amendment No. 3, as modified by alternatives to using the proposed that charging excessive fees would make
partial Amendment No. 4, the Exchange connectivity to Third Party Systems, to it stand to lose not only co-location
also proposes to provide and establish DTCC services, and to third party revenues but also the liquidity of the
fees for connectivity (also referred to as certification and testing feeds offered by formerly co-located trading firms.54
‘‘Access’’) to Third Party Systems,38 to the Exchange, ‘‘a User may access or Additionally, the Exchange states that
DTCC services,39 and to third party connect to such services and products Users have alternatives if they believe
certification and testing feeds, and through another User or through a the fees are excessive.55 Specifically, the
charge a monthly recurring fee.40 The connection to an Exchange access center Exchange notes that a User could
Exchange proposes to amend the Price outside the data center, third party terminate its co-location arrangement
List to provide and establish fees for access center, or third party vendor. The with the Exchange ‘‘and adopt a
connectivity to these service providers User may make such connection possible range of alternative strategies,
and certification/testing feeds.41 The through a third party including placing their servers in a
Exchange states that connectivity is telecommunication provider, third party physically proximate location outside
dependent on a User meeting the wireless network, the SFTI network, or the exchange’s [D]ata [C]enter (which
necessary technical requirements, a combination thereof.’’ 46 could be a competing exchange), or
paying the applicable fees, and the Finally, as more fully described in the pursuing strategies less dependent upon
Exchange receiving authorization from Notice of Amendment No. 3, as partially the lower exchange-to-participant
the relevant third party service provider modified by partial Amendment No. 4, latency associated with colocation.’’ 56
to make the connection.42 the Exchange also proposes to provide
For each service, a User must execute and establish fees for VCCs.47 A VCC III. Summary of Comments Received
a contract with the respective third (previously called a ‘‘peer to peer’’ and Exchange Responses
party service provider pursuant to connection) is a unicast connection The Commission received eight
which a User pays each the associated through which two participants can comment letters from six commenters
fee(s) for their services.43 Once the establish a connection between two on the proposed rule change, as
Exchange receives authorization from points over dedicated bandwidth using modified by Amendment Nos. 1 through
the third party service provider, the the IP network to be used for any 4.57 The Exchange submitted three
Exchange will enable a User to connect purpose.48 The proposed recurring letters in response to the comments.58
to the service provider and/or third monthly fees for VCCs are based upon
A. Comment Submitted Prior to the OIP
party certification and testing feed(s) the bandwidth requirements per VCC
over the IP Network.44 The proposed connection between two Users.49 The Commission received one
Connectivity to VCCs will similarly comment letter prior to publication of
37 See id. at 96058. require permission from the other User the OIP.59 The initial commenter
38 The Exchange states that it selects what before the Exchange will establish the requested that the Exchange provide
connectivity to Third Party Systems to offer in the
connection.50 As an alternative to using additional information on the history of
Data Center based on User demand. See id. at all of the proposed fees (which the
96055. In partial Amendment No. 4, the Exchange a VCC, Users can connect to other Users
removed the National Stock Exchange from the list through a cross-connect.51 commenter believed were already in
of Third Party Systems, noting that it is now owned The Exchange states in reference to all effect), and the relationship between the
by the Exchange’s parent. See partial Amendment fees and the Exchange’s costs to
No. 4, supra note 14. Establishing a User’s access
of the proposed services that in adding
to a Third Party System does not give the Exchange the fees it seeks to defray or cover its maintain the Data Center and provide
any right to use the Third Party Systems; costs in providing these voluntary co-location services.60 The commenter
connectivity to a Third Party System does not services to Users, and that in order to urged ‘‘additive transparency’’ to enable
provide access or order entry to the Exchange’s members to evaluate the fixed costs of
execution system, and a User’s connection to a
provide these services it must, among
Third Party System is not through the Exchange’s other things, provide, maintain and exchange membership and whether fees
execution system. See Notice of Amendment No. 3, operate the data center facility hardware were applied equitably.61 This
supra note 11, 81 FR at 96055. and technology infrastructure; and commenter also stated that broker-
39 The Exchange states that connectivity to DTCC
handle the installation, administration, dealers ‘‘may be practically required to
‘‘is distinct from the access to shared data services buy and consume proprietary market
for clearing and settlement services that a User monitoring, support and maintenance of
receives when it purchases access to the LCN or IP such services, including by responding data feeds directly from exchanges in
network. The shared data services allow Users and to any production issues.52 The order to provide competitive products
other entities with access to the Trading Systems to for those clients, and that the trading
post files for settlement and clearing services to environment ‘‘imposes a form of trading
access.’’ See Notice of Amendment No. 3, supra connection between the User and the relevant third
note 11, 81 FR at 96056 n. 25. party over the IP network. See id. at 96055. For the tax on all members by offering different
40 Certification feeds certify that a User conforms DTCC, ‘‘[t]he Exchange receives the DTCC feed over
its fiber optic network and, after DTCC and the User 53 See id.
to any of the relevant content service providers’
enter into the services contract and the Exchange 54 See id.
requirements for accessing Third Party Systems or
receives authorization from DTCC, the Exchange
receiving Third Party Data, whereas testing feeds 55 See id.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
provides connectivity to DTCC to the User over the
provide Users an environment in which to conduct 56 See id.
