83_FR_51218 83 FR 51022 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change

83 FR 51022 - Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing of a Proposed Rule Change To Amend the Fee Schedule Regarding Connectivity Fees for Members and Non-Members; Suspension of and Order Instituting Proceedings To Determine Whether To Approve or Disapprove the Proposed Rule Change

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 196 (October 10, 2018)

Page Range51022-51026
FR Document2018-21922

Federal Register, Volume 83 Issue 196 (Wednesday, October 10, 2018)
[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51022-51026]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-21922]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84358; File No. SR-PEARL-2018-19


Self-Regulatory Organizations; MIAX PEARL, LLC; Notice of Filing 
of a Proposed Rule Change To Amend the Fee Schedule Regarding 
Connectivity Fees for Members and Non-Members; Suspension of and Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove 
the Proposed Rule Change

October 3, 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 September 18, 2018, MIAX PEARL, LLC (``MIAX PEARL'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change as described in Items I and II 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 and is, pursuant to Section 19(b)(3)(C) of the Act, hereby: (i) 
Temporarily suspending the proposed rule change; and (ii) instituting 
proceedings to determine whether to approve or disapprove the proposed 
rule change.
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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 is filing a proposal to amend the MIAX PEARL Fee 
Schedule (the ``Fee Schedule'') to modify certain of the Exchange's 
system connectivity fees.
    The text of the proposed rule change is available on the Exchange's 
website at http://www.miaxoptions.com/rule-filings/pearl at MIAX 
PEARL's principal office, and at the Commission's Public Reference 
Room.

II. Self-Regulatory Organization's Description of 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 Exchange proposes to amend the Fee Schedule regarding 
connectivity to the Exchange. Specifically, the Exchange proposes to 
amend Sections 5(a) and (b) of the Fee Schedule to increase the network 
connectivity fees for the 1 Gigabit (``Gb'') fiber connection, the 10Gb 
fiber connection, and the 10Gb ultra-low latency (``ULL'') fiber 
connection, which are charged to both Members \3\ and non-Members of 
the Exchange for connectivity to the Exchange's primary/secondary 
facility. The Exchange also proposes to increase the network 
connectivity fees for the 1Gb and 10Gb fiber connections for 
connectivity to the Exchange's disaster recovery facility. These 
proposed fee increases are collectively referred to herein as the 
``Proposed Fee Increases.''
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    \3\ The term ``Member'' means an individual or organization that 
is registered with the Exchange pursuant to Chapter II of the 
Exchange's Rules for purposes of trading on the Exchange as an 
``Electronic Exchange Member'' or ``Market Maker.'' Members are 
deemed ``members'' under the Exchange Act. See Exchange Rule 100.
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    The Exchange initially filed the Proposed Fee Increases on July 31, 
2018, designating the Proposed Fee Increases effective August 1, 
2018.\4\ The proposed rule change was published for comment in the 
Federal Register on August 13, 2018.\5\ The Commission received one 
comment letter on the proposal.\6\ The Proposed Fee Increases remained 
in effect until they were temporarily suspended pursuant to a 
suspension order (the ``Suspension Order'') issued by the 
Commission.\7\ The Suspension Order also instituted proceedings to 
determine whether to approve or disapprove the proposed rule change.\8\
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    \4\ See Securities Exchange Act Release No. 83785 (August 7, 
2018), 83 FR 40101 (August 13, 2018)(SR-PEARL-2018-16).
    \5\ Id.
    \6\ See Letter from Tyler Gellasch, Executive Director, The 
Healthy Markets Association, to Brent J. Fields, Secretary, 
Commission, dated September 4, 2018 (``Healthy Markets Letter'').
    \7\ See Securities Exchange Act Release No. 34-84177 (September 
17, 2018).
    \8\ Id.
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    The Healthy Markets Letter argued that the Exchange did not provide 
sufficient information in its filing to support a finding that the 
proposal is consistent with the Act. Specifically, the Healthy Markets 
Letter objected to the Exchange's reliance on the fees of other 
exchanges to demonstrate that its fee increases are consistent with the 
Act. In addition, the Healthy Markets Letter argued that the Exchange 
did not offer any details to support its basis for asserting that the 
proposed fee increases are consistent with the Act. The Exchange is now 
re-filing the Proposed Fee Increases, and is also providing additional 
detail regarding the basis for the Proposed Fee Increases. The proposed 
rule change is immediately effective upon filing with the Commission 
pursuant to Section 19(b)(3)(A) of the Act.
    The Exchange currently offers various bandwidth alternatives for 
connectivity to the Exchange, consisting of a 1Gb fiber connection, a 
10Gb fiber connection, and a 10Gb ULL fiber connection. The 10Gb ULL 
offering uses an ultra-low latency switch, which provides faster 
processing of messages sent to it in comparison to the switch used for 
the other types of connectivity. The Exchange currently assesses the 
following monthly network connectivity fees to both Members and non-
Members for connectivity to the Exchange's primary/secondary facility: 
(a) $1,100 for the 1Gb connection; (b) $5,500 for the 10Gb connection; 
and (c) $8,500.00 for the 10Gb ULL connection. The Exchange also 
assesses to both Members and non-Members a monthly per connection 
network connectivity fee of $500 for each 1Gb connection to the 
disaster recovery facility and a monthly per connection network 
connectivity fee of $2,500 for each 10Gb connection to the disaster 
recovery facility.
    The Exchange's MIAX Express Network Interconnect (``MENI'') can be 
configured to provide Members and non-Members of the Exchange network 
connectivity to the trading platforms,

[[Page 51023]]

