82 FR 33168 - Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend the Schedule of Fees To Assess Connectivity Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 137 (July 19, 2017)

[Federal Register Volume 82, Number 137 (Wednesday, July 19, 2017)]
[Notices]
[Pages 33168-33170]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-15097]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81136; File No. SR-GEMX-2017-29]


Self-Regulatory Organizations; Nasdaq GEMX, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Amend the 
Schedule of Fees To Assess Connectivity Fees

July 13, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on June 29, 2017, Nasdaq GEMX, LLC (``GEMX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Schedule of Fees to assess fees 
for OTTO Port, CTI Port, FIX Port, FIX Drop Port and Disaster Recovery 
Port connectivity, and to provide monthly [sic] cap on those fees of 
$7,500. The Exchange is also proposing to delete fees and descriptions 
thereof for connectivity no longer used by the Exchange.
    The text of the proposed rule change is available on the Exchange's 
Web site at www.ise.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to amend the Schedule of 
Fees to assess fees for OTTO \3\ Port, CTI \4\ Port, FIX \5\ Port, FIX 
Drop \6\ Port and Disaster Recovery Port \7\ connectivity, and to 
provide a monthly cap on those fees of $7,500. The Exchange recently 
completed the migration of the Exchange's trading system to the Nasdaq 
INET architecture.\8\ This migration included the adoption of new 
connectivity, including OTTO, CTI, FIX, FIX Drop, Disaster Recovery 
Ports, which are the same as connectivity options currently used to 
connect to the Exchange's affiliates, including Nasdaq Options Market 
(``NOM''), Nasdaq BX (``BX'') and Nasdaq Phlx (``Phlx'').\9\ When the 
Exchange adopted these new ports it did not assess a fee for them so 
that members would not be double charged for connectivity to the old 
Exchange architecture and the new Nasdaq INET architecture.\10\
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    \3\ OTTO is an interface that allows market participants to 
connect and send orders, auction orders and auction responses into 
ISE Gemini [sic]. Data includes the following: (1) Options Auction 
Notifications (e.g., Flash, PIM, Solicitation and Facilitation or 
other information); (2) Options Symbol Directory Messages; (3) 
System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (5) Option Trading 
Action Messages (e.g., halts, resumes); (6) Execution Messages; (7) 
Order Messages (order messages, risk protection triggers or purge 
notifications).
    \4\ CTI is a real-time clearing trade update is a message that 
is sent to a member after an execution has occurred and contains 
trade details. The message containing the trade details is also 
simultaneously sent to The Options Clearing Corporation. The 
information includes, among other things, the following: (i) The 
Clearing Member Trade Agreement or ``CMTA'' or The Options Clearing 
Corporation or ``OCC'' number; (ii) Exchange badge or house number; 
(iii) the Exchange internal firm identifier; and (iv) an indicator 
which will distinguish electronic and non-electronically delivered 
orders; (v) liquidity indicators and transaction type for billing 
purposes; (vi) capacity.
    \5\ FIX is an interface that allows market participants to 
connect and send orders and auction orders into ISE Gemini [sic]. 
Data includes the following: (1) Options Symbol Directory Messages; 
(2) System Event Messages (e.g., start of messages, start of system 
hours, start of quoting, start of opening); (3) Option Trading 
Action Messages (e.g., halts, resumes); (4) Execution Messages; (5) 
Order Messages (order messages, risk protection triggers or purge 
notifications).
    \6\ FIX Drop is a real-time order and execution update is a 
message that is sent to a member after an order been received/
modified or an execution has occurred and contains trade details. 
The information includes, among other things, the following: (1) 
Executions, (2) cancellations, (3) modifications to an existing 
order, (4) busts or post-trade corrections.
    \7\ Disaster Recovery ports provide connectivity to the 
exchange's disaster recovery data center in Chicago to be utilized 
in the event the exchange has to fail over during the trading day. 
DR Ports are available for SQF, SQF Purge, CTI, OTTO, FIX and FIX 
Drop.
    \8\ See Securities Exchange Act Release No. 80011 (February 10, 
2017), 82 FR 10927 (February 16, 2017) (SR-ISEGemini-2016-17).
    \9\ See NOM Rules, Chapter XV Options Pricing, Sec. 3 NOM--Ports 
and other Services; BX Rules, Chapter XV Options Pricing, Sec. 3 
BX--Ports and other Services; and Phlx Pricing Schedule, VII. Other 
Member Fees, B. Port Fees.
    \10\ See Securities Exchange Act Release No. 80213 (March 10, 
2017), 82 FR 14066, 37499 [sic] (March 16, 2017) (SR-ISEGemini-2017-
10).
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    The Exchange is proposing to amend the Nasdaq GEMX Schedule of Fees 
Section IV.E.4. to assess a fee of $650 per month, per port, per 
account number \11\ for OTTO, CTI, FIX, and FIX Drop ports. The 
Exchange is proposing to assess a fee of $50 per month, per port, per 
account number for Disaster Recovery Ports. The Exchange notes that it 
is adding ``per account number'' to the fees described above to clarify 
that

