82 FR 20923 - Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendments No. 1, 2, 3, 4, and 5 and Order Granting Accelerated Approval of a Proposed Rule Change, as Amended, To Establish the Third Party Connectivity Service
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 85 (May 4, 2017)
Federal Register Volume 82, Issue 85 (May 4, 2017)
| Page Range | 20923-20926 | |
| FR Document | 2017-08983 |
[Federal Register Volume 82, Number 85 (Thursday, May 4, 2017)] [Notices] [Pages 20923-20926] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-08983] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-80558; File No. SR-NASDAQ-2016-120] Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendments No. 1, 2, 3, 4, and 5 and Order Granting Accelerated Approval of a Proposed Rule Change, as Amended, To Establish the Third Party Connectivity Service April 28, 2017. I. Introduction On August 16, 2016, the Nasdaq Stock Market LLC (``Nasdaq'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to establish the third party connectivity service. The proposed rule change was published for comment in the Federal Register on September 2, 2016.\4\ The Commission received one comment letter regarding the proposal on September 12, 2016.\5\ Nasdaq responded to the comment letter on October 4, 2016.\6\ On October 5, 2016, the Commission designated a longer period for Commission action on the proposed rule change.\7\ Subsequently, the Commission received three additional comment letters regarding the proposal: One from Virtu Financial, another from Bats responding to Nasdaq's Letter, and a third from SIFMA.\8\ On November 30, 2016, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.\9\ Thereafter, the Commission received comments from IEX, SIFMA, KCG Holdings, and Citadel Securities \10\ regarding the proposed rule change and Nasdaq responded to the comments and filed Amendment No. 1.\11\ On January 31, 2017, the Exchange filed Amendment No. 2 to the proposed rule change.\12\ The Commission received two comment letters one from Bats and another from IEX on the amended proposal.\13\ On April 3, 2017, the Exchange filed Amendment No. 3 to the proposed rule change.\14\ On April 13, 2017, the Exchange filed Amendment No. 4.\15\ On April 18, 2017, the [[Page 20924]] Exchange filed Amendment No. 5 to the proposed rule change.\16\ The Commission is publishing this notice to solicit comment on the proposed rule change, as amended, and is approving the proposed rule change, as amended, on an accelerated basis. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. \4\ See Securities Exchange Act Release No. 78713 (August 29, 2016), 81 FR 60768 (``Notice''). \5\ See letter from Eric Swanson, Esq., General Counsel, Bats Global Markets, Inc., to Brent J. Fields, Secretary, Commission, dated September 12, 2016 (``Bats Letter I''). \6\ See letter from Jeffrey S. Davis, Vice President and General Counsel, Nasdaq Stock Market LLC, to Brent J. Fields, Secretary, Commission, dated October 4, 2016 (``Nasdaq Letter I''). \7\ See Securities Exchange Act Release No. 79049, 81 FR 70452 (October 12, 2016). \8\ See letters from Douglas A. Cifu, Chief Executive Officer, Virtu Financial, dated October 6, 2016 (``Virtu Letter''), Eric Swanson, General Counsel, Bats Global Markets, Inc., dated October 12, 2016 (``Bats Letter II''), and Melissa McGregor, Managing Director and Associate General Counsel, Securities Industry and Financial Markets Association (``SIFMA''), dated November 23, 2016 (``SIFMA Letter I''), to Brent J. Fields, Secretary, Commission. \9\ See Securities Exchange Act Release No. 79431, 81 FR 87981 (December 6, 2016) (``OIP''). \10\ See letters from John Ramsay, Chief Market Policy Officer, IEX Group, Inc. (``IEX''), dated December 9, 2016 (``IEX Letter I''), Melissa McGregor, Managing Director and Associate General Counsel, SIFMA, dated December 20, 2016 (``SIFMA Letter II''), John A. McCarthy, General Counsel, KCG Holdings, Inc. (``KCG Holdings''), dated December 23, 2016 (``KCG Letter''), and Adam C. Cooper, senior Managing Director and Chief Legal Officer, Citadel Securities (``Citadel''), dated December 27, 2016 (``Citadel Letter''), to Brent J. Fields, Secretary, Commission. \11\ See letter from T. Sean Bennett, Principal Associate General Counsel, Nasdaq Inc., to Brent J. Fields, Secretary, Commission, dated January 26, 2017 (``Nasdaq Letter II''). \12\ Amendment No. 1 was missing a required exhibit, therefore it was withdrawn and replaced by Amendment No. 2. See Amendment No. 2. The substance of Amendment No. 1 was the same as the substance of Amendment No. 2. \13\ See letters from Eric Swanson, Esq., General Counsel, Bats Global Markets, Inc., dated February 6, 2017 (``Bats Letter III'') and John Ramsay, Chief Market Policy Officer, IEX, dated February 15, 2017 (``IEX Letter II'') to Brent J. Fields, Secretary, Commission. \14\ See Amendment No. 3. Amendment No. 3 amended the filing to include the Assumption of Liability form. \15\ See Amendment No. 4 which was withdrawn and replaced by Amendment No. 5. \16\ See Amendment No. 5. Amendment No. 5 amended the text of the proposed rule change in response to the comments and withdrew Amendment No. 4. Amendment No. 4 included the same substantive changes to the rule change however, it was not properly filed. --------------------------------------------------------------------------- II. Description of the Proposed Rule Change The Exchange proposes to adopt the third party connectivity service that will segregate connectivity to the Exchange and its proprietary data feeds from connectivity to third party services and data feeds, including the UTP SIP data feeds.\17\ Nasdaq states that this segregation is necessary because of increased capacity requirements, noting recent changes to the Consolidated Tape Association (``CTA'') and Options Price Reporting Authority (``OPRA'') feeds \18\ as well as planned changes to the Unlisted Trading Privileges (``UTP'') Plan data feeds.