market data systems, test systems, and disaster recovery facilities of 
both the Exchange and its affiliate, Miami International Securities 
Exchange (``MIAX Options''), via a single, shared connection. Members 
and non-Members utilizing the MENI to connect to the trading platforms, 
market data systems, test systems and disaster recovery facilities of 
the Exchange and MIAX Options via a single, shared connection are 
assessed only one monthly network connectivity fee per connection, 
regardless of the trading platforms, market data systems, test systems, 
and disaster recovery facilities accessed via such connection.
    The Exchange proposes to increase the monthly network connectivity 
fees for such connections for both Members and non-Members. The network 
connectivity fees for connectivity to the Exchange's primary/secondary 
facility will be increased as follows: (a) From $1,100 to $1,400 for 
the 1Gb connection; (b) from $5,500 to $6,100 for the 10Gb connection; 
and (c) from $8,500 to $9,300 for the 10Gb ULL connection. The network 
connectivity fees for connectivity to the Exchange's disaster recovery 
facility will be increased as follows: (a) From $500 to $550 for the 
1Gb connection; and (b) from $2,500 to $2,750 for the 10Gb connection.
    The Exchange believes that it is reasonable and appropriate to 
increase its fees charged for use of its connectivity to partially 
offset increased costs associated with maintaining and enhancing a 
state-of-the-art exchange network infrastructure in the U.S. options 
industry. The Exchange notes that other exchanges have similar 
connectivity alternatives for their participants, including similar 
low-latency connectivity. For example, Nasdaq PHLX LLC (``Phlx''), NYSE 
Arca, Inc. (``Arca''), NYSE American LLC (``NYSE American'') and Nasdaq 
ISE, LLC (``ISE'') all offer a 1Gb, 10Gb and 10Gb low latency ethernet 
connectivity alternatives to each of their participants.\9\ The 
Exchange further notes that Phlx, ISE, Arca and NYSE American each 
charge higher rates for such similar connectivity to primary and 
secondary facilities.\10\ Additionally, the Exchange's proposed 
connectivity fees to its disaster recovery facility are within the 
range of the fees charged by other exchanges for similar connectivity 
alternatives.\11\ The Exchange believes that it is reasonable and 
appropriate to increase its fees charged for use of its connectivity to 
partially offset increased costs associated with maintaining and 
enhancing a state-of-the-art exchange network infrastructure in the 
U.S. options industry.
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    \9\ See Phlx and ISE Rules, General Equity and Options Rules, 
General 8, Section 1(b). Phlx and ISE each charge a monthly fee of 
$2,500 for each 1Gb connection, $10,000 for each 10Gb connection and 
$15,000 for each 10Gb Ultra connection, which the equivalent of the 
Exchange's 10Gb ULL connection. See also NYSE American Fee Schedule, 
Section V.B, and Arca Fees and Charges, Co-Location Fees. NYSE 
American and Arca each charge a monthly fee of $5,000 for each 1Gb 
circuit, $14,000 for each 10Gb circuit and $22,000 for each 10Gb LX 
circuit, which the equivalent of the Exchange's 10Gb ULL connection.
    \10\ Id.
    \11\ See Nasdaq ISE Schedule of Fees, IX(D) (charging $3,000 for 
disaster recovery testing & relocation services); see also Cboe 
Exchange, Inc. (``CBOE'') Fees Schedule, p. 14, Cboe Command 
Connectivity Charges (charging a monthly fee of $2,000 for a 1Gb 
disaster recovery network access port and a monthly fee of $6,000 
for a 10Gb disaster recovery network access port).
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    In particular, the Exchange's increased costs associated with 
supporting its network are due to several factors, including increased 
costs associated with maintaining and expanding a team of highly-
skilled network engineers, increasing fees charged by the Exchange's 
third-party data center operator, and costs associated with projects 
and initiatives designed to improve overall network performance and 
stability, through the Exchange's R&D efforts. For example, the 
Exchange has had to hire additional network engineering staff in the 
last year, and plans to hire additional staff in the coming months. 
Further, the Exchange contracts with a third-party data center provider 
for its data center space. The Exchange does not operate its own data 
centers. Other exchange operators do operate their own data centers. 
Thus, they can better control data center costs. They also operate them 
as profit centers. Conversely, the Exchange is subject to fee increases 
from its data center provider, which the Exchange experienced in the 
last year. Further, the Exchange invests significant resources in 
network R&D to improve the overall performance and stability of its 
network. For example, the Exchange has a number of network monitoring 
tools (some of which were developed in-house, and some of which are 
licensed from third-parties), that continually monitor, detect, and 
report network performance, many of which serve as significant value-
adds to the Exchange's Members and enable the Exchange to provide a 
high level of customer service. These tools detect and report 
performance issues, and thus enable the Exchange to proactively notify 
a Member (and the SIPs) when the Exchange detects a problem with a 
Member's connectivity. The costs associated with the maintenance and 
improvement of existing tools and the development of new tools resulted 
in increased cost to the Exchange. Certain recently developed network 
aggregation and monitoring tools provide the Exchange with the ability 
to measure network traffic with a much more granular level of 
variability. This is important as Exchange Members demand a higher 
level of network determinism and the ability to measure variability in 
terms of single digit nanoseconds. Also, the Exchange routinely 
conducts R&D projects to improve the performance of the network's 
hardware infrastructure. As an example, in the last year, the 
Exchange's R&D efforts resulted in a performance improvement in its 
network switches, requiring the purchase of new switching equipment, 
and thus resulting in increased costs. In sum, the costs associated 
with maintaining and enhancing a state-of-the-art exchange network 
infrastructure in the U.S. options industry is a significant expense 
for the Exchange that continues to increase, and thus the Exchange 
believes that it is reasonable to offset some of those increased costs 
by increasing its network connectivity fees, as proposed herein. 
Overall, the Proposed Fee Increases are projected to offset only a 
portion of the Exchange's increased network connectivity costs.
2. Statutory Basis
    The Exchange believes that its proposal to amend its Fee Schedule 
is consistent with Section 6(b) of the Act \12\ in general, and 
furthers the objectives of Section 6(b)(4) of the Act \13\ in 
particular, in that it provides for the equitable allocation of 
reasonable dues, fees and other charges among Exchange Members and 
issuers and other persons using any facility or system which the 
Exchange operates or controls. The Exchange also believes the proposal 
furthers the objectives of Section 6(b)(5) of the Act \14\ in that it 
is 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, and, in general to protect 
investors and the public interest and is not designed to permit unfair 
discrimination between customer, issuers, brokers and dealers.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(4).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that its proposal is consistent with Section 
6(b)(4) of the Act because the fees assessed for connectivity allow the

[[Page 51024]]

Exchange to cover the costs associated with providing and maintaining 
the necessary hardware and other infrastructure to support this 
technology. The Exchange believes that the proposal to increase the 
fees for connectivity alternatives is fair, equitable and not 
unreasonably discriminatory because the increased fees are assessed 
equally among all users of the applicable connections.
    As discussed above, Phlx and ISE each offer different connections 
with respect to latency, and Arca and NYSE American both offer similar 
connectivity alternatives.\15\ Despite this, Phlx, ISE, Arca and NYSE 
American charge a higher fee than the Exchange currently charges for 
similar connections to primary and secondary facilities.\16\ 
Furthermore, the connectivity fees for the disaster recovery facilities 
of other exchanges are within the range of the proposed fees of the 
Exchange.\17\ For these reasons, the Exchange believes the proposed 
increase in the fees for the fiber connectivity to the Exchange is 
reasonable and not unfairly discriminatory.
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    \15\ See supra note 9.
    \16\ Id.
    \17\ See supra note 11.
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    The Exchange believes that the proposal to increase the fees for 
connectivity alternatives is fair, equitable and not unreasonably 
discriminatory because the increased fees will only partially offset 
the Exchange's increased costs associated with maintaining its network 
infrastructure. In particular, the Exchange's increased costs 
associated with supporting its network are due to several factors, 
including increased costs associated with maintaining and expanding a 
team of highly-skilled network engineers, increasing fees charged by 
the Exchange's third-party data center operator, and costs associated 
with projects and initiatives designed to improve overall network 
performance and stability, through the Exchange's R&D efforts. For 
example, the Exchange has had to hire additional network engineering 
staff in the last year, and plans to hire additional staff in the 
coming months. Further, the Exchange contracts with a third-party data 
center provider for its data center space. The Exchange does not 
operate its own data centers. Other exchange operators do operate their 
own data centers. Thus, they can better control data center costs. They 
also operate their data centers as profit centers. Conversely, the 
Exchange is subject to fee increases from its data center provider, 
which the Exchange experienced in the last year. Further, the Exchange 
invests significant resources in network R&D to improve the overall 
performance and stability of its network. For example, the Exchange has 
a number of network monitoring tools (some of which were developed in-
house, and some of which are licensed from third-parties), that 
continually monitor, detect, and report network performance, many of 
which serve as significant value-adds to the Exchange's Members and 
enable the Exchange to provide a high level of customer service. These 
tools detect and report performance issues, and thus enable the 
Exchange to proactively notify a Member (and the SIPs) when the 
Exchange detects a problem with a Member's connectivity. The costs 
associated with the maintenance and improvement of existing tools and 
the development of new tools resulted in increased cost to the 
Exchange. Certain recently developed network aggregation and monitoring 
tools provide the Exchange with the ability to measure network traffic 
with a much more granular level of variability. This is important as 
Exchange Members demand a higher level of network determinism and the 
ability to measure variability in terms of single digit nanoseconds. 
Also, the Exchange routinely conducts R&D projects to improve the 
performance of the network's hardware infrastructure. As an example, in 
the last year, the Exchange's R&D efforts resulted in a performance 
improvement in its network switches, requiring the purchase of new 
switching equipment, and thus resulting in increased costs. In sum, the 
costs associated with maintaining and enhancing a state-of-the-art 
exchange network infrastructure in the U.S. options industry is a 
significant expense for the Exchange that continues to increase, and 
thus the Exchange believes that it is fair, equitable, and not 
unreasonably discriminatory to offset some of those increased costs by 
increasing its network connectivity fees, as proposed herein. Overall, 
the Proposed Fee Increases are projected to offset only a portion of 
the Exchange's increased network connectivity costs.
    The Exchange also believes that its proposal is consistent with 
Section 6(b)(5) of the Act \18\ because all MIAX PEARL participants 
have the opportunity to subscribe to the Exchange's connections. There 
is also no differentiation among MIAX PEARL participants with regard to 
the fees charged for these services.
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    \18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    MIAX PEARL does not believe that the proposed rule changes will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. On the contrary, the Exchange 
believes that the proposed changes should increase both intermarket and 
intramarket competition. Specifically, the Exchange believes that the 
changes will promote competition by increasing the connectivity fees to 
become more within the range of comparable fees assessed by other 
competing exchanges.\19\
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    \19\ See supra note 9.
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    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. In such an 
environment, the Exchange must continually adjust its fees to remain 
competitive with other exchanges. The Exchange believes that the 
proposed changes reflect this competitive environment. To the extent 
that this purpose is achieved, all the Exchange's market participants 
should benefit from the improved market liquidity.