User’s IP network port.’’ See id. at 96056–96057.
system tests with non-live data. See Notice of 45 See id. at 96055–96057.
57 See supra notes 6 and 12. In addition, one
Amendment No. 3, supra note 11, 81 FR at 96056. commenter noted that it filed a denial of access
46 See id. at 96058.
41 See Notice of Amendment No. 3, supra note 11, petition on the proposal. See SIFMA I Letter at 1
47 See id. at 96057.
81 FR at 96055–96057. and SIFMA II Letter at 3.
42 See id. 48 See id. 58 See Response Letters I, II, and III, supra notes
49 See id.
43 See id. 6 and 13.
44 See id. For Third Party Systems, once the 50 See id. 59 See IEX I Letter, supra note 6.
51 See id. at 96058. 60 See id. at 1–2.
Exchange receives the authorization from the
respective third party it establishes a unicast 52 See id. 61 See id.
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![Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices 15745
methods of access to different fee for Premium NYSE Data Products as to entry for new participants.’’ 76
members.’’ 62 The commenter duplicative of fees already charged for Wolverine also estimated that its NYSE
questioned whether ‘‘there are any true bandwidth and access to the market market data costs have increased ‘‘over
alternatives that are practically available data product itself, and therefore that 700% over 8 years.’’ 77 Citadel similarly
to various types of participants who are this fee would result in an inequitable stated that ‘‘additive and layered fees
seeking to compete with those who are allocation of fees, inconsistent with are a persistent problem with exchange
paying exchanges for co-location and Section 6(b)(4) of the Act.70 Another fees more generally,’’ and urged scrutiny
data services,’’ and urged that the commenter similarly objected to an of the aggregate impact of fees, ‘‘in
Exchange provide information and additional connectivity/bandwidth particular with respect to market data
analysis on how its ability to set co- charge for each Premium NYSE Data products where exchanges have a
location fees is constrained by market Product as an example of ‘‘double monopoly as the initial distributors.’’ 78
forces for a ‘‘comparable product.’’ 63 dipping,’’ and a fee having ‘‘no merit’’ Clearpool stated, among other things,
In response, the Exchange replied that on its own.71 Additionally, some that market participants are beholden to
historical information about the commenters objected to the the exchanges for market data; that it is
development of its product offerings is reasonableness of the proposed not feasible for broker-dealers with best
‘‘not required by the Act and is not Premium NYSE Product Connectivity execution obligations to rely on SIP data
relevant to [ ] the substance of the Fee on the basis that there was no viable as an alternative to exchange proprietary
Proposal—which is, by definition, alternative to paying the fee to obtain data feeds; and that the role and cost of
forward looking . . . .’’ 64 The connectivity to the Premium NYSE Data using SIP and proprietary feeds should
Exchange added that costs are not its Products.72 be considered in connection with
only consideration in setting prices, but In response to comments on the Commission proposals to improve
rather that prices ‘‘include the Premium NYSE Product Connectivity Regulation NMS Rules 605 and 606
competitive landscape; whether Users Fee, the Exchange noted that it was no reporting.79 Clearpool advocated for the
would be required to utilize a given longer proposing that fee and that the Commission to ‘‘thoroughly review the
service; the alternatives available to questions posed in the OIP about that issues around market data’’ and to
Users; and, significantly, the benefits fee were moot.73 ensure that it is priced more
Users obtain from the services.’’ 65 In Some commenters opposed to the competitively and equitably for all
response to the commenter’s argument Premium NYSE Product Connectivity market participants.80 Clearpool also
regarding different methods of access to Fee also expressed broader concern stated that high costs prevent new
trading, the Exchange stated that ‘‘it is about ‘‘layered’’ and cumulative fees innovative technology services,
a vendor of fair and non-discriminatory charged by the Exchange to access including order routing, risk
access, and like any vendor with market data.74 Some of these management, and transaction cost
multiple product offerings, different commenters believe that the rising costs analysis services, from entering the
purchasers may make different choices related to the receipt of market data in market, and further, that increasing fees
regarding which products they wish to co-location over time effectively impose significantly reduce the margin that
purchase.’’ 66 The Exchange further a barrier to entry for smaller broker- smaller broker-dealers can earn on a
stated that co-location fees are not fixed dealers and new entrants, and are a transaction, putting them at a
costs to members, but costs to any User burden on competition.75 For example, disadvantage to larger firms that can
who voluntarily chooses to purchase Wolverine stated that it has an aggregate absorb these costs.81
such services based upon ‘‘[t]he form cost of ‘‘$123,750 per month of fixed In response to these comments, the
and latency of access and connectivity costs in co-location, port, and access Exchange challenged Wolverine’s
that bests suits a User’s needs.’’ 67 The fees today, solely for access to NYSE assessment that Exchange fees have
Exchange added that Users do not controlled markets,’’ which is ‘‘an increased by 700% over the past eight
require the Exchange’s access or amount which presents a steep barrier years, explaining that it was a
connectivity offerings in co-location to mischaracterization and did not
trade on the Exchange and can instead 70 See
represent a true comparison of the fees
Citadel Letter at 2; Clearpool Letter at 4.
