Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of Amendment No. 2 to a Proposed Rule Change and Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Change, as Modified by Amendment Nos. 1 and 2, Establishing Fees Relating to End Users and Amending the Definition of “Affiliate,” as well as Amending the NYSE MKT Equities Price List and the NYSE Amex Options Fee Schedule To Reflect the Changes, 49304-49309 [2016-17675]
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
opportunity to make an oral
presentation.79
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal, as modified by Amendment
Nos. 1 and 2, should be approved or
disapproved by August 17, 2016. Any
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by August 31, 2016. In light
of the concerns raised by the proposed
rule change, as discussed above, the
Commission invites additional comment
on the proposed rule change, as
modified by Amendment Nos. 1 and 2,
as the Commission continues its
analysis of the proposed rule change’s
consistency with Sections 6(b)(4), (5)
and (8),80 or any other provision of the
Act, or the rules and regulations
thereunder. The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposed rule change, as
modified by Amendment Nos. 1 and 2,
in addition to any other comments they
may wish to submit about the proposed
rule change.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–NYSE–2016–11 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 No.
SR–NYSE–2016–11. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
sradovich on DSK3GMQ082PROD with NOTICES
79 Section
19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Pub. L. 94–29
(June 4, 1975), grants to 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 a self-regulatory organization. See
Securities Act Amendments of 1975, Senate Comm.
on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
80 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
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change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NYSE–
2016–11, and should be submitted by
August 17, 2016. Rebuttal comments
should be submitted by August 31,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.81
Robert W. Errett,
Deputy Secretary.
19b–4 thereunder,2 a proposed rule
change to amend the co-location section
of the NYSE MKT Equities Price List
and the NYSE Amex Options Fee
Schedule to establish fees relating to
end users of certain co-location Users in
the Exchange’s data center and to
amend the definition of ‘‘Affiliate.’’ The
Commission published the proposed
rule change for comment in the Federal
Register on April 22, 2016.3 On April
29, 2016, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission received no
comments on the proposed rule
change.5 On June 8, 2016, the
Commission extended the time period
within which to approve the proposed
rule change, disapprove the proposed
rule change, or institute proceedings to
determine whether to approve or
disapprove the proposed rule change to
July 21, 2016.6 On June 24, 2016, the
Exchange filed Amendment No. 2 to the
proposed rule change.7
The Commission is publishing this
order to solicit comments on
Amendment No. 2 from interested
persons and to institute proceedings
pursuant to Exchange Act Section
19(b)(2)(B) to determine whether to
approve or disapprove the proposed
rule change, as modified by Amendment
Nos. 1 and 2.8 Institution of proceedings
[FR Doc. 2016–17673 Filed 7–26–16; 8:45 am]
2 17
BILLING CODE 8011–01–P
CFR 240.19b–4.
Securities Exchange Act Release No. 34–
77640 (April 18, 2016), 81 FR 23780 (‘‘Notice’’).
4 Amendment No. 1 makes technical changes
relating to the General Notes numbering and
references in the Co-location section of the Fee
Schedules. Because Amendment No. 1 is technical,
the Commission is not soliciting comment thereon.
5 The Commission received two comment letters
on a companion filing, NYSE–2016–11 (the ‘‘NYSE
companion filing’’), filed by the Exchange’s affiliate,
the New York Stock Exchange LLC (‘‘NYSE’’). See
Letter from Michael Friedman, General Counsel and
Chief Compliance Officer, Trillium, to Brent J.
Fields, Secretary, Securities and Exchange
Commission, dated May 13, 2016 (‘‘Friedman
Letter’’), and Letter from Eero Pikat to Brent J.
Fields, Secretary, Securities and Exchange
Commission, dated, May 13, 2016 (‘‘Pikat Letter’’)
(together, the ‘‘Comment Letters’’).
In response to the Comment Letters, the NYSE
submitted a response (‘‘Response Letter’’) and filed
Amendment No. 2 to the NYSE companion filing.
As they are relevant to the instant filing, the
Comment Letters and Response Letter on the NYSE
companion filing are discussed below.
6 See Securities Exchange Act Release No. 34–
77978 (June 2, 2016), 81 FR 36966.
7 As more fully described below, in Amendment
No. 2 the Exchange proposes that Rebroadcasting
Users and Transmittal Users would not be charged
for their first two Multicast End Users and Unicast
End Users, respectively, and offers additional
support for the proposal. Amendment No. 2 is
available on the Commission’s Web site at https://
www.sec.gov/comments/sr-nysemkt-2016-15/
nysemkt201615-2.pdf. The Commission notes that
in the comment file, Amendment No. 2 contains a
cover page that erroneously refers to Amendment
No. 1.
8 15 U.S.C. 78s(b)(2)(B).
3 See
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78389; File No. SR–
NYSEMKT–2016–15]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing of
Amendment No. 2 to a Proposed Rule
Change and Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Change, as Modified by Amendment
Nos. 1 and 2, Establishing Fees
Relating to End Users and Amending
the Definition of ‘‘Affiliate,’’ as well as
Amending the NYSE MKT Equities
Price List and the NYSE Amex Options
Fee Schedule To Reflect the Changes
July 21, 2016.
I. Introduction
On April 4, 2016, NYSE MKT LLC
(the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
PO 00000
81 17
1 15
CFR 200.30–3(a)(57).
U.S.C. 78s(b)(1).
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Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
does not indicate that the Commission
has reached any conclusions with
respect to the proposed rule change, nor
does it mean that the Commission will
ultimately disapprove the proposed rule
change. Rather, as discussed below, the
Commission seeks additional input on
the proposed rule change, as modified
by Amendment Nos. 1 and 2, and on the
issues presented by the proposal.
raw market data before sending it to its
customers.’’ 14 The Exchange also
proposes to define ‘‘Multicast End User’’
as ‘‘a customer of a Rebroadcasting User,
or a customer of a Rebroadcasting User’s
Multicast End User customer, to whom
the Rebroadcasting User or its Multicast
End User sends data received from the
Exchange in multicast format, other
than an Affiliate of the Rebroadcasting
User.’’ 15 The Exchange notes that a
Multicast End User may be, but is not
required to be, a User or a Hosted
Customer, and also that a customer of a
Rebroadcasting User would be
considered a Multicast End User,
irrespective of whether it receives the
data from a Rebroadcasting User or
another Multicast End User.16
Accordingly, as proposed, a Multicast
End User is a recipient of raw Exchange
market data that (i) originated from (but
may not have been provided directly by)
a User, provided such recipient is not an
Affiliate of the originating User.17
In addition, as originally proposed,
the Exchange would assess a
Rebroadcasting User with one or two
connections, either directly or through
another Multicast End User, to a
Multicast End User, a $1,700 monthly
charge for the first two connections, and
$850 for each additional connection to
that Multicast End User.18 To assess the
proposed fees accurately, a
Rebroadcasting User would be required
to report to the Exchange on a monthly
basis the number of its Multicast End
Users, and the number of connections it
has to each.19 As more fully discussed
below, in Amendment No. 2, the
Exchange proposes that a
Rebroadcasting User would not be
assessed a fee for its first two Multicast
End Users.20
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II. Description of the Proposal, as
Modified by Amendment Nos. 1 and 2
The Exchange proposes to establish
certain fees relating end users.
Specifically, the Exchange proposes to
amend the co-location section of the
NYSE MKT Equities Price List and the
NYSE Amex Options Fee Schedule
(collectively ‘‘Fee Schedules’’) to (i) add
the newly defined terms
‘‘Rebroadcasting User’’ and ‘‘Multicast
End User;’’ as well as ‘‘Transmittal
User’’ and ‘‘Unicast End User;’’ (ii)
amend the definition of Affiliate; (iii)
establish new reporting requirements
applicable to Rebroadcasting Users and
Transmittal Users; (iv) establish new
fees applicable to Rebroadcasting Users
and Transmittal Users; and (v) make
certain related technical changes.9
The Exchange operates a data center
in Mahwah, New Jersey (‘‘data center’’)
from which it provides co-location
services to Users.10 The Exchange states
that in the data center, information
flows over existing network connections
in two formats: Multicast and unicast.