\19\ --------------------------------------------------------------------------- \17\ Third party services include not only SIP data feeds, but also data feeds from other exchanges and markets. For example, third party connectivity will support connectivity to the FINRA/Nasdaq Trade Reporting Facility, BATS Depth Feeds, and NYSE Feeds. See Notice, 81 FR at 60769 n.10. \18\ See https://www.nyse.com/publicdocs/ctaplan/notifications/traderupdate/CTA%20SIP%201Q16%20Consolidated%20Data%20Operating%20Metrics%20Report.pdf; see also, http://www.opradata.com/specs/opra_bandwidth_apr2016.pdf. \19\ The UTP SIP feeds are comprised of a UTP Quote Data Feed (``UQDF'') and a UTP Trade Data Feed (``UTDF''). The UQDF provides continuous quotations from all market centers trading Nasdaq-listed securities. The UTDF provides continuous last sale information from all market centers trading Nasdaq-listed securities. See http://www.utpplan.com/. --------------------------------------------------------------------------- The third party connectivity service will be available to non-co- location and co-location customers and will enable customers to receive third party market data feeds, including SIP data, and other non- exchange services independent of Nasdaq proprietary feeds. In the proposal, Nasdaq stated that customers using 1Gb circuits to connect to the UTP SIP feeds would need to upgrade to a 10Gb Ultra circuit because of the increase in bandwidth requirements for the new feeds.\20\ Customers seeking connectivity to the Exchange and its proprietary data feeds may continue to do so through the existing connectivity options under Rule 7034(b) and Rule 7051(a).\21\ Customers that do not wish to subscribe to the third party connectivity service may connect through an extranet provider or a market data redistributor. The Exchange is proposing to offer services currently available to direct connectivity subscribers under Rule 7051 to subscribers to third party connectivity services because Nasdaq believes they may have the same connectivity needs as customers of the existing direct connectivity service.\22\ --------------------------------------------------------------------------- \20\ In response to comments, Nasdaq amended the filing to permit the use of 1Gb Ultra connections and proposed that subscribers sign an Assumption of Liability form indicating that they were aware of the risks of using a 1Gb connection and would hold Nasdaq harmless. See Amendments No. 2 and 3. Nasdaq amended the proposal again to replace the Assumption of Liability form with the Capacity Acknowledgement form. See Amendment No. 5. \21\ See Notice, 81 FR at 60769. \22\ See id. --------------------------------------------------------------------------- The Exchange proposes to assess fees for the third party connectivity service. The fee for installation of either a 10Gb Ultra or 1Gb Ultra third party services co-location or direct connectivity subscription would be $1,500. The monthly fee for a 10Gb Ultra connection would be $5,000 and for a 1Gb Ultra connection the fee would be $2,000. The proposal as amended provides that every customer may receive two third party circuit connections free of charge if used solely to receive the UTP SIP feeds (i.e., the UTDF and UQDF feeds) (``UTP-only use'').\23\ The Exchange proposes to provide UTP-only connectivity beyond the two free connections, for an installation fee of $100 per connection and an ongoing monthly fee of $100 per connection and will offer UTP-only connectivity through either a 1Gb Ultra or a 10Gb Ultra connection.\24\ The Exchange also proposes to allow customers to elect to receive UTP SIP data through a 1Gb Ultra option in lieu of the 10Gb Ultra option if the customer acknowledges that the subscriber is aware of the risks associated with such an election.\25\ Finally, the Exchange proposes to extend the waiver of the fees from February 28, 2017, through the end of April 2017. --------------------------------------------------------------------------- \23\ See Amendment No. 5. \24\ See Amendment No. 5. \25\ See Amendment No. 5. Under the proposal, as amended by Amendment No. 5, the Exchange replaced the Assumption of Liability form with a Capacity Acknowledgement form, requiring each subscriber that elects to use the 1Gb Ultra connectivity to receive UTP-only data to acknowledge the risks associated with such connectivity. --------------------------------------------------------------------------- III. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change, as amended, 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,\26\ which requires that the rules of a national securities exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities, Section 6(b)(5) of the Act,\27\ which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, to protect investors and the public interest, and not to permit unfair discrimination between customers, issuers, brokers, or dealers, and Section 6(b)(8) of the Act,\28\ which requires that the rules of a national securities exchange not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78f(b)(4). \27\ 15 U.S.C. 78f(b)(5). \28\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- As noted above, the Commission received ten comment letters from six commenters on the proposed rule change.\29\ All of the commenters object to the proposal. The Commission also received two response letters from Nasdaq: One responding to Bats, the second responding to IEX, SIFMA, KCG Holdings, and Citadel.\30\ In addition, Nasdaq amended its proposal to address the concerns raised by commenters.\31\ --------------------------------------------------------------------------- \29\ See supra notes 5, 8, 10, 13. \30\ See Nasdaq Letters I and II. \31\ See Amendments No. 2, 3 and 5. --------------------------------------------------------------------------- The commenters raise three main concerns with the proposal. First, commenters assert that the proposal addresses a matter properly governed by the UTP Plan, the terms of which require approval of the proposal by the UTP Operating Committee.\32\ Second, the commenters assert that Nasdaq would benefit from the proposal to the detriment of customers seeking access to UTP SIP data because subscribers who wish to continue to receive the UTP SIP feed would incur additional costs to receive data that they currently receive in a bundle with Nasdaq proprietary [[Page 20925]] data.