use alternative access and connectivity 71 See Wolverine Letter at 3. See also Citadel
paid for particular data feeds in 2008 as
options for trading if they choose.68 Letter at 2; R2G Letter at 3 (each expressing concern compared to fees paid for those specific
about cumulative fees). feeds today.82 The Exchange also
B. Comments Following Publication of 72 See Citadel Letter at 3 (‘‘there is no readily
rejected Wolverine’s argument that all of
the OIP available substitute or equivalent means of access its costs–including the optional cage
to the Premium NYSE Data Products’’); Wolverine
(i) Comments on the Premium NYSE Letter at 3 (objecting to the statement ‘‘the Exchange surrounding its cabinets, power, cross
Product Connectivity Fee and is not the exclusive method to connect to Premium connects, network ports and
Cumulative Fees Generally NYSE Data Products’’ noting that it is ‘‘misleading connectivity—should be treated as costs
at best.’’). See also R2G Letter at 1–2 (stating, its related to market access.83 The
As noted above, the Commission view that the Prior Proposal ‘‘raises serious
specifically requested comment on the concerns’’ under the Exchange Act, but that Exchange stated, that ‘‘however self-
Premium NYSE Product Connectivity ‘‘Amendment No. 3 adequately addresses the servingly [Wolverine] tries to
Fee in the OIP.69 In response, some
original concerns,’’ and adding that it would, characterize them, these listed costs,
however, object if the Exchange similarly sought to
commenters objected to the apply the logic of Amendment No. 3 regarding 76 See Wolverine Letter at 3.
establishment of a separate connectivity Third Party Systems to any ‘‘NYSE Proprietary
asabaliauskas on DSK3SPTVN1PROD with NOTICES
77 See id. at 1 (also objecting to port and other
Product’’).
73 See Response Letter II at 4, 7–8. The Exchange charges (outside the scope of the Current Proposal)
62 See id. at 2. as unreasonable); see also R2G Letter at 3
63 See also stated, as discussed further below, that it did
id. (expressing agreement with Wolverine).
64 See Response Letter I, supra note 6, at 3.
not agree with commenters suggesting that a 78 See Citadel Letter at 2.
connectivity fee is indistinguishable from a market
65 See id. 79 See Clearpool Letter at 2–4.
data fee.
66 See id. at 5. 74 See Wolverine Letter at 1–3; Clearpool Letter at 80 See id. at 1, 4.
67 See id. at 4. 81 See id. at 3.
3; Citadel Letter at 3; R2G Letter 1, 3–6.
68 See id. 75 See Wolverine Letter at 1–3; Clearpool Letter at 82 See Response Letter II at 10 and n. 27.
69 See OIP, supra note 9 and Section II.A. supra. 3; Citadel Letter at 3. 83 See id. at 10.
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like rent and employee compensation of whether the Current Proposal’s paying a high number of rebates for
and benefits, are simply costs associated connectivity fees are reasonable, some liquidity, and firms are forced to
with Wolverine’s business activities. of these commenters argued that there is interact with it to avoid trade-
These business activities and a lack of competition for the Exchange’s throughs.96 Both IEX and SIFMA argued
Wolverine’s business judgment—not the co-location and data services generally, that in the absence of competition for
Exchange—determine the most effective and suggested a lack of viable the proposed services and fees (which,
way for Wolverine to select the products alternatives to the Current Proposal’s in SIFMA’s view are indistinguishable
and services it uses.’’ 84 proposed connectivity services and fees from market data fees), the Exchange
Regarding comments about market in particular.90 For instance, SIFMA should be required to discuss the
data and co-location fees more argued that the Exchange’s ability to set relationship between the proposed fees
generally, the Exchange responded that co-location fees is not constrained by and increasing Data Center costs, or
a User that chooses to receive market market forces because there is ‘‘no detail how the fee increases relate to the
data within co-location will incur comparable connectivity or product,’’ costs of providing the service, in order
several costs in addition to the cost a and low-latency alternatives to these to justify the proposed fees as
market data provider will charge for its services do not exist.91 SIFMA stated reasonable.97
data, including the costs associated with that ‘‘[a]ny alternative with severely In contrast, two commenters
the LCN or IP network port, power, increased latencies would not be a acknowledged the existence of
cross connects, and connectivity, but viable alternative.’’ 92 Similarly, IEX alternatives to some Exchange co-
the need for equipment and connections argued that if co-location services are location services.98 One of these
to enable receipt of a market data feed optional, and therefore need not be commenters noted that alternatives are
within co-location does not convert the purchased if the fees are excessive, then present for Third Party System
costs of such equipment and the Exchange should demonstrate how connectivity as evidenced by the fact
connections into market data fees.85 The firms are not placed at a competitive that it ‘‘finds NYSE’s third part[y]
Exchange also stated that some disadvantage if they elect to not receive system costs out of line and does not