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

    Written comments were neither solicited nor received.

III. Suspension of the Proposed Rule Change

    Pursuant to Section 19(b)(3)(C) of the Act,\20\ at any time within 
60 days of the date of filing of a proposed rule change pursuant to 
Section 19(b)(1) of the Act,\21\ the Commission summarily may 
temporarily suspend the change in the rules of a self-regulatory 
organization (``SRO'') if it appears to the Commission that such action 
is necessary or appropriate in the public interest, for the protection 
of investors, or otherwise in furtherance of the purposes of the Act. 
As discussed below, the Commission believes a temporary suspension of 
the proposed rule change is necessary and appropriate to allow for 
additional analysis of the proposed rule change's consistency with the 
Act and the rules thereunder.
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    \20\ 15 U.S.C. 78s(b)(3)(C).
    \21\ 15 U.S.C. 78s(b)(1).
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    Identical fee increases to those proposed herein were originally 
filed on

[[Page 51025]]

July 31, 2018, and designated effective August 1, 2018.\22\ That 
proposal, PEARL-2018-16, was published for comment in the Federal 
Register on August 13, 2018.\23\ The Commission received one comment 
letter on that proposal.\24\ On September 17, 2018, pursuant to Section 
19(b)(3)(C) of the Act, the Commission: (1) Temporarily suspended the 
proposed rule change; and (2) instituted proceedings to determine 
whether to approve or disapprove the proposal.\25\ The instant filing 
proposes identical fees and raises similar concerns as to whether they 
are consistent with the Act.\26\
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    \22\ See supra note 4, and accompanying text.
    \23\ See supra note 5, and accompanying text.
    \24\ See supra note 6.
    \25\ See Securities Exchange Act Release No. 84177, 83 FR 47953 
(September 21, 2018).
    \26\ See id.
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    When exchanges file their proposed rule changes with the 
Commission, including fee filings like the Exchange's present proposal, 
they are required to provide a statement supporting the proposal's 
basis under the Act and the rules and regulations thereunder applicable 
to the exchange.\27\ The instructions to Form 19b-4, on which exchanges 
file their proposed rule changes, specify that such statement ``should 
be sufficiently detailed and specific to support a finding that the 
proposed rule change is consistent with [those] requirements.'' \28\
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    \27\ See 17 CFR 240.19b-4 (Item 3 entitled ``Self-Regulatory 
Organization's Statement of the Purpose of, and Statutory Basis for, 
the Proposed Rule Change'').
    \28\ Id.
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    Among other things, exchange proposed rule changes are subject to 
Section 6 of the Act, including Sections 6(b)(4), (5), and (8), which 
requires the rules of an exchange to (1) provide for the equitable 
allocation of reasonable fees among members, issuers, and other persons 
using the exchange's facilities; \29\ (2) perfect the mechanism of a 
free and open market and a national market system, protect investors 
and the public interest, and not be designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers; \30\ 
and (3) not impose any burden on competition not necessary or 
appropriate in furtherance of the purposes of the Act.\31\
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    \29\ 15 U.S.C. 78f(b)(4).
    \30\ 15 U.S.C. 78f(b)(5).
    \31\ 15 U.S.C. 78f(b)(8).
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    In temporarily suspending the Exchange's fee change, the Commission 
intends to further consider whether increasing certain connectivity 
fees to the Exchange is consistent with the statutory requirements 
applicable to a national securities exchange under the Act. In 
particular, the Commission will consider whether the proposed rule 
change satisfies the standards under the Act and the rules thereunder 
requiring, among other things, that an exchange's rules provide for the 
equitable allocation of reasonable fees among members, issuers, and 
other persons using its facilities; not permit unfair discrimination 
between customers, issuers, brokers or dealers; and do not impose any 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Act.\32\
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    \32\ See 15 U.S.C. 78f(b)(4), (5), and (8), respectively.
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    Therefore, the Commission finds that it is appropriate in the 
public interest, for the protection of investors, and otherwise in 
furtherance of the purposes of the Act, to temporarily suspend the 
proposed rule changes.\33\
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    \33\ For purposes of temporarily suspending the proposed rule 
change, the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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IV. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change

    The Commission is instituting proceedings pursuant to Sections 
19(b)(3)(C) \34\ and 19(b)(2)(B) of the Act \35\ to determine whether 
the proposed rule change should be approved or disapproved. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, the 
Commission seeks and encourages interested persons to provide 
additional comment on the proposed rule change to inform the 
Commission's analysis of whether to disapprove the proposed rule 
change.
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    \34\ 15 U.S.C. 78s(b)(3)(C). Once the Commission temporarily 
suspends a proposed rule change, Section 19(b)(3)(C) of the Act 
requires that the Commission institute proceedings under Section 
19(b)(2)(B) to determine whether a proposed rule change should be 
approved or disapproved.
    \35\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\36\ the Commission is 
providing notice of the grounds for possible disapproval under 
consideration:
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    \36\ 15 U.S.C. 78s(b)(2)(B).
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     Section 6(b)(4) of the Act, which requires that the rules 
of a national securities exchange ``provide for the equitable 
allocation of reasonable dues, fees, and other charges among its 
members and issuers and other persons using its facilities,'' \37\
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    \37\ 15 U.S.C. 78f(b)(4).
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     Section 6(b)(5) of the Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to perfect the operation of a free and open market and a national 
market system'' and ``protect investors and the public interest,'' and 
not be ``designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers,'' \38\ and
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    \38\ 15 U.S.C. 78f(b)(5).
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     Section 6(b)(8) of the Act, which requires that the rules 
of a national securities exchange ``not impose any burden on 
competition not necessary or appropriate in furtherance of the purposes 
of [the Act].'' \39\
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    \39\ 15 U.S.C. 78f(b)(8).
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    As noted above, the proposal increases connectivity fees for 
physical connections to the Exchange. The Exchange states that this fee 
increase would partially offset costs associated with providing and 
maintaining this technology.\40\ In the instant filing the Exchange 
states that its increased costs relate to maintaining and expanding a 
team of highly-skilled network engineers, increasing fees charged by 
the Exchange's third-party data center operator, and costs associated 
with projects and initiatives designed to improve overall network 
performance and stability.\41\
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    \40\ See supra Section II.A.1.
    \41\ See id.
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    Under the Commission's Rules of Practice, the ``burden to 
demonstrate that a proposed rule change is consistent with the [Act] 
and the rules and regulations issued thereunder . . . is on the [SRO] 
that proposed the rule change.'' \42\ The description of a proposed 
rule change, its purpose and operation, its effect, and a legal 
analysis of its consistency with applicable requirements must all be 
sufficiently detailed and specific to support an affirmative Commission 
finding,\43\ and any failure of an SRO to provide this information may 
result in the Commission not having a sufficient basis to make an 
affirmative finding that a proposed rule change is consistent with the 
Act and the applicable rules and regulations.\44\
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    \42\ Rule 700(b)(3), Commission Rules of Practice, 17 CFR 
201.700(b)(3).
    \43\ See id.
    \44\ See id.
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    The Commission is instituting proceedings to allow for additional 
consideration and comment on the issues raised herein, including as to 
whether the proposed fees are consistent with the Act, and 
specifically, with its requirements that exchange fees be reasonable 
and equitably allocated; be designed to perfect the mechanism of a free 
and open market and the national market system, protect investors and 
the public

[[Page 51026]]

interest, and not be unfairly discriminatory; or not impose an 
unnecessary or inappropriate burden on competition.\45\
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    \45\ See 15 U.S.C. 78f(b)(4), (5), and (8).
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V. Commission's Solicitation of Comments