Multicast is a format in which
information is sent one-way from the
Exchange to multiple recipients at once,
similar to a radio broadcast, and is
currently employed for the transmission
of market data.11 Users receiving market
data through the multicast format can
retransmit that data to their customers.12
Unicast format is a format that allows
Transmittal Users/Unicast End Users
one-to-one communication, similar to a
phone line, in which information is sent
According to the Exchange, customers
to and from the Exchange.13
use unicast format to send messages
Rebroadcasting Users/Multicast End
related to orders or for clearing
Users
purposes.21 A User may enable one or
The Exchange proposes to add several more of its customers to transmit
messages in unicast format to and from
new definitions to the Fee Schedules.
The Exchange proposes to define a
14 See id. at 23781. Pursuant to the definition, the
‘‘Rebroadcasting User’’ as ‘‘a User that
term ‘‘Rebroadcasting User’’ would exclude a User
rebroadcasts to its customers data
that ‘‘normalizes’’ (i.e., alters) raw market data
received from the Exchange in multicast before sending it a Multicast End User. The
format, unless such User normalizes the definition of Rebroadcasting User also would not
9 See
Notice, supra note 3, 81 FR at 23780; see
also Amendment No. 1, supra note 4.
10 For purposes of the Exchange’s co-location
services, a ‘‘User’’ means any market participant
that requests to receive co-location services directly
from the Exchange.
11 See Notice, supra note 3, 81 FR at 23780.
12 See id.
13 See id.
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apply to a User that rebroadcasts third party data,
because that data is not received from the Exchange.
See id.
15 See id.
16 See id.
17 See id.
18 See id.
19 See id. at 23782.
20 See Amendment No. 2, supra note 7.
21 See Notice, supra note 3, 81 FR at 23781.
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49305
the Exchange.22 The Exchange proposes
to define a ‘‘Transmittal User’’ as a User
that enables its customers, or the
customers of its customers, to transmit
messages to and from the Exchange
using the unicast format.23 A ‘‘Unicast
End User’’ would be a customer of a
Transmittal User, or a customer of a
Transmittal User’s Unicast End User
customer, for whom the Transmittal
User or its Unicast End User customer
enables the transmission of messages to
and from the Exchange in unicast
format, other than a customer that (a) is
an Affiliate of the Transmittal User or
(b) sends all unicast transmissions
through a floor participant, such as a
floor broker.24 Customers of a
Transmittal User that send all unicast
transmissions through a floor
participant, such as a floor broker,
would not be considered a Unicast End
User even if such customer is enabled
to use unicast format.25 A Unicast End
User may also enable one or more of
their customers to transmit messages to
and from the Unicast End User and thus
such customers would also be
considered a Unicast End User.26 To
assess the proposed fees accurately, a
Transmittal User would be required to
report to the Exchange on a monthly
basis the number of its Unicast End
Users, and the number of connections it
has to each.27
As originally proposed, the Exchange
would assess a Transmittal User with
one or two connections, either directly
or through another Unicast End User, to
a Unicast End User, a $1,500 monthly
charge for the first two connections,28
and $750 for each additional connection
to that Unicast End User.29 As noted,
there would be no charge to a
Transmittal User for its connection to a
customer submitting orders through a
unicast connection to a floor
participant.30 As more fully discussed
below, in Amendment No. 2, the
Exchange proposes that a Transmittal
22 See id. For example, a User that is a service
bureau or extranet may use such connections to
facilitate order routing and clearing by its
customers. See id.
23 See id.
24 See id. A Unicast End User may be a User or
a Hosted Customer. See id.
25 See id.
26 See id. The Exchange notes that it is not aware
of any customer of a Unicast End User that enables
its customers to transmit messages, but if such a
relationship did exist, the customer would also be
considered a Unicast End User. See id.
27 See id. at 23782.
28 See id. at 23781.
29 See id.
30 See supra note 25 and accompanying text.
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User would not be charged the proposed
fee for its first two Unicast End Users.31
Definition of Affiliate
The Exchange also proposes that the
terms Multicast End User and Unicast
End User would exclude an entity that
is an Affiliate of its Rebroadcasting User
or Transmittal User, respectively.32 The
Exchange proposes to amend its current
definition of an Affiliate.33 Under the
new definition, an ‘‘Affiliate’’ of a User
would be any other User or Hosted
Customer that is under common control
with, controls, or is controlled by, the
first User, provided that: (1) An
‘‘Affiliate’’ of a Rebroadcasting User is
any Multicast End User that is under
common control with, controls, or is
controlled by the Rebroadcasting User;
and (2) an ‘‘Affiliate’’ of a Transmittal
User is any Unicast End User that is
under common control with, controls,
or is controlled by the Transmittal
User.34 For purposes of this definition,
‘‘control’’ means ownership or control
of 50% or greater.35 The purpose of the
amendment is to provide that an
‘‘Affiliate’’ relationship exists whenever
two entities are under common control,
regardless of which entity controls the
other.36
Exchange Support for Rebroadcasting
Users/Transmittal User Fees
In its filing, the Exchange states that
the proposed fees relate to additional
connectivity and co-location services
the Exchange provides to
Rebroadcasting and Transmittal Users
and would ‘‘fairly and equitably allocate
the costs associated with maintaining
the Data Center facility, hardware and
equipment and related to personnel
required for installation and ongoing
monitoring, support and maintenance of
such service among all Users.’’ 37
According to the Exchange, in the
absence of the proposed end user fees,
‘‘no charges would be assessed related
to the benefit that Multicast End Users
and Unicast End Users receive from the
services through the Rebroadcasting or
Transmittal User from whom they
receive data, and the Rebroadcasting or
31 See
Amendment No. 2, supra note 7.
id. at 23781. Users excluding Affiliates
from their list of Multicast End Users or Unicast
End Users may be required to certify to the
Exchange the Affiliate status of such end user. See
id. at 23782. The Exchange may ask Users that are
neither Rebroadcasting Users or Transmittal Users
to certify their status as ordinary Users. See id.
33 See id. at 23781.
34 See id.
35 See id.
36 See id.
37 See id.
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32 See
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Transmittal Users would thus receive
disproportionate benefits.’’ 38
The Exchange represents that it incurs
more costs on the account of
Rebroadcasting and Transmittal
Users; 39 some of these costs being
indirect, including overhead and
technology infrastructure,
administrative, maintenance and
operational costs,40 and others being in
form of direct network support.41
Additionally, the Exchange notes that it
has established automated
retransmission facilities for Users to
receive multicast transmissions.42
As noted, the Commission received
two comment letters on the NYSE
companion filing, which are likewise
applicable to this filing.43 These
commenters expressed concern about
the effect of the Rebroadcasting User
fees that would be passed on to them as
Multicast End Users consuming
Exchange market data. One of these
commenters states that it should not
have to pay fees to help support the colocation infrastructure because it is not
co-located.44 This commenter states that
for compliance purposes, a registered
broker-dealer has no choice but to
‘‘consume depth-of-book market data’’
and that if the proposed fee is passed
through, the commenter will have no
choice but to accept it.45 The other
commenter states that the proposal
provides ‘‘no evidence to support [the
Exchange’s] claim that its costs are
higher to support the customers of
subvendors.’’ 46 This commenter states
that the fees are ‘‘assigned only to
vendors’ customers who buy data from
[the Exchange’s] competitors’’ and is
‘‘[b]y definition . . . anticompetitive.’’ 47 According to this
commenter, the fees are introduced
id.
id. at 23782.