[[Page 33169]]

billing for the ports is also based on account numbers, which allows 
the Exchange to identify the members that are fee liable for the port. 
The Exchange notes that this is similar to how the Exchange's sister 
exchanges bill these fees.\12\ Last, the Exchange is proposing to limit 
the total amount of fees paid for these ports by applying a $7,500 
monthly fee cap per member.
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    \11\ Account numbers are used to identify member order entry 
ports.
    \12\ See, e.g., NOM Rules, Chapter XV Options Pricing, Section 
3(b) (billing per port, per month, per mnemonic).
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    The Exchange is also proposing to delete ``Market Makers API 
Quoting, Order Entry and Listening'' and its associated $100 per month, 
per API fee from Nasdaq GEMX Schedule of Fees Section IV.E.1., and 
``Nasdaq GEMX Only'' and its associated $100 per session, per month fee 
from Nasdaq GEMX Schedule of Fees Section IV.E.2. (EAM Options 
API).\13\ The Exchange notes that both of these connectivity options 
are no longer available on the Exchange post-migration.
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    \13\ The Exchange is retaining Nasdaq GEMX and Nasdaq ISE 
connectivity until ISE connectivity is migrated, which the Exchange 
anticipates will occur in the third quarter 2017.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\15\ in particular, in that it 
provides for the equitable allocation of reasonable dues, fees, and 
other charges among members and issuers and other persons using any 
facility, and is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that the proposed fees are reasonable because 
they are similar to the fees assessed by other exchanges. As noted 
above, NOM, BX and Phlx provide some or all of the same connectivity 
options. For example, Nasdaq assesses a fee of $750 per port, per month 
for OTTO Ports, $650 per port, per month for CTI, FIX (order entry) 
Ports and FIX Drop Ports. Moreover, Nasdaq assesses a fee of $25 per 
port, per month for equities Disaster recovery ports (OUCH, RASH, and 
DROP).\16\ Although the proposed Disaster Recovery port fee is higher 
than the fee assessed by Nasdaq, the higher fee is reasonable because 
it reflects the ongoing costs in maintaining and supporting the ports, 
as well as the initial investment in such ports for the Exchange and 
the fewer subscribers among which it may spread fixed costs associated 
with offering the ports. As such, the Exchange believes that the 
proposed fees are consistent with those of other exchanges and 
therefore reasonable. The Exchange also believes that the proposed 
$7,500 fee cap is reasonable because, taken together with the proposed 
new fees, it will allow the Exchange to cover costs while reducing the 
impact of the fees on members that subscribe to a large number of 
ports. Because members generally need an increasing number of ports as 
provided under the Nasdaq GEMX Schedule of Fees Section IV.E.4. as 
their activity expands on the Exchange, the Exchange believes that 
without such a cap members may be inhibited from growing their activity 
on the Exchange. As a general principal, the Exchange believes that 
greater participation on the Exchange by members improves market 
quality for all market participants. Thus, in arriving at a fee cap of 
$7,500, the Exchange balanced the desire to improve market quality 
against the need to cover costs and make a profit. Last, the Exchange 
notes that BX provides its options participants a $7,500 per month fee 
cap for its options market connectivity.\17\
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    \16\ See Rule 7015(g)(2).
    \17\ See BX Rules, Chapter XV Options Pricing, Sec. 3(b).
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    The Exchange believes that the proposed fees are an equitable 
allocation and are not unfairly discriminatory because the Exchange 
must ultimately assesses [sic] fees to cover the costs associated with 
