83 FR 4086 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Assess Fees for OTTO Port, CTI Port, FIX Port, FIX Drop Port and Disaster Recovery Port Connectivity

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 19 (January 29, 2018)

[Federal Register Volume 83, Number 19 (Monday, January 29, 2018)]
[Notices]
[Pages 4086-4088]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-01535]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82568; File No. SR-ISE-2018-07]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Assess Fees for 
OTTO Port, CTI Port, FIX Port, FIX Drop Port and Disaster Recovery Port 
Connectivity

January 23, 2018.
    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 January 19, 2018, Nasdaq ISE, LLC (``ISE'' 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. The text of the proposed rule change is available on 
the Exchange's website 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 \3\ to assess fees for OTTO \4\ Port, CTI \5\ Port, FIX \6\ Port, 
FIX Drop \7\ Port and Disaster Recovery Port \8\ connectivity. The 
Exchange has completed the migration of the Exchange's trading system 
to the Nasdaq INET architecture.\9\ This migration included the 
adoption of new connectivity, including OTTO, CTI, FIX, FIX Drop, and 
Disaster Recovery Ports, which are the same as connectivity options 
currently used to connect to the Exchange's affiliate options markets, 
including The Nasdaq Stock Market (``Nasdaq''), Nasdaq BX (``BX''), 
Nasdaq GEMX (``GEMX'') and Nasdaq Phlx (``Phlx'').\10\ 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.\11\
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    \3\ The Exchange initially filed the proposed pricing changes on 
January 2, 2018 (SR-ISE-2018-01). On January 16, 2018, the Exchange 
withdrew that filing and on January 19, 2018 submitted this filing, 
making certain clarifying changes. The Exchange represents that it 
has not added new subscriptions or canceled existing subscriptions 
to the ports described in this filing between the time it withdrew 
the original proposal and the submission of this filing.
    \4\ OTTO is an interface that allows market participants to 
connect and send orders, auction orders and auction responses into 
ISE. 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).
    \5\ 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.
    \6\ FIX is an interface that allows market participants to 
connect and send orders and auction orders into ISE. 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).
    \7\ 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.
    \8\ 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. 
Disaster Recovery Ports are available for SQF, SQF Purge, CTI, OTTO, 
FIX and FIX Drop.
    \9\ See Securities Exchange Act Release No. 80432 (April 11, 
2017), 82 FR 18191 (April 17, 2017) (SR-ISE-2017-03).
    \10\ See Nasdaq Option Rules, Chapter XV Options Pricing, Sec. 3 
Nasdaq Options Market--Ports and other Services; BX Option Rules, 
Chapter XV Options Pricing, Sec. 3 BX Options Market--Ports and 
other Services; Nasdaq GEMX Schedule of Fees Section IV.E.3; and 
Phlx Pricing Schedule, VII. Other Member Fees, B. Port Fees.
    \11\ See Securities Exchange Release No. 81095 (July 7, 2017), 
82 FR 32409 (July 13, 2017) (SR-ISE-2017-62).
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    The Exchange is proposing to amend the Nasdaq ISE Schedule of Fees 
Section V.D. to assess a fee of $400 per month, per port, per mnemonic 
\12\ for OTTO Ports, $500 per port, per month, per account number \13\ 
for CTI Ports, $300 per port per month, per mnemonic for FIX Ports, and 
$500 per port per month per account number for FIX Drop Ports. The 
Exchange is proposing to assess a fee of $50 per month, per port for 
Disaster Recovery Ports. The Exchange notes that it is adding ``per 
account number'' to the CTI and FIX Drop Port fees described above to 
clarify that billing for the ports is based on how many account numbers 
that a member associates with a port, which will allow the Exchange to 
determine a member's use of a port more precisely. The Exchange notes 
that this is the method by which GEMX bills these fees.\14\ The 
Exchange is proposing to add ``per mnemonic'' to OTTO and FIX Port 
fees, which will allow the Exchange to more granularly identify use of 
such ports.\15\ The Exchange notes that this is how the

[[Page 4087]]