    The Commission requests written views, data, and arguments with 
respect to the concerns identified above as well as any other relevant 
concerns. Such comments should be submitted by October 31, 2018. 
Rebuttal comments should be submitted by November 14, 2018. Although 
there do not appear to be any issues relevant to approval or 
disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\46\
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    \46\ 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by an SRO. See Securities 
Acts Amendments of 1975, Report of the Senate Committee on Banking, 
Housing and Urban Affairs to Accompany S. 249, S. Rep. No. 75, 94th 
Cong., 1st Sess. 30 (1975).
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    The Commission asks that commenters address the sufficiency and 
merit of the Exchange's statements in support of the proposal, in 
addition to any other comments they may wish to submit about the 
proposed rule change. Interested persons are invited to submit written 
data, views, and arguments concerning the proposed rule change, 
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-PEARL-2018-19 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-PEARL-2018-19. 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-PEARL-2018-19 and should be submitted on 
or before October 31, 2018. Rebuttal comments should be submitted by 
November 14, 2018.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(3)(C) of the 
Act,\47\ that File Number SR-PEARL-2018-19 be and hereby is, 
temporarily suspended. In addition, the Commission is instituting 
proceedings to determine whether the proposed rule change should be 
approved or disapproved.
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 78s(b)(3)(C).
    \48\ 17 CFR 200.30-3(a)(57) and (58).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21922 Filed 10-9-18; 8:45 am]
 BILLING CODE 8011-01-P



                                              51022                     Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices

                                              filing also will be available for                       (the ‘‘Fee Schedule’’) to modify certain              comment letter on the proposal.6 The
                                              inspection and copying at the principal                 of the Exchange’s system connectivity                 Proposed Fee Increases remained in
                                              office of the Exchange. All comments                    fees.                                                 effect until they were temporarily
                                              received will be posted without change.                    The text of the proposed rule change               suspended pursuant to a suspension
                                              Persons submitting comments are                         is available on the Exchange’s website at             order (the ‘‘Suspension Order’’) issued
                                              cautioned that we do not redact or edit                 http://www.miaxoptions.com/rule-                      by the Commission.7 The Suspension
                                              personal identifying information from                   filings/pearl at MIAX PEARL’s principal               Order also instituted proceedings to
                                              comment submissions. You should                         office, and at the Commission’s Public                determine whether to approve or
                                              submit only information that you wish                   Reference Room.                                       disapprove the proposed rule change.8
                                              to make available publicly. All                                                                                  The Healthy Markets Letter argued
                                                                                                      II. Self-Regulatory Organization’s                    that the Exchange did not provide
                                              submissions should refer to File
                                                                                                      Description of the Proposed Rule                      sufficient information in its filing to
                                              Number SR–NYSE–2018–42, and
                                                                                                      Change                                                support a finding that the proposal is
                                              should be submitted on or before
                                              October 31, 2018.                                          In its filing with the Commission, the             consistent with the Act. Specifically, the
                                                For the Commission, by the Division of                Exchange included statements                          Healthy Markets Letter objected to the
                                              Trading and Markets, pursuant to delegated              concerning the purpose of and basis for               Exchange’s reliance on the fees of other
                                              authority.17                                            the proposed rule change and discussed                exchanges to demonstrate that its fee
                                              Eduardo A. Aleman,                                      any comments it received on the                       increases are consistent with the Act. In
                                              Assistant Secretary.                                    proposed rule change. The text of these               addition, the Healthy Markets Letter
                                              [FR Doc. 2018–21909 Filed 10–9–18; 8:45 am]
                                                                                                      statements may be examined at the                     argued that the Exchange did not offer
                                                                                                      places specified in Item IV below. The                any details to support its basis for
                                              BILLING CODE P
                                                                                                      Exchange has prepared summaries, set                  asserting that the proposed fee increases
                                                                                                      forth in sections A, B, and C below, of               are consistent with the Act. The
                                              SECURITIES AND EXCHANGE                                 the most significant aspects of such                  Exchange is now re-filing the Proposed
                                              COMMISSION                                              statements.                                           Fee Increases, and is also providing
                                                                                                                                                            additional detail regarding the basis for
                                              [Release No. 34–84358; File No. SR–                     A. Self-Regulatory Organization’s                     the Proposed Fee Increases. The
                                              PEARL–2018–19                                           Statement of the Purpose of, and                      proposed rule change is immediately
                                                                                                      Statutory Basis for, the Proposed Rule                effective upon filing with the
                                              Self-Regulatory Organizations; MIAX                     Change                                                Commission pursuant to Section
                                              PEARL, LLC; Notice of Filing of a
                                                                                                      1. Purpose                                            19(b)(3)(A) of the Act.
                                              Proposed Rule Change To Amend the                                                                                The Exchange currently offers various
                                              Fee Schedule Regarding Connectivity                        The Exchange proposes to amend the                 bandwidth alternatives for connectivity
                                              Fees for Members and Non-Members;                       Fee Schedule regarding connectivity to                to the Exchange, consisting of a 1Gb
                                              Suspension of and Order Instituting                     the Exchange. Specifically, the                       fiber connection, a 10Gb fiber
                                              Proceedings To Determine Whether To                     Exchange proposes to amend Sections                   connection, and a 10Gb ULL fiber
                                              Approve or Disapprove the Proposed                      5(a) and (b) of the Fee Schedule to                   connection. The 10Gb ULL offering uses
                                              Rule Change                                             increase the network connectivity fees                an ultra-low latency switch, which
                                                                                                      for the 1 Gigabit (‘‘Gb’’) fiber                      provides faster processing of messages
                                              October 3, 2018.
                                                                                                      connection, the 10Gb fiber connection,                sent to it in comparison to the switch
                                                 Pursuant to Section 19(b)(1) of the                  and the 10Gb ultra-low latency (‘‘ULL’’)
                                              Securities Exchange Act of 1934                                                                               used for the other types of connectivity.
                                                                                                      fiber connection, which are charged to                The Exchange currently assesses the
                                              (‘‘Act’’),1 and Rule 19b–4 thereunder,2
                                                                                                      both Members 3 and non-Members of the                 following monthly network connectivity
                                              notice is hereby given that on
                                                                                                      Exchange for connectivity to the                      fees to both Members and non-Members
                                              September 18, 2018, MIAX PEARL, LLC
                                                                                                      Exchange’s primary/secondary facility.                for connectivity to the Exchange’s
                                              (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
                                                                                                      The Exchange also proposes to increase                primary/secondary facility: (a) $1,100
                                              with the Securities and Exchange
                                                                                                      the network connectivity fees for the                 for the 1Gb connection; (b) $5,500 for
                                              Commission (‘‘Commission’’) a
                                                                                                      1Gb and 10Gb fiber connections for                    the 10Gb connection; and (c) $8,500.00
                                              proposed rule change as described in
                                                                                                      connectivity to the Exchange’s disaster               for the 10Gb ULL connection. The
                                              Items I and II below, which Items have
                                                                                                      recovery facility. These proposed fee                 Exchange also assesses to both Members
                                              been prepared by the Exchange. The
                                                                                                      increases are collectively referred to                and non-Members a monthly per
                                              Commission is publishing this notice to
                                                                                                      herein as the ‘‘Proposed Fee Increases.’’             connection network connectivity fee of
                                              solicit comments on the proposed rule                      The Exchange initially filed the
                                              change from interested persons and is,                                                                        $500 for each 1Gb connection to the
                                                                                                      Proposed Fee Increases on July 31, 2018,              disaster recovery facility and a monthly
                                              pursuant to Section 19(b)(3)(C) of the                  designating the Proposed Fee Increases
                                              Act, hereby: (i) Temporarily suspending                                                                       per connection network connectivity fee
                                                                                                      effective August 1, 2018.4 The proposed               of $2,500 for each 10Gb connection to
                                              the proposed rule change; and (ii)                      rule change was published for comment
                                              instituting proceedings to determine                                                                          the disaster recovery facility.
                                                                                                      in the Federal Register on August 13,                    The Exchange’s MIAX Express
                                              whether to approve or disapprove the                    2018.5 The Commission received one
                                              proposed rule change.                                                                                         Network Interconnect (‘‘MENI’’) can be
                                                                                                                                                            configured to provide Members and
                                              I. Self-Regulatory Organization’s                          3 The term ‘‘Member’’ means an individual or
                                                                                                                                                            non-Members of the Exchange network
                                              Statement of the Terms of Substance of                  organization that is registered with the Exchange
                                                                                                                                                            connectivity to the trading platforms,
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                                                                                                      pursuant to Chapter II of the Exchange’s Rules for
                                              the Proposed Rule Change                                purposes of trading on the Exchange as an
                                                 The Exchange is filing a proposal to                 ‘‘Electronic Exchange Member’’ or ‘‘Market Maker.’’      6 See Letter from Tyler Gellasch, Executive