\33\ Third, the commenters question the need for enhanced capacity.\34\ --------------------------------------------------------------------------- \32\ The Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (``The UTP Plan'') is administered by its participants through an operating committee (``UTP Operating Committee'') which is composed of one representative designated by each participant of the plan. See, e.g., Sections IV.A., B.3, and IV.C.2 of the UTP Plan, and Securities Exchange Act Release No. 55647 (April 19, 2007), 72 FR 20891 (April 26, 2007). \33\ See e.g., Bats Letter I at 3-5; Bats Letter II at 2-3; Bats Letter III at 3-4; Virtu Letter at 1-2; SIFMA Letter I at 2-3; IEX Letter I at 1; SIFMA Letter II at 2; KCG Letter at 2; Citadel Letter at 2; IEX Letter II at 2. \34\ See Bats Letter I at 3-5; Bats Letter II at 2-3; Bats Letter III at 3-4; Virtu Letter at 1-2; SIFMA Letter I at 2-3; IEX Letter I at 1; SIFMA Letter II at 2; KCG Letter at 2; Citadel Letter at 2; IEX Letter II at 2. --------------------------------------------------------------------------- Commenters argue that the proposal constitutes an access fee for direct access to UTP data which must be approved by the UTP operating committee under the UTP Plan.\35\ In addition, according to commenters, the proposal targets UTP data recipients and extends the scope of the UTP system to include customer connectivity, because Nasdaq is the sole provider of direct access to UTP data, and therefore firms seeking direct access to UTP data would be required to subscribe to and pay for the proposed third party connectivity service.\36\ --------------------------------------------------------------------------- \35\ See Bats Letter I at 1-2; Bats Letter II at 3-4; Bats Letter III at 2-3; SIFMA Letter I at 2; IEX Letter I at 1; SIFMA Letter II at 2; KCG Letter at 3-4; IEX Letter II at 1-2. \36\ See e.g., Bats Letter I at 3-5; Bats Letter II at 2-3; Bats Letter III at 3-4; Virtu Letter at 1-2; SIFMA Letter I at 2-3; IEX Letter I at 1; SIFMA Letter II at 2; KCG Letter at 2; Citadel Letter at 2; IEX Letter II at 2. --------------------------------------------------------------------------- In response, Nasdaq notes that it has controlled the network and network connectivity without input from the UTP operating committee for over 25 years,\37\ and that neither the UTP Plan nor the processor agreement grants the UTP operating committee authority over the network or network connectivity associated with SIP data.\38\ Nasdaq also asserts that the proposal does not target UTP data recipients because UTP SIP data is combined with, and carried on, the same network as data from other sources.\39\ To further address these concerns, Nasdaq filed Amendment No. 5.\40\ First, Nasdaq will offer every customer two third party connections for UTP-only use at no cost.\41\ Second, Nasdaq will allow customers to select a 1Gb Ultra or 10Gb Ultra port to connect to SIP data, both for the free connections provided by Nasdaq and for additional connections to which they subscribe.\42\ Furthermore, connections for UTP-only use beyond the two free connections will be available for $100 a month in addition to a $100 installation fee, significantly below the charge to receive Nasdaq proprietary data.\43\ Subscribers electing to receive UTP-only data using a 1Gb Ultra connection would be required to complete a Capacity Acknowledgement form acknowledging in writing the risks associated with such connectivity, though not relieving Nasdaq of liability.\44\ Nasdaq believes these changes are responsive to the concerns raised by the commenters.\45\ --------------------------------------------------------------------------- \37\ See Nasdaq Letter I at 2-4. \38\ Nasdaq noted that the UTP Plan does not explicitly address connectivity fees. See Nasdaq Letter I at 2. \39\ See Nasdaq Letter I at 3. \40\ See Amendment No. 5. \41\ See e.g. Nasdaq Letter II at 2-3; Amendment No. 5. \42\ See id. \43\ See id. \44\ See Exhibit 3 to Amendment No. 5. \45\ See Nasdaq Letter II. --------------------------------------------------------------------------- All commenters challenge the technical necessity of the proposal. Bats asserts that the proposal is technically unnecessary and merely an attempt to increase revenues by charging fees for UTP access. More specifically, Bats argues that Nasdaq SIP bandwidth recommendations are excessive, inconsistent with current peak UTP message traffic, and much higher than recommendations for Nasdaq's own proprietary data products.\46\ Citadel states that ``Nasdaq has failed to provide a reasonable justification for requiring market participants to purchase a high bandwidth 10Gb Ultra connection'' to access SIP data.\47\ --------------------------------------------------------------------------- \46\ See Bats Letter I at 3-5; Bats Letter II at 2-3; Bats Letter III at 3-4. Virtu, SIFMA, KCG Holdings, and IEX agree with Bats. See, e.g., Virtu Letter at 1-2; SIFMA Letter I at 2-3; IEX Letter I at 1; SIFMA Letter II at 2; KCG Letter at 2; IEX Letter II at 2. \47\ See Citadel Letter at 2. See also Amendment No. 2 which amended the filing to permit the use of 1Gb connections. --------------------------------------------------------------------------- In response, Nasdaq states that it has ``done substantial analysis to support the recommendation and it believes the recommendation is consistent with its limited experience with the new Processor.'' \48\ Nasdaq also states that ``[d]uring a one month period (23 trading days) this summer, Nasdaq observed the new UTP Trade Data binary feed exceeding a 1G capacity for a 1 microsecond timeframe in 18 of the trading days. If you add the new UTP Quote Data binary feed to that same connection, the combined feeds exceed 1G capacity for 1 microsecond timeframe in 23 trading days.'' \49\ In addition, Nasdaq asserts that the UTP operating committee has ``input into the bandwidth recommendation'' and could act to lower it further.\50\ Bats responds stating its views that Nasdaq had not demonstrated that the proposal was technically necessary, because in Bat's view, using a one microsecond burst to determine a bandwidth recommendation is misplaced, as the observed peak is not sustained over a full second.