commenters were using the Prior such services from the Exchange.93 In subscribe to this NYSE offering, instead
Proposal as a ‘‘departure point to particular, IEX suggested that the implementing this connectivity
discuss broader issues related to market Exchange provide data on the expected internally using a proprietary
data.’’ 86 The Exchange catalogued latency (or range of latencies) in network.’’ 99 Another commenter stated
comments about exchange fees for receiving data or transmitting orders that it ‘‘directly competes with NYSE for
proprietary market data products, the directly from the Exchange, compared to these [Third Party Systems] services and
effect of Commission proposals to the equivalent latency (or range) for does so at prices significantly lower
improve disclosure of order execution firms that rely on a third party access than the fees NYSE has proposed.’’ 100
and order routing information under center.94 IEX requested that the NYSE In response to comments that
Rules 605 and 606 of Regulation NMS, ‘‘explain whether it believes that this competitive forces do not constrain co-
and the payment of rebates for posted difference would not affect the ability of location fees and that alternatives to co-
liquidity as comments beyond the scope electronic market makers and other location services are lacking, the
trading firms and active agency brokers Exchange defended its representations
of the Current Proposal, as well as the
to compete with firms in the same that the proposed services are offered as
fees any one exchange might propose.87
businesses that have faster access, and a convenience to Users, are voluntary,
The Exchange also stated that market
if so how it reached this conclusion.’’ 95 and that Users have viable alternatives
participants are not required to co-locate
IEX also disputed that competition for to the proposed services.101 The
with or subscribe to proprietary market
order flow constrains pricing of co- Exchange stated that additional latency
data products from an exchange,
location services, arguing that NYSE in an alternative means of connectivity
emphasizing that firms using exchange
often displays protected quotes for does not negate the viability of that
market data products in co-location
certain stocks, a status it achieves by alternative,102 and that commenters
‘‘have chosen to build business models
arguing that only an ‘‘equivalent’’
based on speed.’’ 88
Citadel Letter at 3 (stating that ‘‘competitive
latency alternative is a viable alternative
(ii) Comments Regarding Competition pressures oblige broker-dealers to seek the most are misguided.103 The Exchange stated
and Alternatives to the Proposed Co- efficient access to markets and market data to that, ‘‘the Act does not require that there
Location Services execute orders . . .,’’ creating a risk for those firms be at least one third party option
that elect to trade with ‘‘slower and less efficient
Some commenters addressing both access.’’); R2G Letter at 3 (referring to an ‘‘ever
available that has exactly the same
the Prior Proposal and Amendment No. increasing need for speed’’); Wolverine Letter at 1 characteristics as a proposed service
(stating that it is ‘‘required to subscribe to the before a national securities exchange
3 suggested that co-location services in lowest latency NYSE market data products and can impose or change a fee for a
general are not optional.89 In the context services’’).
90 See IEX I Letter at 2, IEX II Letter at 1–3,
service,’’ adding that such a requirement
84 See id. SIFMA I Letter at 2 and SIFMA II Letter at 2.
would be ‘‘untenable, as every exchange
85 See id. at 5. Compare with comments alleging a lack of viable
alternatives to connectivity to Premium NYSE Data 96 See id. at 3. See also SIFMA II Letter at 2
86 See id.
87 See id. at 5–6. See also infra notes 117–127 Products, supra note 73. (expressing general agreement); see also SIFMA I
91 See SIFMA I Letter at 2. According to SIFMA, Letter at 3 (stating that the presence of a comment
discussing SIFMA’s comments characterizing a
‘‘the mere presence of the IEX Letter in the letter from IEX cuts against the argument that
variety of fees as market data fees and the
asabaliauskas on DSK3SPTVN1PROD with NOTICES
comment file’’ evidences of a lack of competitive competition for order flow constrains fees). See also
Exchange’s response.
88 See Response Letter II at 11–12. market forces to constrain pricing, because IEX is Citadel Letter at 2 (urging greater transparency
a competitor to the Exchange. See id. at 3. regarding the Exchange’s Data Center costs).
89 See IEX I Letter at 2 (best execution requires
97 See IEX II Letter at 3; SIFMA II Letter at 2.
92 See SIFMA I Letter at 3 (also stating ‘‘different
broker-dealer to have ‘‘effective access’’ to 98 See Wolverine Letter at 3; R2G Letter at 1–2.
exchanges); SIFMA II Letter at 4 (‘‘brokers are fees are charged for the different types of
99 See Wolverine Letter at 3.
legally obligated to seek best execution for their connectivity, with no rational basis, [is] unfairly
customers. They are required to consider the discriminatory between customers.’’) 100 See R2G Letter at 1–2.
93 See IEX II Letter at 2. 101 See Response Letter II at 6.
likelihood that a trade will be executed and
94 See id. 102 See id. at 7–8.
whether there is an opportunity to obtain a price
better than what is currently quoted.’’) See also 95 See id. 103 See id. at 7.