40 See id. The Exchange notes, that it has made
network infrastructure improvements over the years
and established administrative controls. See id.
41 See id. The Exchange states that when an issue
arises, the Exchange and Rebroadcasting User or
Transmittal User conduct a review to determine the
cause of an issue, with the participation of the
relevant Multicast or Unicast End User. The
Exchange states that when the User is a
Rebroadcasting User or Transmittal User,
identifying the issue and providing the needed
network support becomes more complicated
because each of the entities involved has its own
infrastructure and administration. By contrast, for
Affiliates, the Exchange states that they typically act
as one entity, with one infrastructure, one
administration, and one network support group,
making the network support effectively similar to
supporting one entity. See id.
42 See id.
43 See supra note 5.
44 See Friedman Letter, supra note 5, at 1–2.
45 See id. at 1–3.
46 See Pikat Letter, supra note 5, at 1.
47 See id.
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38 See
39 See
Frm 00099
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‘‘solely for the purpose of protecting
market data revenue.’’ 48
In the Response Letter, the NYSE
states that the Comment Letters have
‘‘not provided any credible argument
why the [. . .] proposal is not consistent
with the requirements of the Act.’’ 49
The NYSE emphasizes that the proposal
‘‘compares the support the Exchange
provides to Rebroadcasting Users to the
support required by Users that are not
Rebroadcasting Users,’’ 50 and states that
the proposal will not impact market
data revenue.51 The NYSE states that ‘‘a
market participant has additional
options outside of co-location for
connecting to Exchange market data’’
and that the commenters ‘‘ignor[e] the
basic fact that the Exchange voluntarily
allows Rebroadcasting Users to provide
services out of the Exchange’s colocation facility.’’ 52 The NYSE further
argues that it ‘‘would be illogical to
argue . . . that just because
Rebroadcasting Users provide services
that overlap with services offered by the
Exchange, the Exchange cannot charge
the Rebroadcasting Users for the
Exchange’s services.’’ 53 The NYSE
states that it ‘‘generally provides more
direct support to Rebroadcasting Users
than other Users’’ and highlights the fact
that a larger Rebroadcasting User made
‘‘between 3.8 and 4.25 times as many
calls as Users with similar power usage,
and 4.25 to 8.5 times as many calls as
Users with a similar number of
cabinets.’’ 54
Amendment No. 2
In Amendment No. 2, the Exchange
offers additional justification for the
proposed rule change. In Amendment
No. 2, the Exchange proposes that a
Rebroadcasting User not be charged a
fee for its first two Multicast End Users,
and similarly that a Transmittal User
not be charged a fee for its first two
Unicast End Users.55 The Exchange
states that it reviewed customer calls for
assistance between June 1, 2015 and
June 7, 2016, and compared the number
of calls by Users it believes to be
Rebroadcasting Users to the number of
48 See
id.
Response Letter, supra note 5, at 3.
50 See id. at 7.
51 See id. at 4.
52 See id. at 6.
53 See id. The Exchange also argues that
‘‘Rebroadcasting Users are not direct competitors of
the Exchange’s co-location services . . . [since] for
example, the Exchange does not provide Users with
hardware such as routers or switches, and does not
offer managed services.’’ See id.
54 See id. at 7–8. The NYSE also states that its
proposed fees follow a similar example set by the
Nasdaq Stock Market’s Extranet Access Fee. See id.
at 9.
55 See Amendment No. 2, supra note 7.
49 See
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calls by a representative sample of other
Users.56 Consistent with the NYSE
statements in the Response Letter, the
Exchange states that ‘‘a comparison of
calls by the larger Rebroadcasting User
showed that the larger Rebroadcasting
User made between 3.8 and 4.25 times
as many calls as Users with similar
power usage, and 4.25 to 8.5 times as
many calls as Users with similar
numbers of cabinets. Indeed, such
Rebroadcasting User made 20 more calls
than the five largest Users combined.’’ 57
The Exchange adds that it believes
that Rebroadcasting Users that have
only one or two Multicast End Users are
an exception to the general statement
that the Exchange has a greater
administrative burden and incurs
greater operational costs to support
Rebroadcasting Users.58 The Exchange
further states that it does not have
visibility into the number of Unicast
End Users that individual Transmittal
Users have, but believes that it is
reasonable to extrapolate that a
Transmittal User that has only one or
two Unicast End Users may not need
more network support than other
Users.59 Accordingly, the Exchange
believes it is reasonable to not charge a
Transmittal User a fee for its first two
Unicast End Users.60 Finally, the
Exchange states that its proposal is
analogous to the Nasdaq Stock Market’s
Extranet Access Fee.61
III. Proceedings To Determine Whether
To Approve or Disapprove File No. SR–
NYSEMKT–2016–15 and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 62 to determine
56 See
id.
Response Letter, supra note 5, at 8; see also
Amendment No. 2, supra note 7.
58 See Amendment No. 2, supra note 7.
59 See Amendment No. 2, supra note 7.
60 See id.
61 The Exchange cites Nasdaq Stock Market Rule
7025 and Securities Exchange Act Release No.
74040 (January 13, 2015), 80 FR 2460 (January 16,
2015) (SR–NASDAQ–2015–003), and states:
‘‘Extranet providers that establish a connection with
Nasdaq to offer direct access connectivity to market
data feeds are assessed a monthly access fee of
$1,000 per recipient Customer Premises Equipment
(‘‘CPE’’) Configuration. A CPE Configuration is any
line, circuit, router package, or other technical
configuration used by an extranet provider to
provide a direct access connection to Nasdaq
market data feeds to a recipient’s site. No extranet
access fee is charged for connectivity to market data
feeds containing only consolidated data.).’’ See id.
62 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the
Act also provides that proceedings to determine
whether to disapprove a proposed rule change must
be concluded within 180 days of the date of
publication of notice of the filing of the proposed
rule change. See id. The time for conclusion of the
proceedings may be extended for up to 60 days if
the Commission finds good cause for such
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57 See
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whether the proposed rule change
should be approved or disapproved.
Institution of such proceedings is
appropriate at this time in view of the
legal and policy issues raised by the
proposed rule change, as discussed
below. Institution of proceedings does
not indicate that the Commission has
reached any conclusions with respect to
any of the issues involved. Rather, as
described in greater detail below, the
Commission seeks and encourages
interested persons to provide additional
comment on the proposed rule change.
Pursuant to Section 19(b)(2)(B) of the
Act, the Commission is providing notice
of the following grounds for disapproval
that are under consideration:
• 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,’’ 63
• 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,’’ 64 and
• 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].’’ 65
As discussed above, the Exchange
states that the proposed end user fees
applicable to Rebroadcasting Users and
Transmittal Users would ‘‘fairly and
equitably allocate the costs associated
with maintaining the Data Center
facility, hardware and equipment and
related to personnel required for
installation and ongoing monitoring,
support and maintenance of such
service among all Users.’’ 66 Although
the Exchange notes that it has expended
a variety of resources in connection
with the support of Rebroadcasting
Users and Transmittal Users, such as
technology infrastructure, maintenance
and operational costs, it does not
explain—with one exception—how
those expenditures do not equally
benefit all Users.67 The Exchange does
take the position that it ‘‘generally
extension and publishes its reasons for so finding.
See id.
63 15 U.S.C. 78f(b)(4).
64 15 U.S.C. 78f(b)(5).
65 15 U.S.C. 78f(b)(8).