offering the connectivity. The Exchange notes that members have 
historically paid fees for Exchange connectivity and, in adopting the 
connectivity for which the Exchange is proposing to assess a fee, it 
noted that it was not adopting a fee at that time to avoid being double 
charged for connectivity to the old Exchange architecture and the new 
Nasdaq INET architecture. Now that members no longer have connectivity 
to the old Exchange architecture, and therefore are not assessed 
connectivity fees, the Exchange is now proposing to assess fees for 
connectivity to the new Nasdaq INET architecture of the Exchange. The 
Exchange believes that the proposed $7,500 fee cap is an equitable 
allocation and is not unfairly discriminatory because the [sic] any 
member that subscribes to connectivity under the rule that would 
otherwise exceed $7,500 per month will have its fees capped. Although 
members that do not have fees under the rule in excess of $7,500 per 
month will not benefit from the fee cap, the Exchange notes that any 
member may increase the number of ports subscribed to receive the fee 
cap, should their activity on the Exchange warrant increased 
subscription. Moreover, members that do not qualify for the fee cap 
will benefit from the greater liquidity provided by members that 
conduct a sufficient level of activity on the Exchange to require 
connectivity in excess of the fee cap. For these reasons, the Exchange 
believes that the proposed fees are an equitable allocation and are not 
unfairly discriminatory.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes that it operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. In such an environment, the Exchange must continually adjust 
its fees to remain competitive with other exchanges and with 
alternative trading systems that have been exempted from compliance 
with the statutory standards applicable to exchanges. Because 
competitors are free to modify their own fees in response, and because 
market participants may connect to third parties instead of directly 
connecting to the Exchange, the Exchange believes that the degree to 
which fee changes in this market may impose any burden on competition 
is extremely limited.
    In this instance, the proposed changes to the charges assessed for 
connectivity to the Exchange are consistent with the fees assessed by 
other exchanges for the same or similar connectivity. Moreover, the 
Exchange must assess fees to cover the costs incurred in providing 
connectivity and members had been assessed fees for Exchange 
connectivity prior to the sunset of the old Exchange architecture. As a 
consequence, competition will not be burdened by the proposed fees. In 
sum, if the changes proposed herein are unattractive to market 
participants, it is likely that the Exchange will lose market share as 
a result. Accordingly, the Exchange does not believe that the proposed 
changes will impair the ability of members or competing order execution 
venues to maintain their competitive standing in the financial markets.

[[Page 33170]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The foregoing rule change has become effective pursuant to Section 
19(b)(3)(A)(ii) of the Act.\18\ At any time within 60 days of the 
filing of the proposed rule change, the Commission summarily may 
temporarily suspend such rule change if it appears to the Commission 
that such action is: (i) Necessary or appropriate in the public 
interest; (ii) for the protection of investors; or (iii) otherwise in 
furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or disapproved.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(ii).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-GEMX-2017-29 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-GEMX-2017-29. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of 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-GEMX-2017-29, and should be 
submitted on or before August 9, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2017-15097 Filed 7-18-17; 8:45 am]
 BILLING CODE 8011-01-P