                                                                                                      Members are deemed ‘‘members’’ under the              Director, The Healthy Markets Association, to Brent
                                              amend the MIAX PEARL Fee Schedule                       Exchange Act. See Exchange Rule 100.                  J. Fields, Secretary, Commission, dated September
                                                                                                         4 See Securities Exchange Act Release No. 83785    4, 2018 (‘‘Healthy Markets Letter’’).
                                                17 17 CFR 200.30–3(a)(12).                            (August 7, 2018), 83 FR 40101 (August 13,                7 See Securities Exchange Act Release No. 34–
                                                1 15 U.S.C. 78s(b)(1).                                2018)(SR–PEARL–2018–16).                              84177 (September 17, 2018).
                                                2 17 CFR 240.19b–4.                                      5 Id.                                                 8 Id.




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                                                                        Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices                                            51023

                                              market data systems, test systems, and                  and secondary facilities.10 Additionally,              associated with the maintenance and
                                              disaster recovery facilities of both the                the Exchange’s proposed connectivity                   improvement of existing tools and the
                                              Exchange and its affiliate, Miami                       fees to its disaster recovery facility are             development of new tools resulted in
                                              International Securities Exchange                       within the range of the fees charged by                increased cost to the Exchange. Certain
                                              (‘‘MIAX Options’’), via a single, shared                other exchanges for similar connectivity               recently developed network aggregation
                                              connection. Members and non-Members                     alternatives.11 The Exchange believes                  and monitoring tools provide the
                                              utilizing the MENI to connect to the                    that it is reasonable and appropriate to               Exchange with the ability to measure
                                              trading platforms, market data systems,                 increase its fees charged for use of its               network traffic with a much more
                                              test systems and disaster recovery                      connectivity to partially offset increased             granular level of variability. This is
                                              facilities of the Exchange and MIAX                     costs associated with maintaining and                  important as Exchange Members
                                              Options via a single, shared connection                 enhancing a state-of-the-art exchange                  demand a higher level of network
                                              are assessed only one monthly network                   network infrastructure in the U.S.                     determinism and the ability to measure
                                              connectivity fee per connection,                        options industry.                                      variability in terms of single digit
                                              regardless of the trading platforms,                       In particular, the Exchange’s                       nanoseconds. Also, the Exchange
                                              market data systems, test systems, and                  increased costs associated with                        routinely conducts R&D projects to
                                              disaster recovery facilities accessed via               supporting its network are due to                      improve the performance of the
                                              such connection.                                        several factors, including increased                   network’s hardware infrastructure. As
                                                                                                      costs associated with maintaining and                  an example, in the last year, the
                                                 The Exchange proposes to increase
                                                                                                      expanding a team of highly-skilled                     Exchange’s R&D efforts resulted in a
                                              the monthly network connectivity fees
                                                                                                      network engineers, increasing fees                     performance improvement in its
                                              for such connections for both Members
                                                                                                      charged by the Exchange’s third-party                  network switches, requiring the
                                              and non-Members. The network
                                                                                                      data center operator, and costs                        purchase of new switching equipment,
                                              connectivity fees for connectivity to the
                                                                                                      associated with projects and initiatives               and thus resulting in increased costs. In
                                              Exchange’s primary/secondary facility
                                                                                                      designed to improve overall network                    sum, the costs associated with
                                              will be increased as follows: (a) From
                                                                                                      performance and stability, through the                 maintaining and enhancing a state-of-
                                              $1,100 to $1,400 for the 1Gb connection;
                                                                                                      Exchange’s R&D efforts. For example,                   the-art exchange network infrastructure
                                              (b) from $5,500 to $6,100 for the 10Gb
                                                                                                      the Exchange has had to hire additional                in the U.S. options industry is a
                                              connection; and (c) from $8,500 to
                                                                                                      network engineering staff in the last                  significant expense for the Exchange
                                              $9,300 for the 10Gb ULL connection.
                                                                                                      year, and plans to hire additional staff               that continues to increase, and thus the
                                              The network connectivity fees for
                                                                                                      in the coming months. Further, the                     Exchange believes that it is reasonable
                                              connectivity to the Exchange’s disaster
                                                                                                      Exchange contracts with a third-party                  to offset some of those increased costs
                                              recovery facility will be increased as
                                                                                                      data center provider for its data center               by increasing its network connectivity
                                              follows: (a) From $500 to $550 for the
                                                                                                      space. The Exchange does not operate                   fees, as proposed herein. Overall, the
                                              1Gb connection; and (b) from $2,500 to
                                                                                                      its own data centers. Other exchange                   Proposed Fee Increases are projected to
                                              $2,750 for the 10Gb connection.
                                                                                                      operators do operate their own data                    offset only a portion of the Exchange’s
                                                 The Exchange believes that it is                     centers. Thus, they can better control                 increased network connectivity costs.
                                              reasonable and appropriate to increase                  data center costs. They also operate
                                              its fees charged for use of its                                                                                2. Statutory Basis
                                                                                                      them as profit centers. Conversely, the
                                              connectivity to partially offset increased              Exchange is subject to fee increases from                 The Exchange believes that its
                                              costs associated with maintaining and                   its data center provider, which the                    proposal to amend its Fee Schedule is
                                              enhancing a state-of-the-art exchange                   Exchange experienced in the last year.                 consistent with Section 6(b) of the Act 12
                                              network infrastructure in the U.S.                      Further, the Exchange invests                          in general, and furthers the objectives of
                                              options industry. The Exchange notes                    significant resources in network R&D to                Section 6(b)(4) of the Act 13 in
                                              that other exchanges have similar                       improve the overall performance and                    particular, in that it provides for the
                                              connectivity alternatives for their                     stability of its network. For example, the             equitable allocation of reasonable dues,
                                              participants, including similar low-                    Exchange has a number of network                       fees and other charges among Exchange
                                              latency connectivity. For example,                      monitoring tools (some of which were                   Members and issuers and other persons
                                              Nasdaq PHLX LLC (‘‘Phlx’’), NYSE                        developed in-house, and some of which                  using any facility or system which the
                                              Arca, Inc. (‘‘Arca’’), NYSE American                    are licensed from third-parties), that                 Exchange operates or controls. The
                                              LLC (‘‘NYSE American’’) and Nasdaq                      continually monitor, detect, and report                Exchange also believes the proposal
                                              ISE, LLC (‘‘ISE’’) all offer a 1Gb, 10Gb                network performance, many of which                     furthers the objectives of Section 6(b)(5)
                                              and 10Gb low latency ethernet                           serve as significant value-adds to the                 of the Act 14 in that it is designed to
                                              connectivity alternatives to each of their              Exchange’s Members and enable the                      promote just and equitable principles of
                                              participants.9 The Exchange further                     Exchange to provide a high level of                    trade, to remove impediments to and
                                              notes that Phlx, ISE, Arca and NYSE                     customer service. These tools detect and               perfect the mechanism of a free and
                                              American each charge higher rates for                   report performance issues, and thus                    open market and a national market
                                              such similar connectivity to primary                    enable the Exchange to proactively                     system, and, in general to protect
                                                                                                      notify a Member (and the SIPs) when                    investors and the public interest and is
                                                9 See Phlx and ISE Rules, General Equity and
                                                                                                      the Exchange detects a problem with a                  not designed to permit unfair
                                              Options Rules, General 8, Section 1(b). Phlx and ISE
                                                                                                      Member’s connectivity. The costs                       discrimination between customer,
                                              each charge a monthly fee of $2,500 for each 1Gb                                                               issuers, brokers and dealers.
                                              connection, $10,000 for each 10Gb connection and
                                                                                                                                                                The Exchange believes that its
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                                                                                                        10 Id.
                                              $15,000 for each 10Gb Ultra connection, which the
                                              equivalent of the Exchange’s 10Gb ULL connection.          11 See Nasdaq ISE Schedule of Fees, IX(D)           proposal is consistent with Section
                                              See also NYSE American Fee Schedule, Section            (charging $3,000 for disaster recovery testing &       6(b)(4) of the Act because the fees
                                              V.B, and Arca Fees and Charges, Co-Location Fees.       relocation services); see also Cboe Exchange, Inc.     assessed for connectivity allow the
                                              NYSE American and Arca each charge a monthly            (‘‘CBOE’’) Fees Schedule, p. 14, Cboe Command
                                              fee of $5,000 for each 1Gb circuit, $14,000 for each    Connectivity Charges (charging a monthly fee of
                                                                                                                                                              12 15 U.S.C. 78f(b).
                                              10Gb circuit and $22,000 for each 10Gb LX circuit,      $2,000 for a 1Gb disaster recovery network access
                                                                                                                                                              13 15 U.S.C. 78f(b)(4).
                                              which the equivalent of the Exchange’s 10Gb ULL         port and a monthly fee of $6,000 for a 10Gb disaster
                                              connection.                                             recovery network access port).                          14 15 U.S.C. 78f(b)(5).