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![Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices 15747
would have to have an exact duplicate exclusively on latency as the only cage fees, which are necessary in order
before it could charge a fee.’’ 104 Rather, relevant consideration, ‘‘Users with to obtain the market data from NYSE,’’
the relevant question is whether a different investment strategies or ‘‘however labeled, are market data
proposed fee would be ‘‘an equitable business models may focus on other fees.’’ 117 SIFMA also noted that it had
allocation of reasonable dues, fees, and characteristics, including redundancy, submitted a ‘‘properly filed 19(d) denial
other charges among Users in the data resiliency, cost, and the services that of access petition on the proposal,’’ but
center; does not unfairly discriminate third parties offer but the Exchange does had requested that it be ‘‘held in
between customers, issuers, brokers, or not, such as managed services.’’ 110 The abeyance pending the decision in the
dealers; and does not impose a burden Exchange stated that alternatives exist NetCoalition follow-on proceedings
on competition which is not necessary as evidenced by the fact that ‘‘there are . . . .’’ 118 SIFMA urged however, that
or appropriate in furtherance of the at least six Users within the co-location such petition, despite its abeyance, not
purposes of the Act.’’ 105 The Exchange hall that offer other Users or hosted be ignored.119
noted that it did not represent that the customers access to trading or
connectivity alternatives available to co- connectivity to market data, including In response to SIFMA on these points,
located Users (including alternatives for the two other exchanges that are co- the Exchange stated that, ‘‘NetCoalition
connectivity to Premium NYSE Data located with the Exchange, as well as addressed the standards governing
Products) are exactly the same as those the fact that Users may contract with proprietary market data fees,’’ and that
proposed, but rather that the cited any of the 15 telecommunication it is ‘‘incorrect’’ to characterize the
alternatives show that Users have the providers—including five third party Current Proposal as establishing market
option ‘‘to receive the same market data, wireless networks—available to Users to data fees.120 The Exchange stated:
or make the same trades, in other connect to third party vendors.’’ 111 The the fact that a User needs to have a port,
manners.’’ 106 The Exchange added that Exchange also noted that the power, and connectivity in place in order to
its cited alternatives ‘‘offer distinct alternatives are possible in part because be able to receive a market data feed within
services and pricing structures that the Exchange voluntarily allows Users co-location does not convert the costs of such
some Users may find more attractive to provide services to other Users and equipment and connections into market data
than those proposed by the Exchange,’’ third parties out of the Exchange’s co- fees. Rather, they are costs associated with
and that these alternatives are ‘‘real,’’ location facility—that is, to compete the User’s business activities. If a User opts
even if not all Users will find them with the Exchange using the Exchange’s to put a cage around its servers in the
equally attractive for their individual own facilities.112 For example, colocation hall, the cage fee it pays is a cost
business model.107 The Exchange stated according to the Exchange, ‘‘a User that it chooses to incur in connection with the
that the viability of alternatives is wished to receive Nasdaq market data way it has chosen to do business, not a
‘‘underscored by the Wolverine Letter, could connect directly to the Nasdaq market data fee.121
which explicitly states that it does not server within co-location.’’ 113
object to the proposed fees for access to Therefore, the Exchange believes that The Exchange distinguished the
Third Party Systems in the Current contrary to commenters’ beliefs, the services and fees proposed in the
Proposal on the basis that firms may Exchange’s cited alternatives offer Current Proposal from market data fees,
contract with other parties or contract comparable services that can be used in emphasizing that they are connectivity
directly with network providers.’’ 108 lieu of receiving Exchange offered fees or access fees applicable when a
The Exchange added that, ‘‘[I]t is the services, and that there are competitive User chooses to utilize connectivity or
Exchange’s understanding that a User forces constraining pricing.114 access services within co-location.122
could access Third Party Systems and SIFMA raised additional arguments. The Exchange noted that two of the
connect to Third Party Data Feeds, third SIFMA urged that ‘‘[t]he proposed proposed fees are for services that
party testing and certification feeds, and connectivity fees should be reviewed in facilitate Users’ trading activities, and
DTCC using one or more of the listed a manner consistent with the decisions have nothing to do with market data: a
alternatives without increasing its of the United States Court of Appeals for proposed fee for access within co-
latency levels—and, in many cases, the the District of Columbia Circuit’’ in location to the execution systems of
alternatives would offer lower NetCoalition v. SEC, because says third party markets and other content
latency.’’ 109 SIFMA, they are market data fees.115 service providers, and a proposed fee for
Further, the Exchange emphasized SIFMA took the position that under connectivity within co-location to DTCC
that while some commenters focus NetCoalition I (615 F.3d 525 (D.C. Cir. services, such as clearing, fund transfer,
2010)) an exchange’s assertion that insurance, and settlement services.123
104 See id. at 8. order flow competition constrains The Exchange similarly distinguished
105 See id. pricing of data is insufficient.116 More the proposed connectivity fee for third
106 See id. The Exchange also noted that
specifically, in SIFMA’s view ‘‘port, party testing and certification feeds as
Clearpool is not a co-location customer of the
Exchange, which the Exchange believes illustrates power, cross connect, connectivity and not equivalent to providing a customer
that market participants can and do avail
117 See SIFMA II Letter at 3. See also SIFMA I
themselves of alternatives for connecting to NYSE 110 See id. at 8 n.16.
market data products. See id. 111 See Letter at 4 (stating that market data fees, port fees,
id. at 9.