66 See note 37 supra and accompanying text.
67 See Notice, supra note 3, 81 FR at 23783.
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Sfmt 4703
49307
provides more direct support to
Rebroadcasting Users and Transmittal
Users than other Users, typically in the
form of network support’’ and that
‘‘[b]ased on its experience . . . when
the User is a Rebroadcasting User or
Transmittal User, pinpointing the issue
and providing the needed network
support becomes more difficult because
each entity involved has its own
infrastructure and administration.’’ 68
The only evidence the Exchange
provides in support of its assertion,
however, is call log data showing that a
single large Rebroadcasting User made
substantially more customer assistance
calls to the Exchange than other Users
over a certain period.69 The
Commission is concerned that such data
may not be sufficient to demonstrate
that the proposed new end user fees are
reasonable, equitably allocated and not
unfairly discriminatory, as required by
the Act. In addition, to the extent the
Exchange is focused on more directly
recovering the costs of network support,
it has not explained why it has not
proposed to do so more precisely, such
as by imposing a fee per customer
service call, rather than by targeting a
subset of customers of co-located Users
regardless of their network support
needs.
Furthermore, the proposed fees would
not apply to all end users of
Rebroadcasting Users and Transmittal
Users. For example, they would not
apply to end users that are Affiliates of
a Rebroadcasting User or a Transmittal
User. While the Exchange asserts that
‘‘[i]n its experience, entities that are
Affiliates typically act as one entity,
with one infrastructure, one
administration, and one network
support group,’’ so that ‘‘the Exchange
is effectively supporting one entity,
irrespective of how many Affiliate end
users are involved,’’ 70 the Exchange
provides no evidence to support its
implication that Rebroadcasting Users
and Transmittal Users with Affiliate end
users require less Exchange resources
than those with non-Affiliate end users.
In addition, the proposed fees would
not apply with respect to the first two
end users of a Rebroadcasting User or a
Transmittal User.71 While the Exchange
expresses its belief that, ‘‘based on the
information available to it,
Rebroadcasting Users [or Transmittal
Users] that have only one or two [end
users] are an exception to the general
statement that the Exchange has a
greater administrative burden and
68 See
id. at 23784.
Amendment No. 2, supra note 7.
70 See Notice, supra note 3, 81 FR at 23784.
71 See Amendment No. 2, supra note 7.
69 See
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sradovich on DSK3GMQ082PROD with NOTICES
49308
Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
incurs greater operational costs to
support Rebroadcasting Users [or
Transmittal Users],’’ 72 it offers no
evidence in support of this belief.
Finally, the proposed fees would not
apply to Unicast End Users that send all
unicast transmissions through a floor
participant, such as a floor broker. In
this case, the Exchange does not justify
the exception on the basis of the
Exchange resources required to support
this type of end user, but rather because
it ‘‘would encourage sending orders to
Floor brokers for execution, thereby
encouraging displayed liquidity’’ and
‘‘promoting public price discovery . . .
which benefits all market
participants.’’ 73 The Exchange,
however, provides no evidence to
support the proposition that Unicast
End Users submitting all of their orders
through floor brokers provide more
displayed liquidity or otherwise
improve the market quality of the
Exchange more than other types of
Unicast End Users. Accordingly, the
Commission is concerned that the
Exchange has not demonstrated that the
exceptions to its proposed new end user
fees are reasonable, equitably allocated
and not unfairly discriminatory, as
required by the Act.
Finally, the Commission is concerned
that the Exchange has not demonstrated
that its proposal does not impose an
unnecessary or inappropriate burden on
competition. The Exchange asserts that
it meets this statutory standard because
‘‘it operates in a highly-competitive
market in which market participants can
readily favor competing venues if, for
example, they deem fee levels at a
particular venue to be excessive or if
they determine that another venue’s
products and services are more
competitive than on the Exchange.’’ 74 In
response to a commenter’s concern that
the proposal could have an anticompetitive impact on vendors and
their customers, the Exchange takes the
position that Rebroadcasting Users like
vendors ‘‘are not direct competitors of
the Exchange’s co-location services,’’
because ‘‘[w]hile both offer connectivity
to Exchange market data,
Rebroadcasting Users provide their
customers services that the Exchange’s
co-location service does not,’’ such as
hardware (e.g., routers and switches)
and fully-managed services.75 The
Exchange, however, does not clearly
72 See
id.
Notice, supra note 3, 81 FR at 23785.
74 See id. The Exchange cites several additional
justifications that closely mirror those, noted above,
that support its assertion that its proposed fees are
reasonable, equitably allocated and not unfairly
discriminatory.
75 See Response Letter, supra note 5, at 6.
73 See
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explain why the imposition of
additional per-customer fees on colocated vendors and other redistributors
of market data and connectivity services
is not an unnecessary or inappropriate
burden on competition with the
Exchange’s direct offering of such
products, even if those redistributors
offer other ancillary services.
For all of the foregoing reasons, the
Commission believes that questions are
raised 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
interest, and not be unfairly
discriminatory; and not impose an
unnecessary or inappropriate burden on
competition.76
person who wishes to file a rebuttal to
any other person’s submission must file
that rebuttal by August 31, 2016. In light
of the concerns raised by the proposed
rule change, as discussed above, the
Commission invites additional comment
on the proposed rule change, as
modified by Amendment Nos. 1 and 2,
as the Commission continues its
analysis of the proposed rule change’s
consistency with Sections 6(b)(4), (5)
and (8),80 or any other provision of the
Act, or the rules and regulations
thereunder. The Commission asks that
commenters address the sufficiency and
merit of the Exchange’s statements in
support of the proposed rule change, as
modified by Amendment Nos. 1 and 2,
in addition to any other comments they
may wish to submit about the proposed
rule change.
Comments may be submitted by any
of the following methods:
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data and
arguments with respect to the concerns
identified above, as well as any other
concerns they may have with the
proposed rule change, as modified by
Amendment Nos. 1 and 2. In particular,
the Commission invites the written
views of interested persons concerning
whether the proposal, as modified by
Amendment Nos. 1 and 2, is consistent
with Sections 6(b)(4), (5), or (8) 77 or any
other provision of the Act, or the rules
and regulations thereunder. Although
there does not appear to be any issue
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 under
the Act,78 any request for an
opportunity to make an oral
presentation.79
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposal, as modified by Amendment
Nos. 1 and 2, should be approved or
disapproved by August 17, 2016. Any
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File No. SR–
NYSEMKT–2016–15 on the subject line.
U.S.C. 78f(b)(4), (b)(5), and (b)(8).
U.S.C. 78f(b)(4), (b)(5) and (b)(8).
78 17 CFR 240.19b–4.
79 Section 19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants to 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 a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
PO 00000
76 15
77 15
Frm 00101
Fmt 4703
Sfmt 4703
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 No.
SR–NYSEMKT–2016–15. 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 Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
80 15
E:\FR\FM\27JYN1.SGM
U.S.C. 78f(b)(4), (b)(5) and (b)(8).
27JYN1
Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / Notices
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NYSEMKT–
2016–15, and should be submitted by
August 17, 2016. Rebuttal comments
should be submitted by August 31,
2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.81
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17675 Filed 7–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78379; File No. SR–DTC–
2016–003]
Self-Regulatory Organizations; The
Depository Trust Company; Notice of
Designation of a Longer Period for
Commission Action on Proposed Rule
Change Pursuant to Which DTC Would
Impose Deposit Chills and Global
Locks and Provide Fair Procedures to
Issuers
July 21, 2016.
sradovich on DSK3GMQ082PROD with NOTICES
On May 27, 2016, The Depository
Trust Company (‘‘DTC’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) proposed rule change
SR–DTC–2016–003 pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’),1 and Rule 19b–4
thereunder,2 to establish (i) the
circumstances under which DTC would
impose and release a restriction on
Deposits of an Eligible Security (a
‘‘Deposit Chill’’) or on book-entry
services for an Eligible Security (a
‘‘Global Lock’’); and (ii) the fair
procedures for notice and an
opportunity for the issuer of the Eligible
Security (the ‘‘Issuer’’) to challenge the
Deposit Chill or Global Lock (each, a
‘‘Restriction’’). The proposed rule
change was published for comment in
the Federal Register on June 9, 2016.3
The Commission received three
comment letters to the Proposed Rule
Change.4
81 17
CFR 200.30–3(a)(57).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 77991
(June 3, 2016), 81 FR 37232 (June 9, 2016) (SR–
DTC–2016–003).
