83 FR 8554 - Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Gateway Fees

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 39 (February 27, 2018)

[Federal Register Volume 83, Number 39 (Tuesday, February 27, 2018)]
[Notices]
[Pages 8554-8556]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-03888]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82749; File No. SR-ISE-2018-15]


Self-Regulatory Organizations; Nasdaq ISE, LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Gateway 
Fees

February 21, 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 February 12, 2018, Nasdaq ISE, LLC (``ISE'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III, below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b 4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Exchange's Schedule of Fees to 
remove obsolete text and amend the current rule text to provide a more 
accurate description of the Gateway Fees which are currently offered on 
ISE.
    The text of the proposed rule change is available on the Exchange's 
website at http://ise.cchwallstreet.com/, at the principal office of 
the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend ISE's current pricing related to

[[Page 8555]]

Gateways at VI, C of the Schedule of Fees. The Exchange's current 
gateway offering was modified with the completion of the transition of 
ISE to INET technology in July 2017. First, as of July 2017, the 
Exchange no longer offered a Shared Gateway for its DTI \3\ port to its 
Members. Second, the Exchange modified its offering of its Dedicated 
Gateway to remove the paired offering which allowed access to both ISE 
and Nasdaq GEMX, LLC (``GEMX''). Both of these changes are discussed in 
more detail below.
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    \3\ DTI was an order entry protocol offered on ISE that was 
utilized by all members. DTI ports are not offered today.
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Shared Gateway
    With the transition to INET, ISE no longer offered DTI ports as of 
July 2017. Prior to the replatform, ISE assessed Members a Shared 
Gateway fee of $750 per gateway, per month for DTI ports. The offering 
provided connectivity to both ISE and GEMX. The Exchange no longer 
offers DTI ports and has not billed this fee since the decommissioning 
of the DTI ports in July 2017. No ISE Member will be offered a Shared 
Gateway for a DTI port. Today, the Exchange does not assess a Shared 
Gateway fee for ports. ISE Members are able to utilize various ports 
today, namely, SQF, OTTO, FIX and Precise. The Exchange is noting a 
Shared Gateway fee of $0 on the Schedule of Fees for clarity. The 
Shared Gateway fee shall apply to all ports including FIX, SQF, OTTO 
and Precise.
Dedicated Gateway and Dedicated SQF
    The Exchange filed a rule change to establish a Dedicated SQF Host 
in 2017 to discuss the transition of gateway services in connection 
with the INET migration.\4\ In that rule change the Exchange noted it 
would offer Dedicated Gateways to facilitate member access to the 
Exchange.\5\ The filing described a Dedicated SQF Host as an optional 
offering available to Market Makers--i.e., Primary Market Makers 
(``PMMs'') and Competitive Market Makers (``CMMs'')--only for their SQF 
Port & SQF Purge Port connectivity.\6\ A Dedicated SQF Host provides 
the PMM or CMM with assurance that their SQF Port and SQF Purge Port 
connection to the Exchange resides on a host that is not shared with 
other PMMs and CMMs.
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    \4\ See Securities and Exchange Act Release No. 81095 (July 7, 
2017), 82 FR 32409 (July 13, 2017)(SR-ISE-2017-62).
    \5\ Id.
    \6\ Id. See also ISE Rule 100(a)(25).
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    The Exchange's Schedule of Fees currently provides for a Dedicated 
Gateway fee which is assessed at $2,250 per gateway pair, per month. 
The Schedule of Fees notes that the gateway connectivity provides 
connectivity to both GEMX and ISE. Also, the Schedule of Fees notes a 
Dedicated SQF Host Fee of $0 per host per month. The Exchange 
established the Dedicated SQF Host Fee at no cost because the Exchange 
did not desire to double bill ISE Market Makers for two sets of SQF 
connectivity--one to the old T7 legacy system and one to the new INET 
system.
    The Exchange discontinued its paired Dedicated Gateways in July 
2017. Since that time the Exchange has not billed Market Makers for use 
of Dedicated Gateways. The Exchange has offered the Dedicated SQF Host 
at no cost. At this time, the Exchange proposes to increase and amend 
the dedicated offering. The Exchange proposes to eliminate the 
reference to a ``Dedicated SQF Host Fee'' and commence assessing a fee 
for the ``Dedicated Gateway'' offering. The Exchange proposes to 
continue to refer to the dedicated offering as the ``Dedicated 
Gateway'' and assess a fee of $2,250 per SQF gateway, per month. Only 
Market Makers that utilize SQF ports have the option of utilizing this 
dedicated offering. Prior to the INET transition, all Members were able 
to utilize the dedicated offering for their DTI port. Today, only SQF 
ports, which are utilized by Market Makers, may be dedicated. All other 
ports, namely FIX, OTTO and Precise, can only be shared. An SQF port 
can be shared, at no cost, or dedicated. The current Dedicated SQF will 
not offer connectivity for GEMX and therefore the ``pair'' language is 
no longer relevant. The offering only grants access to ISE.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\7\ in general, and furthers the objectives of Sections 
6(b)(4) and 6(b)(5) of the Act,\8\ in particular, in that it provides 
for the equitable allocation of reasonable dues, fees, and other 
charges among members and issuers and other persons using any facility, 
and is not designed to permit unfair discrimination between customers, 
issuers, brokers, or dealers.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(4) and (5).
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Shared Gateway
    The Exchange believes that removing the obsolete pricing for the 
Shared Gateway for the DTI ports is reasonable because DTI ports are no 
longer available and the Exchange does not assess any other port a 
Shared Gateway fee. Also, the Exchange offers a Shared Gateway for any 
port, SQF, OTTO, FIX or Precise, at no cost.
    The Exchange believes that removing the pricing for the Shared 
Gateway for DTI ports is equitable and not unfairly discriminatory 
because DTI ports are no longer available on ISE for any Member. Any 
Member may utilize a Shared Gateway at no cost.
Dedicated Gateway and Dedicated SQF
    The Exchange believes that removing the current Dedicated Gateway 
paired pricing and the reference to the Dedicated SQF Host Fee, and 
increasing the fee for a dedicated offering, namely ``Dedicated 
Gateway'' fee from $0 \9\ to $2,250 per SQF gateway, per month is 
reasonable. The Exchange discontinued the paired connectivity through 
the legacy T7 in July 2017. The Exchange offered these dedicated 
servers at no cost since August 2017. Increasing the Dedicated Gateway 
fee at this time permits the Exchange to recuperate costs its bears to 
offer such dedicated services and permits ISE Marker Makers to select 
between a Shared Gateway and a Dedicated Gateway for their SQF ports. 
The Exchange believes that assessing a fee of $2,250 per host, per 
month to obtain a dedicated server is reasonable given the cost of this 
offering to the Exchange. ISE Market Makers have the option of 
selecting a Shared Gateway for their SQF ports at no cost.
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    \9\ The Exchange is not currently assessing a fee for a 
dedicated offering.
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    The Exchange believes that removing the current Dedicated Gateway 
paired pricing and the reference to the Dedicated SQF Host Fee, and 
increasing the fee for a dedicated offering, namely ``Dedicated 
Gateway'' fee from $0 to $2,250 per SQF gateway, per month is equitable 
and not unfairly discriminatory. At this time, no ISE Member is being 
assessed the paired Dedicated Gateway fees. Today, no ISE Market Maker 
is being assessed a Dedicated SQF Host fee. Any ISE Market Maker may 
select a Dedicated SQF, as compared to a Shared Gateway for their SQF 
connectivity. The Exchange will uniformly assess any ISE Market Maker 
the proposed $2,250 per host, per month fee. ISE Market Makers are 
likely to benefit from a dedicated as compared to a shared gateway as 
compared to other market participants. Dedicated SQF is designed to 
provide a more deterministic experience for ISE Market Makers when 
quoting on the Exchange by allowing them to better load balance their 
trading sessions, but does not provide any latency benefit when 
compared to using the shared