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                                              51024                       Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices

                                              Exchange to cover the costs associated                    provider, which the Exchange                           participants with regard to the fees
                                              with providing and maintaining the                        experienced in the last year. Further, the             charged for these services.
                                              necessary hardware and other                              Exchange invests significant resources
                                                                                                                                                               B. Self-Regulatory Organization’s
                                              infrastructure to support this                            in network R&D to improve the overall
                                                                                                                                                               Statement on Burden on Competition
                                              technology. The Exchange believes that                    performance and stability of its network.
                                              the proposal to increase the fees for                     For example, the Exchange has a                           MIAX PEARL does not believe that
                                              connectivity alternatives is fair,                        number of network monitoring tools                     the proposed rule changes will impose
                                              equitable and not unreasonably                            (some of which were developed in-                      any burden on competition not
                                              discriminatory because the increased                      house, and some of which are licensed                  necessary or appropriate in furtherance
                                              fees are assessed equally among all                       from third-parties), that continually                  of the purposes of the Act. On the
                                              users of the applicable connections.                      monitor, detect, and report network                    contrary, the Exchange believes that the
                                                 As discussed above, Phlx and ISE                       performance, many of which serve as                    proposed changes should increase both
                                              each offer different connections with                     significant value-adds to the Exchange’s               intermarket and intramarket
                                              respect to latency, and Arca and NYSE                     Members and enable the Exchange to                     competition. Specifically, the Exchange
                                              American both offer similar                               provide a high level of customer service.              believes that the changes will promote
                                              connectivity alternatives.15 Despite this,                These tools detect and report                          competition by increasing the
                                              Phlx, ISE, Arca and NYSE American                         performance issues, and thus enable the                connectivity fees to become more within
                                              charge a higher fee than the Exchange                     Exchange to proactively notify a                       the range of comparable fees assessed by
                                              currently charges for similar                             Member (and the SIPs) when the                         other competing exchanges.19
                                              connections to primary and secondary                      Exchange detects a problem with a                         The Exchange notes that it operates in
                                              facilities.16 Furthermore, the                            Member’s connectivity. The costs                       a highly competitive market in which
                                              connectivity fees for the disaster                        associated with the maintenance and                    market participants can readily favor
                                              recovery facilities of other exchanges are                improvement of existing tools and the                  competing venues if they deem fee
                                              within the range of the proposed fees of                  development of new tools resulted in                   levels at a particular venue to be
                                              the Exchange.17 For these reasons, the                    increased cost to the Exchange. Certain                excessive. In such an environment, the
                                              Exchange believes the proposed                            recently developed network aggregation                 Exchange must continually adjust its
                                              increase in the fees for the fiber                        and monitoring tools provide the                       fees to remain competitive with other
                                              connectivity to the Exchange is                           Exchange with the ability to measure                   exchanges. The Exchange believes that
                                              reasonable and not unfairly                               network traffic with a much more                       the proposed changes reflect this
                                              discriminatory.                                           granular level of variability. This is                 competitive environment. To the extent
                                                 The Exchange believes that the                         important as Exchange Members                          that this purpose is achieved, all the
                                              proposal to increase the fees for                         demand a higher level of network                       Exchange’s market participants should
                                              connectivity alternatives is fair,                                                                               benefit from the improved market
                                                                                                        determinism and the ability to measure
                                              equitable and not unreasonably                                                                                   liquidity.
                                                                                                        variability in terms of single digit
                                              discriminatory because the increased
                                                                                                        nanoseconds. Also, the Exchange                        C. Self-Regulatory Organization’s
                                              fees will only partially offset the
                                                                                                        routinely conducts R&D projects to                     Statement on Comments on the
                                              Exchange’s increased costs associated
                                                                                                        improve the performance of the                         Proposed Rule Change Received From
                                              with maintaining its network
                                                                                                        network’s hardware infrastructure. As                  Members, Participants, or Others
                                              infrastructure. In particular, the
                                                                                                        an example, in the last year, the
                                              Exchange’s increased costs associated                                                                              Written comments were neither
                                                                                                        Exchange’s R&D efforts resulted in a
                                              with supporting its network are due to                                                                           solicited nor received.
                                                                                                        performance improvement in its
                                              several factors, including increased
                                                                                                        network switches, requiring the                        III. Suspension of the Proposed Rule
                                              costs associated with maintaining and
                                                                                                        purchase of new switching equipment,                   Change
                                              expanding a team of highly-skilled
                                                                                                        and thus resulting in increased costs. In
                                              network engineers, increasing fees                                                                                  Pursuant to Section 19(b)(3)(C) of the
                                                                                                        sum, the costs associated with
                                              charged by the Exchange’s third-party                                                                            Act,20 at any time within 60 days of the
                                                                                                        maintaining and enhancing a state-of-
                                              data center operator, and costs                                                                                  date of filing of a proposed rule change
                                                                                                        the-art exchange network infrastructure
                                              associated with projects and initiatives                                                                         pursuant to Section 19(b)(1) of the
                                                                                                        in the U.S. options industry is a
                                              designed to improve overall network                                                                              Act,21 the Commission summarily may
                                                                                                        significant expense for the Exchange
                                              performance and stability, through the                                                                           temporarily suspend the change in the
                                                                                                        that continues to increase, and thus the
                                              Exchange’s R&D efforts. For example,                                                                             rules of a self-regulatory organization
                                                                                                        Exchange believes that it is fair,
                                              the Exchange has had to hire additional                                                                          (‘‘SRO’’) if it appears to the Commission
                                                                                                        equitable, and not unreasonably
                                              network engineering staff in the last                                                                            that such action is necessary or
                                                                                                        discriminatory to offset some of those
                                              year, and plans to hire additional staff                                                                         appropriate in the public interest, for
                                                                                                        increased costs by increasing its
                                              in the coming months. Further, the                                                                               the protection of investors, or otherwise
                                                                                                        network connectivity fees, as proposed
                                              Exchange contracts with a third-party                                                                            in furtherance of the purposes of the
                                                                                                        herein. Overall, the Proposed Fee
                                              data center provider for its data center                                                                         Act. As discussed below, the
                                                                                                        Increases are projected to offset only a
                                              space. The Exchange does not operate                                                                             Commission believes a temporary
                                                                                                        portion of the Exchange’s increased
                                              its own data centers. Other exchange                                                                             suspension of the proposed rule change
                                                                                                        network connectivity costs.
                                              operators do operate their own data                                                                              is necessary and appropriate to allow for
                                              centers. Thus, they can better control                       The Exchange also believes that its                 additional analysis of the proposed rule
                                              data center costs. They also operate                      proposal is consistent with Section                    change’s consistency with the Act and
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                                              their data centers as profit centers.                     6(b)(5) of the Act 18 because all MIAX                 the rules thereunder.
                                              Conversely, the Exchange is subject to                    PEARL participants have the                               Identical fee increases to those
                                              fee increases from its data center                        opportunity to subscribe to the                        proposed herein were originally filed on
                                                                                                        Exchange’s connections. There is also
                                                15 See   supra note 9.                                  no differentiation among MIAX PEARL                      19 See supra note 9.
                                                16 Id.                                                                                                           20 15 U.S.C. 78s(b)(3)(C).
                                                17 See   supra note 11.                                   18 15   U.S.C. 78f(b)(5).                              21 15 U.S.C. 78s(b)(1).