4 See letters from Charles V. Rossi, Chairman, The
Securities Transfer Association, Inc. Board
Advisory Committee, dated June 30, 2016, to Brent
VerDate Sep<11>2014
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Jkt 238001
Section 19(b)(2) of the Act 5 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
self-regulatory organization consents,
the Commission shall either approve the
proposed rule change, disapprove the
proposed rule change, or institute
proceedings to determine whether the
proposed rule change should be
disapproved. The 45th day after
publication of the notice for this
proposed rule change is July 24, 2016.
The Commission is extending this 45day time period.
The Commission finds that it is
appropriate to designate a longer period
within which to take action on the
proposed rule change so that it has
sufficient time to consider the
comments received on the proposed
rule change. Accordingly, the
Commission, pursuant to Section
19(b)(2) of the Act,6 designates
September 7, 2016 as the date by which
the Commission shall either approve or
disapprove or institute proceedings to
determine whether to disapprove the
proposed rule change (File No. SR–
DTC–2016–003).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–17665 Filed 7–26–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–78383; File No. SR–
NYSEArca–2016–104]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Amending NYSE Arca
Equities Rules 2.16(c) and 2.21(i) to
Harmonize the Requirement of When
an ETP Holder Must File a Uniform
Termination Notice for Securities
Industry Registration With the Rules of
Other Exchanges and FINRA
July 21, 2016.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
J. Fields, Secretary, Commission; Dorian Deyet,
dated June 30, 2016 (two submissions).
5 15 U.S.C. 78s(b)(2).
6 Id.
7 17 CFR 200.30–3(a)(31).
1 15 U.S.C. 78s(b)(1).
PO 00000
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49309
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 14,
2016, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
NYSE Arca Equities Rules 2.16(c) and
2.21(i) to harmonize the requirement of
when an ETP Holder must file an [sic]
Uniform Termination Notice for
Securities Industry Registration (‘‘Form
U–5’’) with the rules of other exchanges
and FINRA. The proposed rule change
is available on the Exchange’s Web site
at www.nyse.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
self-regulatory organization 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 those 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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
NYSE Arca Equities Rules 2.16(c) and
2.21(i) to harmonize the requirement of
when an ETP Holder must file a Form
U–5 with the requirements on [sic] other
exchanges and the Financial Industry
Regulatory Authority (‘‘FINRA’’). This
filing is not intended to address any
other registration requirements in
Exchange rules.
Specifically, under current Rule
2.16(c), an ETP Holder is required to
electronically file a Form U–5 and any
amendment thereto within 30 days of
the termination when a person
2 15
3 17
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CFR 240.19b–4.
27JYN1
]]>Agencies
[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Notices]
[Pages 49304-49309]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17675]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78389; File No. SR-NYSEMKT-2016-15]
Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing of
Amendment No. 2 to a Proposed Rule Change and Order Instituting
Proceedings To Determine Whether To Approve or Disapprove a Proposed
Change, as Modified by Amendment Nos. 1 and 2, Establishing Fees
Relating to End Users and Amending the Definition of ``Affiliate,'' as
well as Amending the NYSE MKT Equities Price List and the NYSE Amex
Options Fee Schedule To Reflect the Changes
July 21, 2016.
I. Introduction
On April 4, 2016, NYSE MKT LLC (the ``Exchange'' or ``NYSE MKT'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend the co-location section of the NYSE MKT Equities Price List and
the NYSE Amex Options Fee Schedule to establish fees relating to end
users of certain co-location Users in the Exchange's data center and to
amend the definition of ``Affiliate.'' The Commission published the
proposed rule change for comment in the Federal Register on April 22,
2016.\3\ On April 29, 2016, the Exchange filed Amendment No. 1 to the
proposed rule change.\4\ The Commission received no comments on the
proposed rule change.\5\ On June 8, 2016, the Commission extended the
time period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to approve or disapprove the proposed rule change to
July 21, 2016.\6\ On June 24, 2016, the Exchange filed Amendment No. 2
to the proposed rule change.\7\
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 34-77640 (April 18,
2016), 81 FR 23780 (``Notice'').
\4\ Amendment No. 1 makes technical changes relating to the
General Notes numbering and references in the Co-location section of
the Fee Schedules. Because Amendment No. 1 is technical, the
Commission is not soliciting comment thereon.
\5\ The Commission received two comment letters on a companion
filing, NYSE-2016-11 (the ``NYSE companion filing''), filed by the
Exchange's affiliate, the New York Stock Exchange LLC (``NYSE'').
See Letter from Michael Friedman, General Counsel and Chief
Compliance Officer, Trillium, to Brent J. Fields, Secretary,
Securities and Exchange Commission, dated May 13, 2016 (``Friedman
Letter''), and Letter from Eero Pikat to Brent J. Fields, Secretary,
Securities and Exchange Commission, dated, May 13, 2016 (``Pikat
Letter'') (together, the ``Comment Letters'').
In response to the Comment Letters, the NYSE submitted a
response (``Response Letter'') and filed Amendment No. 2 to the NYSE
companion filing. As they are relevant to the instant filing, the
Comment Letters and Response Letter on the NYSE companion filing are
discussed below.
\6\ See Securities Exchange Act Release No. 34-77978 (June 2,
2016), 81 FR 36966.
\7\ As more fully described below, in Amendment No. 2 the
Exchange proposes that Rebroadcasting Users and Transmittal Users
would not be charged for their first two Multicast End Users and
Unicast End Users, respectively, and offers additional support for
the proposal. Amendment No. 2 is available on the Commission's Web
site at https://www.sec.gov/comments/sr-nysemkt-2016-15/nysemkt201615-2.pdf. The Commission notes that in the comment file,
Amendment No. 2 contains a cover page that erroneously refers to
Amendment No. 1.
---------------------------------------------------------------------------
The Commission is publishing this order to solicit comments on
Amendment No. 2 from interested persons and to institute proceedings
pursuant to Exchange Act Section 19(b)(2)(B) to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment Nos. 1 and 2.\8\ Institution of proceedings
[[Page 49305]]
does not indicate that the Commission has reached any conclusions with
respect to the proposed rule change, nor does it mean that the
Commission will ultimately disapprove the proposed rule change. Rather,
as discussed below, the Commission seeks additional input on the
proposed rule change, as modified by Amendment Nos. 1 and 2, and on the
issues presented by the proposal.
---------------------------------------------------------------------------
\8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of the Proposal, as Modified by Amendment Nos. 1 and 2
The Exchange proposes to establish certain fees relating end users.
Specifically, the Exchange proposes to amend the co-location section of
the NYSE MKT Equities Price List and the NYSE Amex Options Fee Schedule
(collectively ``Fee Schedules'') to (i) add the newly defined terms
``Rebroadcasting User'' and ``Multicast End User;'' as well as
``Transmittal User'' and ``Unicast End User;'' (ii) amend the
definition of Affiliate; (iii) establish new reporting requirements
applicable to Rebroadcasting Users and Transmittal Users; (iv)
establish new fees applicable to Rebroadcasting Users and Transmittal
Users; and (v) make certain related technical changes.\9\
---------------------------------------------------------------------------
\9\ See Notice, supra note 3, 81 FR at 23780; see also Amendment
No. 1, supra note 4.
---------------------------------------------------------------------------
The Exchange operates a data center in Mahwah, New Jersey (``data
center'') from which it provides co-location services to Users.\10\ The
Exchange states that in the data center, information flows over
existing network connections in two formats: Multicast and unicast.