\51\ Bats states that Nasdaq's bandwidth recommendation reflects the maximum burst rate capability of the new system rather than the current capacity requirement.\52\ SIFMA agrees with Bats on this issue, stating that Nasdaq has not provided any ``reasonable justification for requiring member firms to use a 10Gb connection to receive SIP data.'' \53\ SIFMA states that there is no compelling necessity, either technical or otherwise, for creating a separate connection for access to the SIP data.\54\ --------------------------------------------------------------------------- \48\ See Nasdaq Letter I at 5. \49\ See id. \50\ See id. \51\ See Bats Letter II at 2-3. \52\ See id. \53\ See SIFMA Letter I at 2. \54\ See id. --------------------------------------------------------------------------- Nasdaq disagrees with these arguments, stating its belief that they are reckless, because ``there is no disagreement that data feed requirements have increased significantly, and will continue to do so.'' \55\ Nasdaq further states that it continues to observe spikes in the UTP feeds that exceed 1Gb, justifying the 10Gb offering.\56\ Nasdaq also asserts that the proposal would segregate data for network resiliency and ensure that connectivity is adequate for intended use. In addition, Nasdaq states that it developed the isolated the network carrying the SIP data to reduce potential conflicts of interest arising from Nasdaq's operation of the Processor and its exchanges.\57\ --------------------------------------------------------------------------- \55\ See Nasdaq Letter II at 2. \56\ See id. \57\ See Nasdaq Letter II at 3. --------------------------------------------------------------------------- Nasdaq responded to the comments and amended the filing such that any customer that wishes to receive only the data from the UTP SIP will be able receive two UTP-only data connections free of charge via a 1Gb Ultra or 10Gb Ultra connection.\58\ Additional connections for UTP-only use will be available for $100 per month with an installation fee of $100 per port. Nasdaq represents that those costs are significantly lower than the proposed fees to be assessed for other third party connectivity and will cover some of the costs associated with providing the connectivity.\59\ Nasdaq noted that current subscribers to three or more connections under Rules 7034(b) and 7051 that contain a mix of Nasdaq proprietary data and UTP data will pay more under the proposal to receive the same data, however, Nasdaq believes that such a fee increase is reasonable in light of the costs incurred by the Exchange in offering separate networks for UTP data feed connectivity and Nasdaq's proprietary data feed [[Page 20926]] connectivity, which will assist subscribers with risk management.\60\ Further, Nasdaq removed the requirement that subscribers absolve Nasdaq of liability if they take a 1Gb Ultra connection.\61\ --------------------------------------------------------------------------- \58\ See Amendment No. 5 p. 6. \59\ See Amendment No. 5 p. 7 and 10. \60\ See Amendment No. 5. \61\ See Amendment No. 5. --------------------------------------------------------------------------- Nasdaq noted that the UTP Plan does not explicitly address connectivity fees. As to concerns raised by the commenters that Nasdaq has not substantiated the need for the third party connectivity service, Nasdaq noted that the ``UTP Operating Committee has had and continues to have input into the bandwidth recommendation'' \62\ and states that Nasdaq lowered the recommendation in response to the Committee's recommendation and would be ready to lower the recommendation again if the operating committee were to direct it to do so.\63\ In addition, as noted above, Nasdaq amended the proposal to provide two connections for UTP SIP data free of charge and additional connections at lower fees that reflect some of the costs associated with providing the connectivity.\64\ The Commission believes that Nasdaq has adequately addressed the concerns raised by the comments in its response letters and its amendments to the proposal.\65\ --------------------------------------------------------------------------- \62\ See Nasdaq Letter I at 5. \63\ See id. \64\ See Nasdaq Letter I and Nasdaq Letter II; Amendment No. 5. \65\ See Nasdaq Letter I and Nasdaq Letter II and amendments to the proposal. --------------------------------------------------------------------------- IV. Solicitation of Comments on the Proposal as Amended Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the filing, as amended, is consistent with the 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-NASDAQ-2016-120 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-NASDAQ-2016-120. 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 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASDAQ-2016-120 and should be submitted on or before May 25, 2017. V. Accelerated Approval of Proposed Rule Change, as Amended The Commission finds good cause to approve the proposed rule change, as amended, prior to the 30th day after the date of publication of the notice of the amended proposal in the Federal Register. As noted above, Nasdaq amended the proposal to respond to the concerns raised by the commenters. Specifically, the Exchange is proposing to offer two free UTP-only connections via a 1Gb Ultra or 10Gb Ultra port. Nasdaq also replaced the Assumption of Liability form with a Capacity Acknowledgement form, such that customers are no longer required to hold Nasdaq harmless if they choose to take a 1Gb Ultra connection. The Exchange also proposes to provide additional UTP-only connectivity for an installation fee of $100 per connection and an ongoing monthly fee of $100 per connection. Because these changes address concerns raised by the commenters, the Commission finds good cause for approving the proposed rule change, as amended, on an accelerated basis, pursuant to Section 19(b)(2) of the Act.\66\ --------------------------------------------------------------------------- \66\ 15 U.S.C. 78s(b)(2). --------------------------------------------------------------------------- VI. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-NASDAQ-2016-120), as amended, be, and hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\67\ --------------------------------------------------------------------------- \67\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-08983 Filed 5-3-17; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 82, No. 85 / Thursday, May 4, 2017 / Notices 20923