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                                                                        Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices                                                   51025

                                              July 31, 2018, and designated effective                 national securities exchange under the                be ‘‘designed to perfect the operation of
                                              August 1, 2018.22 That proposal,                        Act. In particular, the Commission will               a free and open market and a national
                                              PEARL–2018–16, was published for                        consider whether the proposed rule                    market system’’ and ‘‘protect investors
                                              comment in the Federal Register on                      change satisfies the standards under the              and the public interest,’’ and not be
                                              August 13, 2018.23 The Commission                       Act and the rules thereunder requiring,               ‘‘designed to permit unfair
                                              received one comment letter on that                     among other things, that an exchange’s                discrimination between customers,
                                              proposal.24 On September 17, 2018,                      rules provide for the equitable                       issuers, brokers, or dealers,’’ 38 and
                                              pursuant to Section 19(b)(3)(C) of the                  allocation of reasonable fees among                      • Section 6(b)(8) of the Act, which
                                              Act, the Commission: (1) Temporarily                    members, issuers, and other persons                   requires that the rules of a national
                                              suspended the proposed rule change;                     using its facilities; not permit unfair               securities exchange ‘‘not impose any
                                              and (2) instituted proceedings to                       discrimination between customers,                     burden on competition not necessary or
                                              determine whether to approve or                         issuers, brokers or dealers; and do not               appropriate in furtherance of the
                                              disapprove the proposal.25 The instant                  impose any burden on competition not                  purposes of [the Act].’’ 39
                                              filing proposes identical fees and raises               necessary or appropriate in furtherance                  As noted above, the proposal
                                              similar concerns as to whether they are                 of the purposes of the Act.32                         increases connectivity fees for physical
                                              consistent with the Act.26                                 Therefore, the Commission finds that               connections to the Exchange. The
                                                 When exchanges file their proposed                   it is appropriate in the public interest,             Exchange states that this fee increase
                                              rule changes with the Commission,                       for the protection of investors, and                  would partially offset costs associated
                                              including fee filings like the Exchange’s               otherwise in furtherance of the purposes              with providing and maintaining this
                                              present proposal, they are required to                  of the Act, to temporarily suspend the                technology.40 In the instant filing the
                                              provide a statement supporting the                      proposed rule changes.33                              Exchange states that its increased costs
                                              proposal’s basis under the Act and the                                                                        relate to maintaining and expanding a
                                                                                                      IV. Proceedings To Determine Whether                  team of highly-skilled network
                                              rules and regulations thereunder
                                                                                                      To Approve or Disapprove the                          engineers, increasing fees charged by
                                              applicable to the exchange.27 The
                                                                                                      Proposed Rule Change                                  the Exchange’s third-party data center
                                              instructions to Form 19b–4, on which
                                              exchanges file their proposed rule                         The Commission is instituting                      operator, and costs associated with
                                              changes, specify that such statement                    proceedings pursuant to Sections                      projects and initiatives designed to
                                              ‘‘should be sufficiently detailed and                   19(b)(3)(C) 34 and 19(b)(2)(B) of the                 improve overall network performance
                                              specific to support a finding that the                  Act 35 to determine whether the                       and stability.41
                                                                                                      proposed rule change should be                           Under the Commission’s Rules of
                                              proposed rule change is consistent with
                                                                                                      approved or disapproved. Institution of               Practice, the ‘‘burden to demonstrate
                                              [those] requirements.’’ 28
                                                                                                      proceedings does not indicate that the                that a proposed rule change is
                                                 Among other things, exchange
                                                                                                      Commission has reached any                            consistent with the [Act] and the rules
                                              proposed rule changes are subject to
                                                                                                      conclusions with respect to any of the                and regulations issued thereunder . . .
                                              Section 6 of the Act, including Sections
                                                                                                      issues involved. Rather, the Commission               is on the [SRO] that proposed the rule
                                              6(b)(4), (5), and (8), which requires the                                                                     change.’’ 42 The description of a
                                              rules of an exchange to (1) provide for                 seeks and encourages interested persons
                                                                                                      to provide additional comment on the                  proposed rule change, its purpose and
                                              the equitable allocation of reasonable                                                                        operation, its effect, and a legal analysis
                                              fees among members, issuers, and other                  proposed rule change to inform the
                                                                                                      Commission’s analysis of whether to                   of its consistency with applicable
                                              persons using the exchange’s                                                                                  requirements must all be sufficiently
                                              facilities; 29 (2) perfect the mechanism of             disapprove the proposed rule change.
                                                                                                         Pursuant to Section 19(b)(2)(B) of the             detailed and specific to support an
                                              a free and open market and a national                                                                         affirmative Commission finding,43 and
                                              market system, protect investors and the                Act,36 the Commission is providing
                                                                                                      notice of the grounds for possible                    any failure of an SRO to provide this
                                              public interest, and not be designed to                                                                       information may result in the
                                              permit unfair discrimination between                    disapproval under consideration:
                                                                                                         • Section 6(b)(4) of the Act, which                Commission not having a sufficient
                                              customers, issuers, brokers, or                                                                               basis to make an affirmative finding that
                                              dealers; 30 and (3) not impose any                      requires that the rules of a national
                                                                                                      securities exchange ‘‘provide for the                 a proposed rule change is consistent
                                              burden on competition not necessary or                                                                        with the Act and the applicable rules
                                              appropriate in furtherance of the                       equitable allocation of reasonable dues,
                                                                                                                                                            and regulations.44
                                              purposes of the Act.31                                  fees, and other charges among its
                                                                                                                                                               The Commission is instituting
                                                 In temporarily suspending the                        members and issuers and other persons                 proceedings to allow for additional
                                              Exchange’s fee change, the Commission                   using its facilities,’’ 37                            consideration and comment on the
                                              intends to further consider whether                        • Section 6(b)(5) of the Act, which                issues raised herein, including as to
                                              increasing certain connectivity fees to                 requires, among other things, that the                whether the proposed fees are
                                              the Exchange is consistent with the                     rules of a national securities exchange               consistent with the Act, and
                                              statutory requirements applicable to a                                                                        specifically, with its requirements that
                                                                                                         32 See 15 U.S.C. 78f(b)(4), (5), and (8),

                                                                                                      respectively.                                         exchange fees be reasonable and
                                                22 See supra note 4, and accompanying text.              33 For purposes of temporarily suspending the      equitably allocated; be designed to
                                                23 See supra note 5, and accompanying text.
                                                24 See supra note 6.
                                                                                                      proposed rule change, the Commission has              perfect the mechanism of a free and
                                                25 See Securities Exchange Act Release No. 84177,
                                                                                                      considered the proposed rule’s impact on              open market and the national market
                                                                                                      efficiency, competition, and capital formation. See   system, protect investors and the public
                                              83 FR 47953 (September 21, 2018).                       15 U.S.C. 78c(f).
                                                26 See id.
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                                                                                                         34 15 U.S.C. 78s(b)(3)(C). Once the Commission
                                                27 See 17 CFR 240.19b–4 (Item 3 entitled ‘‘Self-                                                              38 15 U.S.C. 78f(b)(5).
                                                                                                      temporarily suspends a proposed rule change,
                                              Regulatory Organization’s Statement of the Purpose                                                              39 15 U.S.C. 78f(b)(8).
                                                                                                      Section 19(b)(3)(C) of the Act requires that the
                                              of, and Statutory Basis for, the Proposed Rule          Commission institute proceedings under Section          40 See supra Section II.A.1.