Multicast is a format in which information is sent one-way from the
Exchange to multiple recipients at once, similar to a radio broadcast,
and is currently employed for the transmission of market data.\11\
Users receiving market data through the multicast format can retransmit
that data to their customers.\12\ Unicast format is a format that
allows one-to-one communication, similar to a phone line, in which
information is sent to and from the Exchange.\13\
---------------------------------------------------------------------------
\10\ For purposes of the Exchange's co-location services, a
``User'' means any market participant that requests to receive co-
location services directly from the Exchange.
\11\ See Notice, supra note 3, 81 FR at 23780.
\12\ See id.
\13\ See id.
---------------------------------------------------------------------------
Rebroadcasting Users/Multicast End Users
The Exchange proposes to add several new definitions to the Fee
Schedules. The Exchange proposes to define a ``Rebroadcasting User'' as
``a User that rebroadcasts to its customers data received from the
Exchange in multicast format, unless such User normalizes the raw
market data before sending it to its customers.'' \14\ The Exchange
also proposes to define ``Multicast End User'' as ``a customer of a
Rebroadcasting User, or a customer of a Rebroadcasting User's Multicast
End User customer, to whom the Rebroadcasting User or its Multicast End
User sends data received from the Exchange in multicast format, other
than an Affiliate of the Rebroadcasting User.'' \15\ The Exchange notes
that a Multicast End User may be, but is not required to be, a User or
a Hosted Customer, and also that a customer of a Rebroadcasting User
would be considered a Multicast End User, irrespective of whether it
receives the data from a Rebroadcasting User or another Multicast End
User.\16\ Accordingly, as proposed, a Multicast End User is a recipient
of raw Exchange market data that (i) originated from (but may not have
been provided directly by) a User, provided such recipient is not an
Affiliate of the originating User.\17\
---------------------------------------------------------------------------
\14\ See id. at 23781. Pursuant to the definition, the term
``Rebroadcasting User'' would exclude a User that ``normalizes''
(i.e., alters) raw market data before sending it a Multicast End
User. The definition of Rebroadcasting User also would not apply to
a User that rebroadcasts third party data, because that data is not
received from the Exchange. See id.
\15\ See id.
\16\ See id.
\17\ See id.
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In addition, as originally proposed, the Exchange would assess a
Rebroadcasting User with one or two connections, either directly or
through another Multicast End User, to a Multicast End User, a $1,700
monthly charge for the first two connections, and $850 for each
additional connection to that Multicast End User.\18\ To assess the
proposed fees accurately, a Rebroadcasting User would be required to
report to the Exchange on a monthly basis the number of its Multicast
End Users, and the number of connections it has to each.\19\ As more
fully discussed below, in Amendment No. 2, the Exchange proposes that a
Rebroadcasting User would not be assessed a fee for its first two
Multicast End Users.\20\
---------------------------------------------------------------------------
\18\ See id.
\19\ See id. at 23782.
\20\ See Amendment No. 2, supra note 7.
---------------------------------------------------------------------------
Transmittal Users/Unicast End Users
According to the Exchange, customers use unicast format to send
messages related to orders or for clearing purposes.\21\ A User may
enable one or more of its customers to transmit messages in unicast
format to and from the Exchange.\22\ The Exchange proposes to define a
``Transmittal User'' as a User that enables its customers, or the
customers of its customers, to transmit messages to and from the
Exchange using the unicast format.\23\ A ``Unicast End User'' would be
a customer of a Transmittal User, or a customer of a Transmittal User's
Unicast End User customer, for whom the Transmittal User or its Unicast
End User customer enables the transmission of messages to and from the
Exchange in unicast format, other than a customer that (a) is an
Affiliate of the Transmittal User or (b) sends all unicast
transmissions through a floor participant, such as a floor broker.\24\
Customers of a Transmittal User that send all unicast transmissions
through a floor participant, such as a floor broker, would not be
considered a Unicast End User even if such customer is enabled to use
unicast format.\25\ A Unicast End User may also enable one or more of
their customers to transmit messages to and from the Unicast End User
and thus such customers would also be considered a Unicast End
User.\26\ To assess the proposed fees accurately, a Transmittal User
would be required to report to the Exchange on a monthly basis the
number of its Unicast End Users, and the number of connections it has
to each.\27\
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\21\ See Notice, supra note 3, 81 FR at 23781.
\22\ See id. For example, a User that is a service bureau or
extranet may use such connections to facilitate order routing and
clearing by its customers. See id.
\23\ See id.
\24\ See id. A Unicast End User may be a User or a Hosted
Customer. See id.
\25\ See id.
\26\ See id. The Exchange notes that it is not aware of any
customer of a Unicast End User that enables its customers to
transmit messages, but if such a relationship did exist, the
customer would also be considered a Unicast End User. See id.
\27\ See id. at 23782.
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As originally proposed, the Exchange would assess a Transmittal
User with one or two connections, either directly or through another
Unicast End User, to a Unicast End User, a $1,500 monthly charge for
the first two connections,\28\ and $750 for each additional connection
to that Unicast End User.\29\ As noted, there would be no charge to a
Transmittal User for its connection to a customer submitting orders
through a unicast connection to a floor participant.\30\ As more fully
discussed below, in Amendment No. 2, the Exchange proposes that a
Transmittal
[[Page 49306]]
User would not be charged the proposed fee for its first two Unicast
End Users.\31\
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\28\ See id. at 23781.
\29\ See id.
\30\ See supra note 25 and accompanying text.
\31\ See Amendment No. 2, supra note 7.
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Definition of Affiliate
The Exchange also proposes that the terms Multicast End User and
Unicast End User would exclude an entity that is an Affiliate of its
Rebroadcasting User or Transmittal User, respectively.\32\ The Exchange
proposes to amend its current definition of an Affiliate.\33\ Under the
new definition, an ``Affiliate'' of a User would be any other User or
Hosted Customer that is under common control with, controls, or is
controlled by, the first User, provided that: (1) An ``Affiliate'' of a
Rebroadcasting User is any Multicast End User that is under common
control with, controls, or is controlled by the Rebroadcasting User;
and (2) an ``Affiliate'' of a Transmittal User is any Unicast End User
that is under common control with, controls, or is controlled by the
Transmittal User.\34\ For purposes of this definition, ``control''
means ownership or control of 50% or greater.\35\ The purpose of the
amendment is to provide that an ``Affiliate'' relationship exists
whenever two entities are under common control, regardless of which
entity controls the other.\36\
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\32\ See id. at 23781. Users excluding Affiliates from their
list of Multicast End Users or Unicast End Users may be required to
certify to the Exchange the Affiliate status of such end user. See
id. at 23782. The Exchange may ask Users that are neither
Rebroadcasting Users or Transmittal Users to certify their status as
ordinary Users. See id.
\33\ See id. at 23781.
\34\ See id.
\35\ See id.
\36\ See id.
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Exchange Support for Rebroadcasting Users/Transmittal User Fees
In its filing, the Exchange states that the proposed fees relate to
additional connectivity and co-location services the Exchange provides
to Rebroadcasting and Transmittal Users and would ``fairly and
equitably allocate the costs associated with maintaining the Data
Center facility, hardware and equipment and related to personnel
required for installation and ongoing monitoring, support and
maintenance of such service among all Users.'' \37\ According to the
Exchange, in the absence of the proposed end user fees, ``no charges
would be assessed related to the benefit that Multicast End Users and
Unicast End Users receive from the services through the Rebroadcasting
or Transmittal User from whom they receive data, and the Rebroadcasting
or Transmittal Users would thus receive disproportionate benefits.''
\38\
---------------------------------------------------------------------------
\37\ See id.
\38\ See id.