107 See id. In addition, in response to IEX’s
112 See id.
hardware fees and connectivity fees are all ‘‘within
suggestion that the Exchange provide data on the 113 See id. at 10 n.24.
the ambit of the NetCoalition decisions.’’)
expected latency (or range of latencies) in receiving 118 See SIFMA I Letter at 1; SIFMA II Letter at 3.
114 See id. at 9.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
data or transmitting orders directly from the Data 119 See SIFMA II Letter at 3.
115 See SIFMA II Letter at 2–3 (citing NetCoalition
Center, compared to the expected latency (or range) 120 See Response Letter III at 3–4.
for firms that rely on a third party access center, the I, 615 F.3d 525 (D.C. Cir. 2010); NetCoalition II, 715
121 See id. at 4 (emphasis in original).
Exchange stated it could not do so without having F.3d 342 (D.C. Cir. 2013)).
122 See id. at 5–6. The Exchange noted that
access to the latency data of third parties, or each 116 SIFMA I Letter at 3 (noting that ‘‘[t]he Court’s
User’s specific system configuration and latency NetCoalition decisions, the controlling law on this SIFMA did not address VCC fees. See id. at 5, n.
needs and therefore could not satisfy IEX’s subject, rejected this order flow argument because, 17.
‘‘deliberately impossible requirement.’’ See id. at 7. like here, there was no support for the assertion that 123 See id. at 5–6 (also noting that fees for Third
108 See id. at 9. The Exchange did not similarly Party System and DTCC connectivity vary by
order flow competition constrained the ability of
address the R2G Letter. the exchange to charge supracompetitive prices for bandwidth and are generally proportional to the
109 See id. at 9–10. data.’’). bandwidth required).
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![15748 Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices
with market data.124 Addressing the with Section 6(b)(4) of the Act,129 which (SFTI) network, or a combination
proposed connectivity fee for Third requires that an exchange have rules thereof.135 Furthermore, the Exchange
Party Data Feeds within co-location, the that provide for the equitable allocation points out that alternatives to the
Exchange noted that this proposed fee of reasonable dues, fees and other Exchange’s access and connectivity
‘‘has more often been mistaken for a charges among its members, issuers and services also exist inside the Data
market data fee,’’ but distinguished the other persons using its facilities; Section Center, as evidenced by the fact that
service of providing a User with 6(b)(5) of the Act,130 which requires that ‘‘there are at least six Users within the
connectivity to Third Party Data Feeds the rules of an exchange be designed, co-location hall that offer other Users or
from the service that the third party among other things, to prevent hosted customers access to trading or
providing the market data provides by fraudulent and manipulative acts and connectivity to market data, including
sending the data over the connection, practices, to promote just and equitable the two other exchanges that are co-
noting that the third party content principles of trade, to remove located with the Exchange, as well as
service provider charges the User the impediments to and perfect the the fact that Users may contract with
market data fee.125 mechanism of a free and open market any of the 15 telecommunication
The Exchange did not agree with and a national market system and, in providers—including five third party
SIFMA’s contention that the Current general, to protect investors and the wireless networks—available to Users to
Proposal would establish market data public interest, and not be designed to connect to third party vendors.’’ 136 The
fees, nor agree that NetCoalition permit unfair discrimination between Exchange notes that these alternatives
standard was applicable to the Current customers, issuers, brokers or dealers; are possible because the Exchange
Proposal,126 but instead stated, ‘‘[t]here and Section 6(b)(8) of the Act,131 which allows Users to provide services to other
is significant competition for the prohibits any exchange rule from Users and third parties out of the
connectivity relevant to the Current imposing any burden on competition Exchange’s co-location facility—that is,
Proposal;’’ and ‘‘even if the NetCoalition that is not necessary or appropriate in to compete with the Exchange using the
standard did apply, the Current furtherance of the Act.132 Exchange’s own facilities.137
Proposal satisfies it.’’ 127 As discussed more fully above, some The Commission has carefully
Regarding SIFMA’s denial of access commenters oppose the proposed co- considered the comments and the
petition, the Exchange responded that a location fees on the basis that viable Exchange’s response concerning the
denial of access petition is not a alternatives to the Exchange’s co- availability of alternatives to the
comment letter, and should not be location services are lacking, and Exchange’s proposed access and
treated as such given that SIFMA itself particularly that similar low-latency connectivity services. In addition, the
has requested that its denial of access alternatives to the Exchange’s co- Commission notes that two commenters
petition on fee filings be held in location services do not exist.133 expressed the view that viable
abeyance pending a decision in the According to these commenters, the lack alternative means of accessing Third
NetCoalition follow-on proceedings.128 of viable alternatives means that Party Systems are available.138 The
competitive forces do not constrain Commission believes that viable
IV. Discussion and Commission Exchange pricing of co-location alternatives to the Exchange’s proposed
Findings services, and the Exchange’s proposed co-location services are available which
After careful consideration of the fees should be subject to a cost-based bring competitive forces to bear on the
proposed rule change, as modified by assessment.134 fees set forth in the Current Proposal.139
Amendment Nos. 1 through 4, the In response to these comments, the Also, as discussed above, some
comments received, and the Exchange’s Exchange counters that co-location commenters expressed concern that the
responses to the comments, the Users have several alternatives to the proposed fees would impose a barrier to
Commission finds that the proposed Exchange’s proposed services, both
rule change, as modified by Amendment inside and outside the Data Center. The 135 See Response Letter II at 6.