                                              Change’’).                                              19(b)(2)(B) to determine whether a proposed rule        41 See id.
                                                28 Id.                                                change should be approved or disapproved.               42 Rule 700(b)(3), Commission Rules of Practice,
                                                29 15 U.S.C. 78f(b)(4).                                  35 15 U.S.C. 78s(b)(2)(B).                         17 CFR 201.700(b)(3).
                                                30 15 U.S.C. 78f(b)(5).                                  36 15 U.S.C. 78s(b)(2)(B).                           43 See id.
                                                31 15 U.S.C. 78f(b)(8).                                  37 15 U.S.C. 78f(b)(4).                              44 See id.




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                                              51026                     Federal Register / Vol. 83, No. 196 / Wednesday, October 10, 2018 / Notices

                                              interest, and not be unfairly                           amendments, all written statements                     public meeting on Monday, October 29,
                                              discriminatory; or not impose an                        with respect to the proposed rule                      2018 in Multi-Purpose Room LL–006 at
                                              unnecessary or inappropriate burden on                  change that are filed with the                         the Commission’s headquarters, 100 F
                                              competition.45                                          Commission, and all written                            Street NE, Washington, DC. The meeting
                                                                                                      communications relating to the                         will begin at 9:30 a.m. (EDT) and will
                                              V. Commission’s Solicitation of
                                                                                                      proposed rule change between the                       be open to the public, except for the
                                              Comments
                                                                                                      Commission and any person, other than                  period during lunch when the
                                                The Commission requests written                       those that may be withheld from the                    Committee will meet in an
                                              views, data, and arguments with respect                 public in accordance with the                          administrative work session. The public
                                              to the concerns identified above as well                provisions of 5 U.S.C. 552, will be                    portions of the meeting will be webcast
                                              as any other relevant concerns. Such                    available for website viewing and                      on the Commission’s website at
                                              comments should be submitted by                         printing in the Commission’s Public                    www.sec.gov. Persons needing special
                                              October 31, 2018. Rebuttal comments                     Reference Room, 100 F Street NE,                       accommodations to take part because of
                                              should be submitted by November 14,                     Washington, DC 20549 on official                       a disability should notify the contact
                                              2018. Although there do not appear to                   business days between the hours of                     persons listed below. The public is
                                              be any issues relevant to approval or                   10:00 a.m. and 3:00 p.m. Copies of the                 invited to submit written statements to
                                              disapproval which would be facilitated                  filing also will be available for                      the Committee. The meeting will
                                              by an oral presentation of views, data,                 inspection and copying at the principal                include updates and presentations from
                                              and arguments, the Commission will                      office of the Exchange. All comments                   the subcommittees.
                                              consider, pursuant to Rule 19b–4, any                   received will be posted without change.                DATES: The public meeting will be held
                                              request for an opportunity to make an                   Persons submitting comments are                        on Monday, October 29, 2018. Written
                                              oral presentation.46                                    cautioned that we do not redact or edit
                                                The Commission asks that                                                                                     statements should be received on or
                                                                                                      personal identifying information from                  before October 24, 2018.
                                              commenters address the sufficiency and                  comment submissions. You should
                                              merit of the Exchange’s statements in                                                                          ADDRESSES: The meeting will be held at
                                                                                                      submit only information that you wish
                                              support of the proposal, in addition to                                                                        the Commission’s headquarters, 100 F
                                                                                                      to make available publicly. All
                                              any other comments they may wish to                                                                            Street NE, Washington, DC. Written
                                                                                                      submissions should refer to File
                                              submit about the proposed rule change.                                                                         statements may be submitted by any of
                                                                                                      Number SR–PEARL–2018–19 and
                                              Interested persons are invited to submit                                                                       the following methods:
                                                                                                      should be submitted on or before
                                              written data, views, and arguments                      October 31, 2018. Rebuttal comments                    Electronic Statements
                                              concerning the proposed rule change,                    should be submitted by November 14,
                                              including whether the proposed rule                                                                              • Use the Commission’s internet
                                                                                                      2018.                                                  submission form (http://www.sec.gov/
                                              change is consistent with the Act.
                                              Comments may be submitted by any of                     VI. Conclusion                                         rules/other.shtml); or
                                              the following methods:                                                                                           • Send an email message to rule-
                                                                                                        It is therefore ordered, pursuant to
                                                                                                                                                             comments@sec.gov. Please include File
                                              Electronic Comments                                     Section 19(b)(3)(C) of the Act,47 that File
                                                                                                                                                             Number 265–30 on the subject line; or
                                                                                                      Number SR–PEARL–2018–19 be and
                                                • Use the Commission’s internet
                                                                                                      hereby is, temporarily suspended. In                   Paper Statements
                                              comment form (http://www.sec.gov/
                                                                                                      addition, the Commission is instituting                  • Send paper statements in triplicate
                                              rules/sro.shtml); or
                                                • Send an email to rule-comments@                     proceedings to determine whether the                   to Brent J. Fields, Federal Advisory
                                              sec.gov. Please include File Number SR–                 proposed rule change should be                         Committee Management Officer,
                                              PEARL–2018–19 on the subject line.                      approved or disapproved.                               Securities and Exchange Commission,
                                                                                                        For the Commission, by the Division of               100 F Street NE, Washington, DC
                                              Paper Comments                                          Trading and Markets, pursuant to delegated             20549–1090.
                                                • Send paper comments in triplicate                   authority.48
                                                                                                                                                             All submissions should refer to File No.
                                              to Brent J. Fields, Secretary, Securities               Eduardo A. Aleman,
                                                                                                                                                             265–30. This file number should be
                                              and Exchange Commission, 100 F Street                   Assistant Secretary.                                   included on the subject line if email is
                                              NE, Washington, DC 20549–1090.                          [FR Doc. 2018–21922 Filed 10–9–18; 8:45 am]            used. To help us process and review
                                              All submissions should refer to File                    BILLING CODE 8011–01–P                                 your statement more efficiently, please
                                              Number SR–PEARL–2018–19. This file                                                                             use only one method. The Commission
                                              number should be included on the                                                                               will post all statements on the
                                              subject line if email is used. To help the              SECURITIES AND EXCHANGE                                Commission’s internet website at SEC
                                              Commission process and review your                      COMMISSION                                             website at (http://www.sec.gov/
                                              comments more efficiently, please use                   [Release No. 34–84356; File No. 265–30]                comments/265-30/265-30.shtml).
                                              only one method. The Commission will                                                                             Statements also will be available for
                                              post all comments on the Commission’s                   Fixed Income Market Structure                          website viewing and printing in the
                                              internet website (http://www.sec.gov/                   Advisory Committee                                     Commission’s Public Reference Room,
                                              rules/sro.shtml). Copies of the                                                                                100 F Street NE, Room 1580,
                                              submission, all subsequent                              AGENCY: Securities and Exchange
                                                                                                      Commission.                                            Washington, DC 20549, on official
                                                                                                                                                             business days between the hours of
                                                45 See 15 U.S.C. 78f(b)(4), (5), and (8).             ACTION: Notice of meeting.
                                                                                                                                                             10:00 a.m. and 3:00 p.m. All statements
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                                                46 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the Act
                                              grants the Commission flexibility to determine what     SUMMARY:  The Securities and Exchange                  received will be posted without change.
                                              type of proceeding—either oral or notice and            Commission Fixed Income Market                         Persons submitting comments are
                                              opportunity for written comments—is appropriate         Structure Advisory Committee is                        cautioned that we do not redact or edit
                                              for consideration of a particular proposal by an                                                               personal identifying information from
                                              SRO. See Securities Acts Amendments of 1975,
                                                                                                      providing notice that it will hold a
                                              Report of the Senate Committee on Banking,
                                                                                                                                                             submissions. You should submit only
                                              Housing and Urban Affairs to Accompany S. 249,            47 15   U.S.C. 78s(b)(3)(C).                         information that you wish to make
                                              S. Rep. No. 75, 94th Cong., 1st Sess. 30 (1975).          48 17   CFR 200.30–3(a)(57) and (58).                available publicly.


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Document Created: 2018-10-10 17:39:19
Document Modified: 2018-10-10 17:39:19
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation83 FR 51022 

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