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The Exchange represents that it incurs more costs on the account of
Rebroadcasting and Transmittal Users; \39\ some of these costs being
indirect, including overhead and technology infrastructure,
administrative, maintenance and operational costs,\40\ and others being
in form of direct network support.\41\ Additionally, the Exchange notes
that it has established automated retransmission facilities for Users
to receive multicast transmissions.\42\
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\39\ See id. at 23782.
\40\ See id. The Exchange notes, that it has made network
infrastructure improvements over the years and established
administrative controls. See id.
\41\ See id. The Exchange states that when an issue arises, the
Exchange and Rebroadcasting User or Transmittal User conduct a
review to determine the cause of an issue, with the participation of
the relevant Multicast or Unicast End User. The Exchange states that
when the User is a Rebroadcasting User or Transmittal User,
identifying the issue and providing the needed network support
becomes more complicated because each of the entities involved has
its own infrastructure and administration. By contrast, for
Affiliates, the Exchange states that they typically act as one
entity, with one infrastructure, one administration, and one network
support group, making the network support effectively similar to
supporting one entity. See id.
\42\ See id.
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As noted, the Commission received two comment letters on the NYSE
companion filing, which are likewise applicable to this filing.\43\
These commenters expressed concern about the effect of the
Rebroadcasting User fees that would be passed on to them as Multicast
End Users consuming Exchange market data. One of these commenters
states that it should not have to pay fees to help support the co-
location infrastructure because it is not co-located.\44\ This
commenter states that for compliance purposes, a registered broker-
dealer has no choice but to ``consume depth-of-book market data'' and
that if the proposed fee is passed through, the commenter will have no
choice but to accept it.\45\ The other commenter states that the
proposal provides ``no evidence to support [the Exchange's] claim that
its costs are higher to support the customers of subvendors.'' \46\
This commenter states that the fees are ``assigned only to vendors'
customers who buy data from [the Exchange's] competitors'' and is
``[b]y definition . . . anti-competitive.'' \47\ According to this
commenter, the fees are introduced ``solely for the purpose of
protecting market data revenue.'' \48\
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\43\ See supra note 5.
\44\ See Friedman Letter, supra note 5, at 1-2.
\45\ See id. at 1-3.
\46\ See Pikat Letter, supra note 5, at 1.
\47\ See id.
\48\ See id.
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In the Response Letter, the NYSE states that the Comment Letters
have ``not provided any credible argument why the [. . .] proposal is
not consistent with the requirements of the Act.'' \49\ The NYSE
emphasizes that the proposal ``compares the support the Exchange
provides to Rebroadcasting Users to the support required by Users that
are not Rebroadcasting Users,'' \50\ and states that the proposal will
not impact market data revenue.\51\ The NYSE states that ``a market
participant has additional options outside of co-location for
connecting to Exchange market data'' and that the commenters ``ignor[e]
the basic fact that the Exchange voluntarily allows Rebroadcasting
Users to provide services out of the Exchange's co-location facility.''
\52\ The NYSE further argues that it ``would be illogical to argue . .
. that just because Rebroadcasting Users provide services that overlap
with services offered by the Exchange, the Exchange cannot charge the
Rebroadcasting Users for the Exchange's services.'' \53\ The NYSE
states that it ``generally provides more direct support to
Rebroadcasting Users than other Users'' and highlights the fact that a
larger Rebroadcasting User made ``between 3.8 and 4.25 times as many
calls as Users with similar power usage, and 4.25 to 8.5 times as many
calls as Users with a similar number of cabinets.'' \54\
---------------------------------------------------------------------------
\49\ See Response Letter, supra note 5, at 3.
\50\ See id. at 7.
\51\ See id. at 4.
\52\ See id. at 6.
\53\ See id. The Exchange also argues that ``Rebroadcasting
Users are not direct competitors of the Exchange's co-location
services . . . [since] for example, the Exchange does not provide
Users with hardware such as routers or switches, and does not offer
managed services.'' See id.
\54\ See id. at 7-8. The NYSE also states that its proposed fees
follow a similar example set by the Nasdaq Stock Market's Extranet
Access Fee. See id. at 9.
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Amendment No. 2
In Amendment No. 2, the Exchange offers additional justification
for the proposed rule change. In Amendment No. 2, the Exchange proposes
that a Rebroadcasting User not be charged a fee for its first two
Multicast End Users, and similarly that a Transmittal User not be
charged a fee for its first two Unicast End Users.\55\ The Exchange
states that it reviewed customer calls for assistance between June 1,
2015 and June 7, 2016, and compared the number of calls by Users it
believes to be Rebroadcasting Users to the number of
[[Page 49307]]
calls by a representative sample of other Users.\56\ Consistent with
the NYSE statements in the Response Letter, the Exchange states that
``a comparison of calls by the larger Rebroadcasting User showed that
the larger Rebroadcasting User made between 3.8 and 4.25 times as many
calls as Users with similar power usage, and 4.25 to 8.5 times as many
calls as Users with similar numbers of cabinets. Indeed, such
Rebroadcasting User made 20 more calls than the five largest Users
combined.'' \57\
---------------------------------------------------------------------------
\55\ See Amendment No. 2, supra note 7.
\56\ See id.
\57\ See Response Letter, supra note 5, at 8; see also Amendment
No. 2, supra note 7.
---------------------------------------------------------------------------
The Exchange adds that it believes that Rebroadcasting Users that
have only one or two Multicast End Users are an exception to the
general statement that the Exchange has a greater administrative burden
and incurs greater operational costs to support Rebroadcasting
Users.\58\ The Exchange further states that it does not have visibility
into the number of Unicast End Users that individual Transmittal Users
have, but believes that it is reasonable to extrapolate that a
Transmittal User that has only one or two Unicast End Users may not
need more network support than other Users.\59\ Accordingly, the
Exchange believes it is reasonable to not charge a Transmittal User a
fee for its first two Unicast End Users.\60\ Finally, the Exchange
states that its proposal is analogous to the Nasdaq Stock Market's
Extranet Access Fee.\61\
---------------------------------------------------------------------------
\58\ See Amendment No. 2, supra note 7.
\59\ See Amendment No. 2, supra note 7.
\60\ See id.
\61\ The Exchange cites Nasdaq Stock Market Rule 7025 and
Securities Exchange Act Release No. 74040 (January 13, 2015), 80 FR
2460 (January 16, 2015) (SR-NASDAQ-2015-003), and states: ``Extranet
providers that establish a connection with Nasdaq to offer direct
access connectivity to market data feeds are assessed a monthly
access fee of $1,000 per recipient Customer Premises Equipment
(``CPE'') Configuration. A CPE Configuration is any line, circuit,
router package, or other technical configuration used by an extranet
provider to provide a direct access connection to Nasdaq market data
feeds to a recipient's site. No extranet access fee is charged for
connectivity to market data feeds containing only consolidated
data.).'' See id.
---------------------------------------------------------------------------
III. Proceedings To Determine Whether To Approve or Disapprove File No.
SR-NYSEMKT-2016-15 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \62\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change, as discussed below.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described in greater detail below, the Commission seeks and
encourages interested persons to provide additional comment on the
proposed rule change.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78s(b)(2)(B). Section 19(b)(2)(B) of the Act also
provides that proceedings to determine whether to disapprove a
proposed rule change must be concluded within 180 days of the date
of publication of notice of the filing of the proposed rule change.
See id. The time for conclusion of the proceedings may be extended
for up to 60 days if the Commission finds good cause for such
extension and publishes its reasons for so finding. See id.
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the following grounds for disapproval that are
under consideration:
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,'' \63\
---------------------------------------------------------------------------
\63\ 15 U.S.C. 78f(b)(4).