Exchange's sister exchanges (other than GEMX) bill these fees.\16\ In 
light of the addition of account numbers and mnemonics to the rules, 
the Exchange is also proposing to add clarifying text to the beginning 
of Nasdaq ISE Schedule of Fees Section V.D. to explain how the various 
fees thereunder are billed. Specifically, the text notes that the fees 
are billed to members and a member may subscribe \17\ to as many ports 
as it elects to under the rule. The text also explains that some of the 
fees under the rule are billed based on the number of ports subscribed, 
while others are billed based by the number of account numbers or 
mnemonics that a subscriber associates with a port. Last, the Exchange 
is proposing to add a new footnote to the rule that applies a monthly 
fee cap to OTTO Port subscriptions of $4,000.\18\
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    \12\ A mnemonic is a unique identifier assigned to a member 
consisting of a four character code. A member may be assigned 
multiple mnemonics, which are used to segregate a member's order 
flow based on its business and regulatory needs. Every mnemonic must 
be affiliated with an account number held by the member. Account 
numbers are numeric codes used to identify members and the default 
clearing information through which all order flow affiliated with 
that account number will clear. A member may be assigned multiple 
account numbers.
    \13\ An account number may have multiple mnemonics affiliated 
with it. See id.
    \14\ See Nasdaq GEMX Schedule of Fees Section IV.E.3.
    \15\ Supra note 12.
    \16\ See, e.g., Nasdaq Options Rules, Chapter XV Options 
Pricing, Section 3(b) (billing per port, per month, per mnemonic).
    \17\ The Exchange notes that service bureaus, some of which are 
not members of the Exchange, may subscribe to the connectivity under 
the rule on behalf of a member. The member retains responsibility 
for the port and is billed directly for the connectivity. All 
members that use a service bureau must first execute an agreement 
with the Exchange and the service bureau that establishes the 
relationship between the member, service bureau and Exchange.
    \18\ GEMX applies a fee cap of $7,500 per month applied to OTTO, 
CTI, FIX, FIX Drop, and Disaster Recovery Ports. See GEMX Schedule 
of Fees Section IV.E.3. BX applies a fee cap of $7,500 per month 
applied to all ports under its rule. See BX Option Rules, Chapter XV 
Options Pricing, Sec. 3 BX Options Market--Ports and other Services.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\19\ in general, and furthers the objectives of 
Sections 6(b)(4) and 6(b)(5) of the Act,\20\ 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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    \19\ 15 U.S.C. 78f(b).
    \20\ 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, Nasdaq, BX, GEMX and Phlx provide some or all of the same 
connectivity options as is provided by ISE. For example, GEMX assesses 
$650 per port, per month, per account for CTI and FIX Drop Ports. GEMX 
also assesses a fee of $50 per port, per month, per account for 
Disaster Recovery Ports.\21\ Thus, the proposed fees for CTI, FIX Drop 
and Disaster Recovery Ports are the same or less than those of GEMX. 
Nasdaq assesses a fee of $750 per port, per month, per mnemonic for 
OTTO Ports, and both Nasdaq and BX assess $650 per port, per month, per 
mnemonic for Order Entry Ports, all of which are greater than the fees 
proposed for comparable connectivity to ISE. The Nasdaq Stock Market 
(``Nasdaq'') also assesses a fee of $25 per port, per month for 
equities Disaster Recovery Ports (OUCH, RASH, and DROP).\22\ 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 in comparison to Nasdaq. The Exchange believes that the proposed 
$4,000 monthly fee cap applied to OTTO Port subscriptions is reasonable 
because it is similar to the proposed OTTO Port fee caps provided by 
other exchanges. For example, GEMX applies a $7,500 per month fee cap, 
which includes OTTO Port subscription.\23\ BX also applies a $7,500 per 
month fee cap for its connectivity.\24\ The proposed OTTO Port fee cap 
is lower than these other exchanges because it is reflective of the 
limited application of the fee cap (i.e., OTTO Ports). The Exchange 
notes that limiting the fee cap to OTTO Ports is reasonable because the 
Exchange's proposed fees are generally lower than those of the other 
exchanges noted above. As such, the Exchange believes that the proposed 
fees are similar to those of other exchanges and therefore reasonable. 
The Exchange believes that the proposed text added to the beginning of 
Section V.D. of the Schedule of Fees is reasonable because it is 
designed to provide greater specificity and clarity to the application 
of the new fees, thereby removing impediments to and perfecting the 
mechanism of a free and open market and a national market system, and, 
in general, protecting investors and the public interest.
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    \21\ The GEMX Disaster Recovery Ports fee may result in a higher 
charge per member than the proposed ISE Disaster Recovery Ports fee 
because it is assessed by account number. Thus, the greater number 
of accounts assigned to such a port would result in a greater 
overall fee, whereas it would have no effect on the fee assessed for 
such ports under the proposed ISE fee.
    \22\ See Rule 7015(g)(2).
    \23\ The fee cap also applies to CTI, FIX, FIX Drop and Disaster 
Recovery Ports. GEMX applies its $7,500 monthly fee cap of to 
encourage increased participation on GEMX. See Securities Exchange 
Act Release No. 81136 (July 13, 2017), 82 FR 33168 (July 19, 2017) 
(SR-GEMX-2017-29).
    \24\ The Exchange notes that BX does not have OTTO Ports. See BX 
Option Rules, Chapter XV Options Pricing, Sec. 3 BX Options Market--
Ports and other Services.
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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 assess 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 notes 
that the proposed fees are equal to or less than the comparable fees 
assessed by Nasdaq, BX, Phlx, and GEMX. The Exchange believes that 
applying different measures (i.e., account number or mnemonic) for 
assessing fees is an equitable allocation and is not unfairly 
discriminatory because members choose how many account numbers and 
mnemonics they have and members subscribing to the ports covered by the 
rule may associate as many account numbers and mnemonics they choose. 
Thus, members have control over their fee liability. Moreover, the 
Exchange must make an independent assessment of what the appropriate 
measure is for assessing fees based on factors such as the number of 
members and the costs associated with offering connectivity. In this 
case, the Exchange has also considered the fees historically paid by 
its membership for connectivity in determining what the fees should be 
for new connectivity. The Exchange believes that the fees are 
reflective of these considerations because, by using different measures 
in assessing the port fees together with the proposed fee cap, the 
Exchange attempted to make the new fees as similar to the historical 
fees paid by subscribers as possible. As a consequence, the proposed 
change is the least impactful overall to members. 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

[[Page 4088]]

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. 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. The Exchange considered the 
historical fees paid by subscribers to the Exchange's connectivity and 
set the proposed fees at a level that it determined would be as similar 
to the historical fees paid by members for similar connectivity. 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 see a decrease in 
subscribership to ports and possibly 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.

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.\25\ 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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    \25\ 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-ISE-2018-07 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-ISE-2018-07. 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 website (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 website 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-07 and should be submitted on 
or before February 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01535 Filed 1-26-18; 8:45 am]
 BILLING CODE 8011-01-P