Nos. 1 through 4, is consistent with the Exchange explains that as alternatives to 136 See id. at 9.
137 See id.
requirements of the Act and the rules using the access to Third Party Systems,
138 See supra notes 98–100. One of these
and regulations thereunder applicable to and connectivity to Third Party Data
commenters also stated its view that Amendment
a national securities exchange. In Feeds, third party testing and No. 3 addressed the concerns raised in the OIP. See
particular, the Commission finds that certification feeds, and DTCC, provided supra note 72. Furthermore, the Exchange’s
the proposed rule change is consistent by the Exchange, a User may access or proposal with respect to connectivity to Third Party
connect to such services and products Data Feeds is not novel, given that Nasdaq similarly
charges connectivity fees for third party data feeds,
124 See id. at 5 (also noting that fees for through an Exchange access center, as reflected on its co-location fee schedule. See
connectivity to third party testing and certification third party access center, or a third Nasdaq Rule 7034.
feeds reflect that bandwidth requirements are
generally not large, and the relatively low fee may
party vendor outside the Data Center, 139 See also Securities Exchange Act Release No.
and may do so using a third party 34–62397 (June 28, 2010); Securities Exchange Act
encourage Users to conduct tests and certify
Release No. 34–66013 (December 20, 2011), 76 FR
conformance, which the Exchange believes telecommunication provider, a third 80992 (December 27, 2011) (noting ‘‘that members
generally benefits the markets). party wireless network, the Secure
125 See id. at 5–6 (also noting that the fees for
may choose not to obtain low latency network
Financial Transaction Infrastructure connectivity through the Exchange and instead
Third Party Data Feeds vary because Third Party negotiate connectivity options separately through
Data Feeds vary in bandwidth; proximity to the other vendors on site’’); Securities Exchange Act
129 15 U.S.C. 78f(b)(4).
Exchange, requiring different circuit lengths; fees
asabaliauskas on DSK3SPTVN1PROD with NOTICES
130 15 Release No. 34–76748 (finding the establishment of
charged by the third party provider, such as port U.S.C. 78f(b)(5).
an exclusive wireless connection consistent with
feeds; and levels of User demand). 131 15 U.S.C. 78f(b)(8).
the Act because, among other reasons, the
126 See id. at 3. See also Response Letter II at 13. 132 In approving this proposed rule change, the
alternatives suggested provided the same or similar
127 See Response Letter III at 3. See also Response Commission has considered the proposed rule’s speeds as compared to the NYSE’s wireless
Letter II at 13. impact on efficiency, competition, and capital connectivity); Securities Exchange Act Release No.
128 See Response Letter III at 3. See also Response formation. See 15 U.S.C. 78c(f). 34–68735 (finding the establishment of an exclusive
133 See supra notes 63, 89–95, and accompanying
Letter II at 13; SIFMA Letter II at 3 (noting that wireless connection consistent with the Act
‘‘SIFMA’s 19(d)s will be held in abeyance pending text. because, among other reasons, the alternatives
the decision in the NetCoalition follow-on 134 See supra notes 60, 97, 115–117 and suggested provided the same or similar speeds as
proceedings . . .’’). accompanying text. compared to Nasdaq’s wireless connectivity).
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![Federal Register / Vol. 82, No. 60 / Thursday, March 30, 2017 / Notices 15749
entry on smaller broker-dealers and new Commission and any person, other than NYSE MKT and NYSE Arca.144 The
entrants, and a burden on those that may be withheld from the Commission believes that partial
competition.140 The Commission does public in accordance with the Amendment No. 4 does not raise issues
not believe that the Current Proposal provisions of 5 U.S.C. 552, will be not previously raised in the proposed
would impose a burden on competition available for Web site viewing and rule change, as modified Amendment
inconsistent with the Act because, as printing in the Commission’s Public Nos. 1–3, and addressed in Exchange
discussed above, viable alternatives to Reference Room, 100 F Street NE., Response Letters I, II, and III.
the Exchange’s proposed services exist, Washington, DC 20549–1090, on official Accordingly, the Commission finds
both inside and outside the Data Center. business days between the hours of good cause, pursuant to Section 19(b)(2)
Finally, the Commission notes that 10:00 a.m. and 3:00 p.m. Copies of such of the Act,145 to approve the proposed
several commenters believed the filing will also be available for rule change, as modified by Amendment
originally proposed NYSE Premium inspection and copying at the principal Nos. 1–4, on an accelerated basis.