---------------------------------------------------------------------------
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,'' \64\ and
---------------------------------------------------------------------------
\64\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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].'' \65\
---------------------------------------------------------------------------
\65\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
As discussed above, the Exchange states that the proposed end user
fees applicable to Rebroadcasting Users and Transmittal Users would
``fairly and equitably allocate the costs associated with maintaining
the Data Center facility, hardware and equipment and related to
personnel required for installation and ongoing monitoring, support and
maintenance of such service among all Users.'' \66\ Although the
Exchange notes that it has expended a variety of resources in
connection with the support of Rebroadcasting Users and Transmittal
Users, such as technology infrastructure, maintenance and operational
costs, it does not explain--with one exception--how those expenditures
do not equally benefit all Users.\67\ The Exchange does take the
position that it ``generally provides more direct support to
Rebroadcasting Users and Transmittal Users than other Users, typically
in the form of network support'' and that ``[b]ased on its experience .
. . when the User is a Rebroadcasting User or Transmittal User,
pinpointing the issue and providing the needed network support becomes
more difficult because each entity involved has its own infrastructure
and administration.'' \68\ The only evidence the Exchange provides in
support of its assertion, however, is call log data showing that a
single large Rebroadcasting User made substantially more customer
assistance calls to the Exchange than other Users over a certain
period.\69\ The Commission is concerned that such data may not be
sufficient to demonstrate that the proposed new end user fees are
reasonable, equitably allocated and not unfairly discriminatory, as
required by the Act. In addition, to the extent the Exchange is focused
on more directly recovering the costs of network support, it has not
explained why it has not proposed to do so more precisely, such as by
imposing a fee per customer service call, rather than by targeting a
subset of customers of co-located Users regardless of their network
support needs.
---------------------------------------------------------------------------
\66\ See note 37 supra and accompanying text.
\67\ See Notice, supra note 3, 81 FR at 23783.
\68\ See id. at 23784.
\69\ See Amendment No. 2, supra note 7.
---------------------------------------------------------------------------
Furthermore, the proposed fees would not apply to all end users of
Rebroadcasting Users and Transmittal Users. For example, they would not
apply to end users that are Affiliates of a Rebroadcasting User or a
Transmittal User. While the Exchange asserts that ``[i]n its
experience, entities that are Affiliates typically act as one entity,
with one infrastructure, one administration, and one network support
group,'' so that ``the Exchange is effectively supporting one entity,
irrespective of how many Affiliate end users are involved,'' \70\ the
Exchange provides no evidence to support its implication that
Rebroadcasting Users and Transmittal Users with Affiliate end users
require less Exchange resources than those with non-Affiliate end
users. In addition, the proposed fees would not apply with respect to
the first two end users of a Rebroadcasting User or a Transmittal
User.\71\ While the Exchange expresses its belief that, ``based on the
information available to it, Rebroadcasting Users [or Transmittal
Users] that have only one or two [end users] are an exception to the
general statement that the Exchange has a greater administrative burden
and
[[Page 49308]]
incurs greater operational costs to support Rebroadcasting Users [or
Transmittal Users],'' \72\ it offers no evidence in support of this
belief. Finally, the proposed fees would not apply to Unicast End Users
that send all unicast transmissions through a floor participant, such
as a floor broker. In this case, the Exchange does not justify the
exception on the basis of the Exchange resources required to support
this type of end user, but rather because it ``would encourage sending
orders to Floor brokers for execution, thereby encouraging displayed
liquidity'' and ``promoting public price discovery . . . which benefits
all market participants.'' \73\ The Exchange, however, provides no
evidence to support the proposition that Unicast End Users submitting
all of their orders through floor brokers provide more displayed
liquidity or otherwise improve the market quality of the Exchange more
than other types of Unicast End Users. Accordingly, the Commission is
concerned that the Exchange has not demonstrated that the exceptions to
its proposed new end user fees are reasonable, equitably allocated and
not unfairly discriminatory, as required by the Act.
---------------------------------------------------------------------------
\70\ See Notice, supra note 3, 81 FR at 23784.
\71\ See Amendment No. 2, supra note 7.
\72\ See id.
\73\ See Notice, supra note 3, 81 FR at 23785.
---------------------------------------------------------------------------
Finally, the Commission is concerned that the Exchange has not
demonstrated that its proposal does not impose an unnecessary or
inappropriate burden on competition. The Exchange asserts that it meets
this statutory standard because ``it operates in a highly-competitive
market in which market participants can readily favor competing venues
if, for example, they deem fee levels at a particular venue to be
excessive or if they determine that another venue's products and
services are more competitive than on the Exchange.'' \74\ In response
to a commenter's concern that the proposal could have an anti-
competitive impact on vendors and their customers, the Exchange takes
the position that Rebroadcasting Users like vendors ``are not direct
competitors of the Exchange's co-location services,'' because ``[w]hile
both offer connectivity to Exchange market data, Rebroadcasting Users
provide their customers services that the Exchange's co-location
service does not,'' such as hardware (e.g., routers and switches) and
fully-managed services.\75\ The Exchange, however, does not clearly
explain why the imposition of additional per-customer fees on co-
located vendors and other redistributors of market data and
connectivity services is not an unnecessary or inappropriate burden on
competition with the Exchange's direct offering of such products, even
if those redistributors offer other ancillary services.
---------------------------------------------------------------------------
\74\ See id. The Exchange cites several additional
justifications that closely mirror those, noted above, that support
its assertion that its proposed fees are reasonable, equitably
allocated and not unfairly discriminatory.
\75\ See Response Letter, supra note 5, at 6.
---------------------------------------------------------------------------
For all of the foregoing reasons, the Commission believes that
questions are raised 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 interest, and not be unfairly
discriminatory; and not impose an unnecessary or inappropriate burden
on competition.\76\
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\76\ 15 U.S.C. 78f(b)(4), (b)(5), and (b)(8).
---------------------------------------------------------------------------
IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data and arguments with respect to the
concerns identified above, as well as any other concerns they may have
with the proposed rule change, as modified by Amendment Nos. 1 and 2.
In particular, the Commission invites the written views of interested
persons concerning whether the proposal, as modified by Amendment Nos.
1 and 2, is consistent with Sections 6(b)(4), (5), or (8) \77\ or any
other provision of the Act, or the rules and regulations thereunder.
Although there does not appear to be any issue 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 under the Act,\78\ any request for an opportunity to make an
oral presentation.\79\
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\77\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
\78\ 17 CFR 240.19b-4.
\79\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants to
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 a self-
regulatory organization. See Securities Act Amendments of 1975,
Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 75,
94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal, as modified by Amendment Nos.
1 and 2, should be approved or disapproved by August 17, 2016. Any
person who wishes to file a rebuttal to any other person's submission
must file that rebuttal by August 31, 2016. In light of the concerns
raised by the proposed rule change, as discussed above, the Commission
invites additional comment on the proposed rule change, as modified by
Amendment Nos. 1 and 2, as the Commission continues its analysis of the
proposed rule change's consistency with Sections 6(b)(4), (5) and
(8),\80\ or any other provision of the Act, or the rules and
regulations thereunder. The Commission asks that commenters address the
sufficiency and merit of the Exchange's statements in support of the
proposed rule change, as modified by Amendment Nos. 1 and 2, in
addition to any other comments they may wish to submit about the
proposed rule change.
---------------------------------------------------------------------------
\80\ 15 U.S.C. 78f(b)(4), (b)(5) and (b)(8).
---------------------------------------------------------------------------
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-NYSEMKT-2016-15 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 No. SR-NYSEMKT-2016-15. 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 Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments
[[Page 49309]]
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-NYSEMKT-2016-15, and should be
submitted by August 17, 2016. Rebuttal comments should be submitted by
August 31, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\81\
---------------------------------------------------------------------------
\81\ 17 CFR 200.30-3(a)(57).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17675 Filed 7-26-16; 8:45 am]
BILLING CODE 8011-01-P