[[Page 8556]]

gateways, which are built on identical hardware to the dedicated 
gateways. The Exchange therefore believes that ISE Market Makers are 
likely to benefit from the load balancing provided by the dedicated 
gateways, which will aid ISE Market Makers in their obligations to 
maintain tight markets--a benefit that ultimately accrues to the 
benefit of all market participants that trade on the Exchange. Based on 
the Exchange's experience, the Exchange does not believe that market 
participants using other protocols, namely FIX, OTTO and Precise, are 
likely to use dedicated gateways, and the Exchange is therefore not 
offering such Dedicated Gateways for any of ports other than SQF Ports.
    The Exchange does not believe that it is unfairly discriminatory to 
offer Dedicated Gateways only for SQF ports, which are only available 
to ISE Market Makers. Other exchanges also have gateways that are 
restricted to market makers. The New York Stock Exchange, for example, 
offers DMM Gateways that are only available to their Designated Market 
Makers.\10\ ISE Market Makers provide liquidity on the Exchange and 
have continuous quoting obligations \11\ to the market that require the 
ability to quickly and efficiently interact with their quotes and 
orders. Finally, with respect to assessing the same fee while 
discontinuing access to GEMX, the Exchange believes that is equitable 
and not unfairly discriminatory to no longer offer access to GEMX with 
this particular offering as other exchanges do not offer this 
option.\12\
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    \10\ See Securities Exchange Act Release No. 79748 (January 6, 
2017), 82 FR 3828 (January 12, 2017) (SR-NYSE-2016-93).
    \11\ See ISE Rule 804(e).
    \12\ Nasdaq MRX, LLC has never offered a dedicated gateway 
option today.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. In terms of inter-market 
competition, the Exchange notes other exchanges offer similar dedicated 
access to their servers.\13\ The Exchange operates in a highly 
competitive market in which market participants can readily favor 
competing venues if they deem fee levels at a particular venue to be 
excessive, or rebate opportunities available at other venues to be more 
favorable. Because competitors are free to modify their own fees in 
response, and because market participants may readily adjust their 
order routing practices, the Exchange believes that the degree to which 
fee changes in this market may impose any burden on competition is 
extremely limited.
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    \13\ See note 9 above.
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    In terms of intra-market competition, no ISE Member will be 
assessed for a Shared Gateway. The new proposed Dedicated Gateway fee 
will be uniformly assessed to ISE Market Makers, who provide liquidity 
on the Exchange and have continuous quoting obligations \14\ to the 
market. These market participants require the ability to quickly and 
efficiently interact with their quotes and orders. Further will respect 
to a Dedicated Gateways, the Exchange believes that ISE Market Makers 
are likely to benefit from the load balancing, which will aid ISE 
Market Makers in their obligations to maintain tight markets--a benefit 
that ultimately accrues to the benefit of all market participants that 
trade on the Exchange. An ISE Market Maker may selected a Shared 
Gateway for their SQF ports at no cost. Further, the Exchange notes 
that no ISE Market Maker will be offered connectivity to GEMX in 
connection with this offering.
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    \14\ See ISE Rule 804(e).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

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

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-ISE-2018-15 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-ISE-2018-15. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-ISE-2018-15 and should be submitted on 
or before March 20, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-03888 Filed 2-26-18; 8:45 am]
BILLING CODE 8011-01-P