clients with information about how The public may view the background the Commission designated a longer
their proxies were voted. documentation for this information period for Commission action on the
Rule 206(4)–6 contains ‘‘collection of collection at the following Web site, proposed rule change.7 Subsequently,
information’’ requirements within the www.reginfo.gov. Comments should be the Commission received three
meaning of the Paperwork Reduction directed to: (i) Desk Officer for the additional comment letters regarding
Act. An agency may not conduct or Securities and Exchange Commission, the proposal: One from Virtu Financial,
sponsor, and a person is not required to Office of Information and Regulatory another from Bats responding to
respond to, a collection of information Affairs, Office of Management and Nasdaq’s Letter, and a third from
unless it displays a currently valid Budget, Room 10102, New Executive SIFMA.8 On November 30, 2016, the
control number. The collection is Office Building, Washington, DC 20503, Commission instituted proceedings to
mandatory and responses to the or by sending an email to: Shagufta_ determine whether to approve or
disclosure requirement are not kept Ahmed@omb.eop.gov; and (ii) Pamela disapprove the proposed rule change.9
confidential. Dyson, Director/Chief Information Thereafter, the Commission received
The respondents are investment Officer, Securities and Exchange comments from IEX, SIFMA, KCG
advisers registered with the Commission Commission, c/o Remi Pavlik-Simon, Holdings, and Citadel Securities 10
that vote proxies with respect to clients’ 100 F Street NE., Washington, DC 20549 regarding the proposed rule change and
securities. Advisory clients of these or send an email to: PRA_Mailbox@ Nasdaq responded to the comments and
investment advisers use the information sec.gov. Comments must be submitted to filed Amendment No. 1.11 On January
required by the rule to assess OMB within 30 days of this notice. 31, 2017, the Exchange filed
investment advisers’ proxy voting Dated: April 28, 2017. Amendment No. 2 to the proposed rule
policies and procedures and to monitor change.12 The Commission received two
Eduardo Aleman,
the advisers’ performance of their proxy comment letters one from Bats and
Assistant Secretary.
voting activities. The information another from IEX on the amended
[FR Doc. 2017–08971 Filed 5–3–17; 8:45 am] proposal.13 On April 3, 2017, the
required by Advisers Act rule 204–2, a BILLING CODE 8011–01–P
recordkeeping rule, also is used by the Exchange filed Amendment No. 3 to the
Commission staff in its examination and proposed rule change.14 On April 13,
oversight program. Without the 2017, the Exchange filed Amendment
SECURITIES AND EXCHANGE No. 4.15 On April 18, 2017, the
information collected under the rules, COMMISSION
advisory clients would not have
[Release No. 34–80558; File No. SR– Brent J. Fields, Secretary, Commission, dated
information they need to assess the October 4, 2016 (‘‘Nasdaq Letter I’’).
NASDAQ–2016–120]
adviser’s services and monitor the 7 See Securities Exchange Act Release No. 79049,
adviser’s handling of their accounts, and Self-Regulatory Organizations; The 81 FR 70452 (October 12, 2016).
the Commission would be less efficient Nasdaq Stock Market LLC; Notice of
8 See letters from Douglas A. Cifu, Chief
and effective in its programs. Executive Officer, Virtu Financial, dated October 6,
Filing of Amendments No. 1, 2, 3, 4, 2016 (‘‘Virtu Letter’’), Eric Swanson, General
The estimated number of investment and 5 and Order Granting Accelerated Counsel, Bats Global Markets, Inc., dated October
advisers subject to the collection of Approval of a Proposed Rule Change, 12, 2016 (‘‘Bats Letter II’’), and Melissa McGregor,
information requirements under the rule as Amended, To Establish the Third Managing Director and Associate General Counsel,
is 10,942. It is estimated that each of Securities Industry and Financial Markets
Party Connectivity Service Association (‘‘SIFMA’’), dated November 23, 2016
these advisers is required to spend on (‘‘SIFMA Letter I’’), to Brent J. Fields, Secretary,
average 10 hours annually documenting April 28, 2017. Commission.
its proxy voting procedures under the I. Introduction
9 See Securities Exchange Act Release No. 79431,
requirements of the rule, for a total 81 FR 87981 (December 6, 2016) (‘‘OIP’’).
burden of 109,420 hours. We further On August 16, 2016, the Nasdaq Stock 10 See letters from John Ramsay, Chief Market
estimate that on average, approximately Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) Policy Officer, IEX Group, Inc. (‘‘IEX’’), dated
filed with the Securities and Exchange December 9, 2016 (‘‘IEX Letter I’’), Melissa
292 clients of each adviser would McGregor, Managing Director and Associate
request copies of the underlying policies Commission (‘‘Commission’’), pursuant General Counsel, SIFMA, dated December 20, 2016
and procedures. We estimate that it to Section 19(b)(1) 1 of the Securities (‘‘SIFMA Letter II’’), John A. McCarthy, General
would take these advisers 0.1 hours per Exchange Act of 1934 (‘‘Act’’) 2 and Rule Counsel, KCG Holdings, Inc. (‘‘KCG Holdings’’),
19b–4 thereunder,3 a proposed rule dated December 23, 2016 (‘‘KCG Letter’’), and Adam
client to deliver copies of the policies C. Cooper, senior Managing Director and Chief
and procedures, for a total burden of change to establish the third party Legal Officer, Citadel Securities (‘‘Citadel’’), dated
319,506 hours. Accordingly, we connectivity service. The proposed rule December 27, 2016 (‘‘Citadel Letter’’), to Brent J.
estimate that rule 206(4)–6 results in an change was published for comment in Fields, Secretary, Commission.