Connectivity Fee to be duplicative and office of the Exchange. All comments
received will be posted without change; VII. Conclusion
an inequitable allocation of fees.141
Because the Exchange eliminated that the Commission does not edit personal It is therefore ordered, pursuant to
fee in Amendment No. 3, the identifying information from Section 19(b)(2) of the Act,146 that the
Commission believes that these submissions. You should submit only proposed rule change (SR–NYSE–2016–
concerns have been addressed.142 information that you wish to make 45) be, and hereby is, approved on an
Accordingly, the Commission finds available publicly. All submissions accelerated basis.
that the Current Proposal is consistent should refer to File Number SR–NYSE– For the Commission, by the Division of
with the Act. 2016–45 and should be submitted on or Trading and Markets, pursuant to delegated
before April 20, 2017. authority.147
V. Solicitation of Comments on Partial
Amendment No. 4 VI. Accelerated Approval of Proposed Eduardo A. Aleman,
Rule Change, as Modified by Assistant Secretary.
Interested persons are invited to Amendment Nos. 1–4 [FR Doc. 2017–06258 Filed 3–29–17; 8:45 am]
submit written data, views, and
arguments concerning the foregoing, The Commission finds good cause to BILLING CODE 8011–01–P
including whether partial Amendment approve the proposed rule change, as
No. 4 is consistent with the Exchange modified by Amendment Nos. 1–4, prior
to the thirtieth day after the date of SECURITIES AND EXCHANGE
Act. Comments may be submitted by COMMISSION
any of the following methods: publication of notice of the amended
proposal in the Federal Register. The
Electronic Comments [Release No. 34–80303; File No. SR–FICC–
revisions made to the proposal in partial
2017–005]
• Use the Commission’s Internet Amendment No. 4 143 (1) removed
comment form (http://www.sec.gov/ reference to the National Stock Self-Regulatory Organizations; Fixed
rules/sro.shtml); or Exchange (NSX) from its list of Third Income Clearing Corporation; Notice of
• Send an email to rule-comments@ Party Systems, (2) added three Filing of Proposed Rule Change To
sec.gov. Please include File Number SR– additional Third Party Data Feeds—ICE Establish the Centrally Cleared
NYSE–2016–45 on the subject line. Data Services Consolidated Feed, ICE Institutional Triparty Service and Make
Data Services PRD, and ICE Data Other Changes
Paper Comments Services PRD CEP, (3) added
• Send paper comments in triplicate connectivity fees for each of the newly March 24, 2017.
to Secretary, Securities and Exchange added Third Party Data feeds. With Pursuant to Section 19(b)(1) of the
Commission, 100 F Street NE., respect to NSX, the Exchange represents Securities Exchange Act of 1934
Washington, DC 20549–1090. that NSX was acquired by the NYSE (‘‘Act’’),1 and Rule 19b–4 thereunder,2
Group on January 31, 2017, making it no notice is hereby given that on March 9,
All submissions should refer to File longer a Third Party System. The 2017, Fixed Income Clearing
Number SR–NYSE–2016–45. This file Commission believes this Corporation (‘‘FICC’’) filed with the
number should be included on the characterization is consistent with the Securities and Exchange Commission
subject line if email is used. To help the NYSE Group’s similarly situated (‘‘Commission’’) the proposed rule
Commission process and review your affiliated exchanges, NYSEArca and change as described in Items I, II and III
comments more efficiently, please use NYSEMKT, which, like NSX are solely below, which Items have been prepared
only one method. The Commission will within the NYSE Group’s control. by the clearing agency.3 The
post all comments on the Commission’s Regarding the ICE Data Services feeds, Commission is publishing this notice to
Internet Web site (http://www.sec.gov/ the Exchange notes that it has an
rules/sro.shtml). Copies of the indirect interest in these feeds because 144 See id.
submission, all subsequent ICE Data Services is owned by the 145 15 U.S.C. 78s(b)(2).
amendments, all written statements Exchange’s ultimate parent, 146 See id.
with respect to the proposed rule Intercontinental Exchange, Inc. As 147 17 CFR 200.30–3(a)(12).
change that are filed with the represented in partial Amendment No. 1 15 U.S.C. 78s(b)(1).
Commission, and all written 4, the Exchange considers the ICE Data 2 17 CFR 240.19b–4.
asabaliauskas on DSK3SPTVN1PROD with NOTICES
communications relating to the Services Consolidated Feed (like the 3 On March 9, 2017, FICC filed this proposed rule
proposed rule change between the change as an advance notice (SR–FICC–2017–803)
NYSE Global Index feed), a Third Party with the Commission pursuant to Section 806(e)(1)
Data Feed because it includes third of the Dodd-Frank Wall Street Reform and
140 Seesupra notes 75–81 and accompanying text. party market data rather than Consumer Protection Act entitled the Payment,
141 Seesupra notes 70–72 and accompanying text.
exclusively the proprietary market data Clearing, and Settlement Supervision Act of 2010,
142 The Commission believes that comments 12 U.S.C. 5465(e)(1), and Rule 19b–4(n)(1)(i) of the
expressing concerns about proprietary market data of the Exchange and its affiliated SROs, Act, 17 CFR 240.19b–4(n)(1)(i). A copy of the
fees more generally are outside the scope of the advance notice is available at http://www.dtcc.com/
Current Proposal. 143 See partial Amendment No. 4, supra note 14. legal/sec-rule-filings.aspx.
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Document Created: 2017-03-30 01:35:21
Document Modified: 2017-03-30 01:35:21
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| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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| FR Citation | 82 FR 15741 |
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