11 See letter from T. Sean Bennett, Principal
annual aggregate burden of collection the Federal Register on September 2,
Associate General Counsel, Nasdaq Inc., to Brent J.
for SEC-registered investment advisers 2016.4 The Commission received one Fields, Secretary, Commission, dated January 26,
of a total of 428,926 hours. comment letter regarding the proposal 2017 (‘‘Nasdaq Letter II’’).
Records related to an adviser’s proxy on September 12, 2016.5 Nasdaq 12 Amendment No. 1 was missing a required
voting policies and procedures and responded to the comment letter on exhibit, therefore it was withdrawn and replaced by
October 4, 2016.6 On October 5, 2016, Amendment No. 2. See Amendment No. 2. The
proxy voting history are separately substance of Amendment No. 1 was the same as the
required under the Advisers Act 1 15
substance of Amendment No. 2.
U.S.C. 78s(b)(1). 13 See letters from Eric Swanson, Esq., General
recordkeeping rule 204–2 (17 CFR 2 15 U.S.C. 78a. Counsel, Bats Global Markets, Inc., dated February
pmangrum on DSK3GDR082PROD with NOTICES
275.204–2). The standard retention 3 17 CFR 240.19b–4.
6, 2017 (‘‘Bats Letter III’’) and John Ramsay, Chief
period required for books and records 4 See Securities Exchange Act Release No. 78713 Market Policy Officer, IEX, dated February 15, 2017
under rule 204–2 is five years, in an (August 29, 2016), 81 FR 60768 (‘‘Notice’’). (‘‘IEX Letter II’’) to Brent J. Fields, Secretary,
easily accessible place, the first two 5 See letter from Eric Swanson, Esq., General Commission.
years in an appropriate office of the Counsel, Bats Global Markets, Inc., to Brent J. 14 See Amendment No. 3. Amendment No. 3
Fields, Secretary, Commission, dated September 12, amended the filing to include the Assumption of
investment adviser. OMB has previously 2016 (‘‘Bats Letter I’’). Liability form.
approved the collection with this 6 See letter from Jeffrey S. Davis, Vice President 15 See Amendment No. 4 which was withdrawn
retention period. and General Counsel, Nasdaq Stock Market LLC, to and replaced by Amendment No. 5.
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![Federal Register / Vol. 82, No. 85 / Thursday, May 4, 2017 / Notices 20925
data.33 Third, the commenters question significantly below the charge to receive full second.51 Bats states that Nasdaq’s
the need for enhanced capacity.34 Nasdaq proprietary data.43 Subscribers bandwidth recommendation reflects the
Commenters argue that the proposal electing to receive UTP-only data using maximum burst rate capability of the
constitutes an access fee for direct a 1Gb Ultra connection would be new system rather than the current
access to UTP data which must be required to complete a Capacity capacity requirement.52 SIFMA agrees
approved by the UTP operating Acknowledgement form acknowledging with Bats on this issue, stating that
committee under the UTP Plan.35 In in writing the risks associated with such Nasdaq has not provided any
addition, according to commenters, the connectivity, though not relieving ‘‘reasonable justification for requiring
proposal targets UTP data recipients and Nasdaq of liability.44 Nasdaq believes member firms to use a 10Gb connection
extends the scope of the UTP system to these changes are responsive to the to receive SIP data.’’ 53 SIFMA states
include customer connectivity, because concerns raised by the commenters.45 that there is no compelling necessity,
Nasdaq is the sole provider of direct All commenters challenge the either technical or otherwise, for
access to UTP data, and therefore firms technical necessity of the proposal. Bats creating a separate connection for access
seeking direct access to UTP data would asserts that the proposal is technically to the SIP data.54
be required to subscribe to and pay for unnecessary and merely an attempt to Nasdaq disagrees with these
the proposed third party connectivity increase revenues by charging fees for arguments, stating its belief that they are
service.36 UTP access. More specifically, Bats reckless, because ‘‘there is no
In response, Nasdaq notes that it has argues that Nasdaq SIP bandwidth disagreement that data feed
controlled the network and network recommendations are excessive, requirements have increased
connectivity without input from the inconsistent with current peak UTP significantly, and will continue to do
UTP operating committee for over 25 message traffic, and much higher than so.’’ 55 Nasdaq further states that it
years,37 and that neither the UTP Plan recommendations for Nasdaq’s own continues to observe spikes in the UTP
nor the processor agreement grants the proprietary data products.46 Citadel feeds that exceed 1Gb, justifying the
UTP operating committee authority over states that ‘‘Nasdaq has failed to provide 10Gb offering.56 Nasdaq also asserts that
the network or network connectivity a reasonable justification for requiring the proposal would segregate data for
associated with SIP data.38 Nasdaq also market participants to purchase a high network resiliency and ensure that
asserts that the proposal does not target bandwidth 10Gb Ultra connection’’ to connectivity is adequate for intended
UTP data recipients because UTP SIP access SIP data.47 use. In addition, Nasdaq states that it
data is combined with, and carried on, In response, Nasdaq states that it has developed the isolated the network
the same network as data from other ‘‘done substantial analysis to support carrying the SIP data to reduce potential
sources.39 To further address these the recommendation and it believes the conflicts of interest arising from
concerns, Nasdaq filed Amendment No. recommendation is consistent with its Nasdaq’s operation of the Processor and
5.40 First, Nasdaq will offer every limited experience with the new its exchanges.57
customer two third party connections Nasdaq responded to the comments
Processor.’’ 48 Nasdaq also states that
for UTP-only use at no cost.41 Second, and amended the filing such that any
‘‘[d]uring a one month period (23
Nasdaq will allow customers to select a customer that wishes to receive only the
trading days) this summer, Nasdaq
1Gb Ultra or 10Gb Ultra port to connect data from the UTP SIP will be able
observed the new UTP Trade Data
to SIP data, both for the free connections receive two UTP-only data connections
binary feed exceeding a 1G capacity for
provided by Nasdaq and for additional free of charge via a 1Gb Ultra or 10Gb
a 1 microsecond timeframe in 18 of the
connections to which they subscribe.42 Ultra connection.58 Additional
trading days. If you add the new UTP
Furthermore, connections for UTP-only connections for UTP-only use will be
Quote Data binary feed to that same
use beyond the two free connections available for $100 per month with an
connection, the combined feeds exceed installation fee of $100 per port. Nasdaq
will be available for $100 a month in 1G capacity for 1 microsecond
addition to a $100 installation fee, represents that those costs are
timeframe in 23 trading days.’’ 49 In significantly lower than the proposed
addition, Nasdaq asserts that the UTP fees to be assessed for other third party
33 See e.g., Bats Letter I at 3–5; Bats Letter II at
operating committee has ‘‘input into the connectivity and will cover some of the
2–3; Bats Letter III at 3–4; Virtu Letter at 1–2;
SIFMA Letter I at 2–3; IEX Letter I at 1; SIFMA bandwidth recommendation’’ and could costs associated with providing the
Letter II at 2; KCG Letter at 2; Citadel Letter at 2; act to lower it further.50 Bats responds connectivity.59 Nasdaq noted that
IEX Letter II at 2. stating its views that Nasdaq had not current subscribers to three or more
34 See Bats Letter I at 3–5; Bats Letter II at 2–3;
demonstrated that the proposal was connections under Rules 7034(b) and
Bats Letter III at 3–4; Virtu Letter at 1–2; SIFMA
Letter I at 2–3; IEX Letter I at 1; SIFMA Letter II
technically necessary, because in Bat’s 7051 that contain a mix of Nasdaq
at 2; KCG Letter at 2; Citadel Letter at 2; IEX Letter view, using a one microsecond burst to proprietary data and UTP data will pay
II at 2. determine a bandwidth more under the proposal to receive the
35 See Bats Letter I at 1–2; Bats Letter II at 3–4;
recommendation is misplaced, as the same data, however, Nasdaq believes
Bats Letter III at 2–3; SIFMA Letter I at 2; IEX Letter observed peak is not sustained over a
I at 1; SIFMA Letter II at 2; KCG Letter at 3–4; IEX that such a fee increase is reasonable in
Letter II at 1–2. light of the costs incurred by the
43 See id.
36 See e.g., Bats Letter I at 3–5; Bats Letter II at
Exchange in offering separate networks
2–3; Bats Letter III at 3–4; Virtu Letter at 1–2; 44 See Exhibit 3 to Amendment No. 5. for UTP data feed connectivity and
SIFMA Letter I at 2–3; IEX Letter I at 1; SIFMA 45 See Nasdaq Letter II.
Letter II at 2; KCG Letter at 2; Citadel Letter at 2; 46 See Bats Letter I at 3–5; Bats Letter II at 2–3;
Nasdaq’s proprietary data feed
IEX Letter II at 2. Bats Letter III at 3–4. Virtu, SIFMA, KCG Holdings,
pmangrum on DSK3GDR082PROD with NOTICES
37 See Nasdaq Letter I at 2–4. 51 See Bats Letter II at 2–3.
and IEX agree with Bats. See, e.g., Virtu Letter at
38 Nasdaq noted that the UTP Plan does not 52 See id.
1–2; SIFMA Letter I at 2–3; IEX Letter I at 1; SIFMA
53 See SIFMA Letter I at 2.
explicitly address connectivity fees. See Nasdaq Letter II at 2; KCG Letter at 2; IEX Letter II at 2.
Letter I at 2. 47 See Citadel Letter at 2. See also Amendment 54 See id.
39 See Nasdaq Letter I at 3. No. 2 which amended the filing to permit the use 55 See Nasdaq Letter II at 2.
40 See Amendment No. 5. of 1Gb connections. 56 See id.
41 See e.g. Nasdaq Letter II at 2–3; Amendment 48 See Nasdaq Letter I at 5. 57 See Nasdaq Letter II at 3.
No. 5. 49 See id. 58 See Amendment No. 5 p. 6.
42 See id. 50 See id. 59 See Amendment No. 5 p. 7 and 10.
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![20926 Federal Register / Vol. 82, No. 85 / Thursday, May 4, 2017 / Notices
connectivity, which will assist Commission process and review your VI. Conclusion
subscribers with risk management.60 comments more efficiently, please use It is therefore ordered, pursuant to
Further, Nasdaq removed the only one method. The Commission will Section 19(b)(2) of the Act, that the
requirement that subscribers absolve post all comments on the Commission’s proposed rule change (SR–NASDAQ–
Nasdaq of liability if they take a 1Gb Internet Web site (http://www.sec.gov/ 2016–120), as amended, be, and hereby
Ultra connection.61 rules/sro.shtml). Copies of the is, approved.
Nasdaq noted that the UTP Plan does submission, all subsequent
not explicitly address connectivity fees. For the Commission, by the Division of
amendments, all written statements Trading and Markets, pursuant to delegated
As to concerns raised by the with respect to the proposed rule authority.67
commenters that Nasdaq has not change that are filed with the Eduardo A. Aleman,
substantiated the need for the third Commission, and all written
party connectivity service, Nasdaq Assistant Secretary.
communications relating to the [FR Doc. 2017–08983 Filed 5–3–17; 8:45 am]
noted that the ‘‘UTP Operating proposed rule change between the
Committee has had and continues to BILLING CODE 8011–01–P
Commission and any person, other than
have input into the bandwidth
those that may be withheld from the
recommendation’’ 62 and states that
public in accordance with the SECURITIES AND EXCHANGE
Nasdaq lowered the recommendation in
response to the Committee’s provisions of 5 U.S.C. 552, will be COMMISSION
recommendation and would be ready to available for Web site viewing and
[Release No. 34–80550; File No. SR–
lower the recommendation again if the printing in the Commission’s Public NYSEMKT–2016–99]
operating committee were to direct it to Reference Room on official business
do so.63 In addition, as noted above, days between the hours of 10:00 a.m. Self-Regulatory Organizations; NYSE
Nasdaq amended the proposal to and 3:00 p.m. Copies of the filing also MKT LLC; Notice of Designation of a
provide two connections for UTP SIP will be available for inspection and Longer Period for Commission Action
data free of charge and additional copying at the principal office of the on Proceedings To Determine Whether
connections at lower fees that reflect Exchange. All comments received will To Approve or Disapprove a Proposed
some of the costs associated with be posted without change; the Rule Change Amending Rule 104—
providing the connectivity.64 The Commission does not edit personal Equities To Delete Subsection
Commission believes that Nasdaq has identifying information from (g)(i)(A)(III) Prohibiting Designated
adequately addressed the concerns submissions. You should submit only Market Makers From Establishing a
raised by the comments in its response information that you wish to make New High (Low) Price on the Exchange
letters and its amendments to the available publicly. All submissions in a Security the DMM Has a Long
proposal.65 should refer to File Number SR– (Short) Position During the Last Ten
NASDAQ–2016–120 and should be Minutes Prior to the Close of Trading
IV. Solicitation of Comments on the submitted on or before May 25, 2017.
Proposal as Amended April 28, 2017.
Interested persons are invited to V. Accelerated Approval of Proposed On October 27, 2016, NYSE MKT
submit written data, views and Rule Change, as Amended (‘‘NYSE MKT’’ or ‘‘Exchange’’) filed
arguments concerning the foregoing, with the Securities and Exchange
The Commission finds good cause to Commission (‘‘Commission’’) pursuant
including whether the filing, as approve the proposed rule change, as
amended, is consistent with the Act. to Section 19(b)(1) of the Securities
amended, prior to the 30th day after the Exchange Act of 1934 (‘‘Act’’) 1 and Rule
Comments may be submitted by any of date of publication of the notice of the
the following methods: 19b–4 thereunder,2 a proposed rule
amended proposal in the Federal change amending Rule 104—Equities to
Electronic Comments Register. As noted above, Nasdaq delete subsection (g)(i)(A)(III), which
• Use the Commission’s Internet amended the proposal to respond to the prohibits Designated Market Makers
comment form (http://www.sec.gov/ concerns raised by the commenters. (‘‘DMMs’’) from establishing, during the
rules/sro.shtml); or Specifically, the Exchange is proposing last ten minutes of trading before the
• Send an email to rule-comments@ to offer two free UTP-only connections close, a new high (low) price for the day
sec.gov. Please include File Number SR– via a 1Gb Ultra or 10Gb Ultra port. on the Exchange in a security in which
NASDAQ–2016–120 on the subject line. Nasdaq also replaced the Assumption of the DMM has a long (short) position.
Liability form with a Capacity The proposed rule change was
Paper Comments Acknowledgement form, such that published for comment in the Federal
• Send paper comments in triplicate customers are no longer required to hold Register on November 17, 2016.3
to Secretary, Securities and Exchange Nasdaq harmless if they choose to take On December, 20, 2016, the
Commission, 100 F Street NE., a 1Gb Ultra connection. The Exchange Commission extended to February 15,
Washington, DC 20549–1090. also proposes to provide additional 2017, the time period in which to
All submissions should refer to File UTP-only connectivity for an approve the proposal, disapprove the
Number SR–NASDAQ–2016–120. This installation fee of $100 per connection proposal, or institute proceedings to
file number should be included on the and an ongoing monthly fee of $100 per determine whether to approve or
subject line if email is used. To help the connection. Because these changes disapprove the proposal.4 On February
address concerns raised by the 15, 2017, the Commission instituted
pmangrum on DSK3GDR082PROD with NOTICES
60 See Amendment No. 5. commenters, the Commission finds
61 See Amendment No. 5. good cause for approving the proposed 67 17 CFR 200.30–3(a)(12).
62 See Nasdaq Letter I at 5. 1 15 U.S.C. 78s(b)(1).
rule change, as amended, on an
63 See id. 2 17 CFR 240.19b–4.
64 See Nasdaq Letter I and Nasdaq Letter II;
accelerated basis, pursuant to Section 3 See Securities Exchange Act Release No. 79283
Amendment No. 5.
19(b)(2) of the Act.66 (Nov. 10, 2016), 81 FR 81210 (Nov. 17, 2016).
65 See Nasdaq Letter I and Nasdaq Letter II and 4 See Securities Exchange Act Release No. 79611
amendments to the proposal. 66 15 U.S.C. 78s(b)(2). (Dec. 20, 2016), 81 FR 95205 (Dec. 27, 2016).
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Document Created: 2017-05-04 01:49:04
Document Modified: 2017-05-04 01:49